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The U.S. Treasury Dept reported that Japan's holdings of Treasurys increased to $1.12 trillion in August 2012, compared to China's holdings of $1.15 trillion. Japan increased its holdings as it continued its effort to stem the yens rise. China's holdings are declining.

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French voters turned to parties outside the mainstream left Socialist Party and the right Republican Party for the first time in a run off presidential election. The National Front's Jean Le Pen made it to the runoff in 2002, then lost to Chirac of the Republican Party who won 78% of the vote. This time the Republican Party candidate Fillon had about 20%, the Socialist Party candidate Hamon won just 6% of the vote with the rest of the socialist vote going to a far left candidate Jean Luc Melenchon who had 19.6%. The winners were Emmanuel Macron, a former Economy minister under president Hollande of the socialist Party, getting about 24% and Marine Le Pen, the daughter of Jean Le Pen of the National Front, getting 21.5%. Compared to the U.S. the situation is slightly different in France because of the very high unemployment rate for young people- younger voters supported the National Front, and people especially in rural areas in the north, north east, and the south of the country around Nice and Marseille supported the National Front. Macron's movement En Marche, centrist party drawing support from centre right and centre left without clear ideology except to renew France and pro-EU, was strong in urban areas, among more educated people, especially in Paris and the area around Bordeaux and Toulouse in the south east of the country. Fillon did not do well in some traditional Republican Party areas including Nice, with inroads from Le Pen, who defined the party around anti-immigration, closed borders, and withdrawal from the European Union. ...

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The impact of labor laws that were once designed to offer job protection to workers are now having a pervasive and pernicious effect on Italy's economy. The world has changed too with globalization, making the inefficiencies of labor laws that freeze the labor markets- protecting existing jobs and at the same time making it difficult to create new ones, diminishing job mobility to an extreme level- lead to lack of competitiveness and economic stagnation. Most Italian businesses remain small because of the fear of hiring new employees who cannot be laidoff as in other countries. With manufacturing competitiveness growing in emerging markets, Italy is losing markets and job growth potential to places in Poland and China. Foreign direct investment as a percentage of GDP is the lowest of any country in Europe except Greece, according to the United Nations Conference on Trade and Development. The system also lacks fairness because it divides the labor market into three tiers. According to Italy's National Institute for Statistics, the labor force of 27 million people is divided into three groups. The first group of 15 million, of older workers, has stable jobs with generous benefits. A younger group of 8 million works in a freelance capacity with rolled over short term contracts, and few benefits. An additional 4 million work in the underground economy. Because of the way the system is structured there is considerable resistance to change, especially from the older workers who work in a stable system, even though the system offers younger workers in the second tier few opportunities. What started in 1947 with a constitution that protected the rights of labor at a time of difficult industrial relations in Europe and the U.S., with the added fear of change during today's period of economic crisis, is now holding back economic renewal in Italy....

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The dangers to Turkey from external short term borrowings to finance its current account deficit. Turkey's current account deficit reached 10% of GDP in 2011. It is 8% in 2012 and is considered high by experts. The problem is short term borrowing from overseas which is sent through its banks for increasing levels of personal and housing loans. Were this flow to dry up because of a sharp downturn in the Eurozone economies it would damage Turkey's financial position. Bank short term external debt has doubled in 2011-2012 to $70.3 billion, or 9% of GDP, according to Capital Economics. The U.S. Fed and the ECB have eased global liquidity concerns, but risks are high as long as Turkey relies on short term borrowing. An escalation of the conflict with Syria also poses risks with fears of scaring away investors.

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How will countries like India generate jobs when technology enables manufacturing and other activity to do work with fewer and fewer people. Even Hon Hai in China is shifting work to robots. Technological progress is leaving more people unemployed and widening income gaps with the benefits going to a few people, says the Economist in this research based essay. It will require carefully managed governance to invest in infrastructure, raise skills of less skilled workers through education, and wage subsidies for those left behind to ensure our current system works in the future.

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Rising food prices in China have pushed China's consumer price index to a two year high of 5.1% in November, 2010. Rising prices of cooking oil have hit Chinese who live on small incomes the hardest. Food represents about one third of the CPI, but it accounts for 75% of the index's rise. Chinese housing prices have gone up significantly making it hard for new homeowners, now that food and fuel prices are following. The National Developmment and Reform Commission announced a 3.77% rise in retail gasoline prices, to about $3.50 a gallon, an increase of 11% in about one year. Wholesale soyabean oil rose 23% in 2010 to about $1451 a metric ton, with most of the rise since July. China's government response was to impose price controls, asking the largest producers to cap retail prices through March 2011. It also quintupled the fine to 5 million yuan, or $750,000. And the government auctioned off millions of metric tons from its strategic national reserves in Xinjiang and Shandong. But price controls are discouraging production. One mid-size producer in Shanghai, says he has deactivated half his plant, instead off maximixing output ahead of the Lunar year in February. His warehouse is filled with 20,000 boxes of unsold oil, with the production date Nov 23, around the time price controls went into effect and a large grocery distributor halved his order. Edible oil is the third biggest packaged food outlay for ordinary Chinese, after yogurt and milk, and it has a big impact on the lives of the average family....

