Tag Archive | "Economy"

Trade Deficit In Advanced Technology Products Is Soaring To New Records

The following piece by Charles McMillion appeared in Manufacturing & Technology News. Click here to read the entire article.

The United States continues to lose production in the global economy, according to the first quarter 2011 trade figures for goods and services released by the Census Bureau on May 11. The first quarter trade deficit in goods and services is 23.5 percent worse than during the first quarter of 2010 and is 20.4 percent worse than during the last quarter of 2010. The dollar value of U.S. export growth remained near stagnant in the first quarter of 2011 (declining in February), while the value of imports accelerated sharply — largely due to higher prices for oil and other commodities.

Charles McMillion is President of MBG Information Services in Washington, D.C.

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Ultimatum Holding Up Trade Deals

The following article by Binyamin Appelbaum appeared in The New York Times here.

WASHINGTON — The Obama administration said on Monday that it would not seek Congressional approval of free trade agreements with Colombia, Panama and South Korea until Republicans agree to expand assistance for American workers who might lose jobs as a result.

President Obama has made the three deals a focus of his foreign and economic policy, but the Monday ultimatum reflects the political difficulty of advancing the deals in the face of high unemployment and opposition from parts of the Democratic base.

“This administration believes that just as we should be excited about the prospect of selling more of what we make around the world, we have to be equally firm about keeping faith with America’s workers,” said Ron Kirk, the United States trade representative.

The announcement puts the White House in line with Congressional Democrats who have made expanded benefits a condition of their support for the trade deals, and at loggerheads with Republicans who say the government cannot afford the cost.

Senator Orrin Hatch, the ranking Republican on the finance committee, said in a statement that the decision was “hugely disappointing.”

“It makes no sense to shut the door on increasing U.S. exports by over $10 billion in order to fund a costly program,” said Mr. Hatch, who is from Utah.

The federal government has provided supplemental assistance to workers whose jobs were shipped overseas since the 1960s, but the scale of those benefits has waxed and waned. The current benefits include training programs, money to cover the cost of searching for a job or relocating to a new city, and tax credits for health insurance.

In 2009, Congress expanded eligibility for the program significantly as part of broader economic stimulus legislation. The Labor Department estimates that the program provided benefits to about 280,000 workers last year at a cost of about $1.3 billion. But the expanded eligibility lapsed in February after House Republicans opposed its renewal.

Gene Sperling, director of the National Economic Council, said Monday that the White House was confident it could persuade Republicans to reverse that decision.

The administration started informal talks with the Senate about the three trade deals early this month, a step that seemed to reflect confidence on both sides that a deal can be done.

“We can work on Congressional leadership to get that accomplished,” Mr. Sperling said.

Conservative groups like the Cato Institute in Washington say there is little evidence that the program helps workers find new jobs, and that the government cannot afford the expense. They also question why the government should provide special help to the relatively small portion of unemployed workers who lose jobs to overseas competition.

“Furthermore, the existence of the program reinforces a false impression that international trade is a negative factor for the economy,” Sallie James, a trade policy analyst at Cato, wrote in a recent policy note arguing against continued financing.

But a range of business groups have sided with the White House, supporting the expansion as a necessary step alongside passage of the trade deals.

In a letter sent to Congressional leaders this month, the groups, including the United States Chamber of Commerce, wrote that the program was “an essential part” of the nation’s trade policy that had enjoyed bipartisan support for most of the last 50 years.

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The Crumbling of Free Trade — And Why It’s a Good Thing

One thing is for certain already: the present international trading order will not be here in ten years, and quite likely not in five. The unsustainable American trade deficit alone makes this a certainty.

Since the end of the Cold War, and accelerating after NAFTA in 1994, that order has consisted in ever-expanding “free” trade worldwide — which in reality is a curious mixture of genuinely free trade practiced by the United States and a few others with the technocratic mercantilism of surging East Asia and Germanic-Scandinavian Europe.

From America’s point of view, this order is free trade, at least on the import side of the equation, so it is as free trade that we must criticize it, prepare to celebrate its passing, and investigate what should replace it.

Our free trade policy is the answer to a question that currently has most mainstream economists scratching their heads: what killed the great American job machine? This policy has been partly responsible for increasing inequality in the United States and the gradual repudiation of our 200-year tradition of broadly shared middle-class prosperity. It is a major player in our rising indebtedness, community abandonment, and a weakening of the industrial sinews of our national security.

