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Brazil lost 650,000 jobs in December 2008, with automobile manufacturing one of the hard hit industries. Also affecting Brazil is declining demand worldwide for Brazilian exports of iron ore and other commodity exports. The job loss is higher than the job loss of over 524,000 jobs in the USA in December 2008, and 533,000 jobs in November 2008, according to the Bureau of Labor Statistics. Brazil will see a contraction in GDP in the fourth quarter 2008, and first quarter 2009. Brazil has an inflation of 7%, but there is a always a fear of hyperinflation from its experience in past decades, and even a trade union leader like President Lula has resisted calls for rate cuts in the last 6 years because of this. This time Brazil's central bank has relented and reduced rates by 1% to 12.75% which is still the highest rate in Latin America.

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The 2002 decision for HSBC, a British bank, to buy Household International, which was into subprime lending in the USA, has turned out to be a disaster. Now it will close the 800 offices of Beneficial and Household Financial. HSBC's losses from Household are a big reason for the need to raise $18 billion in new capital. In getting into this business of subprime lending HSBC also sullied its high credit rating and its reputation. In doing so it also added its reputation to make it look like the subprime business was a good one and got it going in a big way. With the securitization process older standards of safety disappeared, as so called financial engineering and its engineers made it believable that inherent risk of a borrower's weak ability to pay could just be reduced or eliminated by packaging it differently and spreading it all around.

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Samuelson of the Washington Post thinks lowering the mortgage payment to 31% through loan restructuring or allowing bankruptcy judges to make decisions about amount owed by borrowers is not the solution. He says give homeowners a10% tax credit upto $15,000 to stimulate home purchases. This is what the National Association of Home Builders is asking for. But in todays tight credit environment and job insecurity would this have any chance of working, fearful consumers and home buyers simply postpone purchases of big price items like cars and homes. This is an entirely rational decision especially when the consumer is overextended and pension funds value in stock holdings has dropped by around a third. These types of arguments have stalled any serious effort to prevent foreclosures by helping borrowers under water, as Martin Feldstein has suggested since early 2008, which only worsens the effects on home prices and on the economy.

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Biodiesel is having a tougher time to win acceptance as the costs of making it in Europe have gone up and its much costlier to make than regular diesel. And their are costs to the environment of making more biodiesel as it involves more use of land and water resources. Biodiesl costs $1440 per ton or $4.80 per gallon compared to $840 per ton or $2.80 per gallon for regular crude oil based diesel. This is because the prices of most of the crops used to make biodiesel have doubled and oil companies are finding that it is too expensive to buy compared to fossil fuel. Europe only uses 2 % of transportation fuels in the form of nonfossil fuels like biodiesel and the goals of getting to 10% of transportation fuels for nonfossil fuel is now more elusive than ever now that biodiesel is not taking off.

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Mandel of BW has done some calculations that show that consumers in the USA have spent $3 trillion more than if they had spent with the spending patterns of the 1990's. This acceleration in spending is an overhang that has to be cleared up and he thinks its going bring a nasty surprise in the next few months to the cosnumer stocks and also bring down the rest of the stock market in the next couple of months. Mandel is making a good point here that should be listened to carefully and which makes a lot of sense. its not about predicting the stock market but about using good common sense that the debt is just so large and the signs of consumers in a pinch so widespread in reports throughout the media that something like this just may be likely to happen.

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June sales are coming in at 12.5 million vehicles. And part of this drop is that there is a short supply of hot seeling small cars like th Honda Fit, Ford Focus, Toyota Prius, aand the Honda Civic.Honda's new plant in Indiana will increase its output of Civic by 200,000 per year. Honda sold 53,000 Civics in May 2008. According to JD Power Prius sell within 4 days of reaching the dealer. Ford has a 20 day supply of Focus cars, and it takes a month after putting a deposit on Honda Fit to have it available. While Honda has flexible production lines Ford cannot produce anything but SUV's at its Wayne SUV plant in Michigan so Ford has a lot of changes to make. About 20% of cars are small cars up from 12.5% and moving up quickly as supplies increase with the demand.

