Month: July 2018

The BLS will publish the June jobs report at 830am ET on Friday, just hours after Trump declares trade war on China, and Beijing retaliates, slapping mutual tariffs on $34 Billion of Chinese and US exports.

Analysts expect 195k nonfarm payrolls (Goldman is at 200k) were added to the US economy in June, a decline from the 223k added last month and just below the 6-month average of 202K, with the far more important for the Fed’s tightening regime average hourly earnings print seen rising by 0.3% M/M, and from 2.7% to 2.8% an a Y/Y basis (any unexpected spike higher and watch out below). Meanwhile, Trump’s preferred indicator, the unemployment rate, is expected to remain unchanged at 3.8%.

Heading into the payrolls report, the whisper number is for a below-consensus print as a result of several factors including Thursday’s ADP private payroll data which came in below expectations in June, jobless claims edging up over the month, planned job layoffs rising in the month, and employment sub-components in the ISM and PMI surveys all moderating slightly.

Here’s what to expect tomorrow courtesy of RanSquawk

• Non-farm Payrolls: (Exp. 195k, Prev. 223k)
• Unemployment Rate: (Exp. 3.8%, Prev. 3.8%) (the FOMC projects unemployment will hit 3.6% at the end of 2018)
• Average Earnings Y/Y: (Exp. 2.8%, Prev. 2.7%)
• Average Earnings M/M: (Exp. 0.3%, Prev. 0.3%)
• Average Work Week Hours: (Exp. 34.5hrs, Prev. 34.5hrs)
• Private Payrolls: (Exp. 190k, Prev. 218k)
• Manufacturing Payrolls: (Exp. 15k, Prev. 18k)
• Government Payrolls: (Prev. 5k)
• U6 Unemployment Rate: (Prev. 7.6%)
• Labour Force Participation: (Prev. 62.7%)

LABOUR MARKET TRENDS:

Last month, the US added 223k nonfarm payrolls, above the 3-month moving average (179k – below 200k for the first time since January), the 6-month moving average (202k – fairly stable at this level over the last couple of months) and the 12-month moving average (197k – highest 12-month moving average since March 2017).

ADP PAYROLLS: The ADP reported 177k payrolls were added to the US economy in June, missing expectations of 190k. However, the previous figure was upwardly revised to 189k from an initially reported 178k. While the number was below the trend rate of payroll growth, analysts are unclear whether this was due to weaker demand, or a lack of supply. “At this stage it’s just not possible to know if this is a response to the uncertainty triggered by the trade tariffs and ongoing disputes with trading partners, or simply a reflection of diminishing labour supply,” Pantheon Macroeconomics wrote. The consultancy notes that the ADP’s estimate is based on an array of macro inputs, as well as last month’s official nonfarm payrolls data, whereas the official payroll data measures the actual number of new jobs, and Pantheon says “that is not necessarily the same as the number of people firms wanted to hire.” Nevertheless, Pantheon cuts its forecast for June’s nonfarm payroll figure to 170k from 200k.

LAY-OFFS: Challenger reported that job cuts for US-based employees rose by 18% to 37,202 in June, and up 19.6% versus June 2017. Challenger noted that it was no surprise that employers are hanging on to their current workforces, as four months of this year have seen job cut totals under 40,000. However, it added that in the wake of announced tariffs, we may be entering a period of increased cuts going forward. “The Trump Administration’s tariffs on steel have already begun to cost jobs”, Challenger said and “this figure could increase in the third quarter, as companies that import steel grapple with increased costs.”

UNEMPLOYMENT CLAIMS: Since the previous payrolls report, weekly initial jobless claims data has been trending between 218k and 231k (the latter was the latest print), and the four-week moving average has changed only slightly in that window, falling to 224,500 in the latest week, from 225,500 going into the previous payrolls report. The recent spike higher may be a result of seasonal quirks, some noted, and this may have further to run given that next week’s claims data covers the 4 July holiday, which often distorts seasonal adjustments.

BUSINESS SURVEYS: The employment sub-component in the manufacturing ISM report fell a touch to 56.0 from 56.3, extending a run of positive employment growth in the sector to a 21st straight month. “Employment maintained a modestly strong level of expansion and supported production growth during the month,” ISM said, “respondents noted labor market issues as a constraint to their production and their suppliers’ production capacity.” NOTE: an employment sub-index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labour Statistics (BLS) data on manufacturing employment. For non-manufacturing sectors, the ISM’s employment sub-component fell to 53.6 from a prior 54.1, largely due to a reduction in employment in the accommodation and food services sector, the information sector, and educational services (three sectors reported decreases in employment, while 12 industries reported an increase). Respondents, however, said that “employee retention is getting much more competitive,” and “more clients awards, so need to hire more people.”

Finally, a qualitative take on tomorrow’s job report from Goldman:

Arguing for a stronger report:

Service-sector surveys. Service-sector surveys improved meaningfully n on net in June, and our non-manufacturing employment tracker rose 1.8pt to 56.7, close to its cycle-high. Service-sector job growth picked up to +171k in May after +109k in April, and job growth in the sector has averaged 141k over the last six months.

Manufacturing-sector surveys. Manufacturing-sector surveys were generally strong in June across both their headline and employment measures. Our manufacturing employment tracker rose 1.5pt to a cycle-high level of 60.6, and our headline aggregate also reached a new cycle high (of 60.7). This strength echoes commentary in the May Beige Book indicating that production activity “shifted into higher gear.” Manufacturing-sector payrolls rose 18k in May and have increased 26k on average over the last six months.

Labor supply constraints. We view the labor market as somewhat beyond full employment, and as slack diminishes further, this should exert upward pressure on wages and (eventually) downward pressure on job growth. In June however, labor supply constraints have historically been less binding. As shown in Exhibit 1, in years with relatively tight labor markets, payroll growth tends to accelerate in June. One potential driver of this tendency is that firms may aggressively hire students and recent graduates if they had difficulty filling positions earlier in the year.

 

Arguing for a weaker report:

ADP. The payroll processing firm ADP reported a 177k increase n in June private payroll employment, 13k below consensus. In past research, we’ve found that large surprises in the ADP report tend to be predictive of the subsequent nonfarm payrolls report, but the surprise in the June ADP data was relatively modest.

Job cuts. Announced layoffs reported by Challenger, Gray & Christmas edged up 2k to 40k in June (SA by GS), towards the middle of its 12-month range. On a year-over-year basis, announced job cuts rose 6k.

 

Neutral factors:

Jobless claims. Initial jobless claims rebounded during the five weeks between the payroll reference periods (averaging 224k vs. 214k in May and 232k in April) but nonetheless remain very low. Continuing claims continued their downtrend,  falling 35k between the survey weeks.