America’s economy today continues to struggle to emerge from recession because our trade deficit — fluctuating around $500 billion a year for a decade now — acts as a giant “reverse stimulus” to our economy. It causes a huge slice of domestic demand to flow not into domestic jobs, thus domestic wages and thus more demand, but into imports, therefore foreign wages, and therefore a boom in Guangdong, China; Seoul, South Korea; Yokohama, Japan; and even Munich — not Gary, Indiana; Fontana, California; and the other badlands of America’s industrial decline. Our response? Yet more stimulus, leading to an ever-increasing overhang of debt, both foreign and domestic, the cost of whose servicing then exerts its own drag on recovery.

The American economy has, in fact, entirely lost the ability to create jobs in tradable sectors. This cheery fact comes straight from the Commerce Department. All our net new jobs are in nontradeable services: a few heart surgeons and a legion of bus boys and security guards, most of them without health insurance or retirement benefits. These are dead-end jobs, and our economy as a whole is also being similarly squeezed into dead-end industries. The green jobs of the future? Gone to places like China where governments bid sweeter subsidies than Massachusetts can afford. Nanotechnology? Perhaps the first major technology in a century where America is not the leading innovator. Foreign subsidies are illegal under WTO rules, but no matter: who’s going to enforce them when corporate America is happily lapping at their very trough?

All the complaints just mentioned are familiar to the public, but they fly in the face of a sanctified myth that the superiority of free trade is a known truth of social science. Supposedly, it was proved long ago that protectionism is just a racket for the benefit of special interests at the expense of consumers.

Never mind that every developed nation, from England to South Korea, and including the United States, became a developed nation by means of this policy. That little piece of economic history is airbrushed out of the picture in favor of the Cold War myth of the absolute superiority of perfectly free markets. America never embraced this myth on its merits, merely as a tactical device to prop up the non-communist economies of the world and make them dependent upon us.

The cycle repeats: China today is reenacting this 400-year-old mercantilist playbook, which was born among the city-states of Renaissance Italy and never quite forgotten.

Economic theory will be sorted out eventually. Thanks to the work of a small, brave group of dissident economists — scholars like Ralph Gomory, William Baumol, Erik Reinert, and Ha-Joon Chang — the credibility of free trade as a theoretical doctrine is crumbling, and the discipline will eventually change its mind. But it will almost certainly be a lagging indicator, ready to vindicate policy forged in crisis well after the dust has settled. Academia is a superb rationalizer, and will doubtless find a way to avoid embarrassing questions about its own past positions when it teaches undergraduates twenty years from now that free trade is a delusion and a mistake.

What’s wrong with free trade? A whole host of problems, many of them long known to economists but assumed in recent decades to be unimportant.

The technical plot thickens here fast, but we can begin by noting that any serious discussion of free trade must confront David Ricardo’s celebrated 1817 theory of comparative advantage, whose tale of English cloth and Portuguese wine is familiar to generations of economics students. According to a myth accepted by both laypeople and far too many professional economists, this theory proves that free trade is best, always and everywhere, regardless of whether a nation’s trading partners reciprocate.

Unfortunately for free traders, this theory is riddled with dubious assumptions, some of which even Ricardo acknowledged. If they held true, the hypothesis would hold water. But because they often don’t, it is largely inapplicable in the real world. Here’s why:

Ricardo’s first dubious assumption is that trade is sustainable. But when a nation imports so much that it runs a trade deficit, this means it is either selling assets to foreign nations or going into debt to them. These processes, while elastic, aren’t infinitely so. This is precisely the situation the United States is in today: not only does it risk an eventual crash, but in the meantime, every dollar of assets it sells and every dollar of debt it assumes reduces the nation’s net worth.

Ricardo’s second dubious assumption is that the productive assets used to generate goods and services can easily be shifted from declining to rising industries. But laid-off autoworkers and abandoned automobile plants don’t generally transition easily to making helicopters. Assistance payments can blunt the pain, but these costs must be counted against the purported benefits of free trade, and they make free trade an enlarger of big government.

The third dubious assumption is that free trade doesn’t worsen income inequality. But, in reality, it squeezes the wages of ordinary Americans because it expands the world’s effective supply of labor, which can move from rice paddy to factory overnight, faster than its supply of capital, which takes decades to accumulate at prevailing savings rates. As a result, free trade strengthens the bargaining position of capital relative to labor. And there is no guarantee that ordinary people’s gains from cheaper imports will outweigh their losses from lowered wages.

The fourth dubious assumption is that capital isn’t internationally mobile. If it can’t move between nations, then free trade will (if the other assumptions hold true) steer it to the most productive use in our own economy. But if capital can move between nations, then free trade may reveal that it can be used better somewhere else. This will benefit the nation that the capital migrates to, and the world economy as a whole, but it won’t always benefit us.

