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Trump 0, Nerds 1

President Donald Trump hates the trade deficit. On the campaign trail back in 2016, he argued that this gap—the imbalance between the value of America’s imports and exports—was a sign that China, and others, were “stealing our businesses, stealing our jobs, stealing our money.” If elected, he promised, he would “end our chronic trade deficits.”

Many politicians make promises on the campaign trail but never really try to deliver on them. Unfortunately, Trump really did make the reduction of the trade deficit a top priority as soon as he got into the White House. His policies to achieve this: an erratic mix of angry tweets, unilateral tariffs hikes, and threats to tear up trade agreements if the original signatories refuse to renegotiate them on Trump’s terms.

As these moves set off a global trade war, Trump’s defenders formulated—or, more accurately, dusted off—protectionist arguments for forcing other nations to import more from, and to export less to, the U.S. This, they told us, would bring factories back to the U.S.

That was the plan, anyway. What happened instead followed the path that free traders predicted.

As they explained, a country’s trade balance is determined overwhelmingly by factors such as the U.S dollar serving as a reserve currency, the ratio of savings to investment opportunities at home and abroad, and the relative attractiveness of that country’s investment climate. As long as the United States is growing and remains an attractive place to invest, we Americans will continue to run trade deficits with the rest of the world.

What tariffs can do, they continued, is affect bilateral trade balances with the individual countries against which the tariffs are applied. But this mostly leads American buyers to shift their purchases of imports from one nation to another—say, from China to Vietnam—so U.S. manufacturing is not increased and America’s overall trade deficit isn’t affected. If there is a reduction in our trade deficits, that won’t be because manufacturing is “returning.” It’ll be because both imports and exports are falling, with the former coming down more than the latter.

Underneath Trump’s policies is a profound ignorance of the tight connection between imports and exports. Foreigners sell goods and services to U.S. buyers in order to acquire American dollars. They want these dollars, in part, to buy American exports. So when U.S. imports grow, so do U.S. exports. The reverse is also true: reducing American imports causes Americans to shrink.

More important, and often overlooked: Foreigners want dollars also to invest in America’s powerful economy. That includes (but of course isn’t limited to) buying U.S. Treasury bonds. In consequence, every dollar Americans spend on foreign goods and services comes back to us. As the U.S. trade deficit rises, investment flows into America increase by the same amount. As the nerds say, the current-account deficit is a mirror image of the capital-account surplus. This is why Mark Perry of the American Enterprise Institute describes imports as “job-generating foreign investment surpluses for a better America.”

It is thus no surprise that as the American economy grew, the trade deficit also grew. This also explains why, as the U.S economy cooled in 2019—in part because of the Trump’s trade wars and the rampant uncertainty they created—the trade deficit started to shrink. As this chart shows, higher U.S. trade deficits tend to be associated with faster, not slower, U.S. economic growth.

The bottom line: Absent any major changes in the aforementioned macro factors, over which this president has little control, any reduction in the trade deficit would likely be accompanied by weaker economic growth, as was true during the Great Recession or the Great Depression. 

Trump and his supporters have started to cheer the $10.9 billion reduction of the trade deficit in 2019 as a sign that his policies worked. Trump and his defenders also trot out anecdotes of manufacturing jobs returned to the U.S. as evidence that the newly renegotiated trade deals are succeeding. The reality is quite different. As tariffs increase prices for American buyers (particularly manufacturers), manufacturing activity slowed down and is now bordering on recession. And that trade deficit reduction, as recent Census data reveal, is the product of both imports and exports falling. 

Something else in those Census numbers: Tariffs on Chinese imports may be reducing our bilateral trade deficit with China, but that doesn’t mean Americans are buying from U.S. producers instead. Instead, places like Vietnam, Mexico, and Malaysia are picking up the slack.

So the free traders were right. If you want to lower the trade deficit, your best bet is to reduce both imports and exports—or just to have an economic crisis. Who really wants that?

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Trump 0, Nerds 1

President Donald Trump hates the trade deficit. On the campaign trail back in 2016, he argued that this gap—the imbalance between the value of America’s imports and exports—was a sign that China, and others, were “stealing our businesses, stealing our jobs, stealing our money.” If elected, he promised, he would “end our chronic trade deficits.”

