The Wall Street Examiner » Latest Business Headlines http://wallstreetexaminer.com Get the facts. Fri, 27 Feb 2015 03:35:46 +0000 en-US hourly 1 A Wile E Coyote Moment On The Charts http://wallstreetexaminer.com/2015/02/a-wile-e-coyote-moment-on-the-charts/ http://wallstreetexaminer.com/2015/02/a-wile-e-coyote-moment-on-the-charts/#comments Thu, 26 Feb 2015 04:04:08 +0000 http://wallstreetexaminer.com/?p=238062 The market has come to a dead stop a little below resistance and a little above support.

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Yellen Showing a Learning Curve on Trade? http://wallstreetexaminer.com/2015/02/yellen-showing-a-learning-curve-on-trade/ http://wallstreetexaminer.com/2015/02/yellen-showing-a-learning-curve-on-trade/#comments Wed, 25 Feb 2015 22:00:10 +0000 http://alantonelson.wordpress.com/?p=2342 This is a syndicated repost courtesy of RealityChek. To view original, click here.

Fed Chair Janet Yellen made some minor trade-related headlines (in the greater scheme of things) when she reportedly told the Senate Banking Committee that she opposed including enforceable disciplines on currency manipulation in trade agreements.

Actually, Yellen said no such thing. In response to a question from Tennessee Republican Senator Bob Corker following her latest semi-annual testimony to Congress on monetary policy, Yellen stated that she would “really be concerned” about such a move, but she by no means told the lawmakers anything like “Don’t do it!”

But what I found at least as interesting as those remarks were others in which she indicated – and not for the first time – that her views on trade and its effects on American labor markets have undergone some real changes since the 1990s – including the period when she served on President Clinton’s Council of Economic Advisors.

Before this government service, Yellen joined many other leading academics in endorsing Congress’ passage of the North American Free Trade Agreement (NAFTA). Their joint 1993 letter predicted, “The agreement will be a net positive for the United States, both in terms of employment creation and overall economic growth. Specifically, the assertions that NAFTA will spur an exodus of U.S. jobs to Mexico are without basis. Mexican trade has resulted in net job creation in the U.S. in the past, and there is no evidence that this trend will not continue when NAFTA is enacted.”

In 1998, as a White House economist, Yellen wrote a journal article displaying similar confidence. Appropriate titled “The continuing importance of trade liberalization,” Yellen’s piece concluded a staunch defense of standard trade theory and its relevance to practice by declaring, “Trade liberalization might adversely affect a small fraction of American workers in their role as producers, but it benefits all workers in their role as consumers. The bottom line is that the benefits of increased openness and increased international trade are wide ranging: more efficient utilization of resources, faster productivity growth, higher quality goods, and lower prices, all of which raise living standards.”

After a decade-and-a-half’s worth of experience with NAFTA-inspired trade deals and related policies, Yellen’s tune sounds different. Last August, speaking to the annual central bankers’ conference in Jackson Hole, Wyoming, the Fed chair attributed sluggish wage growth during the current economic recovery to “changing patterns of production and international trade.” Indeed, she cited a paper commissioned for the conference that emphasized the toll taken on workers by “the offshoring of the labor-intensive component of the U.S. supply chain.”

In yesterday’s appearance before the Senate Banking Committee, Yellen made that latter point herself. (These remarks start a little after the 46-minute mark.) Again explaining the current recovery’s anemic wage inflation, she mentioned as one of the “longer-term structural factors” likely playing a role “the fact that many labor-intensive activities in the global production chain are being increasingly outsourced….” (If only some alert legislator would point out that many higher value links in these supply chains have been offshored as well!) And she expressed no optimism that trade-related developments would ever bring any relief to a trend that’s been at work “over the last decade or so.”

Yellen’s recent pronouncements on prospects for future increases in the federal funds rate makes clear she’s become acutely sensitive to matters of time and how its passage is described. She might consider that describing outsourcing helping to undercut wages over the last decade or so means that this process started right about the time NAFTA ushered in the current phase of U.S. trade liberalization policy.