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Some frank and honest assesments of the situation on the ground in Afghanistan from a career foreign service officer, the British ambassador in Kabul, Afghanistan about the lack of trust, corruption and lack of viability of the Karzai government, as it faces insurgents who he says could make life difficult even in the capital. Both candidates plan an expansion of the Afghanistan war with Obama equally aggressive or more so with targeting of Pakistan from comments in the last debate of McCain and Obama. The ambassador may be warning of the danger of expansion of the war without carefully assessing the situation on the ground like the failure of the Karzai governmet to build trust, corruption, and as reported by the BBC News tv coverage the shipping of arms to insurgents under the tacit permission of corrupt Afghan governmet officials through highways controlled by the Kabul government.

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With prices of iron ore jumping from a little above 50 dollars to $200 per metric ton between 2006 and 2007 and now back to alittle above $50 in November 2008, mining companies around the world are pulling back according to Thomson Reuters. China's building boom is seeing a big slumo with new floor space up 30%in 2007 now down close to 40% from peak according to data from Macquarie Securities. And the Australian dollar up almost 30% in 2007 is now down about 50% from peak. The last time the mining companies saw such a slump was after the Asian financial crisis in 1997 and the US recession of 2001, with metals coming back only after Chinese demand kicked in in 2003. This affects mining in Africa which was seeing boom times in places like S. Africa where there were electricity shortages because of huge demand from mining.

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Ramachandra Guha, a forward looking Indian journalist writes about the situation of Indian Muslims, saying that they need to be led by a liberal elite not a clergy that hangs onto old ideas and ways and leaves them in a backward condition. And points to the responsibility of politicians like Mrs Indira Gandhi and Rajiv Gandhi and the Congress Party that has supported the clergy's leadership of muslim society, so that the Muslim vote could be secured for the Congress party. He also points out to the need for the Bharatiya Janata Party to move forward to a new generation of political change, where it accepts Indian Muslims as equal citizens, and accords them the civilized treatment in a democratic and secular state, which was the vision and intent of the founders at the Constituent Assembly in 1947 and enshrined in the Indian constitution.

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Can Beijing walk the talk on free trade and protectionism. Giving contracts in the $585 billion stimulus like the 3G infrastructure contracts on an open competitive basis and not favoring home firms, allowing acquisitions like Coca Cola's acquisition of China Huiyuan Juice Group to proceed, and moving on the yuan currency issues with free trade in mind and not concentrating on an export push.

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A Brookings Institution study of hiring trends and unemployment in the 100 largest metropolitan areas of the U.S. at the end of 2012, shows 78 metropolitan areas adding jobs in the 4th quarter 2012. 14 of these areas had more jobs at the end of 2012 compared to before the 2008-2009 recession. Six of these cities were in Texas. This included Knoxville, which gained from jobs added at a nearby VW plant. Other cities were Oklahoma City, Omaha, Salt Lake City, Charleston. Only three cities in the East and West are on the list- Pittsburgh, Washington and San Jose, and none in the midwest, showing the geographical divide in job gains. And Washington D.C. will lose government jobs after job cuts in the government. Charleston will lose jobs from cuts in military spending.

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Chinese leaders including Xi Jinping have frowned on the accumulation of wealth and the IPO pay day, says this report in the WSJ. The largely unregulated company Alibaba in its role as a financial business, its complex ownership structure, and practices, have met with skepticism from China's financial regulators. They see the financial operations of Alibaba and its businesses as operating with little financial oversight and the state having to assume risks if something failed. The company's business model of payments app Alipay, mutual fund, voluminous data collection, operations as small loan provider to half a billion people, are seen by Chinese leaders and president Xi as posing unknown and unclear risks when not properly regulated. Commercial banks are subject to  tough regulations and capital requirements that Alibaba has avoided. State owned banks supply Alibaba with majority of the funding and take on most of the risk even though Alibaba makes profit from the transactions, is the perception of regulators. China's export model and manufacturing have enable it to create the banking capital on which such internet business models have thrived. In a world where supply chains are being redone, and following the pandemic, there are questions about how businesses that were created in the period before the pandemic should operate in a different environment. ...

