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Is it 1929 again? - reposted from August 29, 2003
Howard Richman, 6/30/2015

[Note: I first posted this on this blog on August 29, 2003. With the Chinese stock market in free fall, it is becoming more and more apparent that I was correct.]

In today's Daily TelegraphAmbrose Evans-Pritchard explained why U.S. Treasury interest rates have been rising:

As Indonesia, India, Ukraine, Brazil, Turkey, Venezuela, South Africa, Russia, Thailand and Kazakhstan try to shore up their currencies, the effect is ricocheting back into the advanced world in higher borrowing costs. Even China felt compelled to sell $20bn of US Treasuries in July.

"They are running down reserves by selling US and European bonds, leading to a self-reinforcing feedback loop," said Simon Derrick from BNY Mellon.

This is very close to my June 26 analysis  (see Why US Interest Rates have been Rising since May 1). At that time, I quoted an article which said that Chinese banks were selling their U.S. Treasury bonds, due to a liquidity crunch in China. Apparently, the liquidity crunch is emerging-market wide....



Comments: 1

What Is the Remedy When the Supreme Court Exceeds Its Constitutional Authority?
Raymond Richman, 6/29/2015

The Constitution of the U.S. made no provision for judicial review of federal or state legislation. Articles III, of the Constitution of the U.S. created the federal judicial system, but made no provision for declaring unconstitutional Congressional legislation or Presidential actions. In the  case of Marbury v. Madison (1803), the Supreme Court  arrogated to itself the power to declare actions of the President and the Congress and the several states unconstitutional. But the power is not unlimited. The Court has no power to legislate as it has done in cases stemming back to Pres. F. Roosevelt when the President attempted to pack the Court. It has the power to interpret laws and the constitution when there is ambiguity in the letter of the law or conflicting legislation. The President and the Congress are entitled to challenge any excessive arrogation of power.

The U. S. constitution created a republic with the federal government having limited powers with all rights not granted to it being reserved to the states or to the people under the 10th amendment. The 14th amendment ratified in 1868 reduced states’ rights. Section 1 recites that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” Of course, the Civil War denied the States the right to secede gainst states’ rights to secede from the union. The 14th Amendment went further; it reduced the rights of states that had not attempted to secede.

The States created the Constitution and established a republic. The States and the Federal Government were not created co-equal with the States. The States retained the power to determine the members of the Senate. Until the 17 Amendment was adopted in 1913, the legislatures of the States appointed the members of the Senate. That amendment marked the end of any state control over the actions of the federal government, including the Supreme Court. ...



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Today is the big vote on Obamatrade -- we were published in today's American Thinker
Howard Richman, 6/23/2015

We began:

Today’s Senate cloture vote is the last and best chance for conservatives to stop Obamatrade. Just 41 Senate votes against cloture would stop it in its tracks. During previous votes, the Republican leadership had enough votes sewed up. Not this time.

Opposition has been growing. The first time Obamatrade was voted upon in the House, only 34 Republicans voted against it. The second time, 50 Republicans voted against it.

Conservatives believe in free trade. But free trade works only when it is balanced. Obamatrade enables currency manipulation, the chief method through which Japan, Malaysi,a and Vietnam, three of our Trans-Pacific Partners, give hidden subsidies to their products and charge hidden tariffs upon U.S. products so as to give their countries increasing trade surpluses and give the U.S. worsening trade deficits.

To read the rest of what we wrote, go to:



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Donald Trump: When was the last time the U.S. won on a trade agreement? -- I'm published in the American Thinker blog this morning
Howard Richman, 6/19/2015

I begin:

In his speech announcing his presidential run, Donald Trump posed a question that resonates with the American people. Trump said:

Our country is in serious trouble. We don't have victories anymore. We used to have victories, but we don't have them. When was the last time anybody saw us beating, let's say, China in a trade deal? They kill us. I beat China all the time. All the time.

President Reagan was the last U.S. president who won a war. Not only did he win the Cold War, but he also beat Cuba in Grenada. Reagan may also be the last President who won in a trade deal....

Click here to read the rest.


