NYC Guarantees Free Phone Calls for Inmates

A bill signed into law yesterday by New York City Mayor Bill de Blasio will allow all inmates in city jails to make free phone calls.

“This piece of legislation will ensure that no incarcerated person will have to pay to reach their loved ones on the phone and maintain crucial connections to the support networks key to their rehabilitation,” de Blasio said in a statement.

In the 2017 fiscal year, 76 percent of NYC Department of Correction (DOC) inmates were pretrial detainees, meaning they had not yet been convicted. But unless they could pay up, their criminal status (or lack thereof) didn’t matter. The New York Time reports:

Currently, calls from Rikers Island cost 50 cents for the first minute and 5 cents for each additional minute to local numbers. There are 26,000 calls from the city’s jails every day that generate more than $20,000 in daily revenue, according to an analysis by the Corrections Accountability Project, which advocated for the bill.

The DOC already allows some inmates to make calls free of charge. But the new law, which was approved by the city council in July and takes effect in nine months, makes New York the nation’s first major city to guarantee free calls for all inmates.

The city estimated that in the 2019 fiscal year, it would collect about $5 million in revenue from inmate telephone fees. The city itself doesn’t manage the phones in its jails. Instead, it contracts with Securus, a private company that rakes in about $2.5 million a year from the deal. According to the Times, NYC “will still likely pay a private company that amount.”

Elias Husamudeen, president of the city’s correction officers’ union, is concerned the bill will allow gang leaders to maintain control even while incarcerated. “This is just one more nail in the coffin of creating safer jails, to be honest with you,” he tells the Times.

But the law has garnered praise from prison reform advocates. “People who are incarcerated, and especially people who are incarcerated pretrial without conviction, should be able to contact lifelines without cost,” Bianca Tylek, director of the Corrections Accountability Project, tells the Times.

City council Speaker Corey Johnson, who sponsored the law, expressed similar sentiments. “No one should have to choose between speaking to their loved ones and paying the bills and I am proud to say that New Yorkers with loved ones who are incarcerated will no longer have to make this decision,” Johnson said in a statement.

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America’s Trade Deficit Is Still Growing

Judging by President Donald Trump’s favorite metric—America’s trade deficit—he is losing his trade war.

Luckily, trade deficits don’t matter too much.

According to data released Friday by the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, America’s trade deficit rose to $46.3 billion in June, up from $43.2 billion in May. A trade deficit is the gap between the amount of goods a country exports and imports—the amount it “sells” versus the amount it “buys”—and June’s increase was driven by a less than 1 percent uptick in imports along with a comparatively small reduction in exports.

Trump worries a lot about the trade deficit. He’s argued that America’s trade deficit is such a threat to domestic manufacturing that it justifies an expensive trade war. In announcing tariffs targeting Chinese goods in March, Trump specifically pointed to America’s trade deficit—”it’s out of control,” he said at the time—as one of the justifications for the bellicose trade actions. Going back to his time as a presidential candidate, Trump has singled out the trade deficit as a serious problem, pointing to it as evidence that China is “killing us” on trade. As president, Trump has made reducing the trade deficit a main policy goal, asking not only Chinese officials but also those from the E.U. and Canada (a country with which America has a trade surplus) to reduce their deficits by buying more American goods.

Politically, Trump has used the trade deficit as an easy way to signal his support for blue collar workers and to justify protectionism. Economically, though, there’s really not much reason to worry.

In fact, a rising trade deficit can be a good thing.

“Despite the false narrative of rising trade deficits leading to U.S. job losses, the exact opposite has been true for nearly the last half-century,” says Mark Perry, an economist at the American Enterprise Institute and editor of the think tank’s Carpe Diem blog. “Increases in the U.S. trade deficit are associated with rising, not falling, employment levels in the U.S.”

It’s also worth keeping in mind that the trade deficit isn’t something that the leaders of two countries can really negotiate. Sure, governments can impose policies that favor or disfavor trade, but the existence of a trade surplus or deficit is the result of millions of individual decisions made by businesses and consumers in the United States and China.

