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 Richmans' Trade and Taxes Blog



A SolarTheory of Global Warming Casts Doubt on Man-Made Global Warming
Raymond Richman, 8/31/2011

No doubt the ban-carbon-emissions-lobby will find arguments that belittle the CLOUD research at CERN, Europe's leading nuclear research center, the results of which were published last week in Nature magazine. But one thing is certain, the CLOUD experiment has confirmed that there is an alternative theory to the current theory that man-made-carbon emissions cause global warming. Al Gore, former v-p of the United States, embraced and fostered the theory and made repeated statements that the global warming science was settled. He made a movie which created widespread fear of global warming which he alleged was the result of the industrial world’s emissions of carbon dioxide in the atmosphere. From 2007 on, he knew that there was an alternative theory. That was the year in which a Danish scientist, Henrik Svensmark, affiliated with the Center for Sun-Climate Research at the Danish National Space Institute, published a paper describing his theory that climatic changes on Earth were the result of solar activity through the latter’s effects on cosmic rays bombarding the earth.

Svensmark theorized that cosmic rays causes clouds to form cooling the earth or impeded the formation of clouds leading to global warmings.  When the sun experiences  strong magnetic activity, it diverts the cosmic rays heading for the earth preventing the formation of clouds and when there was a weak magnetic effect, cosmic rays bombarded the earth’s atmosphere, seeding the clouds and facilitating cloud formations. When the sun’s magnetic activity is weak, cosmic rays cause clouds to form and cool the earth. When the sun’s magnetic activity is strong, the reduction in cosmic rays bombarding the earth’s atmosphere creates global warming. ...

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How Economic Recovery Is Being Sabotaged By Bad Economic Policies
Raymond Richman, 8/29/2011

President’s economic advisors want to spend more trillions to stimulate the economy. They are joined by a large number of Keynesian economists. The huge federal budget deficits of 2009 and 2010 of over $1.5 trillion each, and the President’s $800 billion dollar economic stimulus plan of 2009 – 2011, as we pointed out in this site several times, was poorly designed to stimulate investment in the private sector, a sine qua non for a growing industrial economy. The trillions spent by the federal government must be considered an utter waste of precious resources. Very little of it was de gned to stimulate the demand for new housing or stimulate other private investment. The hundreds of billions spent on subsidizing activities intended to reduce carbon emissions was totally wasted.

Business reluctance to invest in housing is understandable with so many millions of houses awaiting foreclosure and so many mortgages in default. There is thus a surplus of houses, which will take years to work off. The government has made housing into an unattractive investment. As we have indicated on this site more than once, Democrats wanted to make it easy for unqualified households to purchase homes and Republicans supported the policy because home-owners are more likely to be conservative and vote Republican.

It is not hard to explain the reluctance of American businesses to invest in the U.S. while they continue to invest huge sums abroad. The answer is that they can produce their products much cheaper abroad and they can import the products they produce abroad free of duties. Both parties are committed to the false doctrine of  “free trade”. ...

 

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Unemployment claims Have Fallen But the Economy is Stagnating. What we need to do.
Raymond Richman, 8/28/2011

The economy is stagnating, growing at a very low rate. This was borne out by recent GDP data which showed that economic growth fell to .4 of a percent in the 4th quarter of 2010 and rose to only 1.4 percent in the 1st quarter of 2011. In the 2nd quarter 2011, GDP rose only one percent. Those are poor numbers especially after 2 ½ years of Keynesian policies to promote recovery. Employment has been increasing but at a very slow rate that barely covers new entrants into the labor force. Unemployment claims have fallen over the past year.

During the past few weeks, we’ve called attention to our readers that the US Bureau of Labor Statistics (BLS)  in reporting initial unemployment claims during the preceding week was issuing a questionable statistic called “seasonally adjusted” initial claims. It is true that in the past, there were seasonal variations in the number of claims filed, for example, auto makers closed plants in the summer for the preparation of new models and in the fall retailers hired workers for expected increased sales before Christmas. To give the BLS credit, it also reports the actual number of initial claims. Due to laziness apparently, the media never report anything except the seasonally adjusted figure, which is a statistician’s estimate of what the claims would have been if you did not count the seasonal changes.   ...

