Relevant and even prescient commentary on news, politics and the economy.

“Lock Her Up!!!”

“Lock Her Up!!!”

For several years now we have all grown accustomed to the fact that President Trump likes to go to rallies of his supporters where they relentlessly chant the subject head of this post.  It has always referred to his opponent in the presidential election of 2016, the person who got about 3 million more votes than he did, even as he managed to win in the determining electoral college.  While I recognize that Hillary Clinton has many flaws, she has been investigated more times than I can count for many alleged offenses, some of which I suspect she is guilty of, even as some of them were pretty minor (see financial shenanigans back in Arkansas).  She also was subjected to many Congressional investigations by several committees for many alleged offenses, including her notorious getting emails in her home like her three predecessors did, although none of them were ever so investigated. She even had 8, really 8, investigations of her role in the Benghazi fiasco, these costing taxpayers many millions of dollars.  The final one involved her  sitting for 11 hours straight while a GOP led committee interrogated her, ending up with them looking like a bunch of exhausted foolish idiots while she looked  cool as a cucumber. The final bottom line is that none  of those investigations led to even an indictment for anything.

A peculiar sideshow on this is that among the more bizarre investigations of her, costing millions of US taxpayer dollars, was that in 1998 by the Starr group of the chance that she had been responsible for the death of Vincent Foster, who committed suicide on the GW Parkway.  The person advocating this investigation of a conspiracy theoty and engaging in it, only to find a big fat nothing, was none other than Brett Kavanaugh, apparently about to be confirmed to be the  next lifetime member of the US Supreme Court.

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I Was Wrong: US-Mexico Trade Deal Lives With Canada: USMCA Rather Than NAFTA

I Was Wrong: US-Mexico Trade Deal Lives With Canada: USMCA Rather Than NAFTA

At the last minute last night the US and Canada cut a deal, so now Canada is on on the deal to change NAFTA to USMCA.  I think the name change is the biggest part of it, even though Trump still claims that NAFTA was “the worst trade deal ever” and the new deal makes relatively minor changes in it, especially if one considers what would have been the case if the US had actually joined the TPP, as most of the environmental, labor, and intellectual property parts of the new deal (the environmental and labor parts largely improvements, if not too dramatic) were already agreed to by Mexico and Canada when rhey joined TPP, which they belong to along with all its other members aside from the US.

Beyond continuing NAFTA and adding the TPP parts, the main changes are in the auto industry and the dairy industry, the former mostly affecting Mexico, the latter mostly affecting Canada.  Between the restrictions on outsourcing and the $16 per hour limit on imports, there may be some shifting of auto parts production from Mexico to the US and possibly Canada as well.  This will lead to job losses in Mexico, but there may be some Mexican autoworkers who see wage boosts also.  The auto deal has little impact on Canada aside from Trump retracting his threat to impose tariffs, which was opposed by GM and Ford as well as the UAW thanks to the profound integration between the US and Canadian auto industries.

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The US-Mexico Trade Deal Dies

The US-Mexico Trade Deal Dies

Nobody is calling it that, but the low key story on the back pages of Wednessday’s major papers report that this is what has happened, not to my surprise.  September 29 (or maybe the 30th at a stretch) is the deadline for President Trump to submit to the Congress the final version of the US-Mexico trade deal if there is any chance of it being passed by the US Senate in time for outgoing Mexican President Pena Nieto to sign it on his lats day in office on November 30 after the outgoing Mexican parliament could approve of it.  The US Senate rules are that there is a 90-day waiting period for the initial announcement of a trade deal and a 60 day waiting for delivering the final detailed agreement.  The Trump administration got their initial report in on time, but with only it involving US and Mexico.  Sept. 29 is the deadline for the final deal.

As noted in previous posts here (Aug. 29, econospeak.blogspot.com/2018/08/marrying-nafta-and-tpp-us-mexico-free.html and Sept. 6, econospeak.blogspot.com/2018/09/has-trump-gone-over-the-edge-on-negotiating.html , sorry having trouble providing the links), top Republican senators such as No. 2 John Cornyn of Texas and others have said they will not approve a deal that does not include Canada, a reformed NAFTA.  Let me note that it was not impossible for this US-Mexico trade deal to form the basis of such a deal.  But, unfortunately, in the immediate aftermath of the announcement of the US-Mexico deal Trump announced that Canada must settle the negotiation on “our terms.”  Oh.  The funny thing is that there was a possible deal.  The US was making demands of Canada about the dairy industry (never a part of NAFTA because it was so hard to make a deal) and Canada was making demands about the lumber industry, generally described as a dispute over “dispute resolution.”  There were other issues, but these were the politically hard and sensitive  ones involving such places as Wisconsin and Quebec.  In the end it appears that no deal between the US and Canada has been made and probably will not be made in time for the Sept. 29 deadline.

