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

The Current State of the U.S. Dairy Industry

The Current State of the U.S. Dairy Industry

 I had to endure a discussion of the plight of American dairy farmers where Trump’s trade policies were somehow to blame. Stephanie Mercier confirmed some of the facts:

According to data reported by the National Farmers Union (NFU), the average dairy farm has shown a positive net income only once in the last decade, in 2014. In 2018, the average value of production exceeded the total cost of producing each hundredweight of milk in only one state, California, and nationwide, dairy farmers lost an average of $3.21 per hundredweight of milk produced. For 2019, total dairy production is expected to increase modestly over 2018, by less than 0.3 percent, and the average all-milk price is expected to increase as well, from $16.26/cwt in 2018 to $18.40/cwt. While the projected 13 percent increase in price for this year is welcome news for U.S. dairy farmers, that level still falls below the average total cost of production for farmers in most of the country.

But she had a very different take on the international issues involved:

This situation is largely a result of a persistent mismatch between the supply of dairy products and the demand for them, and is not isolated to the U.S. domestic market. Within the European Union, low dairy prices prompted some Italian, German, and Belgian producers to dump their product in protest during the summer of 2019. The combination of low prices and a severe drought in 2018 has pushed many Australian dairy operations to the brink of collapse. The farmer-owned Fonterra dairy cooperative, serving both Australia and New Zealand farmers, has seen its share values decline by about 50 percent since the beginning of 2018.

Look – we can criticize Trump’s stupid trade war for a lot of things but low milk prices are being driven by other factors:

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Bicycles and Wine Tariffs

Bicycles and Wine Tariffs

Jeffrey Frankel has a must read blog over at Econbrowser:

The “bicycle theory” used to be a metaphor for international trade policy. Just as standing still on a bicycle is not an option — one has to keep moving forward or else the bike will fall over – so it was said that international trade negotiators must continue to engage in successive rounds of liberalization, or else the open global trading system would be pulled down by protectionist interests. I don’t know if the theory was ever right. (And, to be honest, I don’t entirely understand why forward movement keeps a bicycle from falling over.) But if we had stood still on trade policy over the last three years we would be a lot better off than where we are now.

It may be cold in New York City but after all that Thanksgiving wine, maybe a bicycle ride is in order. Just after that infamous phone call with the President of Ukraine, Trump opined on trade policy regarding wine:

Mr Trump, who is teetotal, said: “I’ve always liked American wines better than French wines. Even though I don’t drink wine. I just like the way they look.” The US is the world’s largest consumer of wine and the largest import market, with France consistently among the top origin countries for imported wine.

He was angry over something called the digital sales tax but here is a more related reason for this weird tweet:

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Have the Transfer Pricing Experts at KPMG Heard of the Repo Ruckus?

Have the Transfer Pricing Experts at KPMG Heard of the Repo Ruckus?

If one thinks Trump’s economic advisors are the dumbest people on the planet, I have a new candidate for that award – a few supposed experts on intercompany loans that work for KPMG:

In 2017, the ARRC selected the Secured Overnight Financing Rate (SOFR) as the alternative that represents the best replacement rate for USD-denominated LIBOR. SOFR is based on overnight transactions in the U.S. dollar Treasury repo market, the largest rates market at a given maturity in the world … In the time since the Federal Reserve Bank of New York began daily publication of SOFR in 2018, significant progress has been made in building liquidity in SOFR-linked markets (which include dollar-based derivatives and loans) … SOFR is fundamentally different than LIBOR in a number of key elements. SOFR is (currently) an overnight rate, is secured and is designed to reflect a (virtually) risk-free rate. LIBOR has forward-looking term options, is unsecured and is designed to reflect a bank’s cost of funding. All of these characteristics factor into how SOFR will perform under certain circumstances and how it can be used by market participations. For example, the following figure compares 3-month LIBOR, one the most commonly used LIBOR benchmarks, to the 3-month simple average of SOFR. SOFR is generally both lower and, depending on the methodology applied to derive a term structure, less volatile as compared with LIBOR. This is to be expected given the lower risk profile of SOFR, since it represents borrowings collateralized by U.S. Treasury securities while LIBOR reflects interbank credit risk.

The purpose of their ramblings was to advise multinationals on what to do with a set of their intercompany loans once LIBOR disappears, which is sort of making an easy issue hard so their arrogant and overpriced clowns can charge lots of fees for virtually nothing. But hey – that is what the Big Four does.