Job availability. The Conference Board labor market differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get—pulled back by 1.4pt to +25.1 in June after reaching a 17-year high in May. The measure nonetheless remains elevated, and we note that job openings rose to a new all-time high of 6,698k at the end of April, according to the JOLTS report.

Weather. May job growth likely received a boost from warmer weather and payback from unusually high snowfall in March and April. Indeed, job growth in weather-sensitive industries (construction, retail, leisure and hospitality) was +77k in May, compared to the 12-month average of +52k. While temperatures were a few degrees above normal in June, we view weather as a neutral factor for month-over-month payroll growth in tomorrow’s report.

Finally, also note that the stock of unemployed job leavers is now high relative to the quit rate (see Exhibit 2), implying a longer-than-usual stint of unemployment for these individuals.

A normalization in the average “time between jobs” would exert further downward pressure on the unemployment rate. To Goldman this suggests that the jobless rate will dip by another 0.1% to 3.7%, a fresh cycle low.

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Authored by Dan Lyman via NewsWars.com,

Over 16,000 complaints have been logged with the City of San Francisco regarding ‘feces’ in the last seven days.

A website and related app that allows local residents to request maintenance or non-emergency services from the city has received 16,034 complaints with the keyword ‘feces’ in the last week at the time of this writing, and many pertain to human waste in public places.

Additionally, words and phrases synonymous with ‘feces’ are found in thousands more grievances.

Many of the complaints also connect the fecal matter to vagrants and homeless encampments – a sight all too common now across California.

Users can geotag the location in question, and also provide photos to support their claim.

“Homeless encampment is blocking sidewalk and creates a health hazard w trash and feces,” writes one user.

“Please move them, and send a cleaning crew. Sidewalk is impassable, forcing pedestrians into the street.”

“Homeless individuals sleeping along Funston between Clement and Geary,” writes another user. 


“Observed homeless people shooting up at 5pm on Monday, July 2nd. Lots of feces and garbage in the area. Please clean up area and see if homeless individuals need services.”

A local Fox affiliate reported earlier this week about a “big bag of poo” filled with approximately 20 pounds of feces discarded on a San Francisco sidewalk.

Residents filed multiple complaints with the city about the debris, and it was eventually removed.

“Strong smell of feces on post on block between cedar and post,” wrote one denizen. “There must be a ton of it somewhere nearby.”

“We don’t know what it’s from and we’re not going to test it,” said a Department of Public Works spokeswoman. “We just got rid of it. This is very unusual.”

In April, the International Union of Operating Engineers filed a complaint with the California Department of Transportation on behalf of Caltrans workers, alleging that their safety was being jeopardized due to a variety of factors, including human waste produced by vagrants living near freeways and associated property.

“Feces and urine and feminine products and all kinds of things on the ground; needles, syringes – you know they use buckets, five-gallon buckets for toilets, and it gets really disgusting,” said Steve Crouch, Director of Public Employees.

Infowars has been documenting the decay of California, which is now home to more than a quarter of the nation’s homeless population.

On January 1, 2018, California officially declared itself a “sanctuary state” for illegal aliens and criminals.

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This week on the MacroVoices podcast, host Erik Townsend welcomed Eric Peters, the CEO and CIO of One River Asset Management, for a discussion about the long-term future of the US economy, and how demographics, the expanding US debt, and the waning influence of central banks will impact growth, inflation and – most importantly – markets.

After a brief discussion about the future of USD hegemony, and the factors that could lead to the dethroning – so to speak – of the dollar, the two plunged into a discussion about one of the most vexing issues of the modern US economy: Why sub-4% unemployment hasn’t driven a runup in inflation back toward levels witnessed before the financial crisis.

We’ve all looked at the stats, and we’re now at an unemployment rate in the US of sub-4% – 3.8%–3.7%. I think what a lot of people focus on is if the participation rate were back where it was pre-2008 you’d end up with an unemployment rate that had an 8 handle or something like that. So that’s what people are referring to. But making comparisons like that is difficult because a lot of things are changing. The US labor force is shrinking because people are getting older. There is the opioid issue. And this disability issue. Which are difficult to really handicap in terms of how big an impact that’s having on the US labor force.

Up until recently, the actions of central bankers have been much more important to markets in a general sense than the behavior of politicians. But that’s about to change…

If the central banks have been the ones who have gotten us here, they just – by definition – they’re not the ones that are going to get us out of here. So I think – look, we’re always going to look at what central banks are doing, they will be important. But I think that they’re no longer going to be dominant. What’s going to be dominant are the politicians. You’re seeing that in the US right now. I know that everyone loves to hang on every word that Powell speaks. And they look at the Fed statement. And people are still trained to look at the Fed dot plots (which are probably going to go away). People are trained to look at all of these things because that’s what they’ve done their whole careers. But they just are not going to matter that much anymore. Whether the Fed’s terminal rate is 2.25 or 2.5 or 2.75 – we’re not talking about much. What are we going to do in terms of immigration policy? What are we going to do in terms of trade policy? How is that going to impact all of the major corporations’ global supply chains? These are the things that are really going to matter.

With the interview drawing to a close, Townsend asked for Peters’ thoughts about the popular macro view that shifting demographics (aka a shrinking population) will deliver long-term deflation, and a secular bear market in equities. In theory, fewer consumers equals less demand for goods (and financial securities). But Peters believes the opposite is just as likely: That Millennials and Generation Z will face a spike in inflation as the stock of consumers outpaces the stock of workers.

But as you really start to age, what happens is the labor force shrinks dramatically (in this really simple society), the retired pool expands rapidly. All of a sudden you have a lot of demand because, while the older people may be consuming less than when they were actively working, they’re still consuming. And you have very few workers left.

And, ultimately, in that society you end up with huge inflation in the price of labor, whether it’s for producing goods at a factory or for services. You ultimately end up with all the old people exchanging all of their financial assets and their homes for even the most basic services. I kind of joke, the last person will exchange their house for one last diaper change. And that’s – if you take it to the extreme – that’s kind of what that society looks like.

Peters devoted the final minutes of the interview to dispelling the notion that, over time, equity prices always move higher. One result of Japan’s decades of deflation and economic stagnation is that the Nikkei is – in nominal terms – unchanged since 1987.

Okay, really high-level. People assume that equities always go up. And they certainly have been for an awful long time in the US. But they can go through really long periods of sideways movement.

If you look at the NIKKEI – I started my career in 1989. The NIKKEI today, in nominal terms, is where it was in 1987. It’s where it was before I started my career. It’s moved sideways during that period. The S&P is up over 800% in that period of time. So we’ve outperformed the NIKKEI from 1987 by over 800%. Euro Stoxx, European, their big equity index, it is unchanged from where it was in 1998 – 20 years ago. We’re up 130% during that period of time, the S&P 500. And the Shanghai Composite is unchanged from where it was in 2006, at this point. So it’s unchanged over the past 12 years, despite the enormous real and nominal GDP growth out of China. Their equity market is flat for 12 years. We’re up 90%.