The fifth dubious assumption is that free trade won’t turn benign trading partners into dangerous trading rivals. But free trade often does do this, as we see today in China, whose growth is massively dependent upon exports. This is especially likely when trading partners practice mercantilism, the 400-year-old strategy of deliberately gaming the world trading system by methods like currency manipulation and hidden tariffs.

The sixth dubious assumption is that short-term efficiency leads to long-term growth. But such growth has more to do with creative destruction, innovation, and capital accumulation than it does with short-term efficiency. All developed nations, including the United States, industrialized by means of protectionist policies that were inefficient in the short run.

What is the implication of all these loopholes in Ricardo’s theory? That trade is good for America, but free trade, which is not the same thing at all, is a very dicey proposition.

Beyond the holes in Ricardo, there is an entire new way of looking at trade growing up around the theoretical insights of Ralph Gomory and William Baumol of New York University. The details are technical, but the upshot is they have managed to bridge the gap between the Pollyannaish “international trade is always win-win” Ricardian view and the overly pessimistic “international trade is war” view. The former view is naive; the latter ignores the fact that economics precisely isn’t war because it is a positive-sum game in which goods are produced, not just divided, making mutual gains possible.

So at long last, someone has given us a theoretical framework that can accommodate economic reality as we actually experience it, not just lecture us on what “must” happen as Ricardianism does. It’s both a dog-eat-dog and a scratch-my-back-and-I’ll-scratch-yours world. Economics has finally given common sense permission to be true. Ironically, their sophisticated mathematical models are actually closer to the thinking of the man on the street than those they replaced.

There is an appropriate policy response. For starters, the United States should apply compensatory tariffs against imports subsidized by currency manipulation, an idea that originated with Kevin Kearns of the U.S. Business and Industry Council and was passed by the House of Representatives in the previous Congress. Also essential is a border tax to counter foreign export rebates implemented by means of foreign value-added taxes.

Perhaps even more important than the pure economics of free trade is its political economy (an older and more accurate term). For the fundamental reality of free trade is that it relieves corporate America from any substantial economic tie to the economic well-being of ordinary Americans. If corporate America can produce its products anywhere, and sell them anywhere, then it has no incentive to care about the capacity of Americans to produce or consume. Conversely, if it is tied to making a profit by selling goods made by Americans to Americans, then it has a natural incentive to care about American productivity and consumption.

Productivity and consumption are prosperity. The rest is details.

Right now, America is confronting any number of long- and short-term economic problems with one hand tied behind its back: corporate America is, increasingly, quietly indifferent to America’s economic success. This must change. While any proposals to end the K Street dictatorship in America’s public life are welcome, the reality is that mechanical reforms are less likely to touch on true fundamentals than realigning the economic incentives they reflect.

This is not a utopian project. In fact, it has already been accomplished, during the long 1790-1945 era of American protectionism. America wandered away from Founding Father Alexander Hamilton’s vision of a relatively self-contained American economy in order to win the Cold War. We threw our markets open to the world as a bribe not to go communist. If we fail to return to a policy of strategic, not unconditional, economic openness, we may lose the next Cold War — to a Confucian authoritarianism no less opposed to the idea of a free society than Marxism, and considerably more efficient.

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Press Release: Test Drive America!

For immediate release: 

Contact: Christopher Kilcullen  at 303-250-8338 or America’s Got Product website here.

TEST DRIVE AMERICA! June 1-June 30th!

With our national debt at crisis levels and the stubborn unemployment continuing to hamper our recovery AmericasGotProduct.com is asking every American to get out and Test Drive America during the month of June!

“In March of this year, we the people bought just over 1.2 million cars and trucks according the Wall Street Journal and MotorIntelligence.com.  When we deduct all the foreign and domestic models build in over 30 communities all across this country, there were more than 350,000 pure imports left.  These are the Kia’s, Audi’s, Lexus, VW, Volvo and other brands with models not built in America.  At a $30,000 average price, that is just over $10 billion that left this country, one buy at a time and in just 30 days.” Said Christopher Kilcullen, founder of AmericasGotProduct.com.

Test Drive America is a job creation event that can generate billions of dollars in economic stimulus with no tax payer dollars.  This event is designed to create thousands of jobs, build consumer confidence and consumer spending that ripples back through this economy.  By simply making better choices, our spending will create jobs, today.