“People typically forget that the imports that make up the U.S. trade deficit are, like all American imports, goods and services that Americans voluntarily purchase—meaning, goods and services each of which is judged by its American buyer to be worth more than the money paid for it,” writes Don Boudreaux, an economist at the Mercatus Center, a free market think tank based at Virginia’s George Mason University.

None of those exchanges are forced. American consumers and businesses voluntarily trade their dollars for imported goods. Cutting off that trade, Trump has argued, would “save us a hell of a lot of money,” but that really misses the point. You’d save a hell of a lot of money if you didn’t buy groceries every month, but you probably wouldn’t be better off.

As long as the national economy remains strong, America will likely continue to run a trade deficit and an investment surplus—the result of personal consumption being high and the United States remaining an attractive place for investments. Indeed, the trade deficit essentially disappears if you also consider foreign investment in America as a form of trade, which it really is.

Trump’s continued obsession with the trade deficit remains a bit of a mystery. It could be, as Reason editor-in-chief Katherine Mangu-Ward speculated on yesterday’s edition of the Reason Podcast, that Trump fails to understand the distinction between the budget deficit and the trade deficit. This actually makes a lot of sense, particularly in light of the president’s bizarre tweet over the weekend suggesting that tariff revenue could be used to pay down the national debt. After all, tariffs generate tax revenue and tax revenue is what you need to reduce the deficit—the budget deficit.

But economists mostly agree that tariffs won’t do much of anything to reduce the trade deficit—though tariffs could have a secondhand effect on the trade deficit if they become severe enough to slow the economy as a whole and reduce consumer spending, which is the thing that really drives the trade deficit.

“A country is far more likely to run a trade deficit when its economy is booming and personal consumption is high,” writes Daniel Drezner, a professor of international politics at Tufts University, in The Washington Post. “If Trump really wanted to shrink the trade deficit, he would push to revoke his own tax bill. But he really does not want to do this.”

Unfortunately, a widening trade deficit combined with Trump’s apparently faulty understanding of what’s driving the trade deficit could be a formula for an escalating trade war—a war that could do a lot of damage without accomplishing what the president wrongly thinks it will.

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US Abandons Oil Sanctions To Avoid Owning Venezuela’s Collapse

Authored by Brian Scheid via Platts’ “The Barrel” blog,

Just more than a year ago, it was not a question of ‘if’, but ‘when.’

As Venezuela’s leftist leader Nicolas Maduro consolidated power in an election derided as a fraud by the international community, the Trump administration readied exacting sanctions on the South American nation’s oil sector.

“All options are on the table,” said a senior administration official during a July 2017 briefing with reporters, adding that sanctions could be imposed in a matter of days. “All options are being discussed and debated.”

Analysts widely expected sanctions on diluent the US was exporting to Venezuelan refineries first, followed by a prohibition, perhaps phased in over a matter of months, on imports of Venezuelan crude into the US. It was unclear if US refiners, who had long imported Venezuelan crude, would be allowed to continue under an interim “grandfathered” arrangement, but analysts mostly agreed that sanctions were coming.

At the time, the US was importing about 800,000 b/d of Venezuelan crude and the administration was mostly concerned about the impact an import embargo would have on US Gulf Coast refineries, which would need to look for new sources of heavy crude.

Oil sector sanctions from the US seemed so likely that then-US Secretary of State Rex Tillerson told reporters that the administration was looking at ways to soften the impact of the sanctions once they were imposed.

“We’re going to undertake a very quick study to see: Are there some things that the US could easily do with our rich energy endowment, with the infrastructure that we already have available – what could we do to perhaps soften any impact of that?” Tillerson, the former CEO of ExxonMobil, said.

A year later, the US is importing less crude from Venezuela (about 530,300 b/d in July, according to preliminary US Customs data), but Gulf Coast refiners, particularly Valero, continue to rely on these imports.

