Economic and Fiscal Policy
February 12, 2019
Our current POTUS rarely stands still long enough for anyone to really examine how his positions and policies impact us in the present, or potentially in the future.
Here are a couple of observations which I managed to glean from rapidly moving targets:
Fiscal Policy: Failure
By late 2017, the U.S. economy had enjoyed over 8 years of economic expansion (since June 2009), leading virtually all economists to conclude we were moving toward the end of an economic expansion cycle. Most experts agree that the government should constrain both borrowing and spending during an expansion phase, concurrently decreasing government debt.
When the expansion phase of a business cycle comes to an end, and the economy begins to sputter – and ultimately to contract – a government with reduced debt will have the capacity to spend more and tax less, helping to support the softening economy return to equilibrium faster and smoother.
The much-touted Tax Cuts and Jobs Act enacted at the end of 2017 introduced a $1.5 Trillion tax cut, sold as a source of economic stimulus when it was least needed.
In times of economic expansion, the government is on notice to reduce its deficit.
On February 12, 2019, the national debt passed a new milestone, topping $22 Trillion for the first time. According to the U.S. Treasury Department, total outstanding public debt hit $22.01 Trillion, up from the $19.95 Trillion when President Donald Trump took office on Jan. 20, 2017. This is mighty dangerous stuff, folks.
Trade Policy: Failure
Tariffs are a tax on consumption, paid by end users.
Over several decades, the U.S. developed a dependence on manufactured goods from China. In turn, U.S. exports to China – predominantly agricultural and unfinished goods – enjoyed strong growth over time.
President Trump abruptly started a trade war with China, imposing tariffs on goods imported into the U.S. beginning in July 2018.
China quickly retaliated, raising tariffs on American goods imported into China, resulting in significant shifts by China to alternative sources.
Winners? Brazil; Russia; Germany; Japan.
Losers? American agricultural producers in Iowa, Nebraska, Indiana, Missouri, Ohio, South Dakota, North Dakota, and Kansas; some American manufacturers; and American consumers overall.
It was once said, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”
The evidence seems to emphatically refute that position.
World Economic Forecast Pared Back
January 21, 2019
Monday, January 21, 2019: The International Monetary Fund pared back its world economic growth forecasts for 2019 and 2020 due to sustained economic weakness in Europe and some emerging markets. They also said looming trade tensions and the longer-term ramifications of the U.S. government shutdown could further destabilize a slowing global economy.
“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” IMF Managing Director Christine Lagarde said.
In addition to other forces, IMF economists pointed to: (a) challenges to German auto manufacturers due to new fuel emission standards; (b) uncertainty in Italy where a newly elected coalition government has clashed with EU leadership over a budget proposal which would dangerously increase the Italian sovereign deficit, combined with limp domestic demand; and (c) the uncertainty of fallout from a less-than-smooth exit from the European Union by the U.K. a.k.a. ‘a no-deal Brexit’.
Fears of a global slowdown began to jinx financial markets in early November 2018 as investors began to worry about increasingly weak signs in China.
The ripple effect of Sino-U.S. trade frictions over the past year apparently has exacerbated the slowing of China’s official growth rate to its weakest level since 1990, attributed to a combination of diminishing domestic demand and damaging U.S. tariffs.
Each of these issues is important, and they generally share a common theme: bad policy decisions made by incompetent and/or uninformed people, some of whom are voters; some private-sector executives; and some unconstrained elected officials.
On Day 30 of the 2018-19 U.S Shutdown: It is becoming increasingly evident that this partial federal government shutdown is taking an increasingly negative short-term toll on consumer and business confidence, and by extension, the overall US economy. The White House’s Council of Economic Advisors recently updated their estimate that the shutdown will reduce current economic growth by 0.13% for every week that it lasts. Doesn’t sound like much, you say?