The multiplier effect of one job in the auto industry is 10 additional jobs created, according to Kim Hill from The Center for Automotive Research.  That does not even touch the additional jobs created in the service industries as these companies and their employees buy computers, pizza, clothing and  the travel industry with both business and vacation travel.  This is simple supply and demand, basic economics and represents the low hanging fruit of job creation for the US economy!

Every purchase produces paychecks and with the national debt now at $54,000 per person it is time we start putting more Americans back to work and off unemployment to help pay down this debt.  We the people have to accept some of the responsibility for this recovery and become more intentional about our nations future.

AmericasGotProduct.com is a web site designed to celebrate the products and companies that support this economy.  This is cause marketing that the American consumer can get excited about and our rating system helps the consumer identify products that produce paychecks.  Along with our rating system, we are highlighting the community behind the product to hep the consumer see real people and real economic have an impact on.

“The American public has an unprecedented sense of concern for the future. AmericasGotProduct.com provides a resource to help empower the consumer to leave a positive economic footprint with their purchases” said Kilcullen.  Mr. Kilcullen, who spent most of his career in franchise sales and development in the real estate and hotel business created this site out of a passion for this country and a frustration for this economy.

“I am not a politician, not an economist not am I in the manufacturing business, just an average American who wants his economy back.  We have to start looking at our nation as a business.  Last year alone, we lost $500 billion through trade alone and that has to stop,” say Mr. Kilcullen



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Five New Antidumping/Countervailing Duty Petitions Filed In April Ending Recent Lull In Trade Remedy Filings

The following article appeared in the King & Spalding Trade & Manufacturing Alert here.

In response to petitions filed by members of various domestic industries, the Administration initiated five antidumping (“AD”) and countervailing duty (“CVD”) investigations on April 19-20. The five industry-specific cases were brought against (a) bottom mount refrigerator-freezers from Korea and Mexico, (b) steel wheels from China, (c) galvanized steel wire from China and Mexico, (d) stilbenic optical brightening agents from China and Taiwan, and (e) steel nails from United Arab Emirates. A major factor in initiating these cases was the increase in imports during 2010 after lower imports in 2009. In most of these cases, the total value and/or volume of imports of the subject merchandise decreased from 2008 to 2009, but increased from 2009 to 2010. These increases appear to be following the trend of growth in the U.S. economy, indicating that conditions may be ripe for more trade petitions.

These new petitions came after a significant lull in trade remedy petitions. Only one investigation was initiated from May 2010 to April 2011. Several U.S. government officials and private practitioners offered their views on the lull in the April 12, 2011 program “Are AD/CVD Remedies Still Viable For U.S. Producers?” held at American University’s Washington College of Law. Christian Marsh, Deputy Assistant Secretary for AD and CVD Operations at the Department of Commerce suggested that the dip in AD and CVD petitions during 2010 may be related to circumvention issues. Mr. Marsh stated that because of the continuing burden on petitioners to fight circumvention after the initial case is won, an industry may perceive the that the cost of bringing a new trade petition to be high. The newly filed petitions, however, suggest that the real reason for a decline in filings may have been a temporary decline in imports caused by the recession.

Bradford Ward, Deputy General Counsel & Acting Assistant U.S. Trade Representative for Monitoring and Enforcement remarked that industries will continue to file AD and CVD petitions if they experience distortions in the market because trade remedies are one of the last tools available to combat international unfair trade practices. Mr. Ward also commented that industries may file AD and CVD petitions if they believe that the government is not responding to their concerns through legislation or other government-to-government dialogues.

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America’s Fourth Crisis

The following article can be found here and was written by Jacek Popiel, author of “Viable Energy Now: When Energy, Economics and Politics Converge”.

The United States has had, up to now, three decisive crises in its history.

The first encompassed the events leading to, and resulting from, the Declaration of Independence. The second covered the decade centered on 1860, which saw the birth of the Republican Party and the Civil War. The third lasted from 1929 through 1945, and included the Great Depression and WWII.

In each of these times both the existence and the fundamental character of the nation were in question.

In the years centered on 1776 the question was whether it was at all possible to found a nation on the principle of individual liberty and collective self-determination, and whether the population concerned was willing to make the sacrifices necessary to gain political and economic sovereignty. It was a close call, but America proved it could be done.

The following period dealt with the practical application of the principles of 1776. Over two generations America evolved from an aristocratic republic with limited suffrage to a full-fledged democracy. The question then arose whether all Americans – without exception – had access to fundamental rights and the same economic opportunities. On this question – maintenance or abolition of slavery – there was no agreement. The political system failed to produce a solution, and the price for this failure was the 600,000 casualties of the Civil War, and a century of oppression for black Americans.

