Friday, July 1, 2016

This is What Negotiated Trade Looks Like

A joint statement was issued yesterday by Canadian Prime Minister Justin Trudeau and President Obama.

The statement concerned negotiations on a trade deal for softwood lumber.

If you have ever wondered why so-called free trade arrangements take so long to complete and seem to require pages and pages of trade details, it is instructive to examine the statement put out by Obama and Trudeau.

First, they tell us this:
 Given the great importance of the softwood lumber industry to the economies of the United States and Canada, on March 10, 2016, we instructed the United States Trade Representative and the Canadian Minister of International Trade to intensively explore all options and report back on the key features that would address the issue.
In response to these instructions, our Ministers and their teams have been meeting diligently on softwood lumber over the past three months. These discussions have been challenging but productive.
Then they pretty much tell us that what they are really negotiating is a crony deal:
 The U.S. and Canadian federal governments have made significant advances in understanding our industries' sensitivities and priorities since March...
A new softwood lumber agreement will need to reflect the realities of Canadian timber management policies and the U.S. domestic market. A new agreement must be equitable and provide a predictable business environment that gives producers on both sides of our border the ability to react confidently to changing market conditions. Any agreement must deliver a durable and equitable solution and benefit softwood lumber producers from Canada and the United States, related industries and consumers, and support the overall economic well-being of both countries.
Then it is down to the nitty gritty  of the protectionist aspects of the developing deal:
Efforts to achieve such an outcome will be facilitated by focussing on the following key features:

an appropriate structure, designed to maintain Canadian exports at or below an agreed U.S. market share to be negotiated, with the stability, consistency and flexibility necessary to achieve the confidence of both industries; 
provisions for region or company exclusions if justified;...

provisions to ensure information collection and exchange to create meaningful transparency;
institutional arrangements to administer the agreement;
effective enforcement tools that are neutral, transparent, binding, expeditious, and well-timed to address concerns as they arise;...

provisions to address other issues, such as product scope, remanufacturers and joint market development
These aren't "free trade" deals that are being negotiated. They are protectionist deals that favor the well-connected.

The full statement is here.

-RW

Thursday, June 30, 2016

S&P 500 Logs Third Straight Quarterly Rise


The S&P 500 climbed by 1.9 per cent this quarter, its biggest increase since the final three months of 2015. The gain came even after the broad-market fell late last week by the UH vote to leave the EU.

The Dow Industrial Average has gained 789 points in the last three days.

This is far from what a recession looks like.

-RW

Donald Trump Supporters Please Take Note: An Economy Is Not a Business

Don Boudreaux sends out the following email.

Mr. Charlie Naumov

Mr. Naumov:

Good to hear from you again.

You ask why I’m “comfortable ignoring Donald Trump’s business expertise” when I criticize his “resistance to trade.”

A business person’s success at making money no more implies that he or she has a scientific understanding of economics than does a rock-star’s success at making music imply that he or she has a scientific understanding of acoustics.  Economics and business are simply not the same thing.  And an economy is emphatically not a business.

A business is an organization for production and sales; it is designed and managed to yield profit.  The yielding of the profit is the business’s rationale.  And while managing his firm to yield maximum profit is the ultimate goal of the business person as a business person, the ultimate goal of the business person as a human being is not to maximize the value of what he produces and sells over the value of what he purchases and consumes.  (Any business person who lives in this way is a genuine miser.  His personal standard of living is as low as it can possibly be, consistent with his continuing to survive and operate his business profitably.)  As a human being, the business person’s ultimate goal is, as economists say, to maximize his utility.  Put more sensibly, it is to lead as full and as fulfilling a life as possible – a process that requires that the business person consume, as a human being, goods and services.

To be expert at business, therefore, is to be expert at only one part of the range of human activities that make up an economy.  A person succeeds in business only if he manages (as we say colloquially) to make money.  So the businessman’s attention as a businessman is to make as much money as possible; it is to maximize profits; it is to have as much money roll in to his firm and as little money as possible roll out of his firm, all in the quest to accumulate profits as great as possible.