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Comments: 0


QE2 could have worked had Bernanke bought foreign currencies instead of Treasury bonds
Howard Richman, 8/25/2011

University of Maryland business economist Peter Morici, former Chief Economist at the U.S. International Trade Commission, has an excellent understanding of the way economics works in the real world, but he made a rare mistake in a recent commentary (Fixing Markets Needs to Start in White House). He missed the fact that the Federal Reserve, not just the Treasury Department, can engage in foreign exchange purchases. He wrote:...

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Comments: 1


June trade data showed a worldwide slowing of business investment
Howard Richman, 8/23/2011

The June trade data, released August 11 by the BEA, showed both a slowing of worldwide business investment and an increased bleeding of U.S. prosperity by China. The slowing of business investment was evidenced by the fact that U.S. exports declined from May to June led by U.S. exports of capital goods and industrial supplies. Here is the key paragraph from the report:...

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Unemployment Claims Fell and Did Not Rise As Reported. Did the Misinformation Help Cause the Fall in the Stock Markets?
Raymond Richman, 8/18/2011

With stock markets in a free fall today, Thursday, 8-18-11, mostly as a result of concern about European banks, it was disconcerting to hear the unpleasant news on CNBC that claims for unemployment insurance in the U.S., seasonally adjusted, in the week ending Aug 13 rose to 408,000 up 9.000 from the week before. Seasonally adjusted figures are statistical estimates based on earlier “normal” years. There have been no recent “normal” years. In any case, the actual number of claims filed is more reliable and is not an estimate. The actual number of claims filed totaled 342,669 , a decrease of 11,739 from the actual number in the previous week. What a difference! Instead of an increase in claims which the seasonal adjustment estimated, the number of claims fell 3.3 percent. Moreover, in the comparable week a year ago, there were 405,484 initial claims filed. There was a reduction of  62,815 compared to a year ago. That was not the only good news. The unadjusted number for persons claiming UI benefits in state programs totaled 3,535,364, a decrease of 45,069 from the preceding week and 745,7 10 or 17.4 percent from the comparable week a year ago.

Would the U.S. markets have collapsed had the actual number of claims been reported by CNBC and Bloomberg and Fox business news?  No one knows but it is safe to say that it would have been more reassuring to investors and the short sellers would not have dominated the market as they did. Here is hoping that the news services will pick up this report and the markets will rally tomorrow. ...

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Comments: 12


McCotter Moving Up (a bit) in Polls
Jesse Richman, 8/18/2011

It is a small step, but it may signal a transition toward a viable national campaign.  In the most recent poll to examine support for Republican primary candidates, Thaddeus McCotter achieved his first non-zero showing of the polling season so far, earning the support of one percent of the respondents in a recent Fox News poll once the pool of candidates was restricted to those who had announced their candidacies.  McCotter is the only declared GOP candidate who has partially broken with party orthodoxy on free trade...

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Comments: 17


Gordon Chang: "The Chinese have a right to maintain mercantilist practices. Yet we have every right to counter them."
Howard Richman, 8/16/2011

Writing in the August 7 Forbes Magazine (Obama Can't Say the Word "China"), Gordon Chang points out that President Obama is ignoring one of the primary causes of the US economic malaise. He writes:

“There is no doubt this has been a tumultuous year,” said President Obama on Friday as he began his speech at the Washington Navy Yard by talking about the American economy. “We’ve weathered the Arab Spring’s effect on oil and gas prices, the Japanese earthquake and tsunami’s effect on supply chains, the extraordinary economic uncertainty in Europe. And recently, markets around the globe have taken a bumpy ride.”

Each of the events he mentioned lowered growth in America, yet all of them were marginal and temporary. If we want to start a meaningful conversation on the topic, there is one word he needs to utter: “China.”

He goes on to point out that Washington is doing nothing to counter China's predatory trade practices, even though we have the right to do so:...