The third crisis had two components. One was the collapse of the U.S. economy, for which we failed at the time to find an effective remedy. The second concerned America’s ability to respond to an attack which threatened both its existence and the principles on which it was founded.  There our reaction was an overwhelming success.

So as far as our system of government is concerned, the score stands as follows: in 1776, unity and success; in 1860, break up and failure. In 1941 we went from sharp division over economic and social matters to extraordinary agreement in the face of aggression. Victory masked the fact that it was, internally, a draw. We beat the Axis powers into the ground, but it was the war, not us, that resolved the Depression.

Now a fourth crisis is upon us. It includes components of all of the previous three.

First, America’s headlong rush into economic globalization has tied it into a system over which its citizens have only limited, if any, control. This undermines both the individual rights listed in the Declaration of Independence and the national independence and economic sovereignty over which the Revolutionary War was fought

Second, the concentration of economic power and its blending with the political establishment is again creating a two-tier citizenship system. Equality of rights and opportunity is being negated by the rise of a privileged and self-perpetuating ruling class, using its vast power to disenfranchise the majority.

Third, we are again faced with determined aggression aimed at the reduction of America’s status as a world power. Using the globalized economic system to its advantage, China’s authoritarian government is subverting America’s economy and appropriating its technologies in a single-minded drive for world domination.

As the previous ones, this crisis has developed over the last decade and is likely to play out for another ten years or so. We are now at the decision point. Delay and denial will no longer serve. If we persist in our current attitudes, the price paid at the reckoning will continue to rise. If we react our chances for overcoming the challenge are still good.

To succeed, three conditions must be fulfilled.

First we need to rededicate ourselves to individual liberty and American Independence, and accept that each one of us has not only privileges, but also duties to fulfill as a citizen of the United States.

Second, we must abolish the cleavage now separating high from low, super-rich from financially struggling, and government from electorate. This will not happen as long as the current style of politics, with its burden of collusion, corruption and special interests, is maintained.

Third, we must accept the fact that the immense power and riches we bought with American blood and treasure in WWII have been squandered away, and to a great extent degraded through the policies of a determined rival – communist China – for which we represent the main obstacle to world hegemony.

This is the challenge. We can rise to it. We can also fail. Our fate is in our hands.

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Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak

The following article by Bradley Keoun and Craig Torres appeared at Bloomberg online here.

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Commercial Paper

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall — a combined $274.1 billion — to the Commercial Paper Funding Facility.

Those programs also loaned hundreds of billions of dollars to the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley. (MS)

The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”

The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed released more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.

Public Outrage

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

David Skidmore, a Fed spokesman, declined to comment. Fed officials have said all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest.

The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount-window credit.

“Our job is to provide liquidity to keep the American economy going,” Richard W. Fisher, president of the Federal Reserve’s regional bank in Dallas, told reporters today. “The loans were all paid back and they were well-collateralized.”

Wachovia’s Loans

Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.

The company, based in Charlotte, North Carolina, borrowed $29 billion from the discount window on Oct. 6, in the week after it almost collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.

Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.

Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.

The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)

‘Historic’ Use

“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”

Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.

Jim Galvin, a spokesman for Societe Generale, declined to comment.

“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.

Bank of China

Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month.

“It was just routine borrowing,” said Dale Zhu, head of the Bank of China New York branch’s treasury.

Two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.

Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to get at least 73 loans from the Fed in the 18 months after Lehman Brothers Holdings Inc. collapsed. The largest single loan amount outstanding was $1.2 billion in July 2009, according to the Fed documents.

The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.

Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.

‘High-Quality’ Collateral

The Fed loans were “secured by high-quality U.S. dollar municipal securities,” and used only to fund U.S. loans, bonds and other financial assets, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.

“The Fed played its role as central banker, providing liquidity to banks that needed it,” she said, adding that Dexia’s outstanding balance at the Fed has been reduced to zero. “This information is backward-looking.”

Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009.

“Since the end of May 2010, Depfa is not making use of the Federal Reserve Discount Window,” Oliver Gruss, a spokesman for the bank, said in an e-mailed statement. He declined to comment further.

Dollar Assets

Many foreign banks own large pools of dollar assets — bonds, securities and loans — funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.

“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding — bingo, you have a liquidity crisis.”

The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.

Bloomberg News is posting the Fed documents here for subscribers to the Bloomberg Professional Service as well as online at www.bloomberg.com.

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One More Jobs Mirage

The following piece by Paul Craig Roberts appeared on the CounterPunch site here. Mr. Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.