We can look back to the “Ted Cruz Green Eggs & Ham” shutdown of 2013 – a mere 16 days – to see estimates of negative economic impact:
- $24 billion in lost domestic economic output;
- $2.1 billion in non-productive government costs (primarily the cost of paying furloughed workers for hours they didn’t actually work);
- $2.4 billion in lost travel spending (based on a combination of estimated reductions in business travel for federal contractors and federal employees, plus cancellations of discretionary travel by tourists);
- $7.2 Million in lost revenue at National Parks (based on an average collection of $450,000 per day);
- Most alarming? While we can estimate current economic effects, there really is no valid means to estimate long-term economic – and societal – effects of an extended shutdown.
The message? Political decisions made by unqualified and/or inexperienced individuals can and do have long term negative consequences. A comprehensive system of checks and balances is a critical ingredient in the long-term viability of any institution. In the public sector, a key ingredient seems to be the involved and active participation by a well-educated and well-informed body of citizens who are able and willing to vote.
Compromise on Federal Government Shutdown?
January 19, 2019
What is there about the simple concept of separating day-to-day operations from long-term planning that our elected federal officials seem unwilling or unable to comprehend?
Our current federal budgetary process was set into law by the 1974 Budget Control Act, based on a federal fiscal year which runs from October 1st to September 30th. Thus our current Federal Fiscal Year — known as FY 2019 — runs from October 1, 2018 until September 30, 2019.
In February 2018, President Trump – through the Office of Management and Budget – submitted a proposed budget to Congress for FY 2019. The operating budget for FY 2019 was discussed, deliberated and adopted, and it needs to be funded.
There just isn’t any room in the process for the President – or any other elected official — to demand modifications to the current FY budget prior to approving ongoing funding for current government operations.
While it is unfortunately true that Congress doesn’t always follow the schedule as proscribed in the 1974 Budget Control Act, the proper time for the President to present new spending initiatives to Congress is during the annual federal budget deliberations process which typically begins in January when the OMB presents a proposed FY budget to the President.
President Trump’s current demands are only legitimately appropriate as a component of a proposed FY 2020 federal budget proposal.
PLEASE: Let’s get the federal government back into its day-to-day operation by providing necessary current funding, and bring the debate over additional border funding where it belongs – in the discussions and deliberation toward a FY 2020 federal budget.
The Trump Trifecta
October 26, 2018
Since taking office in January 2017, Donald Trump has stood with House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell to proclaim various ‘victories’ for the American people. Here are what seem to be the top three, A.K.A. “The Trifecta”:
- Complicit with Russia, Saudi Arabia and several other suspect regimes. Trump has continued to send public messages which downplay and/or absolve bad actors from behaviors which are contrary to existing international standards.
One clear reason: Trump — and his close advisor Jared Kushner — is involved in highly leveraged real estate development. Neither Trump nor Kushner have the liquidity or availability of traditional financing sources to invest their own money. Instead, they are forced to chase shady money from around the world, including huge sums of money sourced from Saudi Arabia, Russia, China, etc.
Essentially, Trump (along with the Kushner Companies) is beholden to Crown Prince Mohammed bin Salman; Vladimir Putin; various Chinese investors; along with ‘dark money’ sources in Cyprus, Panama and the Cayman Islands, among others.
2. The “Tax Cuts and Jobs Act” (TCJA) was passed in late 2017 incorporating some modest temporary individual and small business tax cuts while focusing in on very substantial big business and corporate tax cuts.
Traditional economic models, developed and refined over countless economic cycles, encourage tax cuts and deficit spending during economic downturns as a means to stimulate economic growth. During times of economic expansion, increased government revenue from tax collections is then used to pay down public debt and help stabilize the economy.
N.B. There was a strong case to be made for a modest corporate tax cut as the U.S. economy began to improve post 2012; there was zero legitimate case to be made for the magnitude of the corporate tax cut which was a cornerstone of the 2017 TCJA.
The foundation of the TCJA was a promise that slashing corporate taxes from a maximum 35% rate to a 21% cap would result in dramatic increases in capital investment, resulting in job creation and wage growth. Americans for Tax Reform, a vocal advocate for the plan, generated promises of employee bonuses, increased wages, increased retirement contributions and/or expanded business operations as a result of the TCJA.
Actual outcomes of the Tax Cuts? Record stock buybacks; extraordinary executive compensation; flat employee compensation; and continued failure of venerable American corporations.
