The head of the European Central Bank, Jean-Claude Trichet, says the 16 members of the eurozone must reduce their deficits by 2011.  

European Central Bank President Jean-Claude Trichet has urged the 16 members of the eurozone to slash their deficits by 2011. In an interview with the German newspaper Bild, he said budget deficits in countries using the euro "should be reduced in 2011 at the latest, in some countries already in 2010, to preserve faith in state finances."

Trichet also called on banks to ease a credit crunch by making loans readily available. "Banks must live up to their central role in providing credit to the economy," he said.

WASHINGTON -- After a miserable year mired in the worst downturn since the Great Depression, Americans can take comfort that 2010 is likely to get better. How much better depends on a wide range of factors, but few economists expect a robust rebound.

"The pain of this economic downturn is going to be felt for a longer time frame," warned Martin Regalia, the chief economist for the U.S. Chamber of Commerce.

The good news for the U.S. economy, which is now thought to be out of recession, is that some important tail winds will give it a push.

These tail winds, at least for the first half of the year, include federal government stimulus money that's still entering the economy in large amounts. Businesses are replacing the inventory they've burned through, and strong productivity numbers indicate that companies are doing more with fewer workers, suggesting that companies that survived the recession are becoming more profitable.

These developments bode well for the hiring outlook. Over the last three months of 2009, the net number of workers that companies were shedding moderated. Many economists now think that businesses collectively could begin adding jobs, rather than eliminating them, as early as March.

That would just be a beginning, however, not the end of the matter, and the pace at which employers add jobs will reveal a lot about the vigor of the recovery.

South Carolina Republican Sen. Jim DeMint is doing his best to prevent Bernanke from gaining a second term as chairman of the Federal Reserve, the country's central bank.

"We can't overlook the fact that he has presided over one of the biggest economic catastrophes that we've had as a country," DeMint said at a Dec. 17 meeting of the Senate Banking Committee.

DeMint and at least two other senators, Kentucky Republican Jim Bunning and Vermont independent Bernie Sanders, have placed holds on Bernanke's nomination.

DeMint and Sanders vow to block a Senate vote on Bernanke until it considers their bill to require a comprehensive audit of the Federal Reserve by the Government Accountability Office, the investigative arm of Congress.

"Before Ben Bernanke became the Fed chairman in 2006, he headed the Council of Economic Advisers for President (George W.) Bush -- one of the most right-wing presidents in American history," Sanders, a self-described "democratic socialist" who's among the most liberal lawmakers, wrote in a Dec. 8 column. "He also sat on the Fed board of governors from 2002 to 2005."

"Perhaps more than anyone else, Bernanke was in a position to diagnose the impending impending economic disaster and take steps to stop it," Sanders wrote. "Tragically, not only did he fail to prevent the economic collapse that we have experienced, he did not even warn the American people that it was coming until it was too late."

London, of all places, is leading the battle against exaggerated banker bonuses. And leaders from all over the world are discussing how they can put an end to the banking practices that caused the global economic crisis. They are also considering ways for banks to compensate for the damage they caused.

Josef Ackermann can't let it happen. The CEO of Deutsche Bank, Germany's largest, says what he thinks and refuses to back down from a fight -- or from a faux pax.

It sounded like a direct response to none other than Barack Obama. During a recent appearance on the CBS show "60 Minutes," Obama aired out his frustrations with bankers. The same banks "who benefitted from taxpayer assistance ... are fighting tooth and nail with their lobbyists up on Wall Street or up on Capitol Hill fighting against financial regulatory reform," Obama said. He added: "I did not run for office to be helping out a bunch of ... fat cat bankers on Wall Street."

German Chancellor Angela Merkel sees things much the same way. And she's miffed at bankers, too. Merkel recently said in public that some of these bankers were even "shooting (their) mouths off a bit."

Chinese Premier Wen Jiabao said on Sunday that Beijing would not give in to foreign demands for its currency to strengthen, taking an increasingly defiant tone amid mounting international pressure for China to shift its exchange rate policy.

In an interview published by the Xinhua news agency on Sunday afternoon, Mr Wen said some of the demands for China to appreciate its currency were an effort to contain the country's development.

"We will not yield to any pressure of any form forcing us to appreciate. As I have told my foreign friends, on one hand, you are asking for the renminbi to appreciate, and on the other hand, you are taking all kinds of protectionist measures," he said.

By keeping the Chinese renminbi stable against the US dollar, China was contributing to the recovery in the global economy, he said. "The purpose [of these calls for appreciation] is to hold back China's development," he added.

China has effectively pegged its currency to the US dollar since the middle of last year, which has meant that the renminbi has depreciated by about 9 per cent against the currencies of its main trading partners since early this year, even though the Chinese economy has rebounded more quickly than any other major economy. However, Chinese officials argue that its exchange rate against its trading partners is roughly in line with its level at the start of the global financial crisis in September last year, when the US dollar began to strengthen.

BERLIN, Dec 27 - German firms see restricted access to loans, which could spiral into a new credit crunch, as the main risk to the economy in 2010, the heads of the country's four main business associations said in a Reuters poll issued on Sunday.