Many politicians make promises on the campaign trail but never really try to deliver on them. Unfortunately, Trump really did make the reduction of the trade deficit a top priority as soon as he got into the White House. His policies to achieve this: an erratic mix of angry tweets, unilateral tariffs hikes, and threats to tear up trade agreements if the original signatories refuse to renegotiate them on Trump’s terms.

As these moves set off a global trade war, Trump’s defenders formulated—or, more accurately, dusted off—protectionist arguments for forcing other nations to import more from, and to export less to, the U.S. This, they told us, would bring factories back to the U.S.

That was the plan, anyway. What happened instead followed the path that free traders predicted.

As they explained, a country’s trade balance is determined overwhelmingly by factors such as the U.S dollar serving as a reserve currency, the ratio of savings to investment opportunities at home and abroad, and the relative attractiveness of that country’s investment climate. As long as the United States is growing and remains an attractive place to invest, we Americans will continue to run trade deficits with the rest of the world.

What tariffs can do, they continued, is affect bilateral trade balances with the individual countries against which the tariffs are applied. But this mostly leads American buyers to shift their purchases of imports from one nation to another—say, from China to Vietnam—so U.S. manufacturing is not increased and America’s overall trade deficit isn’t affected. If there is a reduction in our trade deficits, that won’t be because manufacturing is “returning.” It’ll be because both imports and exports are falling, with the former coming down more than the latter.

Underneath Trump’s policies is a profound ignorance of the tight connection between imports and exports. Foreigners sell goods and services to U.S. buyers in order to acquire American dollars. They want these dollars, in part, to buy American exports. So when U.S. imports grow, so do U.S. exports. The reverse is also true: reducing American imports causes Americans to shrink.

More important, and often overlooked: Foreigners want dollars also to invest in America’s powerful economy. That includes (but of course isn’t limited to) buying U.S. Treasury bonds. In consequence, every dollar Americans spend on foreign goods and services comes back to us. As the U.S. trade deficit rises, investment flows into America increase by the same amount. As the nerds say, the current-account deficit is a mirror image of the capital-account surplus. This is why Mark Perry of the American Enterprise Institute describes imports as “job-generating foreign investment surpluses for a better America.”

It is thus no surprise that as the American economy grew, the trade deficit also grew. This also explains why, as the U.S economy cooled in 2019—in part because of the Trump’s trade wars and the rampant uncertainty they created—the trade deficit started to shrink. As this chart shows, higher U.S. trade deficits tend to be associated with faster, not slower, U.S. economic growth.

The bottom line: Absent any major changes in the aforementioned macro factors, over which this president has little control, any reduction in the trade deficit would likely be accompanied by weaker economic growth, as was true during the Great Recession or the Great Depression. 

Trump and his supporters have started to cheer the $10.9 billion reduction of the trade deficit in 2019 as a sign that his policies worked. Trump and his defenders also trot out anecdotes of manufacturing jobs returned to the U.S. as evidence that the newly renegotiated trade deals are succeeding. The reality is quite different. As tariffs increase prices for American buyers (particularly manufacturers), manufacturing activity slowed down and is now bordering on recession. And that trade deficit reduction, as recent Census data reveal, is the product of both imports and exports falling. 

Something else in those Census numbers: Tariffs on Chinese imports may be reducing our bilateral trade deficit with China, but that doesn’t mean Americans are buying from U.S. producers instead. Instead, places like Vietnam, Mexico, and Malaysia are picking up the slack.

So the free traders were right. If you want to lower the trade deficit, your best bet is to reduce both imports and exports—or just to have an economic crisis. Who really wants that?

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Why It’s So Hard To Escape America’s “Anti-Poverty” Programs

Why It’s So Hard To Escape America’s “Anti-Poverty” Programs

Authored by Justin Murray via The Mises Institute,

One of the most common debates that has occurred in the United States for the past six decades is the discussion of the poverty rate. As the narrative goes, the US has an unusually high poverty rate compared to equivalent nations in the OECD (Organisation for Economic Co-operation and Development). Although it’s true that the measure of poverty is flawed, especially when compared cross-nationally, this piece addresses the reasons why the poverty rate in the US in particular has not improved.

If we look at the graph below, we see that official poverty rates fell 44 percent between 1960 and 1969 then spent the next fifty years fluctuating between an 11 and 15 percent poverty rate. It’s this lack of improvement over a five-decade period that is interesting, especially considering that poverty rates had consistently been dropping for over a century.