In fact, US refiners may be importing even more, if Venezuela’s oil sector was not seemingly in a death spiral. Roughly one if every five barrels of oil imported by US Gulf Coast refiners comes from Venezuela.

The EIA forecasts Venezuelan oil production to fall below 1 million b/d by the end of this year, down from 2.3 million b/d in January 2016 as joint ventures fall apart and PDVSA, the state-owned oil company, struggles to feed, let alone pay, its workers. PDVSA has notified international customers than it cannot fully meet crude supply commitments and the country’s active rig count has fallen below 30, according to Baker Hughes International Rig Counts.

By the end of 2019, Venezuelan crude oil output is expected to plummet to 700,000 b/d, making it likely that it will produce less than the US state of New Mexico.

“We’ve never seen an industry or a country collapse this fast and this hard,” said EIA analyst Lejla Villar in a recent interview with the S&P Global Platts Capitol Crude podcast. “We’ve never seen anything like this.”

Industry collapse

The downfall of Venezuela’s chief industry, coupled with International Monetary Fund predictions that inflation in the country will skyrocket to 1 million percent by the end of this year, have created an unusual scenario, in which Maduro may even welcome US sanctions on its oil sector. As Venezuela’s economy continues to unravel, leading to surging prices and rampant hunger, Maduro could try to pin the blame on sanctions.

“If you break it, you buy it,” said George David Banks, a former international energy and environment adviser to President Trump. “The White House doesn’t want to own this crisis.”

The US has sanctioned individuals in Venezuela, including Maduro; prohibited the purchase and sale of any Venezuelan government debt, including any bonds issued by PDVSA; and banned the use of the Venezuela-issued digital currency known as the petro. But oil sector sanctions are viewed as the most powerful penalty remaining and one the Trump administration is more hesitant than ever to use.

“There’s already a humanitarian crisis, but we don’t own that, the Maduro government owns that,” Banks said. “We don’t want to lose the people of Venezuela and you don’t want to pursue a policy that jeopardizes that.”

David Goldwyn, president of Goldwyn Global Strategies and a former special envoy and coordinator for international energy affairs at the US State Department, speculated that it would take extreme action, such as a military assault on a civilian rebellion, for the US to now impose oil sector sanctions. “The system is collapsing and this administration does not want to own the collapse,” Goldwyn said.

The path ahead for Venezuela’s oil sector has, likely, never been less certain. And it remains to be seen what a full collapse of an economy looks like. It is clear, however, that the US wants to avoid blame for accelerating that collapse and has abandoned, at least for now, consideration of oil sanctions.

When Venezuela’s oil sector hits rock bottom, the US does not want to be accused of dragging it there.

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3Y Note Yields Most Since May 2007 In Ugly, Tailing Auction As Foreign Buyers Flee

After yesterday’s two-fer shocker, when the Treasury sold 3 and 6-month bills at the lowest Bid to Cover in a decade as demand for papers suddenly pulled away, today’s 3Y coupon auction was no better, and moments ago some $34BN in 3 year paper was sold at a high yield of 2.765%, tailing the When Issued 2.763% by 0.2bps (the 5th consecutive tail in a row for this tenor), and the highest yield since May 2007.

The yield, however, was not enough to generate interest, and while the Bid to Cover rose from 2.51 last month to 2.65, but well below the 6 month average of 2.814, the internals were downright ugly, as Indirects took down just 42.7%, the lowest since December 2016, and with Directs taking 12.1%, it left Dealers taking down 45.2% of the auction, the highest share going back also to December 2016.

Overall, a very ugly auction, which better not be a harbinger of what to expect from tomorrow’s benchmark 10Y sale or else the bond market may be facing a major hanogver very soon.

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Watch: Millennials Try To Explain The First Amendment

Authored by Cabot Phillips via Campus Reform,

This month, a new study was released analyzing Americans’ perception of the First Amendment, as well as their knowledge of what it entails. As many would expect, the results were bleak. 

For example, 40 percent of those surveyed were unable to list any of the five freedoms guaranteed by the First Amendment, while another 36 percent could list just one.