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Harold Meyerson poses some difficult questions for those who like Mitt Romney say America's choice is between the merit based society Romney sees and the "European social democratic vision." In Romney's words- "a merit-based opportunity society- an American-style society- where people earn their rewards based on their education, their work, their willingness to take risks and their dreams." Meyerson cites several studies to show that European societies today are more dynamic on several measures of performance than America's. In intergenerational mobility he cites a Brookings Institution study by Julia Isaacs, that shows incomes are three times more likely to remain the same in America compared to Denmark, Norway and Finland, and one and a half times more frequently than in Germany. Another measure evident from Germany's experience is the degree of union-company-government cooperation to worker retraining, corporate boards that have representatives of workers and management, the "kurzarbeit" program of retaining employees to smooth out impact of cyclical swings in the economy on workers and companies, and worker's willingness to show restraint on wages especially because management wages are not way out of line as in America. Meyerson reminds readers that the U.S. had a more merit based society in terms of upward intergenerational mobility, distribution of rewards of work between workers in manufacturing and service sectors and management, educational mobility with the G.I. bill, in the first 30 years after the Second World War. In a separate article in the Washington Post on Jan. 5, 2012, David Ignatius poses questions about the effects of globalization in shrivelling the middle class. The access to lower wage manufacturing in China, India, Mexico, and other countries, and lowering of wages in the U.S. to be competitive, was part of globalization. The two tier wage structure in the U.S. automobile industry is one example, making middle class wages a thing of the past. Globalization opened up new markets for American companies. Yet many of the gains in employment were made in emerging markets, as the example of GM's expansion in China showed, with automobile manufacturing expansion inside China....

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David Gelernter, Yale professor of computer science, says above all things Steve Job was designer-in-chief. At his Stanford commencement address in 2004, Jobs recounts his experience in a calligraphy course at Reed College as one of the singularly important experiences of his life, and something he carried over to the the revolution in portable devices- portable Macs, iPod, IPhone and iPad. The search for and building of elegant, easy to work, fun to use devices. Job was able to grasp the potential of such devices, says Gelertner, from his very first visit to the Xerox research labs in Palo Alto in 1979. In doing this he gives credit for long forgotten pioneers of the personal computer, who were just as important perhaps even more so, Douglas Engelbart and Alan Kay. At Xerox, Kay built on the earlier innovations of Engelbart. Engelbart was first to develop the mouse, onscreen window, and the concept of computers doing more than just computing, such as controlling machinery, doing everyday stuff, and doing things with pictures. Xerox's corporate executives failed to grasp the significance of the developments in their labs. Jobs grasped this rightaway and put all his efforts into developing the Apple Macintosh in 1984 incorporating these ideas. A decade later Gates copied the Mac's eay to use features and created economies of scale, creating the personal computer that we know today. The internet was a parallel development during that decade after the pioneering work of Tim Berners-Lee on the worldwide web. Jobs took the experience one step further and created new devices like the iPhone and the iPad that brought mobility, ease, and refinement to the internet experience....

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Leading engineers who left Chrysler include Mike Donoughe, and William Mattingly.

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Sentiment analysis sites that are emerging are Financial Times' Newsswift, Claire Cardie Cornell University Professor's Jodange, and Scout Labs backed by the VC firm of Haley Minor which founded CNet.