Incentive Problems

One of the key problems is that during the 1960s the Great Society programs were implemented, particularly the War on Poverty. Over this period, spending on anti-poverty programs exploded five times in inflation adjusted dollars, going from 3 percent of public spending to 20 percent between 1973 and today.

Yet the poverty rate stubbornly ignored all this lucrative expenditure. A key problem is that none of these programs built in an incentive system to graduate people off the assistance. Push systems, systems where a person is ejected from assistance if they prove unwilling to improve themselves, are nonexistent, while pull systems, like job training programs, are ineffective at best. Without these systems, people neither have the tools nor the drive to exit these programs.

These programs, in effect, have generated a culture of dependency. Out of sixty-nine welfare programs that the government operates, just two, EITC (earned income tax credit) and the child refund credit, require any kind of employment and even then are tax discounts. Further, the expansion of various handout programs has successfully eradicated the stigma of public assistance, removing the social pressure to improve and exit. When nearly half the population receives public assistance, not including individuals receiving a paycheck for public sector work, people view it as normal and acceptable.

Public Sector Interference

For those who do legitimately want to break the cycle of dependency, the public sector isn’t making things any easier. One of the major problems with the welfare structure is that it requires funding in the form of taxes, debt, and inflation. The tax structure necessary to fund redistribution schemes naturally creates a Tax Dead Zone. What this dead zone does is create an income range where, after all taxes and benefits are accounted for, earning an extra dollar in gross income results in either no change or a reduction in net income.

Essentially, the extra dollar in earnings is taxed at 100 percent or more, penalizing the current recipient for attempting to exit public assistance. This dead space is nearly $20,000 in range, meaning that if the person estimates they’re unable to consistently earn above roughly $60,000 a year, it’s better to not try and to stick around $18,000 a year since the net benefit structure at $18,000 results in more resources to live on than at $45,000. It is mathematically impossible to design a welfare and tax structure that doesn’t, at some point, penalize a welfare recipient for earning more money.

Another insidious trap is the regulatory structure. People who are current welfare recipients tend to have few or no job skills. This is particularly true for younger individuals who haven’t had a first job yet. What the regulatory state does is drive up the cost of employment. When employment costs are raised, be it through a minimum wage or workplace rules, a higher skill level is demanded from the worker to generate sufficient revenues to justify the cost. If the applicant isn’t sufficiently skilled, they won’t get hired.

Unemployment can create a cycle of further unemployment in this environment. Since skills degrade over time, a person who elects to take twenty-six weeks of paid unemployment instead of a temporary lower-skilled role will be at a major disadvantage. Long-term unemployment becomes a trap, since the individual will no longer possess sufficient skills to cover the cost in wage mandates, taxes, and regulatory impositions of hiring them. If public unemployment benefits didn’t exist and the state didn’t artificially inflate the cost of employment, this individual wouldn’t have been lured into taking a six-month vacation and wouldn’t have struggled to justify the costs of their employment.

The impacts are particularly bad in terms of generational poverty. The minimum wage has a strong negative impact on youth employment rates. Teens who are unemployed enjoy significantly lower lifetime earnings and are more likely to be unemployed as adults compared to their peers who held a part-time job. This, in turn, leads to greater utilization of public sector benefits.

Incentives for Government

Based on its poor track record, one wonders if government even wants to solve the poverty problem. Seattle, for instance, spends roughly $100,000 per homeless resident of the city on homeless relief programs. The major beneficiaries of this public largess are charity organizations that claim to assist the poor but use that money to pay themselves salaries in excess of $200,000 for a single executive. Major agencies, including the Department of Health and Human Services, employ tens of thousands of people.

What would happen should poverty and homelessness be eradicated? No more $200,000 salary. No more job for tens of thousands of people. No more $8 million temporary tents.

Poverty and homeless assistance has turned into a big business. We now have a Homeless Industrial Complex, and poverty assistance has become big business. The public sector appears to be fully invested in ensuring that poverty and homelessness persist. Without the homeless, what do we need with a Low-Income Housing Institute? Without the poor, how could the Department of Agriculture justify $100 billion a year in the farm bill? There is little evidence that the state cares to solve the issue, only caring to make homelessness and poverty a viable lifestyle choice.