So it’s just a reminder that we go through these periods of assets doing extremely well – pricing in all kinds of robust growth for the future – and then periods where they can obviously have big corrections, but even over long periods of time they can just move sideways.

Listen to the full interview below:

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Authored by Jeff Thomas via InternationalMan.com,

For many years, I’ve forecasted that the US will evolve into a police state; that it will begin slowly; then as more and more freedoms are removed, the creation of the police state will accelerate.

We’re now seeing that acceleration, as more and more Americans are detained, questioned, and having their property confiscated than ever before.

As an example, in 2016, some 20,000 travellers in and out of the US were stopped, often at random. Typically, their baggage was searched, their documents photocopied, access codes to their electronic devices demanded and their files copied. In most cases, no explanation was given, but they were advised that if the search was refused, they would be detained indefinitely.

The following year, in 2017, the numbers of people detained rose by 50%, to 30,000.

It’s important to note that the travellers were not threatened with arrest, which suggests that the authorities were working on the basis that the Patriot Act of 2001 allows all of the above activities – without cause being given, without a warrant being obtained, without access to a phone call or legal representation being allowed, and that the individuals in question may be detained, indefinitely.

This, of course, is in direct violation of the Fourth Amendment to the Constitution, which states that people have the right “to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.”

However, when people travel, they are particularly vulnerable, so the travellers in question are extremely unlikely to refuse. They understand that, “indefinitely” means, “until a Supreme Court ruling is passed, overturning the Patriot Act as unconstitutional.” If it hasn’t happened yet and isn’t under consideration, it’s safe to say that the level of police state allowed under the Patriot Act is permanent.

Police States have been implemented countless times throughout history. They tend to be most prominent where collectivism has already been instituted.

Wherever collectivism is already firmly established, new crackdowns are generally introduced suddenly. In Germany, in 1938, under existing Nazi rule, Kristallnacht took people by complete surprise. Later, in 1961, under existing Soviet rule, the Berlin Wall went up with no previous announcement. In both cases, the collectivist tyranny was already in place and the people had already successfully been subjugated. These events were merely further losses of freedom.

But what of a country that still enjoys a few of its former freedoms and is in the process of being transformed into a full-blown collectivist state? Well, in such cases, the loss of freedoms is often done in slo-mo.

Another way of describing this is the old adage of boiling a frog. Since a frog will jump out of a pot of hot water, place him in a pot of lukewarm water and slowly turn up the heat. Before he knows it, he’s being boiled to death.

Likewise, when the intention is to convert a country to collectivism, make the early changes in stages. Get the people to accept that the losses of freedom are for the benefit of their safety. Then, the further along you go, the more you can accelerate the process.

At present, a majority of Americans appear to now understand that they’ve experienced a significant loss of their “guaranteed” freedoms. They’re now worried and, at each new stage of oppression they tend to say, “I’m not happy about this, but I can probably live with it… and, besides, they say that they’re doing it for my own safety.”

However, I think that it’s safe to say that a family returning from a holiday that’s just been isolated from each other, interrogated separately, frisked, had all their belongings pored through and copies of their papers and electronic files taken, without even being told the reason, does not feel as though it’s been done for their safety.

Remember, the 30,000 above were just hoping to reach their destination with no trouble from anyone. A generation ago, they never would have tolerated such a violation to their rights. But now, they submit and accept whatever they’re told to do.

But, upon release, they most likely assumed that the authorities had been looking for something specific. They were not. In recent years, there have been very few actual prosecutions from such Gestapo-like shakedowns, in spite of the copying of documents and confiscation of minor items. The object here is not to prosecute anyone; it is to teach people to submit.

This will be important later on.

What we’re witnessing is a loss of freedom in slo-mo. Just as Germans stood by and accepted Kristallnacht; just as they stood by and watched the Berlin Wall be built that would close off their freedom of migration, the great majority of Americans ultimately will stand by and watch the last of their freedoms be removed, because they’ve already been trained to submit to whatever indignities and restrictions are placed upon them.

After World War II, Lutheran Pastor Martin Niemöller was questioned as to how he and other Germans could possibly have simply stood by and watched as freedoms were removed, resulting eventually in total domination of the German people. He said,

First they came for the Socialists, and I did not speak out because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out because I was not a Jew.

Then they came for me – and there was no one left to speak for me.

Pastor Niemöller was able to make the above statement in 1976, as he was one of the few survivors of the concentration camps.

But, in addition to the above insight, there’s another very significant lesson to be learned here. Historically, whenever a government is instituting the transition into a collectivist state, one of the early warnings is a limitation on travel outside the country (getting the people used to the idea that they don’t have a right to leave). The US has now reached that point. The next development will be to teach them that, by travelling outside of the country, they are automaticallysuspect. The implication will be money laundering, drug trafficking, or terrorist activities.

Whether it’s accomplished through the use of a physical barrier, such as a wall, or through the intimidation of random searches and interrogations, as is presently underway in the US, or whether it’s simply the appearance of armed guards in ports of exit (like the armed guard in the photo above), the objective is not to obtain copies of your emails to your friends, or to go through socks in your luggage. It’s to teach you that your rights have been lost and you are expected to submit to any and all indignities and restrictions imposed on you.

Historically, the end-product is always the same. The final acceptance that you’ve waited too long to leave the increasingly oppressive country—and that you’ve been successfully locked in.

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A day before the White House’s first round of China-specific tariffs are set to take effect, Bloomberg is reporting that President Trump has narrowed down his list of potential Supreme Court candidates to three federal appeals court judges: Amy Coney Barrett, Brett Kavanaugh and Raymond Kethledge. Among these three candidates, Trump is said to favor: Kavanaugh and Kethledge, according to two insiders.

Meanwhile, Trump has reportedly interviewed at least seven candidates to replace outgoing justice Anthony Kennedy. Trump has said he’ll name his nominee July 9, and the White House aims to have Kennedy’s successor confirmed in time for the court’s next session in October. That could be difficult as legislators head out for their summer recess, as Bloomberg reminds us.

The confirmation process promises to be a fight. As soon as Kennedy announced his retirement plans in late June, Democrats mobilized against Trump’s eventual pick, arguing that anyone he selects would help roll back abortion rights, Affordable Care Act protections, same-sex marriage and scores of other decisions that have shaped modern America while ruling in favor of corporations and against under-represented minorities.

