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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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Mohammed Bin Salman Of Saudi Arabia In Trouble?

Mohammed Bin Salman Of Saudi Arabia In Trouble?

This is what Juan Cole reports today from several sources.  Supposedly, as I reported here earlier, even though it was supposedly denied, the Saudi ARAMCO IPO deal is off.  The new reports have it that the final decision on this came from King Salman of Saudi Arabia, the father of the power hungry Crown Prince, Mohammed bin Salman (MbS), who has been the main advocate of the IPO as part of his Vision 2030 plan.  The king has up until now pretty much let MbS have his way on many matters, from economics, to foreign policy, to social policies (some of this good, e.g. letting women drive and putting the religious police in a book), and to dissent, including jailing lots of leading Saudi figures as well as womens’ rights advocates, including havint a 29 years female Shia activist beheaded.

In terms of the IPO, supposedly Salman was unhappy about the required transparency on financial and oil reserves issues. There are rumbles that he is unhappy about some of the other matters, with indeed MbS making major messes of a number of things, such as the disastrous war in Yemen and the failed embargo against Qatar, still stupidly in place.  He is also probably not happy about some of those arrests last year, although much of this is murky.  However, the most important bit in these rumors is that King Salman iis reportedly so unhappy that he is contemplating replacing MbS with somebody else as Crown Prince.  Indeed, MbS is in trouble.

Now probably this last part is just wishful thinking by some in Saudi Arabia, leaking such rumors. Very likely the family link will dominate, unless Salman were to replace MbS with one of his full brothers.  But it is believable that MbS may be facing some reining in, especially if indeed Salman was responsible for the ultimate cancellation of the ARAMCO IPO deal.

OTOH, given the nasty history of MbS, I admit to being a bit concerned about Salman’s future, with, for example, MbS’s predecessor as Crown Prince, Mohammed bin Nayef, finding himself arrested and held in his own palace until he agreed to step aside as CP.  I note that Salman is old and reported not to be in the best of health.  It may well be that we shall learn soon that his health has worsened, and that he has somehow suddenly decided to abdicate in favor of his Crown Prince…

Barkley Rosser

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Marrying NAFTA and The TPP: The US-Mexico “Trade Agreement”

Marrying NAFTA and The TPP: The US-Mexico “Trade Agreement”

I really am not sure where to begin with this latest farce, Trump’s announcement yesterday of a supposed US-Mexico Free Trade Agreement.  Of course there was the farce of him trying to make the announcement with a live phone call between him and outgoing Mexican President Pena-Nieto (to be replaced on Dec. 1 by leftist populist Obrador), which took awhile to get going.  There is the problem that some details appear to be unresolved, but most importantly that Pena-Nieto insisted four times that Canada needed to be part of the deal for it to be accepted in Mexico, including with his last words to Trump, while Trump seems fine with just having a tow-nation deal leaving Canada in the dust, or perhaps hoping that Canada will simply be forced to sign onto this deal as is, which it might.  But for Congress to approve it prior to Obrador coing into office, given Congress’s 90-day waiting period on such legislation, Trump has four (now only three) days to get Canada to sign on.  Prospects for that and Mexico also passing it before Dec. 1 do not look too good, maybe not much better than the prospects of actually getting North Korea to denuclearize.

So what is in this deal?  Most of the publicity has been about its automobile section, which some in the US hope will increase automobile production in the US, although that is not definitely the case.  The two main parts are to increase the  portion of parts made in North America from 62.5% to 75% in order to avoid facing tariffs.  This apparently would affect Toyota, Nissan, and Mazda most severely, but hardly any other  non-North American producer.  Maybe some of those companies might shift some production to North America, maybe at least production of parts, but there is no reason to believe any such increase will go to the US rather than to Mexico, although probably some would.

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Are We Alone In The Galaxy (Or Maybe Even The Universe?)

Are We Alone In The Galaxy (Or Maybe Even The Universe?)

In 1938 Orson Welles put on a radio show in New York City that dramatized the famous novel by H.G. Wells, _The War of the Worlds_. This novel is about an invasion of Planet Earth by intelligent beings from Planet Mars, with this invasion just  barely being defeated.  Several movies have been made of this famous novel, probably the first to present this now long-running sc-fi theme of our planet being invaded by aliens from outer space.  However, whar was especially important about this particular radio performance 80 years ago is that many people turning on their radios and hearing ongoing reports of a Martian invasion of New Jersey is that many people believed it and a temporary panic ensued.  Lots of people thought it highly likely that Mars was inhabited by intelligent beings who were a threat to us.

How things change.  Now we have sent several vehicles to Mars, where not only are there not dangerously threatening intelligent beings, but we have yet to find any signs of even single-cell life, although the recent discovery of some actual water there may yet possess the possibility that some simple form of life is there, or perhaps was, although increasingly the search for probably only single-cell life to moons of Jupiter and Saturn, with no luck so far.  If there are intelligent space aliens, they are on planets in other star systems.  However, until recently, given over 100 billion stars in our Milky Way galaxy, various estimates of the probabilities involved had it as near certain there is life elsewhere in the galaxy, and also highly likely that there is intelligent life of some source, probably on multiple planets.  And we have indeed discovered “exo-planets” around many stars (I note that my brother-in-law, Michael Werner, has long been a major leader of the search for these exo-planets using the Spitzer infrared telescope).

These calculations suggesting a high probability of intelligent life elsewhere triggered the initiation of the Search for Extra-Terrestial Intelligence (SETI) about a half century ago, sending out various messages hoping to get a reply from somebody out there.  So far there have been no replies.  This has begun to shift views to the point that now we have flipped to the opposite view of that held in 1938: now we have commentators suggesting that the probability of life is much lower than previously thought, that we arose from a very curious and special set of circumstances, these so weird we may in fact be alone in the galaxy, and even possibly in the entire observable universe.

 

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