The Future

The state has, by accident or by design, created a permanent underclass. Radical elimination of regulatory impositions and the elimination of the minimum wage are merely the first steps toward solving the problem of poverty. The underlying issue is that the transition into a nation that can truly eradicate poverty will be painful. People trapped in public dependency won’t develop skills overnight, and odds are that they may never develop the skills needed for well-paid employment. Breaking habits is difficult and the sad reality is that catching up is a myth. People behind now will always be behind; if there were a magical means to accelerate skill development, everyone would be using it and the same person would still be behind.

But we can lay the groundwork for future generations not to have to battle through these public sector barriers, and we can return to the poverty improvement rate seen before the Great Society disrupted the process.


Tyler Durden

Fri, 02/21/2020 – 11:25

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Trump Hints At 3rd Ag Bailout, Promises Farmers “Additional Aid” Until Trade Deals “Fully Kick In”

Trump Hints At 3rd Ag Bailout, Promises Farmers “Additional Aid” Until Trade Deals “Fully Kick In”

President Trump tweeted a message of support to America’s farmers, pledging to deliver another round of federal bailout money if China, Canada and Mexico fail to immediately satisfy their commitments under their respective trade agreements with the US.

The message arrived in all-caps:

Of course, as many (including us) have noted, American firms are the ones on the hook for the tariffs, and the revenue, while strong, would be nowhere near enough to offset another 11-figure bailout package.

Considering the tweet’s forgiving tone, it looks like this is another classic Trump trade triangulation (where Trump sets the China hawks and pro-trade doves against each other, then stakes out a more moderate path, often via twitter). As we noted earlier, a senior Treasury Department official reportedly told Reuters that the administration is unsympathetic to China’s coronavirus-related troubles, and that it expects Beijing to keep its promise to buy $200 billion in US goods (with a large slug of that slated for ag products) over the next two years.

In essence, this ‘senior official’ was telling Beijing: ‘fuck you, pay me’.

Now, it appears President Trump has decided to soften the message a bit, telling farmers that the federal government will be there to backstop them if China does eventually need a little more time to make good on its commitments, or if the economic blowback is so severe that Mexico and Canada are heavily impacted (which is possible, but then again if that happens Trump might have other problems).

So far, the Trump administration has promised farmers a total of $28 billion in two farm bailouts, with the rest of that money set to be paid by April. Now he’s saying he might do a third if the coronavirus fallout for the global economy is bad enough.

Here’s another thought: As we theorized in our last post, President Trump needs to keep the threat of a trade-deal collapse alive to maintain leverage over China and feed expectations that the Fed could deliver another rate hike if things go poorly, which is why a revival of the reflation trade is in reality the biggest threat to the market right now.

So the message was addressed to American farmers, but the subtext was intended for Beijing.

Interestingly enough, the market dropped after the tweet, a sign of just how sensitive investors are becoming to hints of virus-related economic blowback.


Tyler Durden

Fri, 02/21/2020 – 11:10

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Yield Curve Collapse Accelerates After Fed’s Brainard Hints At Japanification

Yield Curve Collapse Accelerates After Fed’s Brainard Hints At Japanification

A month ago, The Wall Street Journal hinted at what’s to come when they reported that, as part of their contingency planning for the next recession, Federal Reserve officials are looking at a stimulus scheme the U.S. last used during and after World War II.

From 1942 until 1951, the Fed capped yields on Treasury securities – first on short-term bills and later on longer-term bonds – to help finance war spending and the recovery.

In fact, most recently, the Bank of Japan employed something known as yield-curve control, holding rates on 10-year government bonds at zero by committing to buy those securities at whatever price is needed. Bond yields and prices move inversely.

At issue is how the central bank should manage a faltering economy when short-term interest rates are already low.

And today, as US Treasury yields collapse to fresh record lows (despite record high stock prices), Fed Governor Lael Brainard gave a speech entitled “Monetary Policy Strategies and Tools When Inflation and Interest Rates Are Low”, which suggested a ‘Japanification’ shift in US monetary policy.

Brainard’s speech specifically champions the so-called Yield Curve Control (YCC) as a new policy tool, in an effort to strengthen the credibility of the forward guidance by implementing interest-rate caps in tandem as a commitment mechanism in the event that the policy rate is pushed to the lower bound.