But what’s the point of making money – of maximizing profits?  Ultimately it is to enhance the businessman’s ability to consume.  The successful businessman withdraws from his business the profits he earns and spends them (or leaves them to be spent by his heirs and designees) on consumption goods and services.  Yet consumption itself does not require special expertise (or at least it doesn’t require the kind of expertise that yields business profits).  Personal (or familial) consumption is no part of the business.

Because the ultimate goal of economic activity is consumption – because to fully comprehend the function and the ‘purpose’ of an economy requires an appreciation of the reality that consumption is the ultimate point of economic activity – expertise at business not only is not expertise at comprehending the economy, it too often blinds business people to the economy’s ultimate rationale.

Trump, like many a business person, judges an economy as he judges his business: he asks ‘By how much are our production and sales expanding relative to our purchases?’  This question is the wrong one to ask about an economy, whose performance should be judged only by how much ordinary people’s ability to consume improves over time (rather than by how much the economy’s sales grow relative to its purchases).  So when Trump sees Americans buy imports, he sees money flow out of what he mistakenly imagines to be America, Inc.  Thinking of the American economy as being one gargantuan business, Trump mistakenly sees imports as costs that drain this ‘business’ of resources rather than as goods and services made possible because the economy is successfully fulfilling its ultimate purpose – namely, to improve people’s standard of living by giving them ever-greater access to goods and services for consumption.

…..

I am painfully aware of my inability to make myself sufficiently clear on this point.  And the differences between a business and an economy are more numerous than I’ve suggested above.  But this letter is already too long.  I end simply by saying that if the American economy really were run as if it were a business the goal of which is to maximize monetary profits, then every American man, woman, and child would live like a pauper because any consumption beyond what is necessary to keep the American people fully productive as workers and as business people would reduce the ‘profits’ of America, Inc.  Were the American economy really run as the logic of people such as Trump implies that it should be run, all Americans would impoverish themselves as they enrich non-Americans with all of the goods and services that we export to them – exports for which we refuse to accept any imports in exchange.  Our profits – measured as our “trade surplus” – would be enormous; we’d have lots of money.  Our well-being would be minimal; we’d have almost no goods and services for our consumption.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University

The above originally appeared at Cafe Hayek.

S&P Downgrades European Union From AA+ To AA

They must have heard about George Soros urging the EU to borrow multi-billions:)

The S&P statement:
Long-Term Rating On Supranational Institution The European Union Lowered To 'AA' On Brexit Referendum; Outlook Stable

The European Union (EU) supranational borrows on the capital markets to lend  to member states and certain other governments on a back-to-back basis. The  long-term rating on the EU partly relies on the capacity and willingness of  its 28 members to support it. We currently rate the EU at 'AA'.)
OVERVIEW

After the decision by the U.K. electorate to leave the EU as a consequence of the June 23 consultative referendum, we have reassessed our opinion of  cohesion within the EU, which we now consider to be a neutral rather than  positive rating factor.

We think that, going forward, revenue forecasting, long-term capital  planning, and adjustments to key financial buffers of the EU will be  subject to greater uncertainty.

As a consequence, we are lowering our long-term rating on the supranational European Union to 'AA' from 'AA+' and affirming the 'A-1+'  short-term rating.

The outlook is stable, reflecting our opinion that under most scenarios, including a U.K. withdrawal from future (though not current) budgetary   commitments, our anchor ratings on the EU will remain at the current level of 'AA/A-1+'.

RATING ACTION

On June 30, 2016, S&P Global Ratings lowered its long-term issuer credit rating on supranational institution, the European Union (EU), to 'AA' from  'AA+'. The 'A-1+' short-term rating was affirmed. The outlook is stable.