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How to Borrow Cheaply from a Government-Owned Bank http://wallstreetexaminer.com/2015/02/how-to-borrow-cheaply-from-a-government-owned-bank/ http://wallstreetexaminer.com/2015/02/how-to-borrow-cheaply-from-a-government-owned-bank/#comments Wed, 25 Feb 2015 10:00:13 +0000 http://moneymorning.com/?p=177511 This is a syndicated repost courtesy of Money Morning. To view original, click here.

The free market for banking services in the United States isn’t a free market at all.

The truth is the biggest commercial banks in America operate with virtual impunity as a government-subsidized, government-protected oligopoly.

So, why don’t we drop the pretense that government-owned banks don’t belong in a free market economy and create a network of honest state-owned banks to compete with so-called private banks?

We should. In fact, we have an almost 100-year-old U.S. bank as a model to copy.

Yes, regulated banks have access to government support. But perhaps there are ways to exploit relationships with government-owned banks to take advantage of their capital ratios and risk evaluations to optimize your investments to ensure a rich risk/reward ratio.

A Single-Bank American Branch Is Proving the Model

It’s the Bank of North Dakota, the only state-owned bank in America. The unique one-branch bank was founded in 1919 under a simple one-page charter. It has no automated teller machines and no investment bankers. But it’s more profitable than Goldman Sachs and JPMorgan Chase & Co., with a return on equity 70% higher than either of those immensely profitable institutions.

The Bank of North Dakota’s Standard & Poor’s credit rating is double-A-minus, and according to The Wall Street Journal, “That is above the rating for both Goldman Sachs Group Inc. and J.P. Morgan, and, among U.S. financial institutions, second only to the Federal Home Loan Banks, rated double-A-plus.”

And no, the bank isn’t profitable just because of North Dakota’s newfound shale oil wealth.

In a Feb. 23, 2015, article titled “This Publicly-Owned Bank Is Outperforming Wall Street,” noted attorney, would-be California treasurer, and the founder and president of the Public Banking Institute Dr. Ellen Brown says the bank is healthy and profitable.

The reasons she indicates are “The BND’s costs are extremely low: [it has] no exorbitantly-paid executives, no bonuses, fees, or commissions; only one branch office; very low borrowing costs; and no FDIC premiums (the state rather than the FDIC guarantees its deposits).”

Brown goes on to say “These are all features that set publicly-owned banks apart from privately-owned banks. Beyond that, they are safer for depositors, allow public infrastructure costs to be cut in half, and provide a non-criminal alternative to a Wall Street cartel caught in a laundry list of frauds.”

That a state-owned bank exists in a Republican stronghold is surprising. What’s not surprising is the bank’s model.

While BND offers some retail banking services and in 1967 was the first bank in the country to make federally insured student loans, it’s essentially a “wholesale” bank. It makes loans to companies in partnership with community banks in the State.

BND gets the bulk of its deposits from the state of North Dakota. The state deposits its tax revenues, fees, and cash balances with the Bank. In turn, BND provides loan monies to partnering community banks who know their customers and make “local” loans.

The Bank of North Dakota doesn’t compete with community banks, it augments them. It channels state money into the local economy through partnering banks who earn fees and profit commensurately.

Here Are Two (Rare) European Banking Systems That Work

Two other countries that Americans respect because of their economic and banking prowess, Germany and Switzerland, have successful state-owned or state-controlled banks that are similar in structure and function to the Bank of North Dakota.

Germany, a country of 82 million people, became the world’s biggest exporter in 2003. It lost that title to China, with a population of 1.3 billion people in 2009, but it remains the engine of European growth thanks to its exports.

Economists and German manufacturers credit Germany’s state-controlled, cooperative Sparkassen (savings banks) and the country’s Landesbanken (state-owned, regional, predominantly wholesale banks) with the country’s exporting success. These banks serve Germany’s Mittlestand, or small to medium-sized businesses, which acting alone or as a network are the backbone of the German export juggernaut.

Sparkassen, which originated in 1778, operate regionally as savings and commercial banks under the auspices of local authorities. Shareholders of regional Sparkassen are either single cities where they operate or multiple cities convened into an administrative district. These savings banks operate in restricted geographic areas, but can act as a cooperative when making larger loans. Depositors are protected under a Joint Liability Scheme.

Germany’s Landesbanken, more wholesale than retail banks, are predominantly owned by the country’s savings banks through regional associations. The seven Landesbanken, besides acting as clearing banks for the Sparkassen, make loans themselves and perform commercial banking services on behalf of public and private enterprises.