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Problems of declining production at the Cantarell oil field in Mexico have been known for some time. Now President Calderon is trying to take on this issue. Brazil's Petrobras reached an impasse also some years back but was able to make the reforms, see the link to Petrobras. See the link in the WSJ for 8/30/07 on Petrobras . In 1995 President Cardozo of Brazil pushed through reforms after a oil workers strike at Petrobras. Upto that time Petrobras had problems similar to Pemex with underinvestment, state meddling in its affairs and finances, and too much bureaucracy and inefficiency. Can Calderon get reform for Pemex. Which amount of Pemex revenues should go to the government, how much should Pemex have so that it can adequately fund investment in new oil field exploration offshore, how to overcome bureaucracy and inefficient management, and how to arrange board representation so that Pemex can transform itself like Petrobras did. Some of the answers to these questions are emerging. Calderon wants to prepare his political position as the reform of Pemex is something that previous Presidents have failed to tackle. To do this the Senate's Energy Committee is holding a private debate on the issues. Calderon may try to forge a consensus with the Institutional Nacional Party, as he did with pension reforms if an all party consensus eludes him. Already in reforms of public finances that Calderon has pushed through Pemex will pay 71.5 centavos on every peso of oil extracted by 2012, instead of 79 centavos as royalty payments to the government. One reform being considered is to givePemex control of its own budget. At this time $10 billion a year goes back to the government on top of the royalty tax payments. Another reform would open up refining, transport and distribution to private enterprise. A think tank expert at CIDAC in Mexico City thinks that this can be done without reforming the constitution as was done to allow private investment in electricity generation in the 1990's. The same methods could be used to promote risk sharing contracts with other companies to bring in new technology for oil exploration, including companies from emerging countries like Petrobras, Petrochina and others, given Mexican's bias against the western oil majors. Especially because Petrobras has proven expertise in deep water drilling offshore. There is no question that Mexico is falling behind. One energy expert at the National Autonomous University estimates that the density of drilling rigs in the American portion of the Gulf of Mexico is 20 times greater than in the Mexican part, with Mexico having drilled only 20 exploratory wells in water deeper than 980 feet. in other areas like refining Pemex has not built a new refinery in 20 years, and imports 40% of its gasoline from US refineries, and its 7500 gasoline stations need expansion as Mexico's economy expands. Cardozo's transformation came with setting up an independent Board of Directors and putting an investment banker in charge. International oil companies were allowed into Brazil as a way to get Petrobras to compete with western oil companies and increase efficiency. And Cardozo got Petrobras listed on the New York Stock Exchange selling some 16% of Petrobras in the capital markets. This listing ensured transparency and improved corporate governance, as about 50 analysts now tracked Petrobras. ...

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Dagmar Breitenbach of DW.com  discusses today's youth in an interview with Albert Wunsch, author of the book "The Pampering Trap." Wunsch is a psychologist and education expert, who says today's youth lack the perseverance of their parent's generation. When confronted with difficult situations today's young people in Germany are seen as lacking maturity, persistence, and patience. Part of the problem is that parents have shielded their children from life's realities, says Wunsch. Parents want to be their kid's friends, and not act like an authority figure. In Germany authority figures still have the taint of looking bad, and parent shy away from that perception. The avoidance of conflict, including constructive conflict leaves children and youth at a disadvantage, because they go through life not having had to experience difficulties and learn from these experiences. Lacking this sensible kind of conflict in which parents have to ask themselves what is of value that they can transfer, the transfer of what one generation has learned is not being transferred to the next. Another problem is that young people prefer to hedge, not make commitments, says Wunsch. Financial literacy on how to manage money is also at a lower level. Some of these problems are mentioned for young people in America in the best selling book by Ben Sasse- "The Vanishing American Adult." Developments in Germany are also evident in other places. The dropout rate in Germany is also high. Studies cited here show this to be about 25% to 33% of college students dropping out.   ...

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The American consumer still spends money on bigger ticket items like luxury cars and iPads. The rich are largely shielded from this recession and one might forget that even with a 10% unemployment rate, says one economist, there are still 90% with jobs, about 75% confident of keeping them, and half with liquidity. So there is spending which is erratic. A sort of EKG type recovery in which it keeps changing all the time, with no consistent pattern. Consumers who are uncertain about the future and facing tight budgets save on toothpaste and basic consumer items, while other consumers continue to spend. A Consumer Reports survey shows consumers willing to spend on appliances and electronics. American Express conducted its survey of consumers and found consumers behind on their savings plans and making impulse purchases, or going outside their means to buy things. One analyst who follows the savings rate closely thinks consumers are spending because the stock market recovered after the 2008 crisis, and as the stock market falters consumers will start saving more. And Prof. Dan Ariely of Duke University, a behavioural economist, says that people who fear losing money in stock market fluctuations feel better spending their money, this way a least they have something to show for it. One reason apple's IPad has done so well is that consumers see it as a compromise purchase, they can give themselves a little something as a reward and still not have to buy a Mac which costs a lot more. And in the patterns of American consumer behaviour experts point to behaviour where consumers will save at Target by buying cheaper brands or buy at Dollar stores for things like paper towels and detergents, and then go out and spend on something pricey to reward themselves or have that feel good feeling. So you have this development that sales are up 9% this year at the Mall of America in Bloomington, Minneapolis, USA's largest mall. People look at price tags and shop for deals, they cut spending in places and spend in other areas. ...