“Based on its assessment of how long it is likely to take to achieve full employment and target inflation, the committee would commit to capping rates out the yield curve for a period consistent with its expectation for the duration of the outcome-based forward guidance”

“This approach would smoothly move to capping interest rates on the short-to-medium segment of the yield curve once the policy rate moves to the lower bound and avoid the risk of delays or uncertainty that could be associated with asset purchases regarding the scale and time frame”

“I prefer flexible inflation averaging that would aim to achieve inflation outcomes that average 2% over time”

As Viraj Patel noted,

“This is no longer a drill but a fast-becoming reality. Fed can/will employ some form of YCC in the next big easing package it does (sooner than we think). No doubt US bond yields positioning for this…”

And sure enough, yields and the curve are accelerating lower and flatter on the speech…

However, while Brainard admits there are possible financial stability concerns:

Financial stability is central to the achievement of our dual-mandate goals. The new normal of low interest rates and inflation also has implications for the interplay between financial stability and monetary policy.

To the extent that the combination of a low neutral rate, a flat Phillips curve, and low underlying inflation may lead financial imbalances to become more tightly linked to the business cycle, it is important to use tools other than monetary policy to temper the financial cycle.

She seems to suggest that other mechanisms would be used to tamp down excess, such as a counter0cyclical capital buffer.

But, as WSJ notes, there are serious risks (especially if they ever normalized).

If investors grew less willing to buy securities because they thought the Fed might abandon its peg, for example because inflation accelerated unexpectedly, then the Fed would have to increase its purchases to maintain the peg.

This happened in 1947 when the Fed raised its cap on short-term yields while maintaining one for long-term rates. Yields on long-term bonds suddenly looked less attractive to investors, who also may have doubted the credibility of that cap. As a result, the Fed had to purchase more bonds to defend the cap. By the end of 1948, its bondholdings rose to $11 billion from less than $1 billion, accounting for half of its portfolio.

But all of those worries are pointless to a Federal Reserve whose real mandate remains Dow 30k or bust!


Tyler Durden

Fri, 02/21/2020 – 11:08

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UK suspects all kids using chat app are hackers

Are you ready for this week’s absurdity? Here’s our Friday roll-up of the most ridiculous stories from around the world that are threats to your liberty, your finances, and your prosperity.

UK urges parents to report their kids to police for using normal technology

Police in the UK are distributing a flyer to teachers in public schools, to be passed on to parents.

The poster warns parents to check their children’s computers for certain technology, as it could be a sign that their child is a hacker.

The flyer names anonymous browser TOR, voice chat service Discord, computer operating system Kali Linux, and Virtual Machines used to run different operating systems on the same computer.

These are all, by the way, perfectly legal. And they are useful for plenty of activities besides hacking.

The poster says Discord is “often used to share hacking tips.” But you’re more likely to find a teen using Discord to chat while playing Fortnite.

Kali Linux is useful for penetration testing used to boost cyber security and protect against hacking threats. It should be encouraged among teens if parents want them to train for the modern economy, and protect themselves against hackers.

And worst of all, the flyer encourages parents to CALL THE POLICE on their own children, for using these perfectly legal computer programs.

Click here for the full story.

IRS warns Fortnite users to pay tax on their virtual currency

Until last week, the IRS website advised players of the video game Fortnite that their pretend money could face a real tax.

The IRS used the in-game virtual currency V-bucks as an example of a potentially taxable convertible currency.

V-bucks are purchased with real dollars but used only in the game to buy upgrades. They aren’t actually convertible back to dollars.

Now the IRS has clarified that if the money stays in the game, it is not taxable.

But if a video game currency were to leave the game, it triggers a potentially taxable event.

Just like Bitcoin or other cryptocurrencies, the IRS treats all virtual currencies–including video game money– like property.

That means if you make money on the sale of the currency– or if you spend the currency after it has increased in value– that is a capital gain.

Click here for the full story.

New York Judge orders removal of 20 stories from NYC skyscraper

New York City has a lot of zoning rules, but plenty of exceptions.

For instance, builders can buy the unused zoning rights of adjacent properties.

Say the zoning laws limit a property to 20 floors, but a building is only 15 stories tall. A next-door property could buy the rights to the remaining five floors, and make their own building 25 stories.

One particular project used this loophole aggressively to gain permission to build a 51 story building. They got all the necessary permits from the city for the build.

But activists weren’t happy. They sued the builders over what they called a “gerrymandered” zoning lot. But the builders had permission, so they kept building.

Now the structure of the building is already completed, but a New York Judge just ruled for the activists.

He ordered the city to revoke the building permit, and ordered the builders to REMOVE at least 20 floors from the building.

Click here for the full story. 