Like the Bank of North Dakota, both Sparkassen and Landesbanken are effective in serving “local” businesses. And like BND they efficiently and effectively funnel back profits and taxes to the government bodies that control them.

It was only during the credit crisis that Germans came to realize their Landesbanken had overreached their regional focus. In search of yield in foreign mortgage-backed securities to compete with more aggressive German universal banks like Deutsche Bank and Commerzebank, losses on Landesbanken speculative holdings devastated the once conservative system. While the Landesbanken have recovered, the big private banks have been hit with repeated lawsuits and are sitting on untold billions of dollars of still-underwater assets.

For its part, the Swiss public banking system, based on shared ownership with regional Cantons that oversee the partially private shareholder-owned banks, operates similarly to BND and German public-owned or controlled banks.

In Switzerland – not unlike Germany’s big private banks who amassed $600 billion of toxic assets heading into the 2008 credit crisis – it was big private Swiss banks, like UBS, that suffered huge losses and still deal with repeated and ongoing fraud charges by global regulators.

The Swiss National Bank, Switzerland’s central bank, unlike America’s Federal Reserve System, is operated for the benefit of its minority private shareholders and its majority shareholders, Switzerland’s twenty-six Cantons. The SNB, for the past 100 years has paid its shareholders and the Cantons an annual “dividend.” For the most part, the SNB pays out 6% of its net profits. Last year the Cantons split about $1.15 billion.

The Bank of North Dakota, and both German and Swiss publicly owned or controlled banks prove that private banks aren’t the only free-market solution to providing critical banking infrastructure to big, modern Western economies.

The Too-Big-to-Fail Banks Are Effectively Government Subsidized

All America’s too-big-to-fail banks are currently government subsidized now, so, they’re not free-market competitors.

The implied government safety net these banks enjoy, which proved to be a lifesaver in the financial crisis, draws depositors. It provides them with cheap funding, lowers the cost of capital-markets funding operations, provides innumerable protections from regional bank competitors, and systematically undermines community banks across the country who don’t have the economies of scale to pay for the increased regulations big banks brought upon the entire industry.

William K. Black, Associate Professor of Law and Economics at the University of Missouri-Kansas City and a former bank fraud investigator, recently said of the TBTF private banking oligopoly, “Conditions of weak corporate governance in banks provide fertile ground for quick enrichment for both bankers and politicians – at the ultimate expense of the taxpayer.” He added, “In such circumstances politicians can offer bankers a system of weak regulation in exchange for party political contributions. Government-owned banks, on the other hand, have less freedom to engage in speculative strategies that result in quick enrichment for bank insiders and politicians.”

Dr. Brown, author of the critically acclaimed book Web of Debt and its 2013 sequel The Public Bank Solution has a lot more to add. In her correspondence to me yesterday she wrote, “Public sector banks lend counter cyclically, making more loans when private banks are pulling back. Public banks are also safer for depositors, avoiding bank runs and bail-ins. Public depository banks are not merely revolving funds. They can leverage the local government’s capital at 10 to 1, backed by the government’s own deposits.”

Building Businesses Rather than Bonuses

On the subject of big Wall Street banks’ impact on borrowers, Dr. Brown doesn’t mince words, telling me, “The fees alone paid to Wall Street banks by the city of Los Angeles exceed what the city pays to repair its streets. California school districts have succumbed to capital appreciation bonds on which they will be paying as much as 20 times principal by the time the loans are paid off. Meanwhile, the Bank of North Dakota is making 1% loans to school districts – as well as 1% loans to startup farmers and startup businesses, and 1.7% variable rate for loans to North Dakota students.”

The post How to Borrow Cheaply from a Government-Owned Bank appeared first on Money Morning

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Portman and the Journal Equally Clueless About Ohio and Trade http://wallstreetexaminer.com/2015/02/portman-and-the-journal-equally-clueless-about-ohio-and-trade/ http://wallstreetexaminer.com/2015/02/portman-and-the-journal-equally-clueless-about-ohio-and-trade/#comments Tue, 24 Feb 2015 17:01:30 +0000 http://alantonelson.wordpress.com/?p=2335 This is a syndicated repost courtesy of RealityChek. To view original, click here.

