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 Richmans' Trade and Taxes Blog



Time to Eliminate the IMF, the World Bank, and the WTO
Raymond Richman, 10/31/2013

On this site, October 29th, I reviewed Benn Steill’s book on the Bretton Woods conference where the World Bank and the International Monetary Fund were created. At the conference, Dr. Harry Dexter White, representing the United States, later shown to have been a Soviet agent, and John Maynard Keynes, the eminent economist, battled to achieve a post-war world of financial stability. White’s views prevailed and now we are burdened by the two international institutions mentioned above which have no justifiable excuse for continuing to exist. In fairness to White, Keynes’s proposals had they been adopted would have been equally bad. The trouble is that once created, like most bad legislation, they are incredibly difficult to get rid of. They develop constituencies which seem able to prevent their repeal. 

The global sentimentality which motivated Woodrow Wilson to found the League of Nations and Franklin Roosevelt to establish the United Nations, the World Bank, and the IMF, has badly served the USA. This is true as well of many other global institutions such as the World Trade Organization and many international treaties where the U.S. is a signatory. These organizations go out of existence.  They no longer serve any useful purpose if they ever did.  

Take first the IMF. The IMF was created to provide financial stability, to prevent countries from manipulating their foreign exchange rates to gain a competitive advantage in international trade, a favorable balance of trade, which stimulates their economies while weakening the economies of its trading partners. A good example of that is the enormous trade surplus of China with the United states, but China is not the only country enjoying a chronic trade surplus with the USA, Japan post WWII engaged in similar practices and has enjoyed a chronic trade surplus with the USA. Germany and others have chronic trade surpluses with the U.S. The IMF has done nothing to prevent any of this from happening. Neither has the World Trade Organization.  ...

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Weekly Unemployment Insurance Claims Week Ending October 26
Raymond Richman, 10/31/2013

The weekly unemployment insurance weekly claims report is in our opinion the most timely indication of changes in the state of the economy. We consider a reduction in the claims filed below 300,000 to be positive for the economic future. We called your attention to that fact when that occurred a few months ago. It has since returned to levels in the mid-300s, which we view as economic stagnation. Unemployment, including those who left the labor force and those working part-time is as great as it has been since 2009.  We favor giving greater weight to the unadjusted data since we know no reason for seasonally adjusting weekly data. The first few paragraphs of today’s report reads as follows:...

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Why China PNTR turned out to be a disaster
Jesse Richman, 10/29/2013

Here is testimony by former Assistant U.S. Trade Representatitve Robert E. Lighthizer on how the predictions of U.S. economic benefit from China joining the WTO went so wrong. Thanks to Bob Hall for circulating this.

This paper has four major parts. First, I analyze the major claims made by those who supported PNTR. I show that during that debate, U.S. policymakers and the public were repeatedly told that China’s WTO accession would lead to significant economic and trade benefits for the United States. Second, I analyze the record of the last ten years, and conclude that, for the most part, those promises have not been fulfilled. Third, I examine why the optimistic expectations associated with China’s WTO accession were not accurate. I conclude that there were several fundamental problems, including the following: (1) U.S. policymakers did not recognize the extent to which China’s economic and political system is fundamentally incompatible with our conception of the WTO; (2) U.S. policymakers significantly misjudged the incentives for Western businesses to shift their operations to China and serve the U.S. market from there; and (3) the U.S. government has been very passive in response to Chinese mercantilism. Finally, I discuss what steps U.S. officials should take to address the problems caused by China’s WTO accession. I conclude that, as a general matter, we should adopt a significantly more aggressive approach than we have followed thus far.

Reposted from TradeReform.org.

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Why Holder Didn't Prosecute Jon Corzine
Howard Richman, 10/25/2013

And while we are on the subject of Holder's selective prosecutions, this from the Huffington Post:

The collapse of Jon Corzine's brokerage firm MF Global has all the traits of your standard Wall Street scandal: Stupid things being admitted in panicked emails, wild risk-taking -- and absolutely nobody going to jail.

And this from Real Clear Politics:...

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Why Holder Didn't Loot Goldman Sachs
Howard Richman, 10/24/2013

It is hard to prove that Attorney General Holder's shakedown of JPMorgan for $13 billion was politically motivated. The timing suggests political motivation, in that JPMorgan CEO Jamie Dimon had spoken out against Obama's "anti-business" economic policies during the 2012 election campaign. But timing doesn't prove causation. 

The circumstances suggest political motivation, in that the charges mostly stem from shady practices at two failed financial institutions that JPMorgan bought to prevent a chain reaction of defaults, at the request of the Bush administration. But Holder's punishment of public-spirited take-overs, also, doesn't prove political motivation.

The size of the settlement, the largest ever extracted by the government from an American business, and the diversion of $4 billion into a political slush fund suggest political motivation. But, again, they do not prove it.