This is the Brexit Advice You Would Have Gotten If You Were a Subscriber to the EPJ Daily Alert

 The day before votes on Brexit came in, I wrote in the EPJ Daily Alert (My new bold):
I strongly believe that if Brexit wins (it does, though, appear to be the underdog), then we will have a massive selloff in stocks globally.

This view is based on my thinking that traders generally view a Brexit win as a terrible outcome for global economies. But at the same time, watching market action, it appears that traders believe that Brexit will go down to defeat.

Therefore, if Brexit wins, you will have traders reversing positions and tremendous fear about economies in the wake of such a win. The selling will be substantial without knowing exactly how much selling will occur.

I just suspect that the panic will be very intense immediately after news of a Brexit victory.

It is possible that British and continental European stock markets could selloff by 10% or more. In the U.S., a selloff of 3% is possible. The greater the selloff, the greater the opportunity but I would buy into the selling regardless of the actual percentage. The selling will be most intense immediately after news of a Brexit victory and that will be when the greatest buying opportunities will be.

If the less likely scenario does develop and Brexit does win,  I would buy a 50% position of funds I designated for the trade immediately on the news and scale in further buying over the remainder of the day.

This is what happened immediately after Brexit and how prices closed today for Britain's FTSE 100:



With US stock markets we got two buy points. The first on Friday, the second on Monday, before three rebound days. This is what I wrote on Monday.:
The US Dow Jones Industrial Average is off its low, down 1.31% on the day. For US markets, the panic Brexit selling appears to be just about over. For aggressive investors, continue to add to general US stock index long positions. Also extremely attractive are banks stocks, which are down over 10% since Thursday.
Bank America, Citi, Goldman Sachs. Wells Fargo and JPMorgan Chase are all buys in here for traders. Also attractive is the iShares U.S. Financial Services ETF (Symbol: IYG).




I think you will find it very rare to see such clear detailed  forecasts of how things will develop. I did the same thing when I warned in real time of the developing financial crisis in 2008 (Details of my real time crisis forecast is in The Fed Flunks).

I am now seeing very unusual activity developing in another market, subscribe to the EPJ Daily Alert and find out the details. Four ways to subscribe: here.

(Note: Past spectacular forecasts do not necessarily mean future spectacular forecasts.)

-RW

New World Order Statist Soros Speaking to the European Parliament Calls for Multi-Billions in EU 'Surge Funding'

One world order super-statist George Soros

By Robert Wenzel

The billionaire statist Geore Soros appeared today before the European Parliament and delivered a speech discussing what the EU should do in the wake of Brexit.

If you weren't sure Soros was an all out one world order statist before this speech, you shouldn't have any qualms after it. The speech was simply stunning in its attempt to intensify the role of the EU in its remaining sphere of power.

The 85-year old clearly wants to use the opportunity, of the British vote to leave the European Union, to take a giant leap and strengthen the EU into a greater central super-power---paid for by the subjects living within the EU region and resulting in greater coercion of the people in the sector by a more powerful EU governing body.

Specifically, he told the European Parliament that the EU should go on a massive multi-billion euro borrowing spree. "Surge funding," he called it, to restructure the EU, shore up its power and become a much greater influence over Europe.
Without sufficient funding, the EU cannot perform the functions it was designed for nor meet the expectations of the European people. And because it fails to achieve the objectives it has set for itself, the Union loses its legitimacy and the support of its citizens.

The refugee crisis illustrates the problem. At least €30 billion a year will be needed both inside the Union—to build effective border and asylum agencies, to ensure dignified reception conditions, fair asylum procedures and opportunities for integration—as well as outside its borders—to support refugee-hosting countries and to spur job creation throughout Africa and the Middle East....

Given that its very survival is at stake, the EU should be putting all of its available resources to use. And yet the triple-A credit of the Union has barely been deployed. This is the height of irresponsibility...