5 years and $2 million later, city still hasn’t finished building a bike rack

Falls Church, Virginia planned to spend $600,000 each for covered bike racks at two of the city’s Metro stations.

The 92-bike racks were supposed to be completed in 2015.

Now, five year later, the cost of the bike racks has reached $1.9 million EACH… but they still aren’t finished.

This city spent over $20,000 per bike parking spot, and has nothing to show for it.

But we should totally trust the government with more responsibility and control over our lives.

Click here for the full story.

NYC’s ‘serial subway robber’ praises the elimination of bail

A new bail reform law in New York prevents judges from requiring bail for most misdemeanors, and some non-violent felonies.

After a suspect is processed, they are released without having to pay anything.

And it’s great to see fewer people being locked in cages for victimless crimes like smoking a plant.

But there is always someone waiting to abuse the system.

Case in point, Charles Barry has been arrested six times since the law went into effect on January 1st. He likes to hang out in the subway and snatch money from a hand, pickpocket, or pose as a subway worker.

Now every time he is arrested, Barry is quickly back on the streets to steal again.

Leaving the courthouse the last time, he praised the new law, yelling to reporters, “Bail reform, it’s lit! You can’t touch me, I can’t be stopped…I take $200, $300 a day of your money… It’s a great thing. It’s a beautiful thing.”

Barry also has a habit of missing court dates, which requiring bail is supposed to prevent.

We’re no strangers to writing about people being arrested for the most trivial reasons. So I’d rather see a few guys like Barry walk free in exchange for countless innocent people spared from sitting in a cell.

But it’s just frustrating that legislators couldn’t be bothered to insert a couple of lines of text into the bill to prevent actual criminals like Charles Barry from taking advantage of much needed reform.

Click here for the full story.

Source

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UCLA Backtracks On Facial Recognitions Plans

UCLA Backtracks On Facial Recognitions Plans

Authored by Celine Ryan via Campus Reform,

Students nationwide raised concerns about universities using biometric surveillance, or facial recognition, on students.

Campus Reform reported last month that at least three California campuses had implemented the software. At the time, the University of San Francisco, the University of Southern California, and Stanford University were confirmed to have systems in place.

Now, after concerns both nationwide and directly from its own campus, the University of California-Los Angeles has publicly stated that it will not move forward with plans to use such technology and has promised to ban the use of any such technology on campus.

“UCLA will not pursue the use of this technology. We have determined that the potential benefits are limited and vastly outweighed by the concerns of our campus community,” said UCLA administrative vice-chancellor Michael Beck, according to CNET.

“This type of invasive technology poses a profound threat to our basic liberties, civil rights, and academic freedom. Schools that are already using this technology are conducting unethical experiments on their students. Students and staff have a right to know if their administrations are planning to implement biometric surveillance on campus,” said Deputy Director of Fight for the Future Evan Greer. 

Fight for the future is a nonprofit group that advocates for digital rights and is part of the nationwide Ban Facial Recognition campaign against the use of this technology by universities.

UCLA’s decision comes as other colleges around the country have implemented technologies used to track students’ physical location for the purpose of recording class attendance. The University of Missouri, Syracuse University, Auburn, Central Florida, Indiana have all begun using a smartphone app called SpotterEDU, which the company says is currently being used at 40 schools across the country. 

New York Campus Correspondent Justine Murray asked students at Syracuse University what they think about their locations being tracked.

WATCH:


Tyler Durden

Fri, 02/21/2020 – 10:50

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White House Warns Beijing: ‘We Still Expect You To Honor Your Trade Deal Commitments’

White House Warns Beijing: ‘We Still Expect You To Honor Your Trade Deal Commitments’

A Chinese official recently suggested that Beijing might need some ‘wiggle room’ to fulfill its commitments under the ‘Phase 1’ trade deal. Now, the Treasury Department is hinting that this might not be an option, and that the US expects the Chinese to honor their commitments.

Citing comments from an anonymous ‘senior Treasury official’ (possibly Mnuchin himself), Reuters reports that the US government expects China to honor its commitments, to which it agreed late last year, around the same time that the virus first emerged in Wuhan.

The report arrives just days after the IMF confirmed that the epidemic had already disrupted economic growth in China, and that it could derail already-fragile global growth if it continues to worsen and spread. However, the official narrative in Beijing is that the government is winning the war, and that the brief pullback in Q1 growth will be offset by a recovery later in the year.