Even though Democrats pulled out the so-called “nuclear option” back in 2013 to make it easier to push through presidential nominees, Republicans’ slim 51-49 advantage means that the success of Trump’s nominee will turn on a handful of moderate votes from Senators like Alaska’s Lisa Murkowski. Murkowski and her moderate peers like Susan Collins of Maine are wary of approving a justice who would support the overturn of Roe v. Wade.

The confirmation process promises to be a fight. As soon as Kennedy announced his retirement plans in late June, Democrats mobilized against Trump’s eventual pick, arguing that anyone he selects would help roll back abortion rights, Affordable Care Act protections, same-sex marriage and scores of other decisions that have shaped modern America while ruling in favor of corporations and against under-represented minorities.

With Republicans holding just a 51-49 advantage in the Senate, the fate of the nominee will turn on a handful of Senate outliers in both parties — Republicans who support abortion rights and Democrats who don’t.

Barrett, 46, is currently on the 7th Circuit Court of Appeals after being nominated by Trump in mid-2017 and confirmed in October. Before joining the bench, she was a professor at Notre Dame Law School, her alma mater, and two decades ago, clerked for the late Supreme Court Justice Antonin Scalia. Like four of the five Christians on the court, Barrett is a Roman Catholic. If confirmed, she would be the fifth woman to join the court and one of four currently on the court.

Responding to a question about Barrett during an interview on Air Force One last month, Trump praised her profusely, calling her “an outstanding woman.” Meanwhile, hobbyist forecasters placing bets in the online market see Kavanaugh as the frontrunner, with Kethledge representing a close second.

Kavanaugh, 53, is a judge on the US Court of Appeals for the Washington DC circuit who has a background in politics. Before he was nominated to the Washington DC circuit court back he was Bush’s White House staff secretary and worked for Bush during the 2000 Florida vote recount. He also played a lead role in drafting Independent Counsel Kenneth Starr’s 1998 report on Bill Clinton. He is a Yale Law School graduate.

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Authored by Mark Glennon via Wirepoints.com,

As America celebrates its Independence this week, it seems only right to consider the most far-reaching questions raised by Illinois’ crisis:

Did the Founding Fathers miss something? Did we miss something the Founders stood for? Is our form of democracy fundamentally flawed?

The importance of those questions is part of why Wirepoints exists, and why we hope other states follow Illinois’ story.

Illinois inherited assets most states and nations would envy. Its GDP remains larger than all but fifteen countries of the world. More importantly, it inherited constitutional self-government.

But it’s failing.

Illinois is bankrupt. The state and many of its towns and cities sink further into insolvency each day — the facts and numbers are irrefutable. Illinois government is morally bankrupt as well. Its moral insolvency is less quantifiable but no less apparent. Graft, both legal and illegal, is exposed incessantly, usually to no end. Scandal fatigue overtook the state long ago. Numbed voters left politicians free to do little good and plenty wrong. Not a single major reform, fiscal or otherwise, is currently under serious consideration in Illinois.

How can a democracy have done this to itself?

The reasons are myriad. Many are debatable. Some are particular to Illinois. Most of the 20,000 articles we’ve linked to or written on this site are about those reasons.

But on the overarching question of universal importance – whether Illinois has exposed some fundamental flaw of democracy – the story hasn’t ended. Nobody knows how Illinois’ crisis ultimately will sort out, but there is reason for qualified, partial optimism, albeit over a long time with much pain in the interim.

That optimism derives from the likelihood that much of our crisis will be resolved in courts — federal courts exercising their place in the federal system we inherited — and the hope that those courts will honor the foundational principles of American government. The Founders’ foresight, not their failure, perhaps may yet shape Illinois’ history. Perhaps.

The initial questions that might end up in the federal courts have already gotten some attention. If Illinois amended its constitution to delete its pension protection clause, would the United States Constitution’s Contract Clause still prohibit pension reform? Could the federal Bankruptcy Code be amended to allow bankruptcy for states? Could some other form of federal legislation authorize adjustment of pension obligations? And if Illinois eventually authorizes bankruptcy for municipalities, which is probably unavoidable at some point, many questions about that process remain unanswered by courts.

More fundamentally, it’s only a matter of time before a federal court faces a situation somewhere in Illinois where essential, basic government services fail. A court will face a “police power” question, as it’s called.

Illinois courts have frowned on the concept but federal courts recognize it in exceptional circumstances such as those Illinois eventually will face.

It’s that concept that I suspect will become central and will be recognized in some fashion, whether under the label “police power” or otherwise. Government must function. Though the Illinois Supreme Court has essentially read the state constitution to be a suicide pact, permanently committing the state to pension obligations that are insurmountable, federal courts, I hope and expect, will see things differently.

Perhaps they will even give life to the Guaranty Clause in Article IV of the United States Constitution. Through it, the Founders affirmatively obligated the federal government to guaranty to every state a “republican form of government.” Never mind what “republican” means for now. We’ll come back to that. At a minimum, it means a government of some kind. If basic services truly fail, federal courts will seek to restore them. They will find a way, and the Guaranty Clause would help if it were honored.

A conspicuous portion of the Janus decision handed down last month by the Supreme Court is pertinent. The majority of the court seemed to go out of its way to describe Illinois’ financial problems. Because they are so grave, the court held that the First Amendment prohibited forced union membership because a member should be free to advocate as he chooses on them. “To suggest that speech on such matters is not of great public concern is to deny reality,” the Court said.

The depth of Illinois’ problems, in other words, influenced the Court’s ruling on the First Amendment. So it will be, I suspect, on other Illinois matters ending up before the Court.

But democracy in Illinois does have a flaw that federal courts probably cannot undo. It’s one Benjamin Franklin identified: “If when the people find that they can vote themselves money that will herald the end of the republic.”

That’s Illinois.

Alexis De Tocqueville, author of Democracy in America, warned of the same thing in 1835: “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Did the Founding Fathers indeed leave that issue unaddressed?

No. but their check on it has faded away.

The Founders didn’t believe in democracy. They all believed in republicanism — indirect democracy with firm protections for minorities that trump simple majority rule. Republicanism, they believed, provided the check on tyrannical majorities.

“A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine,” said Thomas Jefferson. From John Adams, “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself.”  At the Constitutional Convention in 1787, Franklin was asked if we got a republic or a monarchy. With no hesitation, Franklin responded, “A republic, if you can keep it.”

We haven’t kept it. Illinois government wields unchecked power incompetently and voraciously. Homes, particularly in lower income communities, have been confiscated by absurd property taxes used to pay pension promises that were awarded through legislative incompetence and legal bribery. Unfunded mandates became ubiquitous, making the simplest fiscal reforms impossible for municipalities. Legislative maps drawn by legislators let politicians pick their voters instead of the other way around.

In short, statism replaced republicanism. The coalition majority in Illinois became rapacious and tyrannical, exactly as the Founders feared.