In order to raise the necessary funds in the short term, the EU will need to engage in what I call “surge funding.” This entails raising debt by leveraging the EU’s relatively small budget, rather than scraping together insufficient funds year after year...

There is a strong case to be made for using the EU’s balance sheet. Tapping into the triple-A credit of the EU has the additional advantage of providing a much-needed economic stimulus for Europe. With global interest rates at historic lows, now is a particularly favorable moment to take on such debt...

In the short term, reforms of the EU’s existing instruments would allow a far more effective mobilization of resources than the creation of new ones. Two sources of money in particular—the European Financial Stability Mechanism (EFSM) and the Balance of Payments Assistance Facility (BoP)—should be put to the task...

The Macro Financial Assistance facility (MFA) is yet another source of borrowing specifically designed for actions outside of the EU. It has proven an important instrument in countries like Ukraine but it needs a new framework agreement. (This is urgent because a framework agreement takes a long time to enact and the current Ukrainian government deserves more support than the EU is currently able to offer.)

The combined gross borrowing capacity of the EFSM and the Balance of Payments assistance facility is €110 billion. The borrowing power of the latter is almost completely unused. The EFSM has made some €46.8 billion worth of loans to Portugal and Ireland and its spare capacity grows each year as those loans are repaid.

All the instruments mentioned add up to a substantial unused borrowing capacity.

Spending a large amount at the outset would make it much easier to manage immigration and will allow the EU to respond more effectively to some of the most dangerous consequences of the crisis....Making large initial investments will help tip the economic, political, and social dynamics away from xenophobia towards constructive outcomes that benefit refugees and host countries alike.
How does Soros propose that such massive borrowing be eventually paid back? He called for EU- wide taxes:
Of course, raising more debt with the current budget will eventually pose deeper questions in light of the limited revenues of the EU budget. The situation has gotten worse over the years as the real own resources of the EU budget (such as customs duties) have shrunk. It is now time to drastically reshape how the EU’s own resources are raised.

The reduction of the EU’s resources in 2014 to 1.23% of GDP was a tragic mistake and we are paying the price for it now. The EU cannot survive with a budget of this size. I was greatly encouraged last year when Minister Schauble raised the idea of a pan-European gasoline tax. The European Parliament should seriously consider this idea...
In any case, the EU and its member states must find new sources of tax revenue. Another approach would be to levy special EU-wide taxes. The new tax revenue could come from a variety of sources, including the existing EU-wide VAT; or a new tax on travel into the EU and on visa applications, which would shift some of the burden onto non-EU citizens wishing to travel to the EU.
And don't think for a minute that this global statist would stop here. He didn't go into details but he dead allude to "EU military threats."
 [T]he EU faces growing military threats. Our external enemies have been emboldened. They pose new, as-yet unfathomable dangers in various parts of the wider region that are also liable to aggravate the refugee crisis.
It is difficult to think that a global statist like Soros doesn't have in his mind  that an EU that borrows billions and taxes its subjects shouldn't have a grand military force also.

It appears the Brits are leaving not a minute too soon. In the wake of Brexit, Soros has revealed the naked power lust of the statist new world order schemers. Europeans should beware.

The full Soros speech is here.

Robert Wenzel is Editor & Publisher of  EconomicPolicyJournal.com and Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics

GM Economist: No Brexit Impact to U.S. Auto Market Now; More UK Car Production Possible

 It is too soon to measure the impact of the British vote to leave the EU on General Motors but the decision will likely not have much effect on the company in its home market, GM’s chief economist tells Reuters.

Mustafa Mohataram said the most immediate likely impact for U.S. auto sales was a positive one as last week’s referendum result brought with it a greater chance that U.S. interest rates “will remain lower longer” than if British voters had decided to stay in the European Union.

He said that over time there may be a greater chance for additional production at GM’s two plants in England, but he cautioned that the British pound, down about 10 percent against the dollar since the referendum result, would have to maintain a low exchange rate to the dollar for that to be realized.  GM’s two plants in England assembled about 13.5 percent of Opel and Vauxhall vehicles in 2015.