The announcement on March 4 that 192,000 new jobs were created in February was greeted with a sigh of relief. But the number is just more smoke and mirrors, as I will show shortly.  First, let’s pretend the jobs are real.  What areas of the economy produced the jobs?

According to the Bureau of Labor Statistics, 152,000 of the jobs or 79 per cent are in private services, consisting of:  11,700 jobs in wholesale trade, 22,000 in transportation and warehousing, 36,400 in administration and waste services (of which 15,500 are temporary help services), and 36,200 in ambulatory health care services and nursing and residential care facilities. Entertainment, waitresses and bartenders accounted for 20,000. Repair and maintenance, laundry services, and membership associations accounted for 14,000.

As one who has often reported the monthly payroll jobs breakdown, I am struck by the fact that these categories are the ones that have accounted for job growth for year after year.  How can this be?  How can Americans, who have had no growth in their real incomes and who are foreclosed from their homes and maxed out on credit card debt, car payments, and student loans, spend more every month in bars and restaurants?  How can a few service areas of the economy grow when nothing else is?

The answer is that there were not 192,000 new jobs.  Statistician John Williams estimates the reported gain was overstated by about 230,000 jobs.  In other words, about 38,000 jobs were lost in February.

There are various reasons that job gains are overstated and losses understated.  One is the BLS’s “birth-death model.”  This is a way of estimating the net of non-reported new jobs from business start-ups and  job losses from business shut-downs. During recessions this model doesn’t work, because the model is based on good times when new jobs always exceed lost jobs. On the “death” side, if a company goes out of business because of recession and, therefore, doesn’t report its payroll, the BLS assumes the previously reported employees are still in place. On the “birth” side, the BLS adds 30,000 jobs to the monthly numbers as an estimate of new start-ups.

Williams estimates the “death” side is really reducing employment by about 200,000 per month, and the “birth” side is stillborn. Therefore, “the BLS continues regularly to overestimate monthly growth in payroll employment by roughly 230,000 jobs.” The benchmark revisions of payroll jobs bear out Williams. The last two benchmark revisions  resulted in a reduction of previously reported employment gains of about 2 million jobs.

Another indication is that despite 10 years of population growth, there are 8 to 9 million fewer Americans employed today than a decade ago.

Some “New Economy” we have. If only we could have the old one back.

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American Manufacturing Slowly Rotting Away: How Industries Die

The following was written by Ian Fletcher, Senior Economist of the Coalition for a Prosperous America. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

I wrote in a previous article about why America’s manufacturing sector, despite record output, is actually in very deep trouble: record output doesn’t prove the sector healthy when we are running a huge trade deficit in manufactured goods, i.e. consuming more goods than we produce and plugging the gap with asset sales and debt.

But this analysis of the problem only touches the quantitative surface of our ongoing industrial decline. Real industries are not abstract aggregates; they are complex ecosystems of suppliers and supply chains, skills and customer relationships, long-term investments and returns. Deindustrialization is thus a more complex process than is usually realized. It is not just layoffs and crumbling buildings; industries sicken and die in complicated ways.

To take just one example, when American producers are pushed out of foreign markets by protectionism abroad and out of domestic markets by the export subsidies of foreign nations, it is not just immediate profits that are lost. Declining sales undermine their scale economies, driving up their costs and making them even less competitive. Less profit means less money to plow into future technology development. Less access to sophisticated foreign markets means less exposure to sophisticated foreign technology and diverse foreign buyer needs.

When an industry shrinks, it ceases to support the complex web of skills, many of them outside the industry itself, upon which it depends. These skills often take years to master, so they only survive if the industry (and its supporting industries, several tiers deep into the supply chain) remain in continuous operation. The same goes for specialized suppliers. Thus, for example, in the words of the Financial Times’s James Kynge:

The more Boeing outsourced, the quicker the machine-tool companies that supplied it went bust, providing opportunities for Chinese competitors to buy the technology they needed, better to supply companies like Boeing.

Similarly, America starts being invisibly shut out of future industries which struggling or dying industries would have spawned. For example, in the words of tech CEO Richard Elkus:

Just as the loss of the VCR wiped out America’s ability to participate in the design and manufacture of broadcast video-recording equipment, the loss of the design and manufacturing of consumer electronic cameras in the United States virtually guaranteed the demise of its professional camera market… Thus, as the United States lost its position in consumer electronics, it began to lose its competitive base in commercial electronics as well. The losses in these related infrastructures would begin to negatively affect other down-stream industries, not the least of which was the automobile… Like an ecosystem, a competitive economy is a holistic entity, far greater than the sum of its parts. (Emphasis added.)