Definitive proof of the foolishness of cutting taxes in a time of economic expansion? A rapidly expanding federal budget deficit. According to the final monthly Treasury Statement for Fiscal Year 2018 (the year that ended on 9/30/2018), the deficit was $779 Billion — a $113 Billion (17%) increase over the$666 Billion deficit recorded from FY 2017.
Perhaps most egregious to the American people? Mitch McConnell is blaming self-funded safety net programs [Social Security, Medicare and Medicaid] as the root cause of our rising federal deficit. Visualize McConnell as he does a little smile; looks straight into the camera; and then blatantly lies to the American people. Was he also lying when he took the Oath of Office?
3. Incendiary, Irrational and Emotionally-Inspired Immigration Policy:
Right or wrong, the U.S. economy depends on immigrant workers – documented or undocumented. Industry sectors which rely on immigrants for between 1/4 and 1/2 of their employment needs include: agriculture; hospitality; construction; textile, apparel and leather manufacturing; food manufacturing; and private households.
Through a series of small moves that add up to dramatic change, the Trump administration has bypassed Congress to create new process and procedures which could have lasting effects on how the US welcomes and evaluates immigrants.
In his election campaign in June 2015, Trump told us, “When Mexico sends its people, they’re not sending their best. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists…”
By painting virtually all immigrants with a broad brush as criminals; as a national security threat to the U.S.; as bad people; as people who steal jobs from Americans; he has created a hostile environment on the world stage, offering fear and fallacies with no attempt to find viable and sustainable solutions.
In late October 2018, facing a ‘caravan of migrants’ moving north from Central America toward the U.S. Southern border, Trump has proclaimed that there are ‘criminals and people of Middle Eastern descent among the migrants within the caravan’ and has pointed to it as evidence that the U.S. has weak immigration laws. He has also threatened to cut off aid to Central American countries in response to the caravan.
An internal report from the Department of Homeland Security’s Inspector General found that the Trump administration’s “zero tolerance” crackdown at the border in early 2018 was troubled from the outset by planning shortfalls, widespread communication failures and administrative indifference to the separation of small children from their parents.
It has been said that the Trump Child Separation Policy is related to the worst abuses of humanity in history. Child separation is connected by the same evil that separated families during slavery, and which dislocated tribes and broke up Native American families.
What’s the point?
The point is that differences of opinion are a cornerstone of society, and a critical ingredient of humanity.
The very essence of Debate relies on formal discussion on a particular topic.
In an honest debate, opposing arguments are put forward to argue for opposite viewpoints. Genuine and honest debate can occur in public meetings, academic institutions, and in legislative assemblies.
A genuine debate requires some ground rules, particularly in the areas of logical consistency and factual accuracy, yet it also allows some degree of emotional appeal to the audience.
Sadly, today’s discussions on topics of importance to the American People seem to lack any rules about civility, logic or even factual accuracy.
Turn on the television and we find absolutism, tribalism and a “win at any cost” approach to delicate yet important societal issues. Dialogue has effectively been replaced by diatribe.
Worse, people can select news sources which support and reinforce their biases, finding comfort in “being right” by selective listening or watching. No time or need to consider other options when the platform has been fully developed to mirror your comfort zone.
Add to this dilemma the continuing disenfranchisement of American adults from the political process.
More adult males in America today are able to recite NFL statistics than are able explain issues facing American society, and women are not far behind.
Voter turnout in the United States fluctuates in national elections. In recent elections, about 60% of the voting eligible population votes during presidential election years, and about 40% votes during midterm elections. Turnout is lower for odd year, primary and local elections.
If we compare national voter participation in the 2016 presidential election to viewership of the 2016 Superbowl, we find a dead heat at around 112 Million.
Not necessarily the same people, but it does strike me that we have a real disconnect between the American public and our governance model, perhaps helping to explain why our system seems to be in need of some serious adjustments at this point in time.
“We Fed an Island”
September 15, 2018
While U.S. President Trump continues to blame the people of Puerto Rico and their elected local leadership for delays, inefficiencies and various failures in the response to the aftermath of Hurricane Maria (2017), Trump is lavish with praise for the wonderful response by his administration.