The groups expect Germany to experience a slow recovery in 2010 after it exited its deepest post-war recession in the second quarter of this year, but warned that growth could be at risk if the government does not persuade banks to lend more liberally.

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Credit conditions for German companies tightened in December to their most restrictive levels since July, the latest credit survey from the Ifo research institute showed, reviving concerns over a possible credit crunch in Europe's largest economy.

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On top of the risk to credit supply, the economy also faces a dearth of skilled workers, said Hans Heinrich Driftmann, President of Germany's chamber of industry and commerce (DIHK).

"During the next upswing this will be strongly felt," he said, adding that he did not expect recovery to come quickly. The other associations also expect a tough year ahead, and most say the crisis will not be over in 2010.

Tokyo on Friday proposed a record Y92,300bn ($1,000bn, €700bn, £635bn) annual budget for the next fiscal year, which starts in April, as it tried to stimulate domestic demand by supporting households with measures including child support.

However, the government has to walk a fine line between campaign pledges to give more cash to consumers to boost growth and the reality of plunging tax revenues and bulging public debt.

The DPJ has had to pull back from some of its key manifesto promises, such as a plan to end a provisional petrol tax, as it struggles to control huge debt issuance and retain the trust of the bond market.

Under the proposed budget, new bond issuance will be kept at Y44,300bn, close to its pledge of Y44,000bn - a level already worrying bond markets as public debt nears 200 per cent of gross domestic product.

Another headache for the new government is the rise in social security spending because of the country's ageing population. The proposal states that 51 per cent of general expenditure will be related to social security spending.

After noting how Wall Street has bounced back, how essential to the US economy a healthy financial sector is thought to be and how far this is from the truth Reich puts his finger on the real problem:

The real locus of the problem was never the financial economy to begin with, and the bailout of Wall Street was a sideshow. The real problem was on Main Street, in the real economy. Before the crash, much of America had fallen deeply into unsustainable debt because it had no other way to maintain its standard of living. That's because for so many years almost all the gains of economic growth had been going to a relatively small number of people at the top.

President Obama and his economic team have been telling Americans we'll have to save more in future years, spend less and borrow less from the rest of the world, especially from China. This is necessary and inevitable, they say, in order to "rebalance" global financial flows. China has saved too much and consumed too little, while we have done the reverse.

In truth, most Americans did not spend too much in recent years, relative to the increasing size of the overall American economy. They spent too much only in relation to their declining portion of its gains. Had their portion kept up -- had the people at the top of corporate America, Wall Street banks and hedge funds not taken a disproportionate share -- most Americans would not have felt the necessity to borrow so much.

The year 2009 will be remembered as the year when Main Street got hit hard. Don't expect 2010 to be much better -- that is, if you live in the real economy. The administration is telling Americans that jobs will return next year, and we'll be in a recovery. I hope they're right. But I doubt it. Too many Americans have lost their jobs, incomes, homes and savings. That means most of us won't have the purchasing power to buy nearly all the goods and services the economy is capable of producing. And without enough demand, the economy can't get out of the doldrums.

As long as income and wealth keep concentrating at the top, and the great divide between America's have-mores and have-lesses continues to widen, the Great Recession won't end -- at least not in the real economy.

Although G.D.P. numbers still aren't perfect -- they are subject to periodic revisions, for example -- the basic problem has been largely solved. So why not issue shares in G.D.P. now?

Such securities might help assuage doubts that governments can sustain the deficit spending required to keep sagging economies stimulated and protected from the threat of a truly serious recession. In a recent pair of papers, my Canadian colleague Mark Kamstra at York University and I have proposed a solution. We'd like our countries to issue securities that we call "trills," short for trillionths.

Let me explain: Each trill would represent one-trillionth of the country's G.D.P. And each would pay in perpetuity, and in domestic currency, a quarterly dividend equal to a trillionth of the nation's quarterly nominal G.D.P. Read more...

What is scarier, the "asset" backing this bond proposal, the proposal writer's credentials, or the repressed memory precipitating the proposal publication?

Diversity is the key to economic and political evolution.

2010 will be a year of major transformations, punctuated by the following key escalating divergence: i) on one hand, the ongoing contraction of the US consumer will accelerate, because even as the stock market ramps ever higher (and on ever decreasing trade volume a 2,000 level on the S&P while completely incredulous, is attainable, but will benefit only a select few insiders who continue selling their stock at ridiculous valuations), household wealth will at best stagnate (as a reminder, an increase in interest rates "withdraws" much more household net worth, due to implied house price reduction, than any comparable boost to the S&P can offset), ii) on the other hand, China, which is faced with the ticking timebomb of continuing the status quo and hoping that US consumers can keep growing the global economy, or alternatively, looking inward at its own consumer class, and shifting away from its historical export-led model. The one unavoidable side effect of this prominent departure would be a renminbi appreciation, and a logical drop in the US currency, once the US-China peg if lifted (a theme opposed recently by SocGen's Albert Edwards, who sees the inverse as likely occurring).  The main question for 2010 and beyond is whether this will be a gradual decline or a disorderly drop. And behind the scenes of all the bickering, jawboning and posturing, this is precisely what high level officials from both the US and China are currently negotiating. This will be one of the major themes that defines the next decade. Another phrase to describe this process is the gradual drift of US into a nation that is aware it is no longer the primary economic dynamo of global growth as China eagerly steps in to fill that spot.