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The Economist points to a second hit from bad debt in the post 2008 stimulus binge of spending in China. This is after an earlier hit, that was absorbed as a result of high growth rates and high savings. About $420 billion was injected into 5 state owned banks since 1998, according to one estimate, as a result of the first hit to China's banks from bad debt. In this second round of bad debt, covered in more detail by David Barboza in the New York Times, and merely alluded to here, many bad loans to infrastructure projects were rushed through by local governments. The Economist considers this one of the successes of the state directed banking system, that loans were quickly made and projects started in the post 2008 crisis period; and expresses the view that this hit will be absorbed just like the last hit. However the more detailed account by David Barboza and in Business Week, points to the working of a system of incentives gone astray in a capitalist system without the necessary controls or regulation. Local governments used investment companies to take on loans, which were then used to prepare properties to be auctioned off at a profit and speculative prices to state owned companies in different industrial sectors. This is part of rampant speculation in China in real estate markets. Can China with its high savings and growth absorb a second hit? This depends on the magnitude of the hit and the size of the bad debt, which depends on how long this speculative market continues to operate, and how bad debt is hidden in the books. The difference this time is that large state owned companies in different industrial sectors are engaged in this speculation. The other difference is that the high growth rates in China depend on continued large trade deficits with the USA and Western Europe, something which is not likely to continue for long, as consumers in Europe and the USA with high debt are becoming cautious spenders. This suggests that China, like the US with the mortgage crisis, faces the same effects of unregulated or uncontrolled speculative behaviours, that can endanger the banking system....

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Citing the drop in oil prices (with housing having to hit bottom at some point) and the stimulus package, Alan Blinder, says the recession should end by the 4th quarter of 2009. This is in sharp contrast to Ferguson's, Spence's, Roach's and Reinhart's view on the editorial pages of the NYT. The difference is whats striking. Ferguson, Roach and Reinhart say 3-4 years, Spence, is of a similiar view, if actions taken don't work the way they are expected to, and they don't put any dates down because too much is happening in the economy, with so much uncertainty. The titles of these three economist's pieces are also instructive, Beware of False Dawn by Roach, Rule of Four by Reinhart, and Spence's A Long Goodbye. Here is Blinder not only saying there won't be any surprises from now on (who knows for sure?) but also puts down an approximate time. He also ventures an exact impact of the stimulus, of 5% impact on real GDP in 2 years. With all that has gone wrong under Greenspan's leadership, one wonders about the credibility of being Vice Chairman of the Federal Reserve during Greenspan's time at the Fed. And as if to ridicule his own forecast he says without any hesitation: "But here's the rub. My forecast assumes that no other (big) shoes will drop. Sad to say, shoes have been dropping like rain." Whats the use of a forecast that has a remark like that tagged on to it, and how responsible is a statement that doesn't suggest caution, when businesses and jobs have been destroyed through overoptimistic forecasts and lack of decisive action. A case in point being General Motors, and the government and the American people are being asked to put $100 billion into General Motors. This is no time for reckless forecasts or for any but the most carefully thought through analysis. Lives and livelihood depend on it. Is this what the President means, when he talks about an era with a lack of responsibility in government and in companies, and those in leadership positions in the country, for their statements and their actions....