Based on her Wall Street Journal article yesterday, it’s hard to know who understands less about Ohio’s economy and its critical stake in smarter U.S. trade policies – reporter Siobhan Hughes or the state’s Republican Senator, Rob Portman.  

According to Portman, Ohio’s experience still validates “the virtues of trade” provided that existing agreements are enforced more effectively. And he insists that “the U.S. can’t give up on new export opportunities while it tries to do a better job ensuring compliance with trade deals.” Hence he hopes that the bill granting fast track negotiating authority for President Obama will contain “tough currency provisions.” (All this phrasing is Hughes’.)

And according to Hughes, “the complex politics of Ohio” (which presumably reflect an equally complex economy) make Portman’s position reasonable. As she dutifully reports, the Senator’s “prime example is soybeans, which as of 2013 were Ohio’s fifth-biggest export, generating some $1.2 billion, after accounting for no share of the export market just three years earlier, according to the Census Bureau.”

But here’s what neither Hughes nor Portman apparently realize: The manufacturing losses suffered by the state under current trade policies are not even remotely offset by “big gains in agricultural exports, which could be enhanced by new trade deals.” Nor can they possibly be in the foreseeable future. And there’s no need to look at the indicator Hughes seems to favor – manufacturing employment – whose relationship to trade is controversial because it is also powerfully affected by developments in areas like productivity. All you need to do is look at the makeup of the state’s economy and trade flows.

The Commerce Department’s last detailed data is for 2012, but it shows that, after inflation, “farms” like those that cultivate soybeans represented 0.48 percent of Ohio’s output. Manufacturing represented 17.31 percent. Ahem.

It’s true that Ohio’s tiny agriculture sector has been a trade winner lately. According to the official data – also from the Commerce Department, between 2009, when the current national recovery began, through last year, it’s increased its exports by nearly 350 percent, to just under $2 billion. Even better its trade surplus skyrocketed by more than 1,400 percent – to $1.745 billion. So agriculture, as per Portman and Hughes, has contributed on net to Ohio’s growth.

But here’s what’s happened to Ohio manufacturing during this period. Its exports increased by more than 50 percent – to $48.57 billion. That’s more than 24 times Ohio agricultural exports. Yet its imports surged by just under 68 percent – to nearly $61 billion. That’s about 35 times more than Ohio farm exports.

As a result, the state manufacturing trade deficit more than tripled, to $12.29 billion. In other words, this shortfall’s increase of $8.37 billion – which subtracts from state growth – was more than five times greater than the $1.63 billion rise of the agricultural trade surplus. Therefore, the recent increase of Ohio’s manufacturing trade deficit has slowed the state’s growth by more than five times more than the increase in its manufacturing surplus. This produces a “complex” economic choice?

And here’s the kicker: Looking up these dispositive statistics – which can be found herehere, and here – and doing the math took about ten minutes. But it seems like that was too difficult for a Big Media reporter assigned to write about trade and Ohio’s economy, and for a state political leader charged with ensuring that trade policy benefits Ohio voters.

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Why Obama’s Trade Policies Need a Leash, not a Fast Track Blank Check http://wallstreetexaminer.com/2015/02/why-obamas-trade-policies-need-a-leash-not-a-fast-track-blank-check/ http://wallstreetexaminer.com/2015/02/why-obamas-trade-policies-need-a-leash-not-a-fast-track-blank-check/#comments Mon, 23 Feb 2015 16:51:01 +0000 http://alantonelson.wordpress.com/?p=2326 This is a syndicated repost courtesy of RealityChek. To view original, click here.

In his weekly radio address this past Saturday, President Obama finally made his first pitch to the general public since his State of the Union for his planned new trade deals and for new fast track authority to pursue them. Ironically, though, his remarks further weaken the case for Congress granting him sweeping powers to conduct the nation’s trade policy.

As in the State of the Union, Mr. Obama clearly hoped to burnish his trade policy credentials by acknowledging that “past trade deals haven’t always lived up to the hype.” But his insistence that “we’ve successfully gone after countries that break the rules at our workers’ expense” is simply inexcusable hype about the possibilities of the nation’s trade system, and about the World Trade Organization’s potential as an effective trade referee. And the claim that his trade diplomacy would “level the playing field for American workers” by holding “all countries to the same high labor and environmental standards to which we hold ourselves” betrays an alarming ignorance about the prospects of enforcing the most distinctive terms of his proposed agreements.