Mohataram said those two plants, one in Ellesmere Port that makes compact cars and one in Luton that makes commercial vehicles, are running near capacity, but the company could find a way to boost production if economic conditions were favourable.

On prospects for auto industry sales in the United States, Mohataram said GM has not pulled back from its bullish forecast of industry sales of 18 million vehicles, including medium and heavy trucks, that it gave at the start of this year.

This is pretty much in line with my thinking as I have detailed it in the EPJ Daily Alert.

There is just no reason for Brexit to have much impact on the US domestic economy.

The panic sell-off was nonsense.

 -RW

High Profile Socialist French Economist Quits as Adviser to UK's Labour Party

Socialist French economist Thomas Piketty

If Brexit accomplishes nothing else, this in itself should be considered a sufficient victory for the entire effort.

Thomas Piketty, author of the anti-capitalistic best seller,  Capital in the Twenty-First Century, is jumping off a sinking ship and has quit his role as an advisor to the Labour party — blaming its "very weak" EU referendum campaign.

 -RW

Congress Passes Puerto Rico "Oversight" Bill

Just before a $2 billion debt payment was to come due on July 1st,The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was passed in the U.S. Congress that creates a powerful elitist oversight board that will undercut fundamental contract law. for bond holders of  Commonwealth of Puerto Rico debt

 The seven-member control board will have the power to overrule stipulated guarantees in certain classes of debt, to oversee negotiations with creditors and the courts over reducing some debt.

The Act also includes a moratorium on litigation by bond holders meant to “empower the commonwealth during negotiations.”

 Logan Beirne, an ISP Fellow & Lecturer in Law at Yale Law School, where he teaches Financial Markets and Corporate Law, wrote earlier this week:
The proposed stay of litigation will set the government up for a Constitutional takings claim and disrupt the broader U.S. municipal market....

Puerto Rico’s constitution guarantees general obligation bondholders explicit priority over other obligations, including the expenses of the Puerto Rican Government. Specifically, Article VI, Section 8 states, “interest on the public debt and amortization thereof shall first be paid and must be serviced by the government prior to any other government obligation.” Congress not only affirmed this priority when it ratified the territory’s constitution, it reaffirmed when it approved the implementation of Puerto Rico’s constitutional debt limit in 1961.

Lured by this guarantee in addition to tax exemptions, investors poured money into the island – with the established hierarchy directly impacting their risk vs. reward calculations. But the House version of the bill seeks to change the terms post hoc. It provides the Puerto Rico Control Board with the sweeping power to place a temporary stay of litigation when it deems it necessary for the island’s financial interests.

Rather than press for Puerto Rico and creditors to negotiate a legal path forward, such action empowers Puerto Rico to walk away from the negotiating table. With investors hobbled by their inability to seek legal recourse, Puerto Rico’s government has little incentive to work with them during the moratorium and is empowered to instead divert its few remaining resources elsewhere. The bill does provide for creditors to seek relief for cause and to prevent irreparable harm, but that neglects the damage caused by such delays. Each day that passes diminishes the value of their investments.

In this way, the government is picking the winners and losers while ignoring long-established debt payment hierarchies. Once investors regain their full rights, their investments will almost inevitably be worth even less.
The solution, of course, should have been for Puerto Rico to outright default. PROMESA,in addition to distorting the bankruptcy system. also requires the territory to create a fiscal plan to bring the island back from it's current financial situation. Among other requirements, the plan would have to provide "adequate" funds for public pensions, which the government has underfunded by more than $40 billion.

Translation of: "create a fiscal plan to bring the island back from it's current financial situation" Squeeze the citizens of Puerto Rico, Greek style.

 -RW

SCOOP Inside Silicon Valley When Janet Yellen is Printing Money

Here.