“I think that Puerto Rico was an incredible, unsung success,” Mr. Trump said. “I actually think it is one of the best jobs that’s ever been done with respect to what this is all about.”
Meanwhile, other sources do not agree with President Trump’s assessment.
One of the true unsung heroes involved in the Island’s recovery from Hurricane Maria is José Andrés, a chef and restaurateur who helped organize others from the food industry to form a veritable army comprised of both professionals and volunteers to feed residents, medical professionals and other disaster response workers.
A year after the initial response to Maria began, José Andrés has released a book reflecting on his experiences and lessons learned from the disaster response.
This article from the Washington Post describes his passion and introduces the book in a manner I wish I was able:
Labor Day Reflections
September 2, 2018
Labor Day, the first Monday in September, is an outcome of the U.S. Labor Movement and is dedicated to the social and economic achievements of American workers. It is an annual national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.
The first Labor Day holiday was celebrated on Tuesday, September 5, 1882, in New York City, in accordance with the plans of the Central Labor Union. It didn’t take long for the federal government to recognize it (1885), and it became a national holiday in 1894.
The inspiration of Labor Day is closely tied to both the roots of Capitalism and the emergence of Labor Unions in the U.S.
In 1983, the first year for which union data are available, the union membership rate was 20.1 percent and there were 17.7 million union workers.
By 2017, the union membership rate had declined to 10.7 percent, and – most alarmingly – union representation of public-sector workers (34.4 percent) had become more than five times higher than that of private-sector workers (6.5 percent).
The origin of Capitalism as economic system assumed that private individuals or families who directly invested in (and directly took on the risks of loss) would own the means of production, distribution, and thus ensure a free and fair market for goods and services: They had real skin in the game.
Relying on the theories that: (1) people (consumers) are rational and will seek maximum utility from their economic actions; (2) information is transparently available to all who participate in the economy; and (3) markets are self-correcting; the concepts of Capitalism are compelling to most people when contrasted to cooperatively or state-owned means of wealth.
Worker exploitation was one of the early criticisms of the Capitalism model. The Labor Movement in the U.S. was instrumental in creating a buffer (safeguard) to help ensure a safer workplace, fair wages and reasonable hours and benefits. The Labor Movement was enabled by Labor Unions.
Today’s version of Capitalism has morphed into ownership of corporations by passive investors (mutual funds, pension funds, venture funds, etc.) which seek maximum current ROI with little or no regard to sustainability or externalities.
The executives who are charged with achieving the expectation of the passive investors are “hired guns” who begin with no skin in the game, yet who often are rewarded with stock options when short-term outcomes are positive.
In 1978, the average CEO earned about 30 times as much as the average worker. U.S. Census data tells us that the average income for U.S. households was $17,730, pegging average CEO income at $531,900.
In just 40 years, statistics from 2017 indicate that CEOs in the 350 largest companies in the U.S. are earning over 300 times as much as the average worker (actually, 312:1).
A recent survey by Glassdoor found that the median salary for U.S. employees is $51,272, implying median CEO compensation at nearly $16 Million.
There is no rational explanation for the explosion of the CEO to Worker compensation ratio. It seems to reflect a total lack of oversight by those individuals who have been elected to represent the interests of the American people.
Current economic conditions ought to raise a red flag to our elected officials that our nation has navigated very close to a Feudalistic System which is on track to implode and to destroy the very notion of what is described in the Declaration of Independence.
Labor Day seems like an appropriate time to pause and reflect on what seems to be an egregious obstacle to the healthy future of our American society.
Constitutional Conflicts
August 11, 2018
We frequently hear from advocates of the 1st amendment, the 2nd amendment, the 4th amendment, et al.
We don’t often hear about one of the key concerns of our ‘Founding Fathers’, perhaps best voiced by James Madison who said, “The truth is that all men having power ought to be mistrusted.”
Indeed.
Madison and his colleagues made sure that one of the basic precepts of the U.S. Constitution was to ensure a separation of powers enforced through a series of checks and balances to prevent a single person (or branch of the federal government) from becoming too powerful, thus thwarting the potential for fraud, self-aggrandizement and to encourage timely correction of errors or omissions.