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This Journal editorial points to a Philadelphia Fed study showing that students in the middle class with higher student debt are reluctant to start small business. The Fed study shows new firms with five employees declined by 17% on average for 2000-2010 in counties where relative student debt was up by 2.7%. The average student loan customer owes $28,000. Student debt has doubled from $547 billion in 2007 to over $1 trillion in 2015. As small business makes up about half of the private economy and generates 6 of 10 new jobs, the effects on small business show the damage being done rising student loan debt.

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What is the Muslim Brotherhood in Egypt and what does it mean for the US in the current protests? The Muslim Brotherhood was started in Egypt in 1928, in the colonial days, by an imam and schoolteacher named Hassan al-Banna. The intent was to act as a grassroots organization to promote the reform of Egyptian society through a greater adherence to Islam, by preaching and social services. Scott Shane talks with Reidel of the Brookings Institution and Shadi Hamid, director of research at the Brookings Quatar Center about the Brotherhood and Israel. Reidel was the Egypt desk officer at the CIA when Mubarak came to power in 1981, and is an experienced observer of the Muslim world at Brookings. Reidel says if we want democracy in Egypt, the Muslim Brotherhood is going to be a big part of this, and we should be engaging and talking to them now. Hamid responds to a question about terrorism by pointing out that the Al Quaeda hates the Brotherhood and the Brotherhood hates Al Quaeda, that for counterterrorism engaging with the Brotherhood would be helpful to the US. On Israel, Hamid says years of accomodation to the real world has brought a knowledge that the Brotherhood has to live in the real world and the geopolitics of the Middle East. Carrie Wickham, a political scientist at Emory University, is author of "Mobilizing Islam," a 2002 book on Egypt and the Muslim Brotherhood. Carrie says it was analogous to evangelical Christians and their goal of sharing the word of God, but Banna also referred to Jihad as a struggle against colonialism and Zionism. Some leaders such as Sayyid Qutb, who was imprisoned by the Egyptian government and executed in 1966, advocated violent jihad, but after the 1970's the Brotherhoods formally renounced violence as a means of achieving power. In 1984 the Brotherhood reached another point in its evolution when it competed in parliamentary elections. And estimates of its actual support begin at about 20% of the electorate. Another development is the relative youthfulness of the April 6th and other movements in Egypt, where two thirds of the people are under 30 years age. The Muslim Brotherhood leaders are much older and hesitated to join the popular movement in its early stages. On the question of the Brotherhood's future evolution and winning a large role in a future government, Carrie says that a system of checks and balances has to be established to ensure that the Brotherhood operates as a democratic party committed to the democratic process. The Wall Street Journal in an editorial on February 4, 2011, emphasizes the need for institutional checks and balances. Carrie says rewriting the constitution and electoral process to ensure that this happens and no one party can take abslute control is crucial. ...

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Ashraf Khalil describes the history of relations between the Muslim Brotherhood leadership and the leaders of secular parties with prescient remarks on how this creates problems in Egypt's transition to democratic government. The mistake made by the Muslim Brotherhood leaders, says Khalil, is to insist on a quick move to elections in November 2011, with the Brotherhood hoping to gain advantage in seats with its organization already in place compared to the secular parties which need more time to stage an organized effort. If this results in a lopsided result with the Muslim Brotherhood gaining more seats than its real strength, and the secular parties feeling left out in a revolution to set up democratic government that they led, Egypt's transition to democracy will remain flawed. This is now the stuation as the military which sets the rules and the Muslim Brotherhood have agreed on immediate elections. The Muslim Brotherhood's leaders have spent years being suppressed by the Mubarak regime, and lack the experience needed for such a difficult transition as Egypt faces, even with the best of intentions. Compressing the transition into a short time frame makes it even more difficult. Errors of judgement by Muslim Brotherhood leaders in not developing a consensus, and the uncertain role of the post-Mubarak military and police, compound the difficulties and risks....

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Tax cuts initiated by the Bush administration and to a smaller degree by the Obama administration account for $6.3 trillon of the $10 trillion deficit in 2011. This is about half the $12.7 trillion gap between the $2.3 trillion surplus predicted by the CBO a decade ago for the year 2011 and the current deficit of $10.4 trillon. Two wars and higher defense spending add another $2 trillion. The Stimulus added $700 billon. The Prescription Drug Benefit for seniors $272 billion. This is based on new analysis of CBO data by the Pew Fiscal Analysis Initiative. The record shows unrestrained spending by both parties has led to the current mess. Pete Domenici who chaired the Senate Budget Committee at the time of the first tax cuts in 2001 says "in the end the floodgates were opened." This also shows how quickly the situation can change if sound fiscal practices are abandoned. Two wars were financed entirely with borrowed money for the first time in U.S. history.