The strong evidence of political motivation comes from Holder's selective prosecutions. According to an August 10, 2012, press release by Michigan Democratic Senator Carl Levin, JPMorgan's fellow major bank Goldman Sachs was caught red-handed by his investigative committee in mortgage fraud. Here's a selection:...

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Book Review: Benn Steil, The Battle of Bretton Woods, John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton, N.J., Princeton University Press, A Council on Foreign Relations Book, 2013)
Raymond Richman, 10/23/2013

Two international institutions, the World Bank and the International Monetary Fund, were created at a conference of the nations allied in the war against Hitler Germany, Fascist Italy, and feudal Japan called by the United States at Bretton Woods New Hampshire in the midst of WWII. The principal negotiators, notwithstanding the multitude of countries in attendance, were Harry Dexter White, an under-secretary of the U.S.arry  Treasury Department, and John Maynard Keynes, the great English economist, representing Great Britain. The purpose of the conference was to create a world monetary system that would promote free trade and a system of stable monetary exchange rates to prevent the manipulation of exchange rates for foreign trade gains. Both the principal negotiators sought, in the International Monetary Fund, an institution that would ensure that exchange rates would not be manipulated for competitive trade advantage. They succeeded in creating the IMF but it never measured up to this expectation. 

The Roosevelt administration had to overcome the isolationist proclivities of most Americans as represented by the opposition to lend-lease of Republican Senator Taft and Democratic Senators James Byrnes and Harry Byrd. Sen. Taft was prescient in denouncing membership in the monetary fund as “like pouring money down a sewer.” White and Keynes clashed as the former successfully pushed for an end to the policy of  “imperial preference” by which Britain secured privileged trade access to the markets of its colonies and dominions. Steil describes it as a ploy to ensure that “war-ravaged Britain would remain wholly dependent on American succor to pay for imports vital to its survival.” The British had been anxious to see themselves as partners with the Americans in creating the ground rules for the postwar order but the Americans kept reminding them that “there was no room in the new order for the remnants of British imperial glory.”...

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The JPMorgan Shakedown Slush Fund
Howard Richman, 10/22/2013

In my last blog post, I reported Attorney General Holder's shakedown of JPMorgan Chase for $13 billion. I supposed that Holder was punishing CEO Jamie Dimon for criticizing the Obama administration's "anti-business" economic policies during the 2012 election campaign.

I missed a possible second political purpose. According to University of Maryland business economist Peter Morici:

"They're paying a huge fine to a cash-hungry treasury. They're also giving the president money to spread around for political purposes. Four billion [dollars] for consumers who were hurt by basically fraudulent mortgages.

"A lot of those homeowners really committed fraud. They're the ones who lied on the mortgage applications. They're the ones that took out loans they had no business taking out, all at the behest of Fannie Mae and Freddie Mac who's also getting paid off. This whole thing is a travesty of justice."

Like me, Morici described the settlement as a "shakedown":...

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Holder shakes down JPMorgan
Howard Richman, 10/21/2013

On the heels of IRS targeting of Tea Party groups, we have another example of the "Chicago Way" in action. The New York Post reported on Sunday:

JPMorgan Chase has tentatively agreed to pay the Department of Justice a record $13 billion settlement to resolve several civil probes relating to residential mortgage-backed securities — a costly deal that still doesn’t protect the bank against additional criminal prosecutions.

The settlement, revealed Saturday, would be the largest lump payout the US government has ever asked of an individual company.

“This is a basic and fundamental attack on capitalism,” declared Dick Bove, an influential bank analyst at Rafferty Capital.

“It is possible that the government is taking away the property of the JPMorgan shareholders without the shareholders having committed any crime or having any say in the expropriation of these funds.”

The shakedown was completed personally by Attorney General Eric Holder. According to newsmax.com:

The settlement deal was sealed this past Friday night in a telephone call between Attorney General Eric Holder and JPMorgan CEO Jamie Dimon.

Some financial analysts argue that the shakedown was unjustified. The supposed crimes by JP Morgan resulted from portfolios of failed banks that JP Morgan had taken over at administration request. JP Morgan and Wells Fargo were the two well-managed major banks that didn't need government help during the fall 2008 financial meltdown.

The attack on JP Morgan could be payback for things that Dimon, a former Obama favorite, said during the 2012 election season. According to newsmax.com:...

 

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How the Republicans Could Have "Won" the Partial Government Shutdown
Raymond Richman, 10/19/2013

 

The Republicans could have won had they concentrated on the so-called “government shutdown” and, early on, had raised the debt limit temporarily. In any case, the shutdown  was only a partial shutdown. It furloughed only employees not covered by the federal Antideficiency Act, which permits certain essential government functions to keep operating in the absence of authorized legislative funding. Had the House raised the debt ceiling before shutting down any government agencies, Americans would not have even noticed the partial shutdown. The Republicans missed the public relations gain they could have gotten if they had pointed how partial the shutdown was. But the threat to permit no new government borrowing scared the public to death. 