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Mainstream Media Says Trump Triumphs Over Iran!

Mainstream Media Says Trump Triumphs Over Iran!

That would be several stories in both the New York Times and the Washington Post over the last two days: Trump’s policy against Iran is a great success and it  is completely reasonable and justified. This reporting and columnizing has followed three tracks.

One was in a column yesterday in WaPo from Mark Thiessen of AEI, generally pro-Trump.  His column was about how Trump in general doing well on foreign policy, although with no mention of the trade war.  He did not spend much time on Iran, but it is a success, so obviously so it does not need much discussion.   He fulfilled a campaign promise and showed he is strong, and of course it is so justified he did not waste time defending it.  However, he made no comment on how Iran has responded to this supposedly gloriously successful policy, and in fact Iran has basically done nothing.

Anouher thrust in both papers have been reports of the release of the State Department’s annual report  on terrorism.  As in past years the report again without question names Iran as the world’s “leading state sponsor of terrorism,” something that Trump and politicians of both parties have regularly repeated without a shred of embarrassment.  Juan Cole points out several problems here.  For starters, there is not a single terrorist act that happened last year (this report covers 2017) that can be blamed on Iran or any of the groups it supposedly supports.  The single piece of evidence on Iran’s supposed terrorist threat to the US is that in February two supposed Hezbullah “operatives” were arrested in Michigan.  There is not even a claim that these “operatives” were even planning a terrorist act, much less actually carried out one.  As Cole notes, Hezbullah is the dominant force in the Lebanese government, and it is well over a decade since anybody has tied that organization to an actual terrorist act. As it is, Cole notes that the report notes a 23% decline in terrorist acts from 2016 to 2017, with most of that due to a reduction of acts by ISIS in Iraq especially.  Who helped shut down ISIS in Iraq?  Iran-supported gropus, but the report fails to note that, just as it fails to note ongong Saudi support for terrorist actions.

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The Minsky Moment Ten Years After

The Minsky Moment Ten Years After

These days are the tenth anniversary of the biggest Minsky Moment since the Great Depression. While when it happened, most commentators mentioned Minsky and many even called it a “Minsky Moment,” most of the commentary now does not use that term and much does not even mention Minsky, much less Charles Kindleberger or Keynes. Rather much of the discussion has focused now on the failure of Lehman Brothers on September 15, 2017. A new book by Lawrence Ball has argued that the Fed could have bailed LB out as they did with Bear Stearns in February of that year, with Ball at least, and some others, suggesting that would have resolved everything, no big crash, no Great Recession, no angry populist movement more recently, heck, all hunky dory if only the Fed had been more responsible, although Ball especially points his finger at Bush’s Treasury Secretary, Hank Paulson, for especially pressuring Bernanke and Geithner at the Fed not to repeat Bear Stearns. And indeed, when they decided not to support Lehman, the Fed received widespread praise in much of the media initially, before its fall blew out AIG and brought down most of the pyramid of highly leveraged derivatives of derivatives coming out of the US mortgage market, which had been declining for over two years.

Indeed, I agree with Dean Baker as I have on so many times regarding all this that while Lehman may have been the straw that broke the camel’s back, it was the camel’s back breaking that was the problem, and it was almost certainly going to blow big time reasonably soon then. It was not Lehman, it was going to be something else. Indeed, on July 12, 2008, I posted here on Econospeak a forecast of this, declaring “It looks like we might be finally reaching the big crash in the US mortgage market after a period of distress that started last August (if not earlier).”

I drew on Minsky’s argument (backed by Kindleberger in his Manias, Panics, and Crashes) that the vast majority of major speculative bubbles experience periods of gradual decline after their peaks prior to really seriously crashing during what Minsky labeled the “period of financial distress,” a term he adopted from the corporate finance literature. The US housing market had been falling since July, 2006. The bond markets had been declining since August, 2007, the stock market had been declining since October, 2007, and about the time I posted that, the oil market reached an all-time nominal peak of $147 per barrel and began a straight plunge that reached about $30 per barrel in November, 2008. This was a massively accelerating period of distress with the real economy also dropping, led by falling residential investment. In mid-September the Minsky Moment arrived, and the floor dropped out of not just these US markets, but pretty much all markets around the world, with the world economy then falling into the Great Recession.