Wanting to know if millennials at an Ivy League School would fare better, I headed to Columbia University to talk with young people about their knowledge of the First Amendment. 

Offering $20 to any person who could tell me the five freedoms guaranteed under the amendment (Speech, Religion, Assembly, Press, and Petition), it quickly became clear no one would be going home with the money. 

“No, I have no idea,” said one student when asked if he could name any of the five, while another asked if “the right to bear arms” was found under the First Amendment.

One student, after failing to name more than one freedom listed, conceded, “now I feel like I need to go home and just read.” 

Throughout the afternoon, the majority of the students were able to identify 1-2 freedoms guaranteed under the First Amendment, but no one was able to list more than three.

What else did they have to say, and where did they think the First Amendment should be limited? Watch the full video to find out!

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Baltimore City Council Approves Water Privatization Ban

Baltimore just took a big step toward becoming the nation’s first major city to ban the privatization of its water and sewer system.

The Baltimore City Council overwhelmingly approved a charter amendment yesterday that makes the sale or lease of its water system illegal, The Baltimore Sun reports. The measure ensures that the public owns and controls the water system.

Baltimore Mayor Catherine Pugh, who supports the measure, has until August 13 to sign it. Then, it will be put on the ballot for voters to approve or reject in November.

City council President Jack Young, who proposed the amendment, thinks voters will approve it. “I think overwhelmingly the citizens of Baltimore are going to vote to keep a system that’s an asset to them,” he said, according to WBAL. “I think they’re smart enough to realize that this belongs to them. It doesn’t belong to me, personally, it belongs to the citizens of Baltimore. I want to make sure that it stays that way.”

For years, companies have been making the case for privatization. The French company Suez Environment, for instance, has proposed what seems like a mutually beneficial deal. The Sun reports:

Suez—a descendant of the company that built Egypt’s Suez Canal—has pitched city officials on a lease agreement in which the company would pay the city upfront to take control of operating Baltimore’s water system and then collect the money charged from water bills. The company has said it would hire current Department of Public Works employees, honor union contracts, and pledge to raise water rates only minimally.

Proponents of a ban on privatization say it would raise rates and generally hurt customers. “Communities that have privatized their water systems see skyrocketing rates, lost jobs and declined quality of service, because when corporations come in to run water and sewer systems, they have one goal and one goal only, and that is profit, not the public good,” Rianna Eckel, a state organizer for the advocacy group Food and Water Watch, tells WBAL.

But private companies’ concerns about making a profit may actually help consumers. As Reason‘s Adrian Moore noted in 2016:

Private utilities simply borrow the money to build new water supply pipelines or treatment plants when they need them, and they have every incentive to build them fast and keep costs down. In contrast, for a municipal utility it is a long and painful political process, fighting against other agencies and political priorities, to get approval to borrow money to build new facilities.

Plus, privatizing water systems and other utlities means less long-term risk for cities. “Sales and leases,” says Reason Foundation policy analyst Austill Stuart, “allow cities to transfer risks of deferred maintenance to the private sector.”

According to the National Association of Water Companies, private water companies serve nearly 73 million people on a daily basis. These private utilities are accountable to their customers, and that accountability motivates them to provide better service. Unfortunately, Baltimore residents may never get the chance to experience such benefits.

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Tesla Jumps As Saudis Reveal $2 Billion Stake

Did we just find the latest greater fool?

The FT reports that Saudi Arabia’s sovereign wealth fund has built a significant stake in Tesla – the latest bold bet by the state fund overseen by powerful crown prince Mohammed bin Salman.

Saudi’s Public Investment Fund (PIF) built the undisclosed stake of between 3 and 5 per cent of the electric vehicle maker’s shares this year, according to people with direct knowledge of the matter.

Interestingly, The FT reports that PIF initially approached Musk about purchasing newly issued shares but Musk reportedly rebuffed the offer – perhaps anxious of the perception of further dilution and the promises he made of  the need for more capital.

