The lefties (not you, NVDave) have a catchy slogan:
Posted on 05/14/2009 8:21:08 AM PDT by 1rudeboy
Most people agree that, when it comes to economic recovery, more economic activity is better than less. When companies buy and sell more goods and services, we get more jobs and growth.
Yet, for some reason, this obvious fact eludes those who want to constrain America's access to overseas markets. At a time when government is spending hundreds of billions of dollars it doesn't have on doubtful "stimulus" initiatives, you've got to wonder why some politicians continue to argue against free trade agreements. After all, these pacts have a proven track record. Trade has created millions of jobs and is responsible for almost a third of the nation's gross domestic product (GDP).
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[Panama Free Trade Agreement]
Most Panamanian goods already enter the U.S. duty-free under long-standing trade preference programs, so no U.S. consumer or business would suffer as a result of this agreement. Almost 90 percent of U.S. manufacturing exports to Panama would immediately become duty-free, and any remaining tariffs would phase out over 10 years. Moreover, more than 60 percent of American agricultural exports to Panama would get duty-free treatment upon the agreement's implementation, and any remaining tariffs in that sector would phase out over the next 15 years.
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More than 57 million Americans are employed by firms that engage in international trade. Why are the unions not out there fighting for free trade agreements to expand their wages and job security?
What's more, free trade agreements account for more than a third of U.S. trade worldwide. The Obama administration should make FTAs a centerpiece of its stimulus effort. Expanding trade - a sector of the economy that accounts for 30 percent of GDP - should be high on the list of things that need to be done.
(Excerpt) Read more at washingtontimes.com ...
You think that's more because we import bananas from Panana (and Panama is a U.S. dollar-based economy, is it not?--I don't remember), and less because our federal government has to borrow 50 cents of every dollar it spends?
I think that the exporting nations who have built up large dollar-denominated positions in US sovereign paper have finally copped the clue that they’re never going to see fiscal sanity out of the US government.
In their quest to hold down US interest rates so that they could continue to export to the US, they bought a liability, not an asset in our debt.
Now that the government is, as you point out, borrowing about 50 cents of every dollar it spends, we’re rapidly approaching the end game, and these other nations are looking for a way out. Yes, they helped create the situation - they could have refused to buy US debt, and helped push US interest rates up to a point where we wouldn’t have gone into debt as deeply as we have. But they probably had a reasonable expectation that US political and financial leaders would understand that there’s a difference between merely taking advantage of a trade partner and purchasers of our debt, and deliberate abuse of them.
What we’re doing now is deliberate abuse of the Chinese and Japanese - and they’re pissed off in ways that Obama and this Congress clearly and plainly do not understand.
All this cranial flatulence from economists on the subject of free trade has come down to this: the imbalances in labor and material costs between the US and developing nations like China have resulted in huge currency and debt imbalances, which is where the costs to the US taxpayer and consumer have been stored up. As the US tries to bail our way out of this instability, ask yourself this: did the US consumer actually save any money, net:net, with free trade and “Always Low Prices!” at Walmart?
Or was the bill merely taken off their weekly shopping receipt, financed with sovereign debt and put onto their 1040 for decades to come?
With the 20/20 hindsight of experience, I would much prefer higher ongoing prices to the consumer and a balanced trade account and balanced current account than be in the position we are today. There was once a time I bought into the “free trade” dogma, but over the last 15 years of results, I’ve come to see that “free trade” has done nothing positive (net:net) for the US - it merely shifted the costs and liabilities around.
I think he was talking about trade in more general terms.
I am as well. I’m actually talking in the biggest of big pictures on trade...
One of the other things that is going to need to be re-examined in the fullness of time is the belief that the Smoot-Hawley legislation is what did trade in during the Great Depression.
Today, we have no such trade restrictions, and yet trade with our larger partners (like Japan, Germany, S. Korea, Taiwan China, etc) is down by significant to huge amounts.
So the question will need to be asked in the future: Was it really Smoot-Hawley that caused the decrease in trade and economic activity? Or was is the failure of the financial sector that caused the decline in trade?
And if it turns out as the current evidence suggests that the vapor-locking of the financial sector is what did in trade, and not trade policy per se, then a huge component of the free-trade dogma is finished and done.
Part of why the GOP just isn’t “getting any traction” during this melt-down is that “free market” principles are not going to get things going again here. What has to happen is that the financial sector needs to be made functional again. Bailing them out isn’t going to do anything other than prolong the pain - a bankruptcy where the government is DIP and props up certain liabilities while these “too big to fail” companies are broken up and sold off is going to be necessary sooner or later.
A non-functional financial sector compromises both markets and trade, as well as future growth.
Heritage Foundation concerned about unions? What a riot! Thanks for the posting.
Do you have a link for that?
Right, and I think he needed to be talking about the budget in more general terms.
I just don't see a connection between a balanced trade account (via higher prices to the consumer) and a difference in the position we would be in today.