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Comments: 1


Economic Stagnation: Have We Run Out of New Products? No, But We Are Outsourcing Their Production
Raymond Richman, 8/15/2011

The stagnation of the U.S. economy in spite of federal deficits of $1.5 trillion dollars in both 2009 and 2010 has added to the belief that Keynesian deficit spending is ineffective. We subscribe to that thesis. The President’s $800 billion dollar economic stimulus plan, 2009 – 2011, as we pointed out in this site several times, was poorly designed to stimulate investment in the private sector, a sine qua non for a growing economy. None of the investments in wind and solar energy would have passed cost-benefit analysis and they provided very little sustainable employment. The housing sector has not recovered from the burst of the housing bubble which stranded millions of construction workers who are still mostly unemployed. In the manufacturing sector, investments in new plant in the U.S. barely cover the depreciation allowances let alone stimulate net new investment.

The failure of the Recovery Act of 2009 to increase employment while spending  over $782 billion and running budget deficits of $1.5 billion per year had a number of possible causes: 1) the continued malaise in the housing sector hung over by hundreds of billions of dollars of mortgages in default, 2) the fact that the stimulus package ear-marked spending for every cause backed by Obama supporters, none of which included incentives to unsubsidized private investment, 3) the continuing trade deficits, which increased to $53 billion in June, 2011,  represent a continuous  drag on the GDP of over $600 billion a year, and keep costing us millions of manufacturing jobs, 4) government policies actually impede the development of fossil fuel exploration, drilling, and production by the Obama administration in its subservience to its anti-carbon emission obsession, 5) the anti-business policies of the Democratic Congress including its actions to regulate banks and other firms in the financial sector and EPA’s inflicting foolish environmental burdens on new and existing manufacturing  businesses,

All of the foregoing contribute to the unwillingness of businesses to invest in new or expanded production facilities in the U.S. New products like the I-Pad and mobile telephones were invented here but are produced overseas, with most of the product exported free of duty to the U.S  The only exceptions are the investments of foreign automobile makers in the U.S.,and investments in the highly subsidized so-called renewable energy plantations.  As to the latter, it is worth noting in the news today (8-15-11) the  announcement of the bankruptcy of Evergreen Solar which listed $485 million of debts, much of it owed to state and federal agencies which subsidized the building of its solar panel factories in Massachusetts and Michigan. Last year the company began producing solar panels in China. That entity is expected to survive the bankruptcy with different ownership. ...

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Is Dark Horse McCotter the best Republican Candidate on Trade?
Jesse Richman, 8/13/2011

Representative Thaddeus McCotter was unique among the speakers at the Iowa Straw Poll today in identifying the importance of addressing the challenge posed by China.  His website also acknowledges China's mercantilist trade policy and advocates ending it. 

"We must seek to restore vibrancy and prosperity to the American economy and the American middle class by dismantling destructive concentrations of power – in banking, in government and in education – and by ending Communist China’s mercantilist trade policy. By allowing American workers and entrepreneurs to compete on a level playing field, we will see how well they perform and how much we all prosper."

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Comments: 7


Candidate Positions on Trade in the Fox News Debate 8/11/2011
Jesse Richman, 8/12/2011

In the Fox News sponsored debate that took place in Iowa on August 11, 2011 several of the candidates addressed the issue of the decline of American manufacturing and trade, though none used the term "trade deficit" in their discussion.  Several offered proposals, though none provided details and their campaign websites often provide even less information than the candidate did in the debate.  The challenge, as framed by Huntsman is that "We don't make things anymore in this country.  We need to start making things in this country."

 

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Comments: 1


Prof. Feldstein Has No Recovery Policy
Raymond Richman, 8/11/2011

We don’t often disagree with Prof. Martin Feldstein, a distinguished economist,  but we do with his opinion piece in the WSJ, 8-1-11 in which he writes, “A falling dollar may be the only major economic change that can accelerate the anemic pace of recovery and prevent a new downturn in U.S. economic activity.” We believe there are a number of good policies that can be easily implemented and that a devaluation of the dollar is not one of them. He believes that a falling dollar will stimulate U.S. exports by making American goods cheaper to foreigners. “The declining dollar has been the key driver of American exports. … Although exports are only 10% of U.S. gross domestic product (GDP), the rise in exports during the past four quarters contributed more than 50% of GDP growth during that period.” We believe the data in the following table belies that assertion.