Wednesday, June 29, 2016

The Truth About the EU and What Should Be Done

By Sascha Klocke
On Tuesday, during a somewhat raucous session of the European parliament, Nigel Farage gave his post-Brexit “victory speech”. Besides his trademark taunting of his pro-EU colleagues, Mr Farage made animportant point, suggesting:
Why don’t we be grown up, pragmatic, sensible, realistic and let’s cut between us a sensible tariff-free deal and thereafter recognise that the United Kingdom will be your friend, that we will trade with you, cooperate with you, we will be your best friends in the world.
This statement, like most of Mr Farage's speech, was greeted with jeers. While the reaction could simply be regarded as being due to Mr Farage's earlier taunting and to the emotional nature of the post-Brexit debate, it seems to hint at a deeper issue, which has been brought up on the Mises Wire several times:  That the European Union is not primarily about free trade for mutual benefit, but about political integration and economic harmonisation, in which free trade is just the reward for going along with the political ambitions of Brussels.
This alternative explanation seems to be confirmed by comments made by the president of the European Commission, Jean-Claude Juncker, in May, including that “deserters will not be welcomed back with open arms,” and yesterday, by German chancellor Angela Merkel, who said in front of the German Bundestag
We'll ensure that negotiations don't take place according to the principle of cherry-picking ... It must and will make a noticeable difference whether a country wants to be a member of the family of the European Union or not. Whoever wants to leave this family can't expect to do away with all of its responsibilities while keeping the privileges.
Is leaving the European Union with its plans for ever-greater harmonisation leading to a political, fiscal, and social union really “desertion”? Is the desire to be an independent, sovereign country, yet still participate in free trade with some of the world's largest economies, cherry-picking? As Murray Rothbard has pointed out, “genuine free trade doesn’t require a treaty”,  and if it does not even require a treaty, it is quite clear that it certainly does not require a political union that harmonises away the competition responsible for many of the benefits of free trade.
This, however, seems lost on many politicians and bureaucrats in the EU, as well as many of its intellectual supporters at universities and newspapers across Europe, even when they did make the effort to mention the common market as a major benefit of remaining a member of the union.
A friend noted with regard to these post-Brexit days that “divorce is so emotional”. And indeed, politicians like Mr Juncker and Mrs Merkel speak of the European Union as if it were a marriage or a family, to which one is bound by some transcendental duty. Perhaps it would be better to again return to the notion of federations as voluntary (and reversible) associations between friends, pursuing a (specified) common goal, and not as codependent marriages that get abusive as soon as one party wants to get a divorce.
The above originally appeared at Mises.org.

Top Chinese Official Responds to Trump's Charges That China Manipulates Its Currency

China's Foreign Ministry on Wednesday said the yuan's exchange rate was not the reason for unbalanced trade ties with the United States.

In a Tuesday speech on his trade policy stances, Trump said that if elected, he would direct his treasury secretary to label China a currency manipulator, a move he said "should have been done years ago".

"China-U.S. trade cooperation is the ballast and propeller of bilateral relations. Its essence is mutual benefit. The yuan exchange rate is not the reason for unbalanced China-U.S. trade," Foreign Ministry spokesman Hong Lei said in a statement on the Ministry's website responding to Trump's comments.

"We hope some individuals on the U.S. side can objectively view China-U.S. trade relations, do more to benefit mutual trust and cooperation, and jointly safeguard the healthy and stable development of China-U.S. trade relations," Hong said.

RW note: Even if China was a currency manipulator, it does not make sense for the U.S. to do anything but adopt a path of unilateral open trade. SEE: Why Unilateral Liberalization Makes Sense

Business Startups Cluster in Just 20 US Counties

Reports Valuewalk:

Rural areas have almost completely lost out on new businesses.  Just 20 counties, all of them large metropolitan areas, have accounted for more than half of all new businesses in 2010-2014. Of those 20 counties, five are in California, five are in Texas, four are in Florida, three are in New York and there is one county each in Illinois, Arizona and Nevada.