It's almost as if you're arguing that it's better that the consumer get stuck coming and going, instead of just getting stuck when going.
It starts at the bottom of this page, and onto the next page:
http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=H4232&position=all
Why any of those three would be more reliable than a VP from Heritage is anyone's guess.
LOL.
Or, perhaps he’s reading AIG press releases of how many execs are resigning related to this Panama thing.
I’ll see if I can find one of those. The Google hits I was getting on Braley’s words were coming-up Public Citizen, Huffington Post, and Conason.
It does appear to have the watermelons at Public Citizen up in arms. (I kid, they want to ban private possession of arms).
Maybe if you said "freer trade" and "freer markets" you'd be more on board?
Thanks to the policy of “free trade” we’re rapidly approaching a point where major trading partners (first the Arabs and oil producers, then China, and now Japan) are talking about wanting to move away from the US dollar as the world’s reserve currency.
And that would never happen if we only had more government control?
This is obvious to all but the pinheads who have an analytical ability that can be completely contained on a bumper sticker.
Government is the only think that can save us now. LOL!
The lefties (not you, NVDave) have a catchy slogan:
Oh, I should add that the photo appears to be of Code Pinkos counter-protesting a Ron Paul protest (or did those groups bond with each other?—I don’t know).
A Government Accountability Office study identified Panama as one of just eight countries — and the only current or prospective Free Trade Agreement partner with the U.S. — that is listed on all major tax-haven watchdog lists...
Americans were rightly infuriated by AIG’s attempt to use bailout money on extravagant executive bonuses earlier this year, but their fleecing of U.S. taxpayers actually goes much further. AIG’s largest private shareholder is a Panamanian-chartered corporation called the Starr International Company. Affectionately known as SICO, the company is chaired by AIG’s former chairman, Maurice “Hank” Greenberg. AIG is now suing the U.S. government for $306 million — twice the amount of the executive bonuses — in an attempt to reclaim taxes it says it should not have been charged in relation to SICO’s overseas activities.
Not surprisingly, AIG is one of many financial corporations that supports the Panama Free Trade Agreement.
Actually, Panama went from the “black list” to the “gray list” of money laundering companies.
Now they’re among all the others who have promised to do something — but haven’t done it yet.
http://www.oecd.org/dataoecd/50/0/42704399.pdf (one pager)
Call it “AIG’s Panama problem”
For this discussion, let’s just assume at the outset that we have a “free trade” policy with a big nation with cheap labor and that we have expensive labor - ie, let’s talk about China and the US.
China wants to export stuff to us.
Our consumers want to buy “stuff.”
Our consumers don’t really care where the ‘stuff’ comes from, just so long as it is cheeep.
So China rigs their currency to keep their goods cheap in the US, which we allow in because we have a “free trade” policy. The US consumer consumes - and much of this consumption is based upon easy credit and low prices.
The Chinese realize that in return for all the cheap goods they’re shipping to the US that they have a huge stack of US-denominated currency surplus. They have only a few things they can do with this money: a) spend it inside their own economy, or b) spend it acquiring assets and resources for their economy off-shore, c) save it for a rainy day.
Prior to 2008, they were choosing (c), but in the form of buying US Treasury debt. As of today, they’re starting to do both (a) and (b) at prodigious rates.
But back in the US before the melt-down, the rate at which consumers are going into debt and mining equity out of their homes is at least partially controlled by the interest rates on their debt. Low interest rates allow US consumers to buy, buy, buy.
Really low interest rates induce the banking system to loan money out to people with dubious credit histories, because it is by lending money to “sub-prime” clients (whether we’re talking mortgages or consumer credit) allows the lenders to charge extra for the sort of lending we see on late-night TV, ie “Bad credit? NO PROBLEM!”
The Chinese, realizing this, know that they can influence US consumer spending habits by buying the benchmark debt (ie, the US 10-year T) used to price consumer debt and mortgages, as well as buying RMBS and agency debt. Until July of 2008, the Chinese were buying quite the bundle of Fannie/Freddie paper, because it carried a “AAA” rating and had the implicit guarantee of Uncle Sammy. People buy more stuff when they’re homeowners - you don’t buy just a house - you buy all the crap that homeowners acquire, from lawnmowers to dishes and appliances. For the exporting nations like China, Korea and Japan - this is the motherlode of us consumption.
This lending to the US consumer, the Chinese have done with gusto in the secondary market. There’s also an added benefit from doing this - under ordinary terms, most nations would object to the artificial manipulation of the Chinese yuan vs. the US dollar that China is doing in order to keep their exports to the US “cheap” in the US consumers’ eyes. By buying so much US debt and keeping our interest rates low, the Chinese are buying the complicity of our Fed and Treasury officials. Witness what happened with TurboTax Timmy before and during his confirmation hearings. At first TurboTimmy says that the PRC is “manipulating” their currency. This is a loaded word - it requires explicit reaction by the US government as a result of trade agreements. During his confirmation hearings, TurboTimmy recants and backpedals furiously.