He does not mention imports although the trade balance, exports minus imports, is what contributes to the GDP and the trade balance was negative and growing during the past four quarters.

Let’s look at the foreign trade data from 2nd quarter 2010 to 2nd quarter 2011. ...

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Comments: 0


Double the Dip?
Jesse Richman, 8/8/2011

Nouriel Roubini's column in today's Financial Times presents a dark picture of the world economic situation.  Roubini notes the diminishing leverage available to policy makers and central banks the west, and signs of slowing economic growth or economic contraction. 

Roubini calls for the following actions:

1. short term economic stimulous from western countries that retain access to credit markets (including the US). 

2. more quantitative easing by central banks.

3. aggressive restructuring of mortgage debt and bank balance sheets.

Roubini acknowledges, however, that all of these are more difficult to do now than two or three years ago.  He concludes that preventing a severe recession may be impossible, but preventing a depression could still be feasible if the appropriate policies are enacted.

Roubini does not discuss measures to balance trade.  But the next round of the crisis which is now coming is closely linked to the world's out-of-balance trade conditions.  How the world emerges from this crisis depends very much on how trade is dealt with.

In a recent post Michael Petis writes on EconoMonitor concerning the criticisms made by China and Germany concerning the credit-worthyness of their trading partners, and the ways that the current crisis can end.  He is spot on...

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Asian central banks step up currency manipulations
Howard Richman, 8/4/2011

On November 15, while predicting the effects of QE2, I wrote:

The effect upon the dollar can’t help much. It will either be temporary or disastrous, depending upon what foreign central banks do:

  1. Temporary Effect. If foreign central banks buy dollars with their currencies to prop up the dollar, as most Asian central banks are already doing so that their own products will be more competitive, they will drive the dollar back up, eliminating the positive effect upon America’s trade balance.
  2. Disastrous Effect. If foreign central banks don’t buy dollars, then the dollar will collapse, producing a severe cut in American living standards. The United States would experience inflation. Interest rates would skyrocket. The prices of foreign goods, including oil, would skyrocket.

The effect was temporary. the central banks of Asia's largest economies appear to be stepping up their currency manipulations.  Bloomberg reports:...

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How Misleading Unemployment Claims Data Can Cause the Double Dip Recession
Raymond Richman, 8/4/2011

As usual, the BLS reported seasonally adjusted initial claims in the first paragraph of their weekly report dated August 4, 2011 and in the following section of the report it reported the actual number of claims filed. The report was published at 8:30 AM., Thursday, August 4. For the week ending July 30, it reported that seasonally adjusted initial claims were 400,000, a decrease of 1,000 from the previous week's revised figure of 401,000. In other words, for all practical purposes, there was no change in the number of claims from the previous week. The actual number of initial claims, not adjusted seasonally, totaled 339,348 in the week ending July 30, a decrease of 29,939 from the previous week, a decline of almost ten percent. There were 402,140 initial claims in the comparable week in 2010. The advance unadjusted number for persons claiming unemployment insurance benefits in state programs totaled 3,663,134, a decrease of 89,947 from the preceding week. A year earlier, the volume was 4,438,886. The total number of people claiming benefits in all programs for the week ending July 16 was 7,570,439, a decrease of 75,192 from the previous week. All this relatively good news was unreported in the media.

Before the New York stock markets opened, Asian markets showed a decline and markets in Europe substantial declines. It is not surprising that the New York Stock Exchange opened lower but the combination of bad news in Asia, Europe, and the dismal report of unemployment insurance claims in the U.S. led to the DOW falling 512 points, the second worst decline since the recession began. We expect the relative good news about unemployment claims to be repeated in the employment data to be released at 8:30 A.M. August 5, 2011 and hope it may restore some optimism about America’s future and rally the stock market.

We are not optimistic about our economic recovery. ...

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Comments: 1


Will Asia Pull Back from the Dollar?
Jesse Richman, 8/2/2011

An August 2nd Reuters article argues that Asian governments may be pulling out of dollar investments. 

Some locations like Singapore and China are already taking steps to cut their exposure to the U.S. dollar, and Washington’s brush with default may hasten the shift...

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]