Let me note something I have seen nobody commenting on in all this outpouring on this anniversary. This is how the immediate Minsky Moment ended. Many might say it was the TARP or the stress tests or the fiscal stimulus. All of these helped to turn around the broader slide that followed by the Minsky Moment. But there was a more immediate crisis that went on for several days following the Lehman collapse, peaking on Sept. 17 and 18, but with obscure reporting about what went down then. This was when nobody at the Board of Governors went home; cots made an appearance. This was the point when those at the Fed scrambled to keep the whole thing from turning into 1931 and largely succeeded. The immediate problem was that the collapse of AIG following the collapse of Lehman was putting massive pressure on top European banks, especially Deutsches Bank and BNP Paribas. Supposedly the European Central Bank (ECB) should have been able to handle this but along with all this the ECB was facing a massive run on the euro as money fled to the “safe haven” of the US dollar, so ironic given that the US markets generated this mess.

Anyway, as Neil Irwini The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a full out global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet. These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities. This was the save the Fed pulled off at the worst moment of the Minsky Moment. The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

Barkley Rosser
Revised; 9/19/2018

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Go, Secretary Mnuchin! Save The Iranian Banks!

Go, Secretary Mnuchin! Save The Iranian Banks!

In the Sept. 14 Washington Post, Josh Rogin is all shocked and upset about a report that people in the US Treasury Department, apparently supported by, if not outright led by, Secretary Steve Mnuchin, have been stonewalling or slow-moving a memo that was ordered up by President Trump in late July in order to implement the fully renewed financial sanctions against Iran, specifically to disallow Iranian banks from using the international SWIFT settlement system, which was imposed on them in 2012-2015, and many think played a crucial role in bringing Iran to the negotiating table to make the nuclear deal the US is now abrogating.  Apparently Trump needs to sign this memo for this to go forward, but he is getting angry that it has not come out of Treasury where it seems to be “lost.”

Rogin is really outraged.  According to his sources, Richard Goldberg (wrote SWIFT ban on Iran for Obama) says, “The only hope for the president’s strategy to succeed is getting SWIFT to disconnect all the Iranian banks…And if the Treasury Department waffles one iota on that mission, they are setting up the president for failure.”

Good for them! Let the president fail on his idiotic violation of international law!

He then blathers about how awful Iran is because it “illicitly” provides aid for the Syrian government, Hezbollah, and Hamas, with of this supposedly involving “funding terrorism.”  Oh. Well, I do not like the Assad regime that has killed huge numbers of people trying to overthrow it, but the majority of those have been allies of the Sunni terrorist groups related to al Qaeda.  Yes.  You know, the group that attacked the US on 9/11/01, killing about as many people as died in the Hurricane Maria in Puerto Rico last year, an A+ performance of this administration on hurricane performance. And while Hezbollah did engage in terrorist activities in the early-to-mid-90s, none since then.  They are basically the main part of the government of Lebanon.  Hamas is certainly attacking Israel, but then Israel is attacking them back.  It is way long past that the claim that Iran is the “world’s leading supporter of international terrorism” was remotely close to being true.

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W(h)ither Italy?

W(h)ither Italy?

I returned a few days ago from a conference in Italy where I spoke with some former economic  advisers of the Five Star Movement (M5S), which is now in a coalition government with the hard right wing Lega, formerly the separatist Northern League, which has now gone national, appealing to southern Italy with a strong anti-immigrant push.  While the not very exciting M5S leaders push for a minimum income guarantee,  Lega’s Matteo Salvini as Interior Minister has been capturing all the public attention with direct actions to block African immigrants from arriving over the summer.  With Steve Bannon showing up to support him, he is on a roll and obviously aiming to take full control and push the M5S coalition partner aside.  One sign of the new era is that there are now heavily armed soldiers in camouflage pretty much everywhere patrolling, Interior troops, in contrast to the old local police and low key federally supported carabinieri.  There is a very different atmosphere from even a few months ago.

The two share some positions.  They both criticize the EU leadership and claim to support leaving the eurozone.  However, that appears not to be too likely.  What is more likely is that they will break rules on budget  deficits that have long been in place, with both parties supporting this, which is not necessarily a bad thing.  It also appears that Lega will go along with some sort of income guarantee, although M5S’s former support for a strong environmental policy of sustainable development seems to have largely gone by the wayside, aside from wacko opposition to vaccinations, this being a major reason one of my friends stopped supporting them.  Unsurprisingly at the conference there was a presentation on how bad outcomes can arise from having too many people not getting vaccinated.