The reality is that TurboTimmy was right - before he was confirmed as SecTreas - now he’s been leaned upon and told to shut up. He’s also been told to string the banks along, to not rock the boat, but that’s a wholly different discussion.
The US consumer keeps consuming — and going ever-deeper into debt, because debt is “so cheap” relative to historic norms of interest rates. This is made possible, in part, by the exporting nations with current account surpluses buying our debt - the PRC and Japan most notable among these.
At some point (right about now), these lending/exporting countries realize (with a somewhat revolting discovery) that there is a small, but rapidly growing, chance that they’re not going to make money by holding US debt - that we might pay them back with inflated/devalued dollars and net:net in the scheme of things, they’re going to lose real value. They’re somewhat trapped in their current debt portfolio, but they can affect US interest rates by simply not buying any more debt. Look at what happened when they quit buying RMBS and agency debt last July - the Fed and Treasury stepped in to prop up Fannie/Freddie and starting buying hundreds of billions of mortgage secondary paper.
With me so far? I’ve completed the circle, where we start out with free trade and end up in a debt deadlock with the exporters of cheap goods. Sooner or later, this deadlock is going to be broken - and the Chinese have far more power here than we do. We’re dependent upon their lending us money - critically so. Without Chinese and Japanese purchases of US paper, our interest rates will start climbing like a homesick angel. At that point, the US consumer a) starts REALLY scrimping on purchases, and b) starts really saving, because regular passive savings accounts invested in US Treasury debt will start paying quite handsomely - remember the early 80’s when Treasuries were paying double-digit percentages? Remember the rates you got on CD’s back then? Woof. People who bought CD’s at their local bank back then were sitting fat and happy.
Heck, if T’s went up to 10%, why the heck be invested in stocks, bonds or anything like that? US savers and investors will buy our own debt and kick back while Uncle Sugar pays a tidy interest rate of return.
So not only do the Chinese/Japanese not want that to happen (because they’d take a hit on the value of their bonds), the idiots in DC and NYC don’t want that, because they want to hawk all manner of crap to us little people. The last thing they want is a population that has figured out that if we quit the “free trade” nonsense, that our own interest rates will go up and saving will be rewarded once more.
The Chinese, however, have enough money to develop their domestic economy and other markets and in a few years be able to suffer the consequences of US interest rates going up when they quit buying US paper. So they’re going to take some time to find a way out of their side of this bargain with the least amount of hit to their portfolio of US debt and the least impact to their own currency, which is currently pegged to the US dollar.
Solution: de-reserve the US dollar. Imports to the US go up in price, while the yuan is re-valued according to the terms the Chinese put into the new reserve currency agreements.
So, how do I want this solved? Let’s get rid of the “free trade” dogma, and when a country such as China is pegging their currency to manipulate the trade balance, we impose tariffs. This keeps more of the consumers’ money here in the US (even if in taxes), helps keep manufacturing on a more level (not “level” - “more level” or “closer to level”) playing field so that we keep more productive industry in the US viable. At the point the Chinese drop their artificial support of their exporters via their manipulation/peg of the Yuan:dollar, we drop the tariffs.
Would it result in higher interest rates in the US? Yes — but it would also have kept our consumers from going into debt so deeply and creating a classic Fisher/Minsky “tower of debt” that is now going to collapse. Consumers would have consumed less, true, but consumption on unsustainable debt isn’t anything more or less than consumption packed into the current timeframe from the future.
Right now, consumers are stuck coming and going already - they’re stuck paying for this wreck on their taxes going foward, and they’ve lost income, jobs and they’re indebted where they would not have been if proper economic signals had been given to the consumer. Paying “coming and going” is the natural state of things - to get some upside, you have to take on a downside. All I’m suggesting is that we pay more over a longer timeframe in order or gain some better stability of debt markets. This is one of those things like 20% down payments on mortgages - sure, it makes it more difficult to buy that first house. The result is that your house won’t go down in value by 25% or more when the debt bubble bursts.
The Chinese (like us) would like to get out of this with their cake and the ability to eat said cake. The way out (they think) is to introduce a new reserve currency, which would allow them to price oil and other items they need to import at lower prices. Right now, because they’re pegged to the US dollar, if the dollar goes down in value, so does the yuan, and oil and other commodity imports go up in China, because oil and many other commodities are priced in dollars.
The GOP, however, is so stupid that they’re willing to auction off our national sovereignty one US Treasury auction at a time - all to keep paying lip service to this idiotic dogma of “Free Trade.” This lack of ability of anyone in the GOP to connect the dots here is one of the reasons why they’re perceived as stupid by the electorate. The electorate can certainly sense that something is way, way wrong here... but most of them are not financially literate enough (nor have the time to dig down into Fed, Treasury and other data) to suss out the problem. All they know is that “free trade” means “Always Low Prices!” at Walmart, and they think and have thought that is good.
The US electorate and consumer are only starting to cop a clue as the US economy continues sliding downhill that there’s something very wrong here...
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