As I’ve previously documented, the Obama administration’s trade enforcement moves are pathetically dwarfed by the scale of foreign subsidies at which they’re aimed – not to mention other trade-distorting policies, like discriminatory value-added taxes, that are beyond the reach of world trade law and are ignored in the president’s trade initiatives. Trade law actions, however, can also be dismissed as meaningful correctives for poorly negotiated agreements because of their intrinsic limitations.

Like all legalistic measures, they are inevitably reactive and piecemeal. As a result, they are utterly incapable of effectively addressing the challenge of foreign economies that are nothing less than national systems of protection – and especially those run by bureaucracies whose secretiveness makes it painfully difficult even to identify trade transgression conclusively, much less combat them.

Just as fanciful is the idea that provisions in trade deals can produce higher labor and environmental standards abroad. Believers in this contention, for example, still need to explain how many U.S. government bureaucrats will be needed to monitor the industrial complexes of current Trans-Pacific Partnership (TPP) countries like Mexico and Vietnam and Malaysia, much less of likely future signatories like China.

Even sillier is the notion that significant disciplines will be imposed on state-owned enterprises, as the administration is seeking for the TPP. After all, in Asia in particular, the line between public and private sector is typically blurred at very best. And the pervasiveness of deeply mixed economies in the region ensures that any cases against these entities brought by Washington before the TPP’s dispute resolution system will be quickly swatted down – whatever the agreement’s text says.

In fact, this dispute-resolution problem ensures that none of the specifics in the president’s trade agreements has a prayer of defending or promoting America’s interests. For legal systems require broad and deep consensus on acceptable behavior to be effective. They codify realities rather than creating them. Until the president recognizes the fundamental differences on economic policy norms that continue to divide the United States from most of it main trade rivals in Asia and other regions, and their implications for America’s international economic strategy, he needs a leash from Congress on trade policy, not a blank check.

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Lenovo Superfish Scandal Reveals Even More Holes in Obama Cyber-Security Strategy http://wallstreetexaminer.com/2015/02/lenovo-superfish-scandal-reveals-even-more-holes-in-obama-cyber-security-strategy/ http://wallstreetexaminer.com/2015/02/lenovo-superfish-scandal-reveals-even-more-holes-in-obama-cyber-security-strategy/#comments Sat, 21 Feb 2015 21:08:20 +0000 http://alantonelson.wordpress.com/?p=2319 This is a syndicated repost courtesy of RealityChek. To view original, click here.

If you haven’t followed the story that’s unfolded this week about hacking software found in personal computers made by China’s Lenovo company, you’ll appreciate this handy-dandy summary. You’ll also be astonished by how clueless the Obama administration’s cyber security strategy remains – despite the cyber-security summit just held at the president’s instigation.

First, some background. Lenovo is not only a Chinese company. It’s a Chinese company that, like most big Chinese companies, is part owned in a formal sense by the Chinese government. Just as important, like every commercial entity in China, it needs to serve the Chinese government’s interests whenever Beijing so desire.

Lenovo is also now the world’s largest producer of PCs and a major force in electronics generally – thanks in part to its purchase in 2005 of IBM’s personal computer arm and last year of the company’s low-end server manufacturing.

China, you may recall, is a country that for years has often acted in ways contrary or downright harmful to American national security interests, and its government has been officially accused by the Obama administration of sponsoring numerous cyber attacks on U.S. government agencies and businesses. So you may be surprised to learn that, despite these publicly stated concerns, and Lenovo’s close relationship with the Chinese government, the U.S. government has been using Lenovo PCs widely for many years.

Thankfully, Washington has been smart enough not to give Lenovo full access to the federal bureaucracy. Since the middle of the last decade, its products have been barred from secret and top secret networks at defense and intelligence agencies, and since mid-2013, other agencies like Justice, Commerce, and NASA have been required to obtain FBI or other law enforcement agency approval to buy any information technology equipment “being produced, manufactured or assembled by one or more entities that are owned, directed or subsidized by the People’s Republic of China.” But other official offices have been perfectly free to buy Lenovo and other goods sold by Chinese firms and, of course, sold by U.S.-owned businesses but made in factories in China, including those whose work may not be classified officially but could be awfully sensitive or otherwise important.