If you’re wondering why the administration would allow such a potentially damaging story to surface on a day when stocks are already in the red, well…we wouldn’t blame you…but more on that later.

Yesterday, the market got the first hint at the outbreak’s impact on China’s high-tech manufacturing sector (think Foxxconn, iPhones) with an unprecedented drop in China’s emerging industries PMI.

But so far the fallout has been beyond brutal.

To be sure, the US didn’t rule out all flexibility. While the official said the US still expects China to meet its commitments with the $200 billion figure in total imports, he pointed out that these increases are supposed to be doled out over a “period of time.”

As the Washington Post reminds us, China’s agricultural commitments alone in the Phase 1 deal were pretty specific: Beijing agreed to buy an additional $32 billion over the first two years, $12.5 billion over the $24 billion baseline in 2020, and $19.5 billion over that same baseline in 2021. The ‘baseline’ is $24 billion, the level of Chinese ag purchases in 2017, before Trump decided to instigate his big trade war. The commitments were part of a deal that’s supposed to guarantee an additional $200 billion in ag purchases over the baseline in the years ahead, with Beijing ordering state-controlled firms to carry them out in good ol’ fashioned centrally planned purchases that brings to mind the control economies of the Communist era.

And those ag purchases are only part of the broader $200 billion commitment over two years: Technically, China is expected to purchase an additional $77 billion US goods in 2020 and $123 billion by 2021, compared with a baseline of U.S. imports from 2017

However, almost as soon as the deal was signed, economists and analysts complained loudly that the deal was little more than a PR stunt, and that there was no way Beijing would be able to guarantee such hefty purchases (others argued that Beijing could make it happen). On Thursday, the chief economist at the US Department of Agriculture seemed to suggest that these critics might have been on to something when he released a projection claiming that China would only import roughly $14 billion in ag products during the business year that ends Sept. 30. That’s only a $4 billion increase from a year ago. Purchases were supposed to be between $40 and $50 billion this year and next year.

Perdue made the comments during the USDA’s Agricultural Outlook Forum this week, and during a news conference later on, he added that enforcing the deal “remained a concern” and that the coronavirus outbreak made projections difficult. So far, China has lifted some restrictions, including a live poultry ban (mostly for breeding), affecting the US. But that ban wasn’t related to the trade war; ironically, it was a precaution put in place during an avian flu outbreak.

While some of the discrepancy is related to a mismatch with the calendar year, the chief economist said there are other reasons why the numbers aren’t matching up. Perdue also said that the department wouldn’t just assume that China will meet its commitments and stick those numbers into the projections.

Still, Beijing has offered some hints that it’s following through: This week, the Global Times, a government mouthpiece, reported that China was likely to buy 10 million tons of US liquefied natural gas despite a major glut.

It’s possible we’ll learn more following the G-20 meeting in Riyadh on Saturday and Sunday, where Mnuchin will discuss the economic fallout of the global pandemic with other senior finance ministers of the world’s largest economies. Though representatives from China will be notably absent. Instead, the Treasury official told Reuters that ‘lower level’ officials would represent the finance minister and head of the PBOC. The meeting was supposed to focus on the OECD’s efforts to draft new international tax rules that have become a point of contention between the US and Europe, since they would impact American tech giants like Facebook, Google, Amazon etc.

One would think, with the election coming up in November and Beijing desperate to guarantee higher economic growth, that it’s now more important than ever that the deal holds. But while that may be true, by keeping the threat of collapse and disaster close at hand, Trump and his administration can convince markets that the Fed is ready to step in with another rate cut if things get out of control, virtually guaranteeing (at least, in their estimation) that markets will remain buoyant until November.

However, if markets catch the slightest whiff of reflation between now and then (unlikely given the strength of the dollar and drop in oil prices), they might panic, believing that the Fed has been robbed of its great excuse to keep rates low, and suspecting (possibly correctly) that Chairman Powell won’t stick his neck out for Trump’s sake.


Tyler Durden

Fri, 02/21/2020 – 10:36

via ZeroHedge News https://ift.tt/38Osx3U Tyler Durden

Tennessee Executes Nick Sutton, Despite Protests from Prison Guards and the Victims’ Families

Tennessee has executed Nicholas Todd Sutton, a man who guards once described as living proof “of the possibility of rehabilitation and the power of redemption.”