Undoing the power of that tyrannical majority in Illinois, however, will be difficult. Federal courts cannot be expected to do it alone because so much of that coalition’s power has become institutionalized, in contrast to the republic the Founders envisioned. The job will be left to the electorate and, in Illinois, the majority of the electorate has shown little understanding of the nature and depth of the state’s problems.

So, has democracy failed in Illinois? Yes, but don’t blame the Founders or their vision of government. Maintain a degree of optimism that federal courts will end up enforcing constitutional checks the Founders gave us and hope Illinoisans eventually will see fit to endorse some state version of the foundational principles the Founders envisioned.

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The Manhattan real estate bubble appears to have just burst – as 54% of sales in the second quarter closed below asking price, according to Bloomberg. The lowball offers coincide with a significant 17% decline in sales vs. 2017 – resulting in the lowest second quarter tally since 2009.

Manhattan homebuyers are getting bolder these days, demanding bargains or walking away from deals in a market where inventory is swelling. In the three months through June, purchases fell 17 percent from a year earlier to 2,629, according to a report Tuesday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That was the lowest tally for a second quarter since 2009, when the global recession chilled deals. –Bloomberg

Meanwhile, 37% of sales closed at asking price, however as Bloomberg notes, prices had already been reduced in many cases. Combined, “the share of purchases without a premium was the biggest since the end of 2012,” at 91%. 

“It’s about perception — that the market went way up, and it went way up real fast, and it’s not happening anymore, and I am not going to be the fool who gets burned by overpaying,” said Douglas Ellman CEO Steven James, who adds that buyers “do believe that over time, the market will go up, but it’s not going up right now.”

Meanwhile, the median price for Manhattan homes sold in Q2 dropped 7.5% to 1.1 million – the second year-over-year decline, according to the firms, while the number of homes listed for sale (6,985) at the end of June jumped 11% over last year; the most in the second quarter since 2011. 

The sales slump is likely to continue this year. Contracts to buy homes fell 9 percent from a year earlier to 3,108, the lowest number of pending deals in a second quarter since 2011, brokerage Corcoran Group said in its own report Tuesday. –Bloomberg

“We are in a price correction, there’s no doubt about that,” said Hall Willkie, co-president of brokerage Brown Harris Stevens. “Buyers are very resistant to paying anything that isn’t justified.”

Brown Harris Stevens, in a joint report Tuesday with Halstead, said previously owned Manhattan apartments sold at the biggest discounts off their asking prices in five years in the second quarter.

On the Upper East Side, the median price for three-bedroom resales tumbled 16 percent from a year earlier to $3.075 million, according to the report. Similar apartments on the Upper West Side sold for a median of $3.13 million, down 6 percent. In that neighborhood, the median for two-bedroom resales dropped 5 percent to $1.49 million, and the one-bedroom median fell 4 percent to $785,000.  –Bloomberg

“There was a time for many years that if buyers had the money and they were asked to pay 10 percent above comparables, they said, ‘You know what? It will be worth that next year or in two years, why not?’” Willkie said. “That mentality is gone.”

via RSS https://ift.tt/2uaiXVV Tyler Durden

Authored by Alex Deluce via GoldTelegraph.com,

While everyone is debating the effects of possible trade sanctions on the global economy, few are paying attention to a far more serious issue. Enormous global debt, combined with low-interest rates, have set the stage for a global recession that has the potential for economic chaos.

The combination of enormous debt and artificially low-interest rates were at the center of the 2008 credit bubble. One would expect central banks to be aware of this and show more concern. However, the overall silence has been astonishing.

An exception to this is the Bank for International Settlements (BIS), which has been making loud noises about the toxic level of global debt and the anticipated bubble. It recently reported that the global debt of 2008 was $60 trillion, small when compared to the current debt of $170 trillion. To make matters worse, today’s global debt is 40 percent higher in relation to GDP than it was in 2008, just prior to the Lehman Bros. downfall. To add to the current headache are the rising debt levels of emerging markets and corporate debts. According toMcKinsey & Company, a global consulting firm, two-thirds of U.S. corporate debt are from corporations that pose a high default risk.

Countries such as Brazil, India, and China have been busy issuing questionable credit. This dubious credit being issued in many emerging markets has come with extremely low-interest rates. If the borrowers’ default, the lenders won’t be looking at enough compensation to recoup their loses. Low-interest rates have become an overall global problem, including the rates in the U.S. high-yield bond market. Central banks around the world have been keeping interest rates artificially low while printing money with abandon. The current global debt is the direct result of this policy.

$2 trillion in corporate debt will be maturing annually through 2022. A considerable amount of this debt may default and cause debt repricing. The damage caused by central banks and their policy of easy credit has been done, and there is little that can be done at this point to stem the tide. It can only be hoped that they are more aware now than they were in 2008.

Just prior to 2008, during the halcyon days of easy mortgages, homeowners jumped onto the debt bandwagon by refinancing their homes and incur more than $300 billion in debt as the value of their properties increased. Many used their new-found wealth to purchase furnishings, automobiles, vacations or reinvest in the stock market. By the time anyone realized that the homes and stocks were highly overvalued, the stock market took a tumble, major lenders declared bankruptcy, and the world suffered through a massive recession.

More than a decade later, as global economies are still climbing out of the mire, the story is repeating itself, this time with major corporations leading the way. These companies are using cheap credit to pay dividends to stockholders and buy back their own stock. This has driven corporate debt to record heights with inflated assets. Sooner or later, the bubble will burst.

Awash in cash, corporations have created a “buyback” economy. They purchase their own stock for a short-term profit. Companies are expected to pour 2.5 trillion in buybacks and M&A this year. 

Corporations used to invest in equipment, products, and innovative services to generate growth and profits. In the buyback economy, the cash goes to stockholders, instead, while the companies stagnate.

Apple recently announced a $100 billion buyback of its stock. Since 2012, the company has paid $210 billion to its shareholders. In 2017, public companies used more than $800 billion of their equity to buy back stock and increase their debt. 

As a consequence of this corporate borrowing spree, more companies are binging on debt vs. focusing on their bottom line. This is a bad position to be in during any kind of economic turndown or when interest rates rise. When the time comes, a large amount of defaults is expected, causing renewed economic stress. It should serve as a warning to companies of problems that may lie ahead.

The world is drowning in debt. In addition to corporate debt, household and government debt are at a record high level, while interest rates are historically low.

With the recent tax cuts initiated by President Trump, the federal deficit is expected to exceed $1 trillion next year. This is in addition to the $20 trillion of already existing debt. Interest payments alone on this colossal federal debt will increase from $316 billion in 2018 to $915 billion in 2028. This is just the interest payments.