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The really small cars like the HOnda FIt and the Toyota Yaris and the GM Aveo are piling up on dealer lots as the price of gasoline drops to $2 a gallon from last summer's $4 a gallon. At February end 2009 Honda had 22191 Fits on dealer lots enough to last 125 days at the current sales rate, and Toyota had enough Yaris subcompacts to last 175 days at the current sales rate, according to Autodata Corp. Chrysler has a 205 day supply of the Dodge Caliber, and GM 427 days of Aveo cars. Honda Civics are also piling up. Price shifts and shifts in consumer attention and buying behaviour makes it difficult to plan ahead. The American carmakers have shifted plants to smaller and midsize cars after seeing the disastrous drop in the sales of larger vehicles in the third and fourth quarters of 2008. Now government policy is to mandate fuel efficiency standards, there is talk of agasoline tax, and even the current numbers shows ashift away from the SUV's and larger vehicles of the past. Ford's sales analyst Pipas says that over the 5 months ending February 2009 sales of small cars totaled 718,000. This was down 28% over the same period in 2008, but small cars grew to 18.4% of the total market, up 2.1 points from the year earlier period. Part of this is that overall the market has declined much more than 28%. This also shows that policy in an industry-government partnership will have to show the way that is best for the US, to ensure that oil prices don't go up the way they did, when consumption at the pump was excesssive and fuel standards lax. This should also be done in a partnership with other countries like China and India to ensure that technologies are available worldwide to reduce fuel consumption and promote fuel efficiency, as keeping consumption per passenger for each mile travelled as low as possible will take pressure off the oil price. It would make automobile transportation feasible for a rapidly urbanizing Asia, and by reducing the pressure on price that urbanization and motorization in Asia would bring, help moderate oil prices for western countries. ...

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The failure of the economics profession to produce any red flags for this economic crisis, and the failure of economists to come to any consensus on what works to come out of this crisis, along with the huge confidence with which the economics profession displayed as the economy sailed along in most of the post war years, is one of the very noticeable things as one reflects on what has happened. Journalists like Peter Coy at BW who wrote this report followed the housing market for BW and raised red flags long before the crisis hit, just by looking at the facts. So its clear that looking at the facts through the lens of a particular theory of economics, or the lens of some ideological bias, or the lens of triumphalism, can handicap economists. There are economists who believe in the stimulus, and economists who don't believe in a stimulus, and others who think the economy reaches equilibrium of itself if left alone, and economists who believe in tax cuts. Were it not for the fact that the risks in a time like this are really great in depending on one or the other for advice if things don't work out the way they think, this would not be such a big issue. But a lot hangs inthe balance. Which is why decisions are based on what is actually happening on the ground, and by getting a good sense of that, and a grasp of real conditions, and getting agood sense of what will work in that particular situation, and not just hoping that things will work out according to some theory or conviction in the mind. And those who execute or manage the economy instead of teaching a class, have to be aware of the great responsibility for the lives of millions of people here and in poor countries around the globe, whose lives and the lives of their children, nutrition, health and education depend on their decisions, not just when they are in office but years after they have left. And for this reason exercize needed caution....

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Don't let the current holiday season retail sales fool you as they have held up reasonably well. The impact of the mortgage and housing crisis will be felt in a delayed manner. It won't be till 2008 that the impact will really be felt. And the impact is expected to be lasting and deep, could take the rest of 2008, 2009 and into 2010 for this protracted tightening of credit. About $300-400 billion contraction in credit is expected when banks tighten their credit lending because of losses they are taking in the mortgage crisis. This will happen in an environment of falling house prices and consumers will not have access to the $340 billion in cash from home and mortgage equity financing that they took out in 2006, estimate of the Bureau of Economic Analysis. Auto, retail, apparel, and luxury items would be hit the most. On the jobs side not all the jobs will be lost in the USA. The USA imports about $740 billion in consumer goods and autos each year, which is one third of consumer spending excluding food and energy. The lower consumption in auto and apparel would affect exporters in Japan and China and South Korea. But Chinese exports have reached a point that they are causing trade tensions and a call for strengthening the yuan. An increase in American exports and lower imports could help bring down America's trade deficit. This could give China an opportunity to build its domestic market and markets in Asia and Europe so that it is not so dependent on the US market. For the US where the savings rate is near zero this is an opportunity for consumers to build their savings and reduce debt. Europe and India and the Middle East are expected to continue growth and China may see slower but continued growth in 2008 and 2009. In the US industries like aircraft and infrastructure promoting companies that sell to countries like Russia, India Brazil, the Middle East, and China will continue to grow. And because rates are still low large nonfinancial companies still have access to funds for expansion and capital investment. In a global economy the US consumer may be one part of a much larger picture. ...