So it was more than a little interesting that, not even a week after the cyber-security summit, Reuters reported that software had been found in Lenovo computers that made them vulnerable to hacking. Lenovo’s initial response was to declare this past Thursday that “We have thoroughly investigated this technology and do not find any evidence to substantiate security concerns,” but also announced that it would no longer pre-install the program, called Superfish, which comes from a U.S. company, albeit one with a shady-sounding background. It was not until Friday that the Department of Homeland Security – which apparently never detected the threat – sent out a warning to all Lenovo customers about the software’s malicious capabilities.

Lenovo now says that it did not know about the security threat until Thursday though a user reportedly filed a complaint on a company forum in late January (and Reuters reports the first concerns were expressed in June). But it also said that Superfish wasn’t designed to be malware, and there was no word on whether it would stop pre-loading into its products other programs by third-party producers. (Apparently the practice of selling this hard-drive space to unaffiliated software companies is common throughout the PC industry.) Lenovo also says that Superfish was installed only on devices shipped between September and December, though it hasn’t said how many computers were compromised. Nor is there any information on how many of these machines were bought by federal customers – as well as their counterparts on the state and local levels. They could still easily contain Superfish unless the owner found out about the problem and applied one of several technical fixes available. (Lenovo also says that it’s looking to work with companies like Microsoft and McAfee to deliver software to remove Superfish and related problems automatically.)

So on the surface, the Lenovo-Superfish threat now looks either contained or soon to be quashed. But the federal, state, and local agencies that bought the vulnerable computers no doubt include offices that are in constant contact, electronic and otherwise, with private businesses – including those that build, supply, and maintain all of the nation’s critical infrastructure systems. These companies themselves also buy Lenovo regularly, of course. Could Superfish have made its way into their networks? And what of other bugs that technology experts either inside or outside the government may not have detected yet?

A government truly serious about cyber-security would immediately require all government agencies at all levels and companies involved in critical infrastructure and national defense to use only computer-related products made outside China down to the component level within a specified time period. Given the massive offshoring of the electronics industry, including nearly the entire supply chain, over the last several decades, that would be a massive undertaking. But without removing equipment from China from official Washington and security-related industries, America will remain dangerously exposed to cyber aggression – no matter how many cyber-security summits presidents hold.

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Republicans Happy to Trust Obama When He Pushes Offshoring http://wallstreetexaminer.com/2015/02/republicans-happy-to-trust-obama-when-he-pushes-offshoring/ http://wallstreetexaminer.com/2015/02/republicans-happy-to-trust-obama-when-he-pushes-offshoring/#comments Fri, 20 Feb 2015 16:50:26 +0000 http://alantonelson.wordpress.com/?p=2315 This is a syndicated repost courtesy of RealityChek. To view original, click here.

That’s some stunningly contradictory message leading Republicans have been sending lately regarding President Obama’s negotiating skills. On the one hand, they portray him as a bumbling naif on issues like normalizing ties with Cuba and eliminating the Iran nuclear weapons threat. And on the other hand, they’re happy to grant him sweeping Trade Promotion Authority (TPA) to negotiate history’s biggest trade agreements.

This incoherence was most recently displayed by likely presidential candidate Jeb Bush. The former Florida governor told the Chicago Council on Global Affairs that the Obama Cuba diplomacy that began to reestablish diplomatic and economic relations amounted to “bad negotiations.”

According to Bush, “[W]e got nothing in return. We traded a guy who was held hostage, Alan Gross, an aid worker for no reason. He was allowed in the country, he was held hostage and he was languishing in prison, and, in fact, his wife believed that if he stayed much longer, he was going to die, for spies that were convicted in our American judicial system.

“That was not an equal trade. We opened up additional mounts of travel, so many of you may have gone as — like, I say in quotes, education trips. And now that those have been expanded the president has that authority to do so. And nothing in return.”

Yet in the same speech, Bush endorsed the president’s request for a near-blank check from Congress to negotiate the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and any other agreements he – and possible Democratic successors – might pursue over the next five years.