I note that last year Italy finally began to see some economic growth after a long time of just pure stagnation, although at about 1% per year not too much.  But this was not enough to hold off this surge of creeping authoritarian populism.  I do not think Italy will wither, as my post title hinted, it continues to have vast wells of creativity and innovation.  But I fear Salvini could come to full power, and I fear where that might lead, not just for Italy, but all of Europe.

Barkley Rosser

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China Starts Yuan/RMB Futures Market

China Starts Yuan/RMB Futures Market

Juan Cole reports that Reuters reports that China is establishing a commodities futures market in Shanghai that will operate in yuan/rmb.  According to the report the commodity that is most expected to be traded is crude petroleum.  This will put this exchange in competition with the West Texas intermediate crude market, the London-based Brent crude market, and the Dubai market, all of which operate in US dollars.

Supposedly a main motive for establishing this market is to provide an outlet for Iranian oil for nations that want to buy it without facing sanctions from the United States after November 1.  Some might argue that this will not work as oil is and has always been priced in dollars.  However, in fact there have been oil deals in other currencies, even if there have not been organized regular markets doing so.  However, in this case purchases by China of crude oil should be sufficiently great to provide a basis for such a market to develop.  How many other nations will take advantage of this to circumvent the sanctions of the Trump administration remains to be seen.

Barkley Rosser

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Trump Shafts Abe On Trade And North Korea

Trump Shafts Abe On Trade And North Korea

The Washington Post (on Monday on p. A11) has a revealing story about how President Trump has essentially shafted an important world leader who may have tried harder than any other to please and appease Trump from the moment he became president, with the story ironically reporting that supposedly Trump views the friendly feeling as mutual and has said much more respectful things about this leader than almost any other, with perhaps Vladimir Putin being the prime exception.  This world leader is Japanese prime minister, who rushed to the US to be the first world leader to meet Trump after his inauguration and who has spoken on the phone with him more than any other, as well as playing lots of golf with him and even giving him a gold-plated golf club worth $3800.

But it seems to have been largely for naught, with Trump basically giving Abe next to nothing he has asked for and actually engaging in policies on trade that seriously damage the Japanese economy and certainly Abe politically in Japan, with his refusal to make an exception for Japan on the steel and aluminum tariffs, even as Abe held back from retaliating against US exports as pretty much all of the rest of the US’s major trading partners did when they were it with them.  And Trump is threatening to impose tariffs on Japanese cars and demanding that Japan unilaterally open up more to US agricultural goods while offering zero in return to Japan.  This reportedly came to a head in late June when Trump apparently went on and on about Pearl Harbor and made numerous simply false statements about Japanese policy and its economy, all of this on top of the US withdrawing from the TPP, which has been especially important to Japan, with Japan leading the remaining ten nations to follow through on it despite the departure of the US under Trump.  The Japanese have pulled back and all but given up on Trump being remotely reasonable on these issues, with Abe very frustrated that Trump is acting as he has been dong.

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Has Trump Gone Over The Edge On Negotiating With Canada?

Has Trump Gone Over The Edge On Negotiating With Canada?

He may well have.  Facing the  deadline for submitting his deal with Mexico to Congress on Friday, he did so.  However, he did so without Canada signed on, the apparently intense negotiations in Washington between Canadian Foreign Minister, Chrystia Freeland and US Trade Representative, Robert Lighthizer having failed to come to an agreement.  With both the Mexican leaders and major Republican senators saying they will not approve without Canada on board, this makes for a very dicey situation.  There is still time: the ultimate deadline for having a fully detailed agreement to the Senate in time for it to approve it prior to the change of Mexican government on Dec. 1 is Sept. 29. So if US and Canadian leaders can come to an agreement by then in full details, it might still fly.

Needless to say, it looks like the giant fly in the ointment is Donald Trump.  Lighthizer is hardline, but experienced in trade negotiations, and Freeland is highly competent by all accounts. There is even an obvious deal to be made if each side is willing to give.  The two hardest issues seem to involve the dairy industry and the lumber industry.  Dairy has always been outside of NAFTA because it is so difficult, and Trump has made demands on the Canadians to loosen and let in more US dairy products.  OTOH, lumber involves the dispute  resolution mechanism, which is easy to  invoke, and the US regularly does so to block Canadian imports on grounds of alleged dumping.  There have been rumbles of possible give on each side, Canadians give some on dairy and US gives some on lumber.  It is just obvious (there are also issues of patents and the steel and aluminum tariffs, but these seem minor compared to the politically fraught dairy and lumber issues).

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