Sutton was convicted of four murders committed when he was in his late teens and early twenties. His victims were Dorothy Sutton (his paternal grandmother), Charles Almon, John Large, and a fellow prisoner, Carl Estep. Despite this history, seven correctional officers and personnel, the families of three of his victims, and five jurors who sentenced him to death filed a clemency petition asking Gov. Bill Lee to commute his sentence to life in prison.

“Nick Sutton has gone from a life-taker to a life-saver,” the petition declared. Sutton stepped in to save the lives of at least five people while behind bars, including the life of a guard who was confronted by armed inmates during a prison riot.

The governor announced on Wednesday that he would not intervene in the execution. Sutton was electrocuted to death on Thursday night. For his final meal, Sutton had fried pork chops, mashed potatoes and gravy, and peach pie with vanilla ice cream.

Reactions to the execution were mixed. Though the families of Dorothy Sutton, Charles Almon, and Carl Estep supported Sutton’s clemency petition, the sister of John Large made a statement supporting his execution.

“John was denied the opportunity to live a full life with a family of his own,” wrote Amy Large Cook. “My children were denied meeting a wonderful man who would have spoiled them rotten and loved them with all his heart. He suffered a terrible and horrific death. And for that, I will never forgive Mr. Sutton.”

“Nick Sutton has been a positive influence in prison, and his guards wanted him alive because he made them safer,” said Abraham Bonowitz of Death Penalty Action. “What is happening tonight is immoral and counterproductive.”

Sutton’s own final statement reads as follows:

I have made a lot of friends along the way and a lot of people have enriched my life. They have reached out to me and pulled me up and I am grateful for that. I have had the privilege of being married to the finest woman, who is a great servant to God. Without her, I would not have made the progress that I have made. I hope I do a much better job in the next life than I did in this one. If I could leave one thing with all of you, it is, don’t ever give up on the ability of Jesus Christ to fix someone or a problem. He can fix anything. Don’t ever underestimate His ability. He has made my life meaningful and fruitful through my relationships with family and friends. So, even in my death, I am coming out a winner. God has provided it all to me.

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Tennessee Executes Nick Sutton, Despite Protests from Prison Guards and the Victims’ Families

Tennessee has executed Nicholas Todd Sutton, a man who guards once described as living proof “of the possibility of rehabilitation and the power of redemption.”

Sutton was convicted of four murders committed when he was in his late teens and early twenties. His victims were Dorothy Sutton (his paternal grandmother), Charles Almon, John Large, and a fellow prisoner, Carl Estep. Despite this history, seven correctional officers and personnel, the families of three of his victims, and five jurors who sentenced him to death filed a clemency petition asking Gov. Bill Lee to commute his sentence to life in prison.

“Nick Sutton has gone from a life-taker to a life-saver,” the petition declared. Sutton stepped in to save the lives of at least five people while behind bars, including the life of a guard who was confronted by armed inmates during a prison riot.

The governor announced on Wednesday that he would not intervene in the execution. Sutton was electrocuted to death on Thursday night. For his final meal, Sutton had fried pork chops, mashed potatoes and gravy, and peach pie with vanilla ice cream.

Reactions to the execution were mixed. Though the families of Dorothy Sutton, Charles Almon, and Carl Estep supported Sutton’s clemency petition, the sister of John Large made a statement supporting his execution.

“John was denied the opportunity to live a full life with a family of his own,” wrote Amy Large Cook. “My children were denied meeting a wonderful man who would have spoiled them rotten and loved them with all his heart. He suffered a terrible and horrific death. And for that, I will never forgive Mr. Sutton.”

“Nick Sutton has been a positive influence in prison, and his guards wanted him alive because he made them safer,” said Abraham Bonowitz of Death Penalty Action. “What is happening tonight is immoral and counterproductive.”

Sutton’s own final statement reads as follows:

I have made a lot of friends along the way and a lot of people have enriched my life. They have reached out to me and pulled me up and I am grateful for that. I have had the privilege of being married to the finest woman, who is a great servant to God. Without her, I would not have made the progress that I have made. I hope I do a much better job in the next life than I did in this one. If I could leave one thing with all of you, it is, don’t ever give up on the ability of Jesus Christ to fix someone or a problem. He can fix anything. Don’t ever underestimate His ability. He has made my life meaningful and fruitful through my relationships with family and friends. So, even in my death, I am coming out a winner. God has provided it all to me.

from Latest – Reason.com https://ift.tt/39SqhZn
via IFTTT