One important example of this is the decline of the once-supreme American semiconductor industry, visible in declining plant investment relative to the rest of the world. In 2009, the whole of North America received only 21% of the world’s investment in semiconductor capital equipment, compared to 64% going to China, Japan, South Korea, and Taiwan. The U.S. now has virtually no position in photolithographic steppers, the ultra-expensive machines, among the most sophisticated technological devices in existence, that “print” the microscopic circuits of computer chips on silicon wafers. America’s lack of a position in steppers means that close collaboration between the makers of these machines and the companies that use them is no longer easy in the U.S. This collaboration traditionally drove both the chip and the stepper industries to new heights of performance. American companies had 90% of the world market in 1980, but have less than 10% today.

The decay of the related printed circuit board (PCB) industry tells a similar tale. An extended 2008 excerpt from Manufacturing & Technology News is worth reading on this score:

The state of this industry has gone further downhill from what seems to be eons ago in 2005. The bare printed circuit industry is extremely sick in North America. Many equipment manufacturers have disappeared or are a shallow shell of their former selves. Many have opted to follow their customers to Asia, building machines there. Many raw material vendors have also gone.

What is basically left in the United States are very fragile manufacturers, weak in capital, struggling to supply [Original Equipment Manufacturers] at prices that do not contribute to profit. The majority of the remaining manufacturers should be called ‘shops.’ They are owner operated and employ themselves. They are small. They barely survive. They cannot invest. Most offer only small lot, quick-turn delivery. There is very little R&D, if any at all. They can’t afford equipment. They are stale. The larger companies simply get into deeper debt loads. The profits aren’t there to reinvest. Talent is no longer attracted to a dying industry and the remaining manufacturers have cut all incentives.

PCB manufacturers need raw materials with which to produce their wares. There is hardly a copper clad lamination industry. Drill bits are coming from offshore. Imaging materials, specialty chemicals, metal finishing chemistry, film and capital equipment have disappeared from the United States. Saving a PCB shop isn’t saving anything if its raw materials must come from offshore. As the mass exodus of PCB manufacturers heads east, so is their supply chain.

All over America, other industries are quietly falling apart in similar ways.

Losing positions in key technologies means that whatever brilliant innovations Americans may dream up in small start-up companies in the future, large-scale commercialization of those innovations will increasingly take place abroad. A similar fate befell Great Britain, which invented such staples of the postwar era as radar, the jet passenger plane, and the CAT scanner, only to see huge industries based on each end up in the U.S. For example, the U.S. invented photovoltaic cells, and was number one in their production as recently as 1998, but has now dropped to fifth behind Japan, China, Germany, and Taiwan. Of the world’s 10 largest wind turbine makers, only one (General Electric) is American. Over time, the industries of the future inexorably become the industries of the present, so this is a formula for automatic economic decline. Case in point: nanotechnology is probably the first major new industry in a century in which the U.S. is not the undisputed world leader.

America’s increasingly patchy technological base also renders it vulnerable to foreign suppliers of “key” or “chokepoint” technologies. These, though obscure and of small dollar value in themselves, are technologies without which major other technologies cannot function. For example, China recently restricted export of the rare-earth minerals required to make advanced magnets for everything from headphones to electric cars. Another form this problem takes is the refusal of oligopoly suppliers to sell their best technology to American companies as quickly as they make it available to their own corporate partners. It doesn’t take much imagination to see how foreign industrial policy could turn this into a potent competitive weapon against American industry. For another example, Japan now supplies over 70 percent of the world’s nickel-metal hydride batteries and 60-70 percent of the world’s lithium-ion batteries. This will give Japan a key advantage in electric cars.

The Obama administration shows no awareness of any of this, despite scratching a hole in its head over why job creation has stalled. (Hint: it hasn’t stalled in the nations, from China to Germany, running trade surpluses with us in manufactured goods.) It is not yet too late to reverse these dynamics, but we are definitely running out of time. So the sooner we start questioning the sacred myth of free trade, which is largely responsible for this mess, the better.

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When Factories Vanish, So Can Innovators

The following is an article by Louis Uchitelle that appeared in the New York Times here.

SPOONS and forks, the metal flatware that everyone uses, are no longer made in the United States. The last factory in an industry stretching back to colonial times closed eight months ago in Sherrill, N.Y., a small community in the foothills of the Adirondacks, and 80 employees lost their jobs.

No one paid much attention beyond the people in the town itself, even though the closing represented the demise of an industry that had flourished in this country for generations. Paul Revere, in fact, was a flatware craftsman.