Consumers seem to have also forgotten the lessons from 2008. Household debt, in the form of mortgages, credit card, auto and student loans, have returned to record high levels. Thirty-eight percent of individual credit card balances are over $10,000.

As central banks contemplate rate increases, consumer interest payments will reduce buying power and cause a slowdown in the economy, bankruptcies, and eventually, perhaps a recession.

At the moment, the global economy is filled with a number of sharp pins, and no one knows which pin will be the first to prick the debt bubble. But a burst is almost certain.

via RSS https://ift.tt/2m0beWx Tyler Durden

Each year roughly 40 million Americans, or 14% of the population, pack up and move at least once. 

While much of them are younger people moving within the same city – people who decide to leave town altogether tend to do so over stagnating economic conditions, job opportunities elsewhere, or skyrocketing prices in major metropolitan areas.

[T]he reasons behind the decline in population in cities like Los Angeles and New York — overcrowding and high prices — are very different than the reasons for decreases in other cities on this list, notably Rust Belt cities like Flint, Michigan; Toledo, Ohio; and Rockford, Illinois; and even larger cities like St. Louis, Cleveland, and Milwaukee. These cities have been losing domestic migrants for decades due to stagnating economic conditions stemming from the decline of American manufacturing. –USA Today

“[I]t is trends of Americans moving to warmer climates, more affordable areas, and better job opportunities that have largely determined migration patterns in recent decades,” Michael Sauter of 24/7 Wall Street writes in USA Today, adding “Because of those long-term patterns, as well as the recent period of economic recovery, cities in some parts of the country have lost tens of thousands of residents.”

Now that housing prices have recovered in Los Angeles and have become too expensive for many residents, people are once again moving out of the city in droves. As of 2016, Los Angeles had the seventh highest median home value of any metropolitan area, at $578,200. Las Vegas’ median home value is just slightly more than half that, at $233,700. –USA Today

Using data from the U.S. Census Bureau, 24/7 Wall Street determined the top 50 U.S. metropolitan areas that have had the largest net decline in population due to migration between 2010 – 2017. 

The 50 cities where the most people are moving away from can primarily be found in the Northeast, Midwest, and West Coast, particularly in states like Illinois, Michigan, Ohio, and New York. Among the cities where people are leaving in droves are places such as Chicago, Detroit, St. Louis, New York, and Los Angeles.

William Frey, demographer at the Brookings Institution, a nonprofit public policy research group, explained that these cities that have been losing thousands of residents due to migration are part of the long-term trend of movement from the Northeast and the Midwest to warmer climates, a trend that has increased in recent years. –USA Today

Of note – this list ranks cities by net population decrease due to migration – while the net population change in many cases was net positive due to the number of births vs. deaths.

50. Fairbanks, Alaska

• Population decrease due to migration, 2010-2017: -7,011
• Population change, 2010-2017: +2.2% (97,585 to 99,703)
• Natural growth, 2010-2017: 12,364 births, 3,417 deaths
• Median home value: $226,900

49. Johnstown, Pennsylvania

• Population decrease due to migration, 2010-2017: -7,070
• Population change, 2010-2017: -7.4% (143,674 to 133,054)
• Natural growth, 2010-2017: 9,624 births, 13,203 deaths
• Median home value: $93,400

48. Hinesville, Georgia

• Population decrease due to migration, 2010-2017: -7,171
• Population change, 2010-2017: +3.2% (77,919 to 80,400)
• Natural growth, 2010-2017: 12,218 births, 3,030 deaths
• Median home value: $133,600

47. El Centro, California

• Population decrease due to migration, 2010-2017: -7,219
• Population change, 2010-2017: +4.8% (174,528 to 182,830)
• Natural growth, 2010-2017: 22,531 births, 7,106 deaths
• Median home value: $170,900

46. Bakersfield, California

• Population decrease due to migration, 2010-2017: -7,314
• Population change, 2010-2017: +6.4% (839,621 to 893,119)
• Natural growth, 2010-2017: 102,106 births, 41,099 deaths
• Median home value: $204,200

45. Norwich-New London, Connecticut

• Population decrease due to migration, 2010-2017: -7,365
• Population change, 2010-2017: -1.8% (274,059 to 269,033)
• Natural growth, 2010-2017: 19,518 births, 17,252 deaths
• Median home value: $242,000

44. Fresno, California

• Population decrease due to migration, 2010-2017: -7,571
• Population change, 2010-2017: +6.3% (930,495 to 989,255)
• Natural growth, 2010-2017: 113,926 births, 47,252 deaths
• Median home value: $238,100

43. Macon-Bibb County, Georgia

• Population decrease due to migration, 2010-2017: -7,877
• Population change, 2010-2017: -1.5% (232,286 to 228,914)
• Natural growth, 2010-2017: 21,752 births, 17,233 deaths
• Median home value: $122,000

42. Anchorage, Alaska

• Population decrease due to migration, 2010-2017: -8,464
• Population change, 2010-2017: +5.3% (380,821 to 400,888)
• Natural growth, 2010-2017: 43,973 births, 15,756 deaths
• Median home value: $299,700

41. Vineland-Bridgeton, New Jersey

• Population decrease due to migration, 2010-2017: -8,476
• Population change, 2010-2017: -2.6% (156,628 to 152,538)
• Natural growth, 2010-2017: 14,926 births, 10,604 deaths
• Median home value: $165,900

40. Erie, Pennsylvania

• Population decrease due to migration, 2010-2017: -8,511
• Population change, 2010-2017: -2.1% (280,564 to 274,541)
• Natural growth, 2010-2017: 22,920 births, 20,396 deaths
• Median home value: $125,700

39. Mobile, Alabama

• Population decrease due to migration, 2010-2017: -8,517
• Population change, 2010-2017: +0.2% (413,143 to 413,955)
• Natural growth, 2010-2017: 40,422 births, 30,886 deaths
• Median home value: $126,800

38. Atlantic City-Hammonton, New Jersey

• Population decrease due to migration, 2010-2017: -8,550
• Population change, 2010-2017: -1.7% (274,540 to 269,918)
• Natural growth, 2010-2017: 22,801 births, 18,976 deaths
• Median home value: $215,100

37. Fayetteville, North Carolina

• Population decrease due to migration, 2010-2017: -8,741
• Population change, 2010-2017: +5.6% (366,322 to 386,662)
• Natural growth, 2010-2017: 47,548 births, 19,638 deaths
• Median home value: $134,600

36. Jacksonville, North Carolina

• Population decrease due to migration, 2010-2017: -8,791
• Population change, 2010-2017: +9.1% (177,799 to 193,893)
• Natural growth, 2010-2017: 30,768 births, 7,184 deaths
• Median home value: $151,500