Capital chases high-growth ideas, and high-growth ideas tend to be concentrated in areas of highly educated and highly skilled workforce. This suggests that the lack of new business formation in rural America may lead to widening gaps in income and employment between those areas and big cities.


Scathing New Report Shows Just How Bankrupt Social Security Really Is

By Simon Black

Last week, a group of analysts published an astonishing report about the future of Social Security in the United States, and their remarks were nothing short of damning.

According to their calculations, for example, these analysts claim that Social Security is already running a huge deficit to the tune of tens of billions of dollars each year.

In fact, this Social Security funding deficit has been taking place for several years now, and it’s actually accelerating. So the problem worsens each year.

According to the analysis, the astounding rise in Social Security recipients vastly outpaces any growth in tax revenue received into the program. And this trend will continue for decades.

The report goes on to describe Social Security’s two main trust funds, OASI (for ‘Old Age Survivors Insurance’) and DI (‘Disability Insurance’).

They tell us that DI actually went bust several months ago.

But rather than attack the root cause of the problem and restructure the program, Congress quietly slapped a band-aid on DI by simply diverting funds from OASI, just enough for DI to limp along for a few more years.

So in other words, they robbed from OASI to pay DI, and keep it afloat through the next presidential election. It’s incredibly short-sighted.

Among the other programs slammed in this report, the Hospital Insurance (HI) fund, one of Medicare’s major trust funds, is of particular concern.

Their brutal analysis shows HI is going to completely run out of money in 2028, just twelve years from now (when President Clinton finishes her third term).

2028 is actually two years earlier than they had originally projected.

And they project the entire Social Security program will be fully depleted six years later in 2034.

Like I said, this report is incredibly damning.

But it raises an important question-- just who are these crazy, fringe analysts predicting all of this doom and gloom?

After all, the political establishment has been telling everyone for years that Social Security is going to be just fine. And they seem to have a solid grip on the situation, right?

Well, the report was actually published by the Social Security Administration itself, signed by (among other cabinet officials) the Treasury Secretary of the United States of America.

It’s absolutely incredible. The government is publishing this data in black and white.

They’re telling anyone who’s willing to listen that Social Security has dug itself into an impossible hole.

More importantly, they’re telling us there’s a 0% chance that the government will be able to honor its existing commitments.

They’ll either have to radically raise taxes, or simply reduce (or eliminate) the Social Security benefits that they’ve been promising taxpayers for decades.

The younger you are, the steeper the price you’ll pay.

If you’re in your 60s, for example, you may likely see your benefits cut. If you’re in your 40s or 50s, you can count on it.

And if you’re in your 30s or younger, you can not only forget about Social Security, but you can expect to pay more and more taxes to bail out a program that won’t be there for you when it comes time for you to collect.

This is what happens when nations go bankrupt.

History is full of so many examples of dominant powers who think their wealth will last forever… and so they make far too many promises to far too many people for far too many years.

But eventually the reality of simple arithmetic catches up.

We’re seeing this now in the US, and we’ll continue to see this problem worsen in the coming years until it becomes a full-blown emergency and people cry out, “Why didn’t anyone see this coming?!?”

Here’s the good news: you have ample time to prepare, and there are plenty of solutions to fix this.

Don’t get me wrong-- I don’t mean “fix Social Security”. Oh no. That program is toast.

I’m talking about fixing this for yourself.

Retirement is one of those life events that is completely predictable. We know it’s going to happen.

And with a little bit of education, planning, discipline, and execution, we can vastly influence the outcome and prevent any major catastrophe from interfering with our goals.

You can dramatically boost your own nest egg, for example, and have much greater say over your retirement assets by setting up a structure like a solo 401(k) or a self-directed IRA.

