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 Richmans' Trade and Taxes Blog

How the Federal Reserve Under Greenspan and Bernanke Caused the Housing Bubble and the Recession
Raymond Richman, 8/26/2012

Every administration from Jimmie Carter to GW Bush contributed to the housing bubble and the recession that followed its collapse. So did every Chairman of the Federal Reserve Board particularly Chairmen Greenspan and Bernanke. They were responsible for the housing bubble that caused the long-lasting recession when it burst. As we have noted on this site more than once, their support of the Community Reinvestment Act of 1977 was the principal cause of the housing bubble and the recession that followed when the bubble burst. Greenspan by his policy of low interest rates and both by their administration of the CRA. 

CRA examinations are conducted by the Fed, the Fewderal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. But the Fed is clearly the dominant administrator. The law does not require the banks to make high-risk loans and in fact recites that they should require banks to make loans in a safe and sound manner. As the number of subprime loans and the number of defaults and foreclosures clearly show, the supervisory institutions actually condoned making loans that violated customary good banking practices. ...

The CRA was based on a widely believed myth that banks were denying blacks mortgage loans because of their race. There was no evidence of that. It was a conclusion drawn from the fact that fewer mortgage loans were being made in poor neighborhoods where in fact there were a smaller percentage of qualified borrowers than in richer neighborhoods. The relaxed standards that followed for making loans resulted in a huge number of subprime mortgages and encouraged speculation in building houses that caused the housing bubble. When the bubble burst, it caused a world-wide financial crisis and ushered in the recession. An unintended consequence was that it made communist and other left-wing organizations like ACORN rich by enabling them to blackmail banks and force the banks to hire them as mortgage agents. ...


Comments: 5

Will the trend toward CNG continue?
Howard Richman, 8/23/2012

CNG (Compressed Natural Gas) is increasingly being substituted for gasoline and diesel oil as a motor fuel. Though the number of vehicles that have switched is still tiny, compared to the numbers running gasoline and diesel oil, the trend is clear. Commercial fleets of trucks and buses have been switching. The number of available CNG filling stations has been increasing. But will the trend continue?

It is possible to predict that a continuing disparity between the prices of natural gas and crude oil will cause demand for CNG to increase. Take gasoline, for example. Gasoline first became more expensive than CNG in March 2006 when both were priced at $2.34 per gallon. Although gasoline was briefly priced lower than CNG in November 2008, due to a worldwide recession, by the end of March 2009 gasoline had again become more expensive than CNG. At the end of May 2012, the price differential was $3.58 for a gallon of gasoline and $1.72 for the equivalent in CNG (calculated as the price of natural gas to commercial consumers plus 70¢), as shown in the graph below:



Comments: 1

Op-ed in the Ripon Forum
Jesse Richman, 8/21/2012

My op-ed analyzing the 2012 Virginia elections was just published online in the Ripon Forum.  The paper copy will be sent out next week.  One important aspect of the Virginia presidential election which I discuss in the op-ed is the candidacy of anti-free trade candidate Virgil Goode (Conservative Party).   

One wild card in the Virginia presidential contest is Constitution Party candidate (and former VA 5th District Congressman) Virgil Goode. Goode's platform is broadly conservative, although his position against free trade agreements has the potential to draw support from voters dissatisfied with the trade actions and positions of both parties. Goode appears poised to qualify for ballot access, as his campaign claimed on August 1, 2012 to have collected more than 18 thousand signatures, nearly twice the ten thousand required under Virginia law.

Goode has the potential to spoil Romney's electoral prospects. He retains a base of support in the 5th district, although he is relatively unknown in other parts of the state. Polls have put Goode at 5 to 9 percent of the statewide vote if included on the ballot...


Comments: 0

"Deficit Spending Doesn't Work, Balanced Trade Does" - we're published in today's American Thinker
Howard Richman, 8/19/2012

Here is a selection:

During his later years, Keynes came to believe that trade-deficit countries should engage in trade-balancing measures rather than economic stimulus, while trade-surplus countries should assist in balancing trade while providing economic stimulus.

An empirical implication is that economic stimulus (e.g., fiscal stimulus through running a government budget deficit) should have a more positive effect for trade-surplus countries than for trade-deficit countries. Similarly, balancing trade should have stronger economic benefits for countries running budget deficits.