35. Yakima, Washington

• Population decrease due to migration, 2010-2017: -8,916
• Population change, 2010-2017: +2.9% (243,237 to 250,193)
• Natural growth, 2010-2017: 29,681 births, 13,811 deaths
• Median home value: $166,300

34. Binghamton, New York

• Population decrease due to migration, 2010-2017: -9,470
• Population change, 2010-2017: -3.8% (251,737 to 242,217)
• Natural growth, 2010-2017: 18,295 births, 18,409 deaths
• Median home value: $121,000

33. Sierra Vista-Douglas, Arizona

• Population decrease due to migration, 2010-2017: -9,495
• Population change, 2010-2017: -5.0% (131,356 to 124,756)
• Natural growth, 2010-2017: 11,814 births, 9,110 deaths
• Median home value: $130,100

32. Farmington, New Mexico

• Population decrease due to migration, 2010-2017: -9,633
• Population change, 2010-2017: -2.4% (130,045 to 126,926)
• Natural growth, 2010-2017: 13,381 births, 6,949 deaths
• Median home value: $153,100

 31. Lawton, Oklahoma

• Population decrease due to migration, 2010-2017: -9,641
• Population change, 2010-2017: -2.3% (130,291 to 127,349)
• Natural growth, 2010-2017: 14,355 births, 7,848 deaths
• Median home value: $124,900

30. Charleston, West Virginia

• Population decrease due to migration, 2010-2017: -9,772
• Population change, 2010-2017: -5.6% (227,061 to 214,406)
• Natural growth, 2010-2017: 18,078 births, 20,856 deaths
• Median home value: $111,300

 29. Saginaw, Michigan

• Population decrease due to migration, 2010-2017: -9,783
• Population change, 2010-2017: -4.1% (200,169 to 191,934)
• Natural growth, 2010-2017: 16,380 births, 14,912 deaths
• Median home value: $96,200

28. Pine Bluff, Arkansas

• Population decrease due to migration, 2010-2017: -10,001
• Population change, 2010-2017: -9.3% (100,278 to 90,963)
• Natural growth, 2010-2017: 8,244 births, 7,701 deaths
• Median home value: $84,700

27. Montgomery, Alabama

• Population decrease due to migration, 2010-2017: -10,317
• Population change, 2010-2017: -0.2% (374,541 to 373,903)
• Natural growth, 2010-2017: 35,032 births, 25,380 deaths
• Median home value: $135,700

26. Wichita, Kansas

• Population decrease due to migration, 2010-2017: -10,335
• Population change, 2010-2017: +2.3% (630,924 to 645,628)
• Natural growth, 2010-2017: 65,873 births, 40,647 deaths
• Median home value: $132,400

 25. Watertown-Fort Drum, New York

• Population decrease due to migration, 2010-2017: -10,901
• Population change, 2010-2017: -1.8% (116,232 to 114,187)
• Natural growth, 2010-2017: 15,196 births, 6,527 deaths
• Median home value: $149,600

24. Albany, Georgia

• Population decrease due to migration, 2010-2017: -10,964
• Population change, 2010-2017: -3.9% (157,500 to 151,434)
• Natural growth, 2010-2017: 15,175 births, 10,379 deaths
• Median home value: $109,600

23. New Haven-Milford, Connecticut

• Population decrease due to migration, 2010-2017: -11,253
• Population change, 2010-2017: -0.2% (862,462 to 860,435)
• Natural growth, 2010-2017: 64,732 births, 55,491 deaths
• Median home value: $247,600

22. Visalia-Porterville, California

• Population decrease due to migration, 2010-2017: -12,390
• Population change, 2010-2017: +5.0% (442,178 to 464,493)
• Natural growth, 2010-2017: 55,606 births, 20,845 deaths
• Median home value: $186,600

 21. Shreveport-Bossier City, Louisiana

• Population decrease due to migration, 2010-2017: -12,410
• Population change, 2010-2017: +0.3% (439,811 to 440,933)
• Natural growth, 2010-2017: 46,192 births, 32,742 deaths
• Median home value: $150,900

20. Hartford-West Hartford-East Hartford, Connecticut

• Population decrease due to migration, 2010-2017: -13,682
• Population change, 2010-2017: -0.2% (1,212,398 to 1,210,259)
• Natural growth, 2010-2017: 86,636 births, 75,155 deaths
• Median home value: $247,400

19. Youngstown-Warren-Boardman, Ohio-Pennsylvania

• Population decrease due to migration, 2010-2017: -14,057
• Population change, 2010-2017: -4.2% (565,799 to 541,926)
• Natural growth, 2010-2017: 40,696 births, 50,302 deaths
• Median home value: $106,000

18. Peoria, Illinois

• Population decrease due to migration, 2010-2017: -14,415
• Population change, 2010-2017: -1.8% (379,186 to 372,427)
• Natural growth, 2010-2017: 35,268 births, 27,573 deaths
• Median home value: $136,800

17. Hanford-Corcoran, California

• Population decrease due to migration, 2010-2017: -14,442
• Population change, 2010-2017: -1.9% (152,982 to 150,101)
• Natural growth, 2010-2017: 17,121 births, 5,895 deaths
• Median home value: $190,500

 16. Rochester, New York

• Population decrease due to migration, 2010-2017: -15,934
• Population change, 2010-2017: -0.2% (1,079,691 to 1,077,948)
• Natural growth, 2010-2017: 84,317 births, 69,938 deaths
• Median home value: $138,900

15. Brownsville-Harlingen, Texas

• Population decrease due to migration, 2010-2017: -17,233
• Population change, 2010-2017: +4.3% (406,219 to 423,725)
• Natural growth, 2010-2017: 53,118 births, 18,432 deaths
• Median home value: $80,000

14. Virginia Beach-Norfolk-Newport News, Virginia-North Carolina

• Population decrease due to migration, 2010-2017: -17,297
• Population change, 2010-2017: +2.9% (1,676,817 to 1,725,246)
• Natural growth, 2010-2017: 163,787 births, 97,935 deaths
• Median home value: $239,900

13. Syracuse, New York

• Population decrease due to migration, 2010-2017: -17,717
• Population change, 2010-2017: -1.2% (662,625 to 654,841)
• Natural growth, 2010-2017: 52,435 births, 42,535 deaths
• Median home value: $133,300

12. Toledo, Ohio

• Population decrease due to migration, 2010-2017: -18,475
• Population change, 2010-2017: -1.0% (610,002 to 603,668)
• Natural growth, 2010-2017: 54,309 births, 42,313 deaths
• Median home value: $129,200

11. Rockford, Illinois

• Population decrease due to migration, 2010-2017: -18,789
• Population change, 2010-2017: -3.2% (349,431 to 338,291)
• Natural growth, 2010-2017: 30,366 births, 22,915 deaths
• Median home value: $121,600