Looking at the aftermath of the financial crisis, the two major consequences that will define US economic trends for an extended period of time, are the increasingly more frugal US consumer, whose savings rate is likely to increase gradually to the long-term low double digit average, and an ongoing outflow from equities into safer assets such as municipals, bonds and loans, as the maturing baby-boomers finds the volatility of the engineered equity market far too risky as they enter retirement age.

So with US consumption-led growth entering its twilight days, courtesy of assets that simply do not provide the kinds of returns that allowed for a savings-free lifestyle, what does this mean for Asia, and China in particular? Bank of America provides a good and succinct overview of the major historical themes that have defined Asian economics, and what the next decade will likely bring. (No link provided.)

The essence of the Asian development strategy is to build manufacturing capacity for global demand. High savings rates allowed the needed investment in plants and infrastructure to be financed domestically. This strategy was pioneered by Japan in the 1950s and 60s, copied by the Asian "Tigers" (Hong Kong, Korea, Singapore, and Taiwan) in the 70s and 80s, and by a host of other Asian countries in the 80s and 90s. What changed the game was China's adoption of the same strategy. Exports have increased nearly sixfold since China joined the World Trade Organization (WTO) in 2001. This had a profound impact on the global economy - but it had an even more profound impact on the China's own economy and labor market. We estimate that 150 million Chinese workers joined the global labor force and began producing internationally traded goods. (As a contrast, the US labor force is 154 million people.)

The integration of China's vast workforce into the global economy is what tipped the balance. The transfer of jobs and production from the US, where personal and corporate savings rates were low, to China, where savings rates were high, gave rise to huge imbalances. Within a few years after WTO entry, China's current account surplus became the world's largest, mirrored by an even larger US deficit.

Currency appreciation would have reduced wages, profits, and the flow of savings, but China was unwilling to allow market forces to play out. Thus, thePBoC (China's central bank)  intervened in unprecedented amounts, and the vast flow of Chinese savings was channeled  abroad in the form of foreign exchange reserves - mostly short-duration government debt and bank deposits. Essentially, China was financing its own exports by purchasing short-term debt. The bulk of that found its way into US markets, keeping interest rates low and setting the stage for the housing bubble.

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The financial crisis delivered a clear verdict, in our view, on the limits to the Asian growth model. It no longer makes sense to pursue double-digit growth by lending cheaply to the US consumer.

Yet change would require less reserve accumulation or - put another way - allowing the currency to appreciate against the US dollar, to which it is now effectively pegged. China needs to manage this "exit" carefully. Moving too fast risks a dollar crisis, with a disorderly drop in the US dollar and a spike in US bond yields. Moving too slow risks a boom-bust cycle in China, with capital inflows and strong monetary growth rates putting upward pressure on asset prices and inflation.

A BoA China FX Roadmap can be read at the Zero Hedge site or downloaded, if you are registered with Scribd.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

To qualify for the first short-work program that started last November, a company had to show a 30% drop in revenue over a two-month period. The government paid workers all the wages they lost due to the reduction of their hours. More than 2,000 companies applied, and the state paid for more than 2.4 million hours of work at a cost of around [euro ]200 million. The subsidy, limited to a six-month period, was available until the end of April.

At the same time, the government set up a network of advisers to work with companies. The companies, from large corporations to family-owned businesses, get help deciding whether to use state-funded programs to avoid job cuts. When layoffs can't be avoided, the team helps workers find new jobs.

In late April, another program known as "part-time unemployment" kicked in, which didn't require companies to show a big revenue drop.

Under this [euro ]1 billion plan, employers can reduce workers' hours and salaries by as much as half, and the state makes up 70% of the lost wages.

In the Washington Post Book World today, I review Andrew Ross Sorkin's Too Big To Fail and two related books: Duff McDonald's biography of Jamie Dimon (Last Man Standing), and Peter Goodman's broader retrospective on the political origins and social impact of the crisis (Past Due).

If you think the crisis of 2008-09 was an aberration, or top Wall Street executives have learned their lessons, or our financial system is no longer dangerous, take a look at these books.  Each of them separately explains part of how the people running our biggest banks have done so well; taken together, these books describe a pattern of corporate and government behavior which - in the aftermath of the Great Bailout of 2009 - points to serious trouble ahead.

Maybe we knew, at some unconscious, instinctive level, that it would be an era best forgotten. Whatever the reason, we got through the first decade of the new millennium without ever agreeing on what to call it. The aughts? The naughties? Whatever. (Yes, I know that strictly speaking the millennium didn't begin until 2001. Do we really care?)
But from an economic point of view, I'd suggest that we call the decade past the Big Zero. It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.