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Trump on Trade
Frank Kirkland, 6/18/2015

Whatever one may think of newly-announced Presidential candidate Donald Trump and his positions on issues, there is no denying his acumen and success as a businessman. He clearly brings a pragmatic approach to developing business strategies and negotiating business deals. So what has he said about international trade and how the US conducts it?

Using as a convenient source, we first see that he strongly embraces globalization and international markets. He is clearly "pro trade" (just as are most of the opponents of TPA/TPP who are unfairly characterized as being anti-trade.) But not surprisingly, the strategy and tactics reflected in his statements on trade reflect those of a goal-oriented businessman who takes positions consistent with being the CEO of "America Incorporated", not of a lifelong USTR bureaucrat. (I.e., acting just like the leaders of our trading partners already do.)

Specifically, he says trade must be "fair" as well as free and that it is now not fair...


Comments: 1

Donald Trump and the Currency Manipulators -- I'm published in American Thinker blog this morning
Howard Richman, 6/17/2015

I conclude:

As President, Trump would use the threat of tariffs to negotiate trade agreements that would benefit the United States. In contrast, President Obama weakly buckled to Japan’s demand that the Trans Pacific Partnership permit currency manipulation.

 To read the whole thing, go to:


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Book Review: Ha-Joon Chang, Economics, the User’s Guide (New York: Bloomsbury Press, 2014.
Raymond Richman, 6/9/2015

The author, Ha-Joon Chang, Reader in the Political Economy of Development, Faculty of Economics, University of Cambridge, states in the Prologue that this is a book without the economic jargon that makes economics appear to be more difficult than it needs to be. Economics, he writes, cannot be a science like physics or chemistry. In this regard, he fails to distinguish between economic theory and economic policy. Determining economic policies is not a science. But in theorizing about economics, economics uses scientific methodology just as the physical sciences do. The prologue is a bad beginning.  So is the first chapter which is entirely devoted to defining economics. Prof. Paul Samuelson in his introductory textbook, Economics, which was the leading bestseller in the world for many decades takes half a page and his definition, five lines, includes the essentials of all textbook definitions, economics is the study of the conditions for an efficient allocation of the world’s scarce resources among alternative uses. To Chang, economics is the study of “money, work, technology, international trade, taxes, and other things that have to do with the ways in which we produce goods and services, distribute the incomes generated in the process and consume the things thus produced --  rather “than ‘Life, the Universe, and Everything’ or ‘almost everything’, as many economists think.” Try urging people to “economize” using Chang’s definition. No wonder he thinks economics is not a science?

He defines capitalism, as Karl Marx did, as an “economy in which production is organized in pursuit of profit.” Most individuals spend yeas and substantial money to educate themselves in pursuit of a higher income. They make an investment in themselves. Producing products that people want requires an investment by an entrepreneur, who provides the capital, thereby a capitalist. The economy should be called the investment economy or, as I prefer, a competitive market economy in which anyone can compete to distinguish it from socialism which is a closed market economy, permitting no competition. Nowhere does Chang refer to monopolistic competition or to Prof. Chamberlin who described our economy as a monopolistic competitive economy. Instead he devotes less than a page to what Prof. Ursula Hicks called icksHicks “imperfect competition” but he seems unaware that there is nothing imperfect about a monopoly and few, if any, firms that are perfectly competitive. Every firm has some monopoly power ranging from nearly perfect monopoly in cases of patents and copyrights to illusory product differentiation achieved as a result of advertising to hardly any monopoly power, individual farmers. ...



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Ben Shapiro does a brilliant job of explaining why Congress keeps ceding its power to Obama
Jesse Richman, 6/4/2015

Shapiro's argument came in a piece at Breitbart entitled "Obama's Trade Agreement Leaks While Republicans Cower." He writes:

The idea behind fast-track authority is that the president will not feel free to negotiate, and no one will negotiate with him, if any agreement is subjected to the prospect that a negotiated agreement could be renegotiated by a third party – namely, Congress. But this is a particularly odd argument, because it assumes that the president wants to give away more than is in the United States’ interest to give away. After all, the president can use the possibility of Congressional wrangling as a leverage point in negotiations: “How can I go back to Congress with this proposal? You know they’ll simply amend it. If you give me X, however, then I can fairly assure you that we’ll get this deal done.” Congress provides a convenient and useful “bad cop” for any president hoping to negotiate an international agreement....