Note, however, that Tesla gets $0 from this secondary market investment – at a time when the carmaker is losing a record amount of money.

Tesla shares are jumping on the news…

And TSLA bonds are up but remain considerable “cheaper” than stocks…

And all this coming just weeks after Aramco suddenly decides to raise billions in debt instead of IPOing?

A skeptic might wonder whether, since Tesla can’t buyback stock directly using debt-issuance (WACC too high), it is using US bond investors as a source of funds (via Aramco’s bond issue) and Saudis as the proxy buyer to achieve the same effect.

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China Threatens Apple With “Anger And Nationalist Sentiment” If It Doesn’t Share The Wealth

With China having effectively exhausted the amount of US imports on which it can impose tariffs following the $50BN in tariffs slapped in June, and announcing last Friday that it is considering an additional $60BN in retaliation to Trump’s $200BN in incremental Chinese tariffs, the focus has shifted to how else China can hurt the US, aside from simply cranking up the tariff rate.

Of course, China has previously hinted at what it could do, first in March…

… and then again in April.

However until now, a Chinese retaliation against the world’s most valuable company was merely floated in big picture terms and these were simply veiled threats, with China refusing to stray too far from the hypothetical.

That changed today, when an article in the state-run People’s Daily set its sights squarely on Apple, which it said has benefited from cheap labor and a strong supply chain in China and needs to share more of its profit with the Chinese people or face “anger and nationalist sentiment” amid the ongoing trade war.

The article notes that Apple recently reported that in the quarter ended June 30, sales to the greater China region rose by 19% to $9.6 billion and summarizes that “amid escalating trade friction, the company’s better-than-expected quarterly result in China was a major reason for the surge in its shares.”

However, in a tongue-in-cheek rhetorical question that is really a hint to the public, the Daily said that “the eye-catching success achieved in the Chinese market may provoke nationalist sentiment if US President Donald Trump’s recently adopted protectionist measures hit Chinese companies hard.“

As a result, should the trade war between the U.S. and China continue, it would leave Apple and other U.S. firms with substantial Chinese revenues vulnerable as “bargaining chips” for Beijing.

Th Daily then doubled down on its worst-case “hint”, warning once again that China is by far the most important overseas market for the US-based Apple, “leaving it exposed if Chinese people make it a target of anger and nationalist sentiment” and while it claims that China doesn’t want to close its doors to Apple despite the trade conflict, “but if the US company wants to earn good money in China, its needs to share its development dividends with the Chinese people.”

The suggestion is that Apple will have to either hike domestic wages, invest more in China, or – best of all – share its technology with Beijing. If it refuses, China’s population has a green light to “make it a target of anger and nationalist sentiment.”

While Apple has so far escaped unscathed by the escalating trade war, and contrary to our expectations, nationalist sentiment has not emerged pushing the local consumers again purchases of US goods, today’s Op-Ed may be a turning point, because for the first time China hints it is time to spread the wealth. Specifically the People’s Daily author writes,  the “in an increasingly interconnected world, Apple is a particularly good example of global manufacturing.” And the role of China is critical “as it serves as a key production and processing base for Apple.”

Many Chinese companies have been included in Apple’s production chain to provide parts and components or assembly work. This has allowed Apple to benefit from China’s ample supply of cheap labor.

And now, it’s time to give back because “in the case of the iPhone” the article claims, “Chinese processors only get 1.8 percent of the total profits created by the device.“

Hint: it’s time for Apple to give more if it doesn’t want something unfortunate to happen to its record profits.

Apple’s contribution to job creation in China is notable, but the company enjoys most of the profits created from its Chinese business. It is impractical and unreasonable to kick the company out of China, but if Apple wants to continue raking in enormous profits from the Chinese markets amid trade tensions, the company needs to do more to share the economic cake with local Chinese people.

And finally, it appears that China has figured out that the best way to retaliate against Trump’s trade wars is not a tit-for-tat escalation in tariffs, but to hit America where it really hurts: the shareholders’ bottom line and the stock market.