Sherrill Manufacturing, which owned the factory, said in a statement that production had succumbed to less expensive Chinese imports. Robert A. Comis, the Sherrill city manager, said, “It is too common a situation.”

Losing an industry or ceasing to manufacture a particular product, in this case stainless steel flatware, has indeed become a fairly frequent event. Just in the last few years, the last sardine cannery, in Maine, closed its doors. Stainless steel rebars, the sturdy rods that reinforce concrete in all kinds of construction, are now no longer made in America. Neither are vending machines or incandescent light bulbs or cellphones or laptop computers.

Less noticeably, American manufacturers are importing more of the components that go into their products. The imported portion has risen to more than 25 percent from 17 percent in 1997, according to Susan Houseman, a senior economist at the W.E. Upjohn Institute in Kalamazoo, Mich. The Boeing Company, to consider one striking example, once bought all of its components from American suppliers, or made them in its factories here. Now the wings of several of its airliners are manufactured by Japanese subcontractors and shipped across the Pacific in giant cargo planes.

Foreign-made parts might also be infiltrating the sleek business jets that the Gulfstream Aerospace Corporation makes at its United States factories. Joseph T. Lombardo, Gulfstream’s president, says he isn’t sure, although Gulfstream buys components exclusively from American suppliers. “What I don’t know,” he says, “is how many of the parts in those components were imported by our American suppliers.”

It is certainly more than we measure, Ms. Houseman says. An accurate count would reduce manufacturing’s share of the gross domestic product, or total national output, to less than the 11.2 percent that the Bureau of Economic Analysis has reported through 2009, the latest figure available.

That 11.2 percent would be closer to 10.5 percent, if all of the imported components were counted as imported instead of domestically made. Even the 11.2 percent figure is down sharply from the 14.2 percent share of just a decade earlier, and the nearly 30 percent of the heyday 1950s, when almost every product bought by Americans was also made here.

Concern is increasing that this decline has gone too far. “I think there is a growing recognition that a diminished manufacturing sector will undermine our economy,” says Mark Zandi, chief economist for Moody’s Analytics.

How did the nation get into this situation? It gambled, in effect, that by importing more from foreign suppliers and from American companies that had set up shop abroad, consumer prices for manufactured products would fall, without any sacrifice in product quality. Low-wage workers abroad would make that happen.

American manufacturers, on the other hand, would be the world’s best innovators, developing sophisticated new products here at home and producing them, at least initially, in their domestic factories.

The first part of the arrangement worked very well. Consumer prices did fall as imports flooded in — from foreign manufacturers, of course, but also from factories newly opened abroad by American multinationals. The flood was so great that President Ronald Reagan in the 1980s placed temporary quotas on Japanese autos and motorcycles, and tariffs on selected electronic devices.

The second part of the arrangement, however, has been more problematic. As it turns out, the United States is not the only path-breaker. The Toyota Prius, the first hybrid, shines as an example of Japanese ingenuity, and more than a decade after that car was developed it is still being exported from Japanese factories, marrying innovation to production and jobs.

The iPad and the iPhone, developed by Apple in the United States, are spectacular technologies. But the devices themselves are made in Asia, not America. And as time passes, the people who make the iPad and the iPhone day after day — the engineers and factory workers in Asia — may produce the next innovations. Or so many experts are coming to believe, including Ms. Houseman.

“The big debate today is whether we can continue to be competitive in R&D when we are not making the stuff that we innovate,” she says. “I think not; the two can’t be separated.”

THE loss of manufacturing capacity, measured in lost workers, is startling. From the high point in the summer of 1979, through last month, employment in manufacturing has fallen by 8.1 million, to 11.6 million, with most of the drop in just the last decade. While consumers have benefited from lower prices, made possible by unrestricted imports, on the other side of the ledger are tens of billion of dollars in lost manufacturing wages.

Something else is gone, too. “We had a storehouse of knowledge and skill built up in these workers and we can’t use it now,” says James Jordan, president of the Interstate Maglev Project, promoting a high-speed rail technology that uses special magnets to levitate and propel trains. Maglev was invented in the United States, but equipment based on that technology is manufactured and used today in Japan.

Mr. Jordan argues that as manufacturing’s presence — and status — shrinks in America, the odds of a Henry Ford or a Thomas Edison or a Steve Jobs appearing in the next generation are reduced. Certainly people like Mark Zuckerberg of Facebook are inventors, though not of physical products.

“Young people stop thinking about making things,” Mr. Jordan says. “It is no longer in their heads. They have a different mental orientation.”


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