The system of checks and balances is intended to act as a circuit breaker over the separation of powers, balancing the authorities of the separate branches of government.
It assumes honest and impartial actions by each department charged with the responsibility to verify the appropriateness and legality of actions initiated by the others.
Never before Donald Trump have we had a senior elected federal official who refused to disclose the details of his finances. And, in U.S. history there has never been a president for whom it was more important that we know the details of his finances.
Trump has a well-documented history as an incompetent and perhaps corrupt businessman. After election, he refused to divest himself of his holdings, providing an open window of opportunities for bad people to entice him – and his family – with unimaginable advantages. Why? Trump’s income comes from an incredibly complex web of companies that are impossible for outside observers to comprehend.
We know from public information that the Trump Organization is not just one company, but a very complex assemblage of pass-through entities. In a March 2016 letter from his tax lawyers, Donald Trump’s financial situation is described as “inordinately large and complex for an individual” because he holds “interests as the sole or principal owner in approximately 500 separate entities (which) are collectively referred to and do business as The Trump Organization.”
Now, more than 18 months after Trump was inaugurated, The Trump Organization continues to bring in money from deals involving potentially questionable characters and foreign governments possibly looking to influence POTUS. We have no idea who his partners in those hundreds of pass-through companies are, and whether they might have compromising information on him.
How can it be that we have allowed Mr. Trump to get away with keeping his tax returns secret?
Why?
Members of Congress have abdicated their role as arbiters of Executive Branch ethics by refusing to demand release of current (2014 – 2017) business and personal federal income tax returns from Donald Trump, The Trump Organization, and any relevant and/or related entities.
We can only conclude that this is clear evidence of dereliction of duty by these officials whom we elected to represent the interests of the American people.
Economically and financially competent American voters must demand full and immediate disclosure of current tax returns by senior elected officials, particularly at the executive and legislative level.
If they who wish to serve don’t wish to disclose, they shouldn’t run for public office.
If they who are elected refuse to disclose, they should automatically be removed from public office.
No exceptions. No excuses.
Tax Cuts Have Boosted Economy
July 3, 2018
The headline comes directly from Steven Mnuchin, our U.S. Treasury Secretary, who recently penned an op-ed piece which appeared in print in the Tampa Bay Times (July 3, 2018). https://www.whitehouse.gov/articles/trump-tax-cuts-strengthened-u-s-economy/
Mnuchin’s opinion piece seems to consist primarily of fluffed-up puffery related to the Tax Cuts and Jobs Act (TCJA) of 2017.
Mr. Mnuchin omitted several critical issues which most economists agree must be included in any analysis of the U.S. economy.
First is the ‘business (economic) cycle’. The National Bureau of Economic Research (NBER) has been tracking the U.S. economy for 160+ years. NBER defines one business cycle as: A period of economic expansion; followed by a contraction (recession); ending at the next point of recovery.
NBER’s 160+ years of records reflect that (over that time) the U.S. economy experienced 66 business cycles. Since 1945, we have experienced 11 business cycles with an average length of expansions of 5 years, followed by an average length of recessions of 1 year.
We can’t forget that the U.S. economy almost collapsed in early 2008 following a period of ebullience and expansion apparently accompanied by loose regulatory oversight of the financial sector.
Quick intervention in 2008 by our federal government saved the U.S. economy from the deepest and longest downturn since the Great Depression. NBER data reflects the point of recovery (beginning of expansion) of the U.S. economy occurred in June 2009, and has now entered its 10th year (109th month) of growth.
Our current economic expansion is now the second-longest expansion on record, exceeded only by the expansion from March 1991 to March 2001, which lasted a full 10 years.
History tells us we are very close to the point of contraction (recession) of the U.S. economy.
Second is the ‘Skills Gap’. When Mr. Mnuchin tells us that “…there are enough job openings in America for every unemployed person in the country” he fails to explain that the majority of open jobs require skills which the majority of unemployed people lack. In other cases, the unfilled jobs are located hundreds – maybe thousands – of miles away from the location of potential job seekers.
One solution to filling the open jobs is to encourage migration – or immigration — of skilled workers.