To test this implication, we analyzed cross-sectional linear regression equations with an interaction between budget and current account variables. For every year except 2009, this interaction achieved at least marginal levels of statistical significance (p < 0.10 two tailed) and in the expected direction. The results were precisely as Keynes projected: countries with budget deficits had lower jobless rates if they had a trade surplus, and countries with a trade deficit had lower jobless rates if they had a budget surplus.

The graph below illustrates the results of our worldwide analysis concerning the effect of trade deficits upon unemployment. The table shows the projected unemployment rate in the United States in each of the last five years as compared with a country with the U.S. budget deficit and debt levels, but no trade deficit. The red line shows the actual U.S. unemployment rate. The blue line shows the projected unemployment rate if trade were balanced. In 2011, the actual unemployment rate in the United States was 8.5%. A country that had the U.S. budget deficit and debt levels, but no trade deficit, would be expected to have an unemployment rate of 6.6%, as shown in the graph below:

To read the entire article, go to


Comments: 3

Romney: we do not have to accept "a huge and seemingly perpetual trade deficit with China"
Howard Richman, 8/17/2012

Fox News reports:

Romney says Obama has not been aggressive enough in challenging unfair Chinese trade practices and he would bring a "fresh and fearless approach" to that trade relationship, using both the threat of U.S. sanctions and coordinated action with allies to force China to abide by global trade rules.

He says the United States does not have to accept "a huge and seemingly perpetual trade deficit with China" and must demand U.S. companies have the same freedom to sell in China that Chinese firms have to sell in the United States....


Comments: 0

Spain cuts its trade deficit the hard way
Howard Richman, 8/17/2012

European shares hit new highs a few days ago on the news that Spain's trade deficit was down 31.2% in June compared to June a year earlier. How did Spain do it? The chart below gives a clue:



Comments: 0

Obama, Romney miss the elephant in the room -- Charles Campbell nails it in today's Baltimore Sun
Howard Richman, 8/14/2012

In an op ed in today's Baltimore Sun, retired Gulf Oil executive Charles Campbell nails it (Obama, Romney miss the elephant in the room: The cause of our economic woes is faulty trade policy, but the presidential candidates offer no solutions). He begins:

The unemployment rate has been stuck above 8 percent for months. President Barack Obama continues to blame the moribund economy on President George W. Bush while claiming that he has created 4.5 million jobs. Republican challenger Mitt Romney announces that he will create 12 million jobs in his first term. The president has proven that he has no solutions for our sick economy, and Mr. Romney's promises are ludicrous.

Neither ever discusses the root cause of our current economic distress — our policy of signing free trade agreements with the third world as well as the Asian powers who practice mercantilism. After November we will find ourselves exactly where we are today with the existing failed strategy or a new, useless policy unless there is a drastic change in our foreign trade practices.

It is not as though the problems with our trade policy are a sudden revelation. The economic miracles of Japan, Taiwan, Korea, Singapore and Hong Kong were built on the backs of highly skilled but unemployed U.S. manufacturing employees starting in the 1970s and accelerating through the 1990s.

In 50 years, China moved from Confucianism to communism to mercantilism....


Comments: 0

Another new low for US-China trade
Howard Richman, 8/10/2012

On August 9, the Census Department published the trade data for June, the 29th consecutive month in which the US merchandise trade deficit with China has worsened and the 20th consecutive month that it has set a record low. The US merchandise trade deficit with China was $307 billion over the 12 months ending in June 2012, as shown in the graph below:



Comments: 0

Is America Slouching Into Fascism Under Both Democrats and Republicans ?
Raymond Richman, 8/5/2012

It is a measure of the strength of the Communist movement that it got the media and most academics to accept the notion that fascism is a right wing movement.  The important political difference between Communism and Fascism is that Communist parties wherever they are located see themselves as part of an international Marxist socialist movement whereas Fascist parties are single-country socialist movements, initially at least. Trotsky’s complaint against the Stalinist wing of the party, which got him killed, was that the latter was insufficiently international. Communism is his view was and should be a worldwide revolutionary movement. 

The word Nazi is a German contraction of the name Adolph Hitler gave his political party, the National Socialist German Workers’ Party. The word Fascist is derived from the name Mussolini gave his Italian national socialist party. Its symbol was the fasces, a Roman symbol of authority. Why have the media always subscribed to the myth that Nazis and Fascists were rightist political movements? Was it because to identify them as socialists would have been to reveal how close to the Communists they really were? They did not want workers to realize that the Nazis and Fascists were socialist parties. Getting workers worldwide to believe the lie that fascism was a rightist movement was a great Communist political achievement. ...


Comments: 3

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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]