The public could have been shown how little they were affected by the partial shutdown. The veterans showed at the WWII memorial that the President unnecessarily barricaded entry to public monuments and parks to make the public believe that the shutdown seriously affected government operations when it actually eliminated the inessential and some of the fraud, waste, and abuse in the federal budget.

 As for the debt ceiling, it should not have been imposed in the first place.   ...

 

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European Right May End the Southern European Depression
Howard Richman, 10/17/2013

In August 2012, we made the case (Deficit Spending Doesn't Work; Balancing Trade Does) that the trade deficit countries of the Eurozone were locked in the trade-deficit caused depressions predicted by John Maynard Keynes about 80 years ago in his The General Theory of Employment, Interest and Money. He argued:

A favorable [trade] balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)

The following graph, which we published back then, illustrated the relationship between trade balances (current account balances) and unemployment rates. It showed that those countries with trade deficits have high unemployment rates and those with trade surpluses have low unemployment rates:

Now, a little over a year later, the same five countries still have high trade deficits, and their unemployment rates have all gone up, as shown in the table below:...

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Sarah Hall Ingram may have shared confidential IRS information about conservative groups with White House staff
Howard Richman, 10/9/2013

On June 19, I noted on this blog that frequent White House visitor Sarah Hall Ingram was knee deep in the IRS scandal, which probably meant that White House staff were involved. My suspicions were supported by an e-mail that was revealed by Rep. Darrell Issa while questioning Ms. Ingram at the October 9 hearing of his House Oversight Committee. Watch the above video to see Rep. Issa's discussion with Ms. Ingram.

According to The Daily Caller, this email shows that Sara Hall Ingram shared confidential taxpayer information with White House staff:

Top Internal Revenue Service Obamacare official Sarah Hall Ingram discussed confidential taxpayer information with senior Obama White House officials, according to 2012 emails obtained by the House Oversight and Government Reform Committee and provided to The Daily Caller.

Lois Lerner, then head of the IRS Tax Exempt Organizations division, also received an email alongside White House officials that contained confidential information.

Issa, in his questioning of Ingram, suggested that there is an alternative explanation of the e-mail. The alternative is that the IRS was abusing the redaction process in order to hide information from Issa's committee.

Issa's committee will be questioning IRS officials in order to discover what lies hidden in the redacted parts of the e-mail. If it turns out that Ingram was revealing confidential taxpayer information, then Hall was clearly violating that information by sharing it with the White House.

For some background, here's what I wrote back in June (Sarah Hall Ingram is being written out of the IRS scandal):...

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China & Japan warn US: Don't default on your debt -- that would make it harder for us to steal your industries!
Howard Richman, 10/7/2013

China and Japan are both worried about the current upcoming fight over the U.S. debt limit. According to the Independent:

The Chinese Vice Foreign Minister, Zhu Guangyao, told America’s deadlocked politicians on Monday that “the clock is ticking” and called on them to approve an extension of the national borrowing limit before the federal government is projected to run out of cash on 17 October.

“We ask that the United States earnestly takes steps to resolve in a timely way the political issues around the debt ceiling and prevent a US debt default to ensure the safety of Chinese investments in the United States,”  Mr Zhu told reporters in Beijing. “This is the United States’ responsibility,” he added.

If the United States doesn't, what would happen?

  1. China might have to give up its mercantilist strategy of holding the yuan far below its market rate while keeping out American products in order to steal American industry. 
  2. China might lose money on some of the loans that it made to the United States government as a byproduct of this mercantilist strategy.

Japan is also concerned. It is threatening to slow or stop its purchases of U.S. Securities. Financial Times reports:...

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Make the Shutdown of Undesirable Federal Departments and Agencies Permanent
Raymond Richman, 10/4/2013

A Continuing Resolution is an abomination. The House of Representatives under the Constitution of the US was established by the first article of the Constitution. The Constitution provides that “All Bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.”

The Senate under Harry Reid has been acting unconstitutionally as it pretends to have equal authority on spending and revenue matters with the House of Representatives. If that were so, why does the Constitution give exclusive power to initiate revenue measures to the House, the federal body closest to the people?

Senators in the original Constitution were “chosen by the Legislature” of each state. The Senate was intended to act on behalf of the States to prevent the federal government's encroachment on its powers and legislation harmful to the States. While the 17th Amendment provided for the popular election of Senators there was no change in the powers of the Senate. The States’ legislatures in passing this amendment abandoned the ability to prevent the encroachment of the Federal Government on the powers of the States. Witness the establishment of the Federal Departments of Housing and Urban Development and Education; formerly the exclusive concern of state governments.

The House passed a budget each year for the past five years but the Democratic Senate refused to consider them – which was unconstitutional behavior. The House has been sending bill after bill on the budget and the Senate has been tabling them without consideration. The Senate has been in effect vetoing the budget bills of the House of Representatives.

...

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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]