Another solution is to recruit, educate and train currently underemployed or unemployed U.S. residents who live in near proximity to the open jobs.
Third involves a dangerous combination of tax cuts and deficit spending to finance those tax cuts.
Mr. Mnuchin touts benefits to U.S. workers as a result of repatriation of hundreds of billions of dollars from off-shore corporate subsidiaries to the U.S. In fact, companies thus far have paid out dividends and other withdrawals of $305.6 billion from foreign receipts which far outstripped the amount of this cash which was reinvested domestically. By some estimates, corporations have spent 72 times as much on share buybacks as they have spent on one-time worker bonuses and raises.
The U.S. ‘current account deficit’, which measures the flow of goods, services and investments into and out of the country, widened by $8.0 billion to $124.1 billion, or 2.5 percent of national economic output in the first 3 months of 2018, virtually all of which seems to be attributable to the repatriation tax holiday.
To make up for the loss of tax revenue, the Trump administration is relying on a combination of debt financing and mystical economic growth which they expect to occur at the end of an extended business cycle.
Mnuchin tells us that U.S. economic growth is on steroids.
Some observers have noted that the appearance of economic growth is highly influenced by the infusion of repatriated cash – somewhat similar to feeding 2nd graders sugar before sending them out onto the playground.
The energy is intense, but it won’t last very long, and it is just not sustainable.
A recent report (6/21/2108) from the U.S. Office of Government Accountability (GAO) warns that responsible action is needed on the nation’s growing federal deficit, which grew to $666 Billion in FY 2017 (10/01/16 to 9/30/17) and is projected to surpass $1 Trillion by 2020.
According to the GAO’s 2017 financial report, the federal deficit in FY 2017 increased by 13.5% from $587 Billion in FY 2016 and $439 Billion in FY 2015. Federal receipts in FY 2017 increased by $48 billion, but that was outweighed by a $127 billion increase in spending. (Note that Deficit is an annual measure; National Debt is aggregate, an accumulation of annual shortfalls.)
The aggregate (gross) amount that the U.S. Treasury can borrow is limited by the U.S. debt ceiling. As of April 30, 2018, our National Debt was $21 Trillion, about 78% of GDP.
Since its passage in December 2017, the non-partisan Congressional Budget Office has warned that TCJA will add $1.84 Trillion to the federal deficit over the next 10 years, which they estimate will push the National Debt to an unprecedented 152 percent of GDP by 2028, significantly increasing the odds of a new financial crisis.
Interest rates are rising, and National Debt is increasing, thus interest on National Debt will consume an ever-increasing amount of future federal budgets.
And, of great concern is the flattening of the ‘yield curve’. Traditionally, interest rates on short-term debt are lower than rates paid on long-term obligations.
The spread between the yields of the 2-year Treasury note (2.55 percent) and 10-year Treasury note (2.89 percent) was 34 basis points on June 23. That’s less than half of what it was in early February and the narrowest it’s been since August 2007.
An inversion of the yield curve — when long-term rates fall below short-term rates — traditionally predicts a looming recession.
—————————————————————————-
It’s not clear why Mr. Mnuchin – a seasoned financial services sector professional with a clear expertise in fixed income securities – would omit such important information in his assessment of the U.S. economy.
I am drawn to conclude Mr. Mnuchin is using his position as a high-ranking federal official to ‘butter his own toast’, likely through complex – and undisclosed — derivative positions.
We’ll have to see if the Walrus is correct…..
The Art of the Deal Gone Bad
June 10, 2018
It seems wherever we look, Donald Trump’s appalling behavior sets a new and very low standard upon which to measure the 21st Century version of The Ugly American.
His most recent tweets about Canadian PM Trudeau which followed Trump’s rude early departure from the G-7 meeting are deplorable.
Then, he sent his thugs Kudlow and Navarro off to reinforce the message in harsh, scorched-earth fashion.
Said Navarro on Sunday, June 10, 2018: “All Justin Trudeau had to do was take the win. President Trump did the courtesy to Justin Trudeau to travel up to Quebec for that summit. He had other things, bigger things on his plate in Singapore. And what did Trudeau do? As soon as the plane took off from Canadian airspace, Trudeau stuck our president in the back. That will not stand.”