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Federal Reserve chairman Bernanke's move in January 2012 to announce detailed projections for interest rates for each of the 17 Fed Governors participating in policy meetings, is an effort to show that he operates by consensus. Names of the Fed Governors are not stated.This is a change from the Greenspan years at the Fed. Hilsenrath points to the research done by Alan Blinder of Princeton University, former Fed vice chairman, which shows group consensus based action works bettter. Another reason for this is the Fed's damaged credibility after the Greenspan years and the financial crisis of 2008, when the Fed operated under one dominant figure. An additional step taken by Bernanke is to move from the ad hoc type of policy decisions of the past decade to a longer term plan for unemployment and inflation goals. The Fed has set a 2% goal for inflation with some flexibility to reduce unemployment if it is too high. This gives businesses more information to plan ahead and improves Fed credibility....

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Russia's deputy prime minister Vladislav Surkov resigns in May 2013. Putin reprimanded Surkov for not implementing presidential orders and decrees. For about 13 years Surkov has guided policies for a tightly managed political system which he called "sovereign democracy." He was deputy chief of staff to Putin and Medvedev for the last decade, and headed the Kremlin Department of Domestic Politics. After street protests following the 2011 parliamentary elections, Surkov had second thoughts about this, and called the protestors "our best people." He was transferred to his current job as deputy prime minister at that time, and sidelined by Putin in Dec. 2011.

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As he assumes the presidency for the second time, Putin is under pressure from insiders in industry and others in government who have benefitted from the Putin regime to take a tougher stand against the democracy activists. At the same time progressive members of his government are urging him to let the democracy activists vent their anger at flawed elections.

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Alan Reynolds of the Cato Institute questions the value of QE II when it pushed up commodity prices, lowered the value of the dollar, and acted as an anti-stimulus by slowing growth in the private economy.

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Natural gas prices have declined to $3.34 per million BTU's in Jan 2013. This is about a fourth of the prices in 2006 and 2008, when prices were above $12 per millon BTU's. The result is a rebirth of industry in the midwest and other regions in the U.S. Here the WSJ's John Miller covers a Nucor $750 million investment in Louisiana for a new steel plant. Oddly Nucor did just the opposite in 2004, taking apart a steel plant and shipping it on ocean barges to Trinidad, where natural gas is abundant.

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Amol Sharma and Paul Beckett of the WSJ interview Finance Minister Chidambaram about the Indian government's decisions to open up the insurance, retail and airline sectors to foreign investment, and bring the deficit down to close to 5.3% in 2013. Faced with slowing growth and the risk of credit ratings agencies lowering India's credit ratings the government of prime minister Manmohan Singh has decided to take some decisive steps, including a shift in coalition partners to maintain parliamentary support for these steps. When asked about what influenced the government's resolve to take these decisions, Chidambaram says credit ratings was one factor, another was the difficulty Indian companies were having raising capital inside the Indian market and overseas. In addition he says growth could not be sustained at earlier levels without new capital, and new foreign investment was needed for sustained growth. The Kelkar committee report provided a sense of urgency to the government by providing an independent view and showing the worst case scenario if the government maintained the status quo. Chidambaram says subsidies will now be transferred in the form of cash directly to beneficiaries and reduce costs by cutting leakage in the system.The government will use the list of LPG cooking gas households to transfer the subsidy for 6 gas cylinders directly to beneficiary accounts. The plan is to do the same for the Rural Employment Guarantee Program and subsidized foodgrains to cut the leakage that stems from duplication and falsification. The Indian government's ongoing program to use information technology to have computerized records of the the entire population and linking to the financial system, incuding a large rural population, now makes it possible to take these steps. On the Kelkar committee's recommendation to increase prices of basic commodities cooking gas, kerosene and food to reduce government subsidies, Chidambaram says this is ambitious and the government has to consider the political context even though it agrees that this has to be done over time....

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Anger in Greece at the austerity measures was evident in the results of the April 2012 elections. The two major parties polled even less than the low poll numbers that they expected. The Socialist Pasok party of former premier Papandreou received only 13% of the vote and not the 15-18% expected, the New Democracy party of Antonio Samaras received only 18.8% and not the 25% expected. As a result the two main parties that have ruled Greece received less than one third of the vote combined. The second largest party after New Democracy is now the Coalition of the Radical Left or Syriza, which received 16.78% of the vote. It is led by young Alexis Tsipras, 38, who has said the bailout treaties witht the EU and the IMF were "not salvation, but a tragedy." Syriza opposes the austerity measures and prefers to exit the eurozone. A extremist far right anti-immigrant party New Dawn received 7% of the vote showing the desperate situation. New Democracy's Samaras tried hard but failed to form a government, and under the Greek constitution each party gets a few days to form a government. The outcome is likely to be new elections in June 2012 and a caretaker government appointed by the president....

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To cut the deficit estimated at 5.5% of GDP, the Indian government is cutting fuel subsidies. It is reducing the $5.6 billion spent on fuel subsidies. About $4.4 billion is also is spent on subsidies by state owned energy companies. Prices for gasoline will rise only moderately by 3.5 rupees a liter to about 55.7 rupees a liter. This should improve the situation for state owned energy companies and for private sector companies like Reliance and Essar.