The disconnect arguably is wider on Iran. House Speaker John Boehner is so worried that President Obama will ultimately cave in and accept an agreement that will enable Iran to develop nuclear weapons that he’s bent Washington protocol and created a firestorm by inviting Israeli Prime Minister Binyamin Netanyahu to address Congress to warn against such appeasement. Moreover, speaking about Mr. Obama’s executive action on immigration, Boehner has declared, “There’s widespread doubt about whether this administration can be trusted to enforce our law.” Yet Boehner’s only criticism of the president’s trade policies is that Mr. Obama hasn’t worked hard enough to win Democrats’ support.

Regarding Iran, Wisconsin’s Paul Ryan emphatically agrees with Boehner. The Ways and Means Chair has insisted that The president’s policies with Iran have bipartisan concern. A huge bipartisan majority in both the House and the Senate are very worried about the handling of these negotiations.” But he’s tried to justify his enthusiasm for “fast tracking” Mr. Obama’s trade deals through Congress by insisting that “I am not saying to enhance our leverage we have to enhance the administration’s power—far from it. What I’m saying is this bill would enhance Congress’s power. TPA empowers Congress.” What Ryan has not explained is why he thinks the president is more likely to follow the law on trade than he’s been on immigration.

But at least Ryan doesn’t descend into the outright schizophrenia displayed by Rep. Darrell Issa. The California Republican, a fierce Obama critic, told the Washington Post, This president has earned our distrust, but having said that, I still support TPA. I still want to have the trade team be able to go forward and make good offers.”

One explanation for these seeming inconsistencies may be these Republicans’ belief that bad trade deals are much less likely to damage important U.S. interests than are bad national security deals – though that will be a tricky argument to make during an economic recovery with which few Americans are happy. Or maybe most Republican leaders think that, although President Obama’s terrible instincts on economics become excellent once matters go international? That’s a contention that looks too clever by half.

Instead, these clashing Republican positions seem best explained by the role of Big Money in politics. America’s offshoring lobby has told these lawmakers to jump. And their only uncertainty is “How high?”

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Obama’s Short-Lived Inshoring Boast http://wallstreetexaminer.com/2015/02/obamas-short-lived-inshoring-boast/ http://wallstreetexaminer.com/2015/02/obamas-short-lived-inshoring-boast/#comments Thu, 19 Feb 2015 15:00:27 +0000 http://alantonelson.wordpress.com/?p=2313 This is a syndicated repost courtesy of RealityChek. To view original, click here.

[F]or the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.”  –President Barack Obama, January 28, 2014

China overtook the United States to become the top destination for FDI [foreign direct business investment] in 2014….”  –Reuters, February 15, 2014 

(Sources: “President Barack Obama’s State of the Union Address,” Office of the Press Secretary, The White House, Speeches & Remarks, Briefing Room, January 28, 2014, http://www.whitehouse.gov/the-press-office/2014/01/28/president-barack-obamas-state-union-address and “China January FDI grows at strongest pace in Four Years,” by Jenny Su and Kevin Yao, Reuters, February 15, 2015, http://www.reuters.com/article/2015/02/16/us-china-economy-fdi-idUSKBN0LK04Z20150216 )

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Gold Threatens To Start Another Downleg http://wallstreetexaminer.com/2015/02/gold-threatens-to-start-another-downleg/ http://wallstreetexaminer.com/2015/02/gold-threatens-to-start-another-downleg/#comments Thu, 12 Feb 2015 14:33:16 +0000 http://wallstreetexaminer.com/?p=236532 Gold broke one support level yesterday and fell to another this morning where it is gingerly holding

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The Top 1/10th of 1% Loves a Guaranteed Minimum Income: With One Caveat http://wallstreetexaminer.com/2015/02/the-top-110th-of-1-loves-a-guaranteed-minimum-income-with-one-caveat/ http://wallstreetexaminer.com/2015/02/the-top-110th-of-1-loves-a-guaranteed-minimum-income-with-one-caveat/#comments Tue, 10 Feb 2015 01:15:00 +0000 http://wallstreetexaminer.com/?guid=3f13996ac1cf6193ce32cc06f663385b This is a syndicated repost courtesy of oftwominds-Charles Hugh Smith. To view original, click here.

Why wouldn’t the top 1/10th of 1% love a central bank-funded guaranteed minimum income?