Trump did a courtesy? Hello? Red meat to the Trump base; An insult to everyone else who lives on Planet Earth.
Donald Trump said what Canada has “done to our dairy farm workers is a disgrace. It’s a disgrace. And our farmers in Wisconsin and New York State are being put out of business, our dairy farmers.”
Trump has gone on to tell us that “Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers!”
No, they didn’t because it’s just not true. There is one specific dairy product which has ignited this Tempest in a Teapot, a product which exists in surplus due to overcapacity in the U.S. dairy industry.
The product at the center of the dispute is ultra-filtered milk, which is used to make cheese and yogurt.
It is not governed by any tariffs under NAFTA, because it essentially did not exist when NAFTA was originally negotiated. The U.S. dairy industry has been selling surplus ultra-filtered milk — duty-free — to Canadian processors. And that is part of the root problem for Canadian dairy farmers.
Never heard of ultra-filtered milk? Neither had I.
Ultra-filtered milk (sometimes called diafiltered milk) is generally a byproduct of butter production after the milk fat has been removed to provide the basic ingredient for butter.
It is a sub-classification of milk protein concentrate which is created by passing the remaining low- or no-fat milk under pressure through a thin, porous membrane to separate the components of milk according to their size. Ultra-filtration allows the smaller lactose, water, mineral, and vitamin molecules to pass through the membrane, while the larger protein molecules are retained and concentrated. The removal of water and lactose reduces the volume of milk, significantly lowering storage and transportation costs.
In 2016, the U.S. dairy industry sold about $133 Million of ultra-filtered milk to dairy product producers in Canada, a rounding error on the total trade transactions between the U.S. and Canada.
The federal U.S. Trade Representative reported a U.S. $12.5 Billion trade surplus for goods and services with Canada in 2016, exporting $320.1 Billion and importing $307.6 Billion. (The reported U.S. surplus was $8.4 Billion in 2017).
Meanwhile, the man who affirmed that he would faithfully execute the office of President of the United States, and would — to the best of his ability — preserve, protect and defend the Constitution of the United States has given us clear and irrefutable evidence that his abilities are deficient, inadequate, unacceptable, inferior and dreadful. Or, perhaps he is an untruthful traitor.
Either way, he has put our entire world in danger of a real world war.
Donald Trump and Insider Trading
May 31, 2018
Martha Stewart served prison time for a conviction on insider trading.
There is a cadre of Trump Insiders who are privy to Mr. Trump’s rants which roil the financial markets, some of whom are getting rich off of their advance information of what he will say or do.
Donald Trump’s frequently irrational, generally unpredictable — and often arbitrary and capricious — tweets, pronouncements and actions have proven to significantly move financial markets, often creating a whipsaw effect.
Today – May 31, 2018 – Mr. Trump allowed tariffs to be enacted on steel and aluminum imports from Canada, Mexico and the E.U. on the grounds that such materials are being imported into the United States “in such quantities and under such circumstances as to threaten to impair the national security of the United States.”
There is no credible evidence that steel and/or aluminum imported into the U.S. from Canada, Mexico and/or the E.U. pose any threat to the national security of the U.S. In fact, there is no credible evidence that such imports pose any threat to the U.S. domestic economy.
Meanwhile, Mr. Trump’s action today to impose tariffs on imports from our closest allies was apparently not expected in the financial markets, leading to a 1% drop in the Dow Jones Industrial Average.
We now have several data points relating to financial market response to irrational actions by President Trump which clearly represent huge arbitrage opportunities for Trump insiders.
The ‘out-of-right-field’ announcement in early March 2018 by Mr. Trump that the U.S. would impose tariffs on steel and aluminum imports precipitated an almost immediate 500 point drop in the DJI.
It’s bad enough that Trump’s actions pose a tremendous risk to the entire U.S. society and our economy.
The Securities and Exchange Commission (SEC) needs to reign in this illegal behavior by Mr. Trump, and to charge those insiders who are illegally profiting in the financial markets from advance knowledge of what sort of disruptive, arbitrary and capricious pronouncements President Trump will make in the near term.
walrus51 