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Ukraine Corruption and Transfer Pricing

Ukraine Corruption and Transfer Pricing

As I listened to the testimony of Bill Taylor and George Kent, I was also reading up on some South African transfer pricing case involving iron ore:

Kumba Iron Ore will pay less than half of the tax bill it received from the SA Revenue Service (Sars) last year following audits of its export marketing practices during the commodities boom. The settlement of R2.5bn significantly overshot the R1.5bn Kumba had set aside as a contingent liability. It is, however, a fraction of the taxes, penalties and interest payments Sars was pursuing the country’s dominant iron ore producer for. The existence of a potential tax liability was first reported to shareholders in June 2014, but Kumba could only put a number on it early last year when it received a tax assessment of R5 billion for the years 2006 to 2010.

If this account sounds like a lot of accounting gibberish, one might check with other accounts including whatever BDO wrote but these other accounts were even less informative. To paraphrase one commercial “people who know” avoid BDO. I think what happened is that the South African tax authority objected to what it saw as a lowball transfer pricing paid to the South African mining affiliate by a tax haven marketing affiliate and decided to completely disallow any commission income for the tax haven affiliate. This account at least notes that Kumba Iron Ore eventually told its shareholders that there might be some transfer pricing risk and that the issue was eventually resolved with a more modest commission rate booked by the marketing affiliate. So what does this have to do with Ukraine?

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Mankiw’s Ideal Democrat (Bloomberg Alert)

Mankiw’s Ideal Democrat (Bloomberg Alert)

Greg Mankiw has always been a Never Trumper:

I just came back from city hall, where I switched my voter registration from Republican to unenrolled (aka independent). Two reasons: First, the Republican Party has largely become the Party of Trump. Too many Republicans in Congress are willing, in the interest of protecting their jobs, to overlook Trump’s misdeeds (just as too many Democrats were for Clinton during his impeachment). I have no interest in associating myself with that behavior. Maybe someday, the party will return to having honorable leaders like Bush, McCain, and Romney. Until then, count me out. Second, in Massachusetts, unenrolled voters can vote in either primary. The Democratic Party is at a crossroads, where it has to choose either a center-left candidate (Biden, Buttigieg, Klobuchar, Yang) or a far-left populist (Warren, Sanders) as their nominee for president. I intend to help them choose the former. The latter propose to move the country too far in the direction of heavy-handed state control. And in doing so, they tempt those in the center and center-right to hold their noses and vote for Trump’s reelection.

In a way I get this and a lot of other centrist Republicans are saying similar things. Enter Michael Bloomberg:

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Has Tyler Cowen or John Cochrane Ever Heard of Monopsony Power?

Has Tyler Cowen or John Cochrane Ever Heard of Monopsony Power?

I’m going to replicate one portion of a long winded rant about alleged cognitive dissonance:

The argument for a minimum wage is that labor demand is inelastic — employers will hire the same number of workers. They will just absorb the higher wages or pass along the costs to customers. Workers get all the benefit. If labor demand is elastic, employers cut back on the number of employees.

Of course, labor economists would recognize that John Cochrane’s entire post assumes a perfectly competitive labor market. One has to wonder about economists who have never even considered monopsony power.

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Mike Pompeo Reminds Me of Al Capone

Mike Pompeo Reminds Me of Al Capone

How to say in Latin that our Secretary of State is pompous and dishonest as it gets? Oh yea – if one says “quid pro quo” in English, it never happened. These unbelievable stupid excuses for denying what is plainly true – that Trump extorted dirt on Democrats from Ukraine by withholding military aid – is insulting as they are treating us like “chumps” to paraphrase Leon Penatta. But even more insulting is this:

Secretary of State Mike Pompeo fiercely criticized the House impeachment inquiry, saying his department is being treated unfairly as Democrats seek to remove President Donald Trump from office … “They’re not letting State Department lawyers in the room … they have not let State Department lawyers be part of these hearings,” Pompeo said. “That’s unheard of … I haven’t seen you all report that.”