 
It is widely assumed that the super-wealthy top 1/10th of 1% are against a guaranteed minimum income (GMI) (also known as guaranteed basic income or basic income guarantee) because this would somehow limit their wealth and power.
 
On the contrary–the top 1/10th of 1% are fine with a guaranteed minimum income for households, with one tiny caveat: as long as they don’t have to pay for it. But wait, you say: that’s the entire idea: tax the rich and redistribute the money to those below.
 
Ah, but you’re forgetting the magical power of central banks and treasuries of the world to create money out of thin air. As the top 1/10th of 1% understand, the GMI could be paid with freshly issued money–a method of funding that leaves the top 1/10th of 1% untouched beyond the taxes they already pay (substantial in many cases).
 
But wait, you say: printing and distributing helicopter money is highly inflationary. (Helicopter money refers to former Fed chairman Ben Bernanke’s famous claim that deflation could be reversed by dropping money from helicopters.)
 
Not only is printing money inflationary, it soon burdens the nation with crushing debts. So goes the conventional line of thinking: printing money is inflationary and borrowing money by selling bonds leads to crushing interest payments on the ever-rising debt.
 
But what if the conventional thinking is wrong? Consider the following thought experiment:
 
1. The central bank pushes interest rates to near-zero as a permanent policy.
 
2. The government funds a guaranteed minimum income (GMI) by selling $1 trillion in freshly issued bonds every year.
 
3. The central bank buys the $1 trillion in freshly issued bonds with $1 trillion in freshly issued money. This is known as monetizing the debt.
 
4. Five years later, the government declares a debt jubilee and voids the $5 trillion in bonds. In effect, the government defaults on the bonds.
 
5. The central bank writes the $5 trillion in bonds off its balance sheet. In essence, the government and central bank balance sheets return to square one: the $5 trillion was paid out to millions of households in GMI payments, The government is not bankrupt and neither is the central bank. the writedown has no impact on the bank’s other assets nor on the government’s ability to sell more bonds to the central bank.
 
As for inflation: the $5 trillion in new money simply offset the massive deflationary forces of technology and global competition. If you doubt this could work in the real world, then please explain how Japan has been able to run enormous government deficits that are essentially funded by the Bank of Japan in precisely the fashion described above for 20 years with near-zero inflation and no reduction in state finances, financial stability or the central bank’s ability to create new money at will.
 
Why couldn’t the government of Japan void the bonds held by the Bank of Japan and clear the balance sheets of both entities? The central bank certainly doesn’t need the interest income to survive; it can print however much money it wants.
 
The structural forces of deflation in Japan’s economy have simply been stalled by the flood of deficit spending/new money. It turns out inflation is not the issue when labor costs are stagnant and the structural forces of technology and global competition keep pushing prices lower.
Stagnation/recession is also deflationary.
 
For all these reasons, I expect various forms of guaranteed minimum income to become accepted policy, but they won’t be paid for with taxes–they’ll be paid for with freshly issued fiat currency. To the astonishment of those basing their projections on the 1970s or other periods of inflation, printing and distributing money directly to households will not be as inflationary as anticipated because many of the primary global trends are massively deflationary: overcapacity, stagnation, global wage arbitrage, declining costs for technology, robotics and software, etc.
 
You print $5 trillion in bonds, I buy them with $5 trillion in new money, you default and I write off the asset of the $5 trillion in bonds. Rinse and repeat. The money was distributed to households who spent it in the real economy, supporting the enterprises owned by the top 1/10th of 1%.
 
Why wouldn’t the top 1/10th of 1% love a central bank-funded guaranteed minimum income? The program puts money in the hands of consumers who lack paid work, and a percentage of their helicopter money consumption flows to the top 1/10th of 1%. It’s a sweet deal for those receiving the GMI and those who own the assets and enterprises.
 
The last thing the top 1/10th of 1% wants is a desperate, politically charged underclass with no money to buy the goods and services that generate the income of the top 1/10th of 1%. The best way to keep the underclasses passive and powerless while insuring they have enough money to continue consuming is to arrange for the central bank to issue them money in the form of a popularly acclaimed guaranteed minimum income.
Helicopter money here we come.
 
I want to credit frequent contributor Jeff W. for influencing my thinking about fiat, but the responsibility for this essay is mine alone. 
 

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