The trade conflict initiated by Trump administration reminds China to re-examine China-US trade. It seems US companies doing business in China are the biggest winners from China-US trade. The Chinese market is vital for many top US brands, giving Beijing more leeway to play hardball in the trade conflict.

And just like that, China became a Democrat’s best friend, and an honorary foreign leader of the #Resistance.

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Gold: Have The Chinese Changed The Way They Look At It?

Authored by Kevin Muir via The Macro Tourist blog,

At the risk of alienating all my readers who view gold as a barbarous relic, I am chancing one more post to expand on my ideas regarding the correlation between gold and the Chinese currency.

Although some readers got a chuckle out of my article Gold: Come’on – Admit it – You want to own it, there was also a bunch of pushback on the idea that the Chinese were pegging the price of gold in CNY.

“Why would they do that?”

“To what end?”

And I guess I purposely left out the details, instead I choose to focus on the correlations and leave it to readers to draw their own conclusions.

And before I give you my theories as to the reasons behind the relationship, let’s have a look at how the correlation has fared since I wrote about it last.

Still trading on top of one another. In fact, it’s almost tick for tick.

Speaking of tick for tick, the great twitter account of @TickByTick_Team created a terrific chart that demonstrated the collapse in the volatility of gold priced in CNY. I have recreated using the 90-day historical volatility, but it doesn’t matter which time frame you use – the end result is that gold priced in CNY has become a lot less volatile.

I am sympathetic to the idea that China would never bother to peg the price of gold. Pegging implies that you would be willing to both buy and sell it to keep it at a certain level. I don’t believe that China has any interest in selling even the tiniest little bit of their gold reserves to keep it at a certain price.

But I do believe the Chinese are managing the price of gold priced in CNY. They have in essence provided a floor at which they are willing to accumulate gold. They don’t bother selling it when it rises above that level, but when the gold price descends into their buy zone, they are there with stacks of blues.

So why is the price of gold going down recently? Well, if we assume that China is one of the biggest buyers of gold, when their currency depreciates, their bid for gold priced in US dollars falls.

The price of gold has not been pegged in CNY, it is merely being bought in that currency. The Chinese have fundamentally changed the way they look at gold. Instead of pricing it in US dollars, they are pricing it in CNY. And they are bid. For size.

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Neighbors Call Police on 10-Year-Old Iowa Girl Selling Cookies on the Street

|||Ian Andreiev/Dreamstime.comA young girl in Iowa has learned the hard way that even doing something as innocent as selling cookies without a permit can warrant a police response.

Savannah Watters, who dreams of owning her own bakery, thought of a way to raise money for her school clothes this year. With an entrepreneurial spirit and a batch of cookies from her mom, the young girl decided to host a cookie sale in her Cedar Falls neighborhood.

That’s when Cedar Falls Police Chief Jeff Olson said his department received three calls over the span of five days about the cookie business.

Why call the police on a 10-year-old selling cookies?

One neighbor said that she did so out of concern for other neighborhood children. She claimed that her own daughter was almost hit by a car belonging to one of Watters’ customers.

“Well, we’ve got a little girl been selling cookies and water for four weeks and the traffic is getting to the point that they’re using our driveway to turn around, which is fine, but they almost hit my daughter,” the neighbor said in a phone call to emergency services. “I mean, it’s just adding. It’s getting out of control.”

Another neighbor called to conduct a welfare check to make sure Watters was being properly supervised.

“I wish that we could have known first, ’cause we didn’t know anything. And it’s just hard to believe that they didn’t come talk to my mom first,” Watters said, reports KDSM-TV. According to WRIC, her mother similarly stated, “I am not a bad person and I am a good mom, and I would never risk, you know, and I didn’t know anything that anyone was bothered, and so I just wish they were to come to me instead of making it all of us you know all of this.”

Police have since informed Watters that she can sell her cookies as long as she remains in the driveway. Unfortunately for Watters, she reported that the change in visibility hurt her business.

Bonus link: Stories like this make us wonder if 2018 is the Summer of Snitches?

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