10. New York-Newark-Jersey City, New York-New Jersey-Pennsylvania

• Population decrease due to migration, 2010-2017: -21,503
• Population change, 2010-2017: +3.9% (19,566,480 to 20,320,876)
• Natural growth, 2010-2017: 1,811,927 births, 1,035,505 deaths
• Median home value: $426,300

 9. El Paso, Texas

• Population decrease due to migration, 2010-2017: -21,829
• Population change, 2010-2017: +5.1% (804,123 to 844,818)
• Natural growth, 2010-2017: 98,803 births, 36,570 deaths
• Median home value: $119,600

8. Flint, Michigan

• Population decrease due to migration, 2010-2017: -22,658
• Population change, 2010-2017: -4.3% (425,788 to 407,385)
• Natural growth, 2010-2017: 35,720 births, 31,707 deaths
• Median home value: $106,900

7. Milwaukee-Waukesha-West Allis, Wisconsin

• Population decrease due to migration, 2010-2017: -27,959
• Population change, 2010-2017: +1.3% (1,555,954 to 1,576,236)
• Natural growth, 2010-2017: 144,429 births, 95,601 death
• Median home value: $204,000

6. Memphis, Tennessee-Mississippi-Arkansas

• Population decrease due to migration, 2010-2017: -30,000
• Population change, 2010-2017: +1.8% (1,324,827 to 1,348,260)
• Natural growth, 2010-2017: 136,058 births, 82,670 deaths
• Median home value: $142,400

5. Cleveland-Elyria, Ohio

• Population decrease due to migration, 2010-2017: -33,117
• Population change, 2010-2017: -0.9% (2,077,271 to 2,058,844)
• Natural growth, 2010-2017: 168,361 births, 153,138 deaths
• Median home value: $146,100

4. St. Louis, Missouri-Illinois

• Population decrease due to migration, 2010-2017: -39,894
• Population change, 2010-2017: +0.7% (2,787,763 to 2,807,338)
• Natural growth, 2010-2017: 246,280 births, 186,111 deaths
• Median home value: $169,200

3. Detroit-Warren-Dearborn, Michigan

• Population decrease due to migration, 2010-2017: -54,640
• Population change, 2010-2017: +0.4% (4,296,317 to 4,313,002)
• Natural growth, 2010-2017: 364,121 births, 293,091 deaths
• Median home value: $160,700

2. Los Angeles-Long Beach-Anaheim, California

• Population decrease due to migration, 2010-2017: -93,959
• Population change, 2010-2017: +4.1% (12,828,961 to 13,353,907)
• Natural growth, 2010-2017: 1,202,115 births, 578,750 deaths
• Median home value: $578,200

1. Chicago-Naperville-Elgin, Illinois-Indiana-Wisconsin

• Population decrease due to migration, 2010-2017: -296,320
• Population change, 2010-2017: +0.8% (9,461,541 to 9,533,040)
• Natural growth, 2010-2017: 869,178 births, 501,469 deaths
• Median home value: $229,900

 

via RSS https://ift.tt/2zbdfIU Tyler Durden

If China was hoping for Trump to relent, and back down in the last minute before the start of tonight’s China tariffs, set to take place at 1 minute after midnight, it will be disappointed.

Speaking to reporters aboard air Force One on route to Montana, the president said that the planned tariffs on Chinese goods would go forward just after midnight, as previously reported, and in so doing will deliver on a promise to his political supporters that risks provoking retaliation and, if taken far enough, sending the global economy into a recession.

Trump then said that another $16 billion of goods could follow in two weeks, before suggesting the final total could eventually reach $550 billion, a figure that exceeds all of China’s annual goods exports to the U.S., but is below the total calculated recently by Goldman Sachs, which saw as much as $800 billion in total tariffs on Chinese goods.

As previously reported China has vowed to hit back moments after the Trump decision is enacted – so it does not appears to be the initiator – by imposing its own $34BN of tariffs in kind on goods ranging from American soybeans to pork, which may in turn prompt Trump to raise trade barriers even higher.

“Once these tariffs start going into effect, it’s pretty clear the conflict is real,” Robert Holleyman, former deputy U.S. trade representative under Barack Obama and now a partner Crowell and Moring, told Bloomberg. “If we don’t find an exit ramp, this will accelerate like a snowball going down a hill.”

Which of course is what a trade war is all about.

Meanwhile, as if it hasn’t been mocked enough already, such American companies as Harley-Davidson are among those set to suffer from China’s retaliation. Additionally, American businesses from Apple and Walmart to General Motors all operate in China and are keen to expand. As Bloomberg notes, that hands Chinese President Xi room to impose penalties such as customs delays, tax audits and increased regulatory scrutiny “if Trump delivers on his threat of bigger duties on Chinese trade.”

Ultimately, the question is who will be impacted more: the US or China: to be sure, Chinese stocks have taken a far greater beating than their US peers in recent weeks, entering a bear market, as concerns about the trade war have mingled with worries about China’s ability to control its debt and maintain growth. Meanwhile, U.S. stocks are up slightly more than 2 percent this year as investors have weighed the threat of trade frictions against the strong performance of the U.S. economy.

As the war of trade attrition begins, China may have more to lose: according to SocGen economists, the drag on the Chinese economy could be close to 1% of GDP and cost 3-4m Chinese jobs, while for the US, the drag on GDP would be more modest at just 0.1-0.2%. Both estimates assume no further escalation.

Other banks are more sanguine: according to BofA head of economics, Ethan Harris, the impact of the first round of tariffs on $34 billion in Chinese goods will be “quite small” but he doesn’t “see the war ending until there are casualties.”

“This plays out over the next few months, until both sides start to feel a little pain and realize this isn’t a bloodless march to victory,” said Harris.

And since the U.S. imports much more from China than the other way around, it gives the U.S. an advantage in a tariff dispute, at least in the beginning..

That means Beijing will likely focus on introducing bigger regulatory or tax burdens on American companies who operate in China or want to tap its growing market. It could even take the drastic steps of stopping to pretend it is not devaluing the yuan or reducing its $1.2 trillion holdings of U.S. Treasuries, measures that would hurt it as well as the U.S.

And while China’s response is yet to be determined, the biggest wildcard in the upcoming trade war is the surprise factor:

In the past, the U.S. used its economic clout to win trade skirmishes with developing countries, said James Boughton, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario. China, whose economy has grown tenfold since it joined the World Trade Organization in 2001, poses a much more formidable adversary.

“The dynamic is different from anything we’ve seen,” said Boughton. “China has an ability to ride out this kind of pressure, to weather the storm, that a lot of countries didn’t have in the past.”

So what happens, and who will ultimately win? The answer remains to be seen, but the real war begins tonight at midnight.

via RSS https://ift.tt/2KS0pAW Tyler Durden