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 Richmans' Trade and Taxes Blog

No Recovery From the Great Recession Is in Sight
Raymond Richman, 3/28/2013

As I reported last week, initial claims for unemployment compensation during the week ending March 16, 2013 broke below 300,000 for the first time since 2007. And I asked if it marked the beginning of a recovery from the Great Recession. It turns out that the answer is negative. The number of initial claims rose in the following week ending March 23, 2013. The seasonally adjusted number of initial claims rose by 16,500 to 357,000 and the seasonally unadjusted (the actual!) number rose 14,706 to 315,659. Of course, the preceding week’s numbers could have been a fluke and so could the latest week’s numbers.

What is hampering the recovery? Just this week in an op-ed in the Wall Street Journal, Mortimer Zuckerman, editor and publisher of the US News and World Report, labeled the claims of recovery to be a fantasy, pointing out as we have done, that the true unemployment figure is 14.9 percent, not 7.7 as reported officially.

The claims of recovery appear to be substantiated by the rise in the prices of stocks as indicated by the Dow-Jones and other stock markets indices.  But the quantitative easing by the Federal Reserve Board has provided financial institutions with increased money for lending, much, if not most of it, has simply increased the prices of assets such as stocks and real estate. The FED’s financing of the trillion dollar deficits has enabled increased government spending which is a stimulus to the economy as long as it lasts but is at the expense of diminished private expenditures.

The stimulative effects of increased government spending on consumption and investment are largely offset by the fact that it stimulates imports and does nothing to increase exports. In fact, it is government policy to stifle the production of fossil fuels which we still import. The trade deficit rose to $44.4 billion in January, 2013 from $38.1 billion in December, 2012. Fortunately, the private sector has been increasing the output of oil and natural gas in spite of environmental extremists’ powerful influence on government policy. In fact, the fossil fuel boom is the strongest stimulus to the recovery we have and helps to offset the depressing effects of the government’s “green” policies. ...


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Great Recession Caused by U.S. External Account Deficit
Jesse Richman, 3/26/2013

A recent article by Thomas Oatley and coauthors in the Political Science journal Perspectives on Politics argues that the global financial system is particularly vulnerable to systemic crisis when that crisis originates in the U.S. because the U.S. and U.K. banks are centrally located in the international finance system. 

 In a follow-on blog post, and an in-progress book manuscript, Oatley extends that analysis to focus on  that the decision to finance the War on Terror through borrowing rather than taxes led to a worsening of the U.S. trade deficit, which led to the financial crisis....


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At Last, There Are Signs of a Beginning to Recovery From the Recession
Raymond Richman, 3/21/2013

Actual Initial Unemployment Insurance Claims fell below 300,000 during the week ending March 16, 2013 for the first time since May 12, 2007! So the economy is at last beginning to show signs of recovery from the recession. To what do we owe this spark of improvement? Will the recovery last?

The media reported that during the week 336,000 seasonally adjusted   initial claims were filed, an increase of 2,000 from the previous week. If the reporters read the report of the U.S. Bureau of Labor Statistics, they would have read that the actual number of claims filed was 299,143.  Neither CNBC nor Bloomberg TV reported the actual number which would have caused the stock market to rise. Instead, it fell on the news that unemployment claims had risen.

How the BLS calculated the seasonally adjusted number, God knows. It is hard to believe a seasonal adjustment in the month of March would differ by nearly 37,000, more than ten percent. (Moreover, the BLS made similar calculations in 2012 and 2011, so the statisticians apparently don’t ever get around to recalculating the seasonal adjustments!)

There are a number of reasons why unemployment claims have fallen. The government has been “stimulating” the economy by keeping the federal  budget in the red by over a billion dollars a year for the past four years. This represents an increase in the demand for goods and services. Unfortunately, much of this demand was for foreign goods and services. The international trade deficits that the U.S. has experienced since the 1990s created employment abroad and caused unemployment at home. As a result, the increase in government spending had a much smaller effect than it would have had in the absence of the trade deficits. ...


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Cyprus' Debt a Long Time Building
Jesse Richman, 3/21/2013

The European Union is currently wrestling with the debt problems of Cyprus and the Cypriot banks.  In some ways these problems are new.  But in many ways they are old.  They have been building for decades as Cyprus has lived on borrowed money.  Eventually nations that do not save, that live on borrowing, lose credit.  

According to Trading Economics ( from 1995 through 2012 Cyprus averaged a current account deficit of nearly six percent of GDP.


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The Unemployment Rate Is Closer to 15% Than 7.7%
Raymond Richman, 3/10/2013

Employment reports dominate the economic news on Thursday and Friday and sent the Dow Jones average to record heights. While the employment news was labeled as encouraging by the media, a look at the numbers was not very encouraging at all.

The first report, the number of initial claims for unemployment, was declared to be encouraging because the seasonally adjusted number of initial claims was positive, having fallen by 7,000 during the week ending March 1, 2013. To the contrary, the actual number of initial claims during that week increased by 23,198.

Two other reports were equally negative. The first was widely ignored. It showed that the trade deficit worsened in February. The third report was widely declared to show economic growth. It reported that over 200,000 new jobs were created in February. The bad news was the continued decline of manufacturing jobs, the real key to economic growth. Taking into consideration those no longer looking for a job who are not counted as unemployed and those employed part-time involuntarily, the real unemployment rate is fifteen percent not 7.7 percent as officially reported.

Following is what the Bureau of Labor Statistics actually reported about initial unemployment claims in the week ending March 1, 2013:


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Rep. Kaptur's Balancing Trade Act Needs Teeth
Howard Richman, 3/3/2013

On January 4, 2013, Rep. Marcy Kaptur (Democrat of Ohio) introduced H.R. 192, the Balancing Trade Act of 2013. She correctly explained that every $1 billion of trade deficit costs more than 5,000 jobs:

In an effort to stem job losses as a result of the trade deficit, I have also introduced and will fight passage of H.R. 192, the Balancing Trade Act. This legislation requires the President to take the necessary steps to eliminate or substantially reduce a trade deficit the United States has with any country if the trade deficit totals $10 billion or more for three consecutive years. Some economists estimate that each $1 billion in the trade deficit costs the United States more than 5,000 jobs. H.R. 192 would ensure that those job losses are stopped and the bill would prevent them from occurring in the future.

Ms. Kaptur is correct about the job losses, but the problem goes much deeper than that. The United States has been stuck in a depression (a long period of economic stagnation with high unemployment) since the fourth quarter of 2007 as a result of our chronic trade deficits. The economics is quite simple. Trade deficits subtract from aggregate demand and income while trade surpluses add to aggregate demand and income....


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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]