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Obama admits that Climate Change will be in Obamatrade
Howard Richman, 6/4/2015

My scoop was published on the American Thinker website this morning. Here's the beginning:

In a speech on the Senate Floor on May 22, Democratic Senator Ron Wyden of Oregon ridiculed those who thought climate change regulation would be part of Obamatrade:

We’ve heard suggested, for example, that it’s a backdoor route to immigration reform or action on climate change…. My sense is that the rate these hypotheticals are going, you’re bound to hear that a future president working on a trade deal might have second thoughts about the Louisiana purchase.

But in an interview on NPR’s Marketplace yesterday (June 3), President Obama said that enforcing climate change regulations will indeed be part of the Trans Pacific Partnership, the Obamatrade pact that he is currently negotiating with Malaysia and 10 other countries. He said:

If we want to solve something like climate change, which is one of my highest priorities, then I’ve got to be able to get into places like Malaysia, and say to them, this is in your interest. What leverage do I have to get them to stop deforestation? Well part of the leverage is if I’m in a trade relationship with them that allows me to raise standards.

To read the rest, go to:


Comments: 0

Fast Tracking the Decline in American Power -- we were published in the American Thinker today
Howard Richman, 6/2/2015

The article includes our report of our latest study:

To see if mercantilism works, we just conducted a statistical study of 11,623 country-year observations for 186 countries from 1870 through 2007 using panel data models. The results: a strong statistically-significant correlation between balance of trade and national power. A favorable balance of trade is associated with an increase in power (national material capabilities), an unfavorable balance with a decrease.

To illustrate our findings, Figure 1 extrapolates the expected trajectory of U.S. power in two scenarios. The first scenario envisions twenty years of trade deficits the size the U.S. ran in 2007. The second scenario envisions balanced trade. Under trade deficits, U.S. national power declines by 28 percent. Under balanced trade, it remains stable, increasing by 0.5 percent.

If U.S. leaders wanted to sustain their nation’s position as a world power in the long run, they would be well advised to pursue the goal of balanced trade. The current approach, which accepts imbalanced trade, is likely to lead to diminished U.S. power.

To read the entire piece, go to:


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Book Review Allan S. Blinder, After the Music Stopped –The Financial Crisis, the Response, and the Work Ahead (New York, Penguin Press, 2013)
Raymond Richman, 6/1/2015

Allan Blinder is a Princeton professor of economics and a former vice chairman of the Federal Reserve Board. As he states in his preface, the American people still don’t quite know what caused the Great Recession, how and why it happened, or what the authorities did about it.

He acknowledges that the housing bubble was not the only contributor to the financial crisis that followed. He writes that seven key weaknesses predated the recession:

  1. Inflated asset prices,
  2. Excessive leverage (heavy borrowing) throughout the economy,
  3. Lax financial regulation,
  4. Disgraceful banking practices,
  5. Unregulated securities and derivatives,
  6. Abysmal performance of statistical credit agencies,
  7. Perverse financial incentives inducing financial institutions to “go for broke”.

He does not mention that the Community Investment Act of 1977, which is still the law, which forced  the banks and Fannie Mae and Freddie Mac, government-sponsored private entities, to make millions of subprime loans. Nor does he mention that the Federal Reserve Board was made responsible by the Act for ensuring that mortgage lenders maintained lending standards, but that it failed to do so and thereby itself helped worsen the recession.  He does not mention the explosion of our trade deficits that resulted from foolish trade agreements and were a drag on economic growth.

The inflated asset prices he criticizes were caused by the low long-term interest rates, partly caused by the inflow of foreign government loans which caused the trade deficits. As every economist knows lowering interest rates inflates asset prices, real estate and corporate stock especially. There was lax financial regulation alright, but the Fed and the other bank regulators did not use the powers they had to regulate financial institutions. Yes, there were disgraceful banking practices. As for perverse financial incentives, banks rewarded executives for taking risks and producing profits as long as the bubble continued. When the bubble burst, Treasury Secretary Paulson bailed out all but Lehman Bros. Its failure precipitated a collapse in the securities markets....


Comments: 1

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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]