First of all, we do know that the brave members who served the State Department honorably have turned down Pompeo’s lawyers in lieu of bringing their own so this last sentence of his is a lie as this fact has been reported on. Secondly, Pompeo is whining that HE is being treated unfairly. Look Pompeo is clearly a mobster style criminal – hence my reference to Al Capone. Can you imagine a grand jury investigation of a mob boss where the mob boss gets to send his own lawyer into the testimony before the grand jury? Witnesses might be reluctant to appear out of fear that the mob lawyer would tell his client who to knock off. Pompeo is all about witness intimidation as he fears the truth. And yea – I bet Pompeo and his boss (Trump) would stoop to killing anyone who dares to stand up to their treasonous crimes.

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Drain the Ukrainian Swamp

Drain the Ukrainian Swamp

Trump’s latest excuse for withholding arms for the Ukrainian government to defend itself against Putin’s invitations so he can extract dirt against the Bidens is what again? Oh yea – he wants to root out corruption. REALLY? OK – start with this:

KYIV, Ukraine (AP) — As Rudy Giuliani was pushing Ukrainian officials last spring to investigate one of Donald Trump’s main political rivals, a group of individuals with ties to the president and his personal lawyer were also active in the former Soviet republic. Their aims were profit, not politics. This circle of businessmen and Republican donors touted connections to Giuliani and Trump while trying to install new management at the top of Ukraine’s massive state gas company. Their plan was to then steer lucrative contracts to companies controlled by Trump allies, according to two people with knowledge of their plans.

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Does Bob Barr Need It in Writing?

Does Bob Barr Need It in Writing?

I think we all know AG Barr lied about the Mueller report but permit me to go back to this:

The moment Attorney General William Barr laid eyes on a letter from special counsel Robert Mueller criticizing Barr’s summary of his two-year investigation, he knew his goose was cooked. Mueller was creating a written record that wouldn’t allow Barr to bastardize his concerns the way he had mischaracterized Mueller’s report. “Bob, what’s with the letter? Why didn’t you just pick up the phone and call me?” Mueller didn’t need to tell Barr what they both knew: Mueller now considered Barr an untrustworthy adversary—a liar, in essence. Going forward, Mueller was going to memorialize his views in writing

. Fast forward to how AG Barr handled the Whistleblower complaint:

The CIA’s general counsel made a criminal referral — or at least, she thought she did — of a whistleblower’s complaint concerning President Donald Trump’s interactions with Ukraine’s president. According to NBC News, which cited unnamed officials familiar with the matter, Courtney Simmons Elwood, the CIA’s top lawyer, considered her Aug. 14 phone call with high-ranking DOJ officials to be a criminal referral. However, unnamed Justice Department officials told NBC News they didn’t consider the conversation to be a formal criminal referral — because it wasn’t in writing.

Bob Barr is a pathetic excuse for Attorney General. We need to remand that he resign – TODAY!

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UkraineGate: What Will Volker Say?

UkraineGate: What Will Volker Say?

I am referring to Kurt Volker:

The president’s lawyer Rudy Giuliani has revealed text messages of conversations between himself and senior officials at the State Department that he says show they endorsed his controversial dealings with Ukraine…During an appearance on Fox News show The Ingraham Angle last night, Giuliani revealed 15 text messages between himself, U.S. Special Representative to Ukraine Kurt Volker, and U.S. Ambassador to the European Union Gordon Sondland.

When I first heard the lying and very corrupt RUDY say this, I could only imagine the consternation of the people in the State Department over the fact that RUDY wants to drag them down with him. But here is the interesting news:

Kurt Volker, US special envoy to Ukraine, has resigned one day after the release of a whistleblower report alleging a coverup by the White House of a call between President Donald Trump and Ukraine’s President, three sources familiar with the matter confirmed to CNN. Volker was named in the report…here is no evidence of wrongdoing by either Joe or Hunter Biden. The news of Volker’s resignation comes just hours after the House Foreign Affairs Committee announced they would hold a deposition for him next week. “We still expect to hear everything he knows about this scandal,” said a congressional aide familiar with the deposition plans. But it’s unclear if he will still speak with the committee on the planned date. Giuliani denied to CNN on Thursday the characterizations of his interactions with Volker detailed in a complaint from an American intelligence community whistleblower, saying he had a “nice little trail” of text messages with Volker to prove his story. “I spoke to the State Department during the course of this situation, I told you, at least 10 times, and I met with them,” Giuliani told CNN.

Yes RUDY – we know you love to talk. Of course no sane person believes a word you say. Why should we expect Mr. Volker to come forward and do the right thing?

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