It also makes sense to invest in your financial education; learning more about investing will clearly be beneficial in boosting your returns, and this can have a profound effect over time.

Especially if you’re younger, increasing your average return by just 1% over the course of 20-40 years can add up to hundreds of thousands of dollars in additional retirement savings.

You may also want to consider retiring abroad where you can live the lifestyle you’ve always wanted at a fraction of the price, and substantially stretch the time and value of your retirement savings.

Look, I’m convinced that Social Security will become a national emergency some day. Just remember that since its demise is conspicuously predictable, the impact on your life is completely preventable.

Simon Black is founder of SovereignMan.com

Blowing Up Hillary Clinton's Memoir

David Gordon completely destroys  Hard Choices, Hillary's memoir of her years as Secretary of State, here.

A Keynesian Prepared for a Crash (Paul Krugman Edition)


Airbnb Is Said to Be Seeking Funding Valuing It at $30 Billion

Under the terms of the new fund-raising, Airbnb will have tripled its valuation in two years, reports NYT.

In  November, the company forecast revenues of only  $900 million for the year ending 2015. That is the deal is valued at approximately 30 times revenues!

This is nothing at all what a recession looks like.

 -RW

Does Donald Trump Understand Free Trade?

On Monday, Donald Trump delivered a speech just outside Pittsburgh, Pennsylvania. It was named the "Declaring America's Economic Independence" speech by the Trump campaign.

The first question that must be asked is: What the hell does "declaring economic independence" mean? Does Trump really want to reduce trade with the rest of the world and become independent when it comes to trade.? What else could "economic independence" mean? It is neanderthal thinking, yes neanderthal.

By the time he got around to trade, after declaring a desire for economic independence, he let out a screed of anti-free trade, mercantilist points, just a notch above neanderthal:
Today, we import nearly $800 billion more in goods than we export.
This is not some natural disaster. It is politician-made disaster...
---
George Washington said that "the promotion of domestic manufactur[ing] will be among the first consequences to flow from an energetic government.”
Alexander Hamilton spoke frequently of the "expediency of encouraging manufactur[ing] in the United States." The first Republican President, Abraham Lincoln,warned that: "The abandonment of the protective policy by the American government…must produce want and ruin among our people."
Our original Constitution did not even have an income tax. Instead, it had tariffs - emphasizing taxation of foreign, not domestic, production...
---
America has lost nearly one-third of its manufacturing jobs since 1997 - even as the country has increased its population by 50 million people...

Almost half of our entire manufacturing trade deficit in goods with the world is the result of trade with China...
---- 
To understand why trade reform creates jobs, we need to understand how all nations grow and prosper.
Massive trade deficits subtract directly from our Gross Domestic Product...
--- 
America's "job creation deficit" due to slower growth since 2002 is well over 20 million jobs - and that's just about the number of jobs our country needs right now to put America back to work at decent wages.
Trump couched these comments around attacks of Hillary Clinton for her support of backroom globalist trade deals such as TPP, but there was nothing in his comments that suggested Trump appreciates free trade. To him, it is all about tough negotiating. He went on in his speech:
I'm going to appoint the toughest and smartest trade negotiators to fight on behalf of American workers.
----
I'm going to direct the Secretary of Commerce to identify every violation of trade agreements a foreign country is currently using to harm our workers. I will then direct all appropriate agencies to use every tool under American and international law to end these abuses.
---
I am going to instruct my Treasury Secretary to label China a currency manipulator. Any country that devalues their currency in order to take advantage of the United States will be met with sharply.
----
I am going to instruct the U.S. Trade Representative to bring trade cases against China, both in this country and at the WTO. China's unfair subsidy behavior is prohibited by the terms of its entrance to the WTO, and I intend to enforce those rules.
It is clear that Trump does not appreciate the difference between true global free trade, which requires no negotiations, versus  backroom globalism. He just wants to negotiate "better" backroom deals.

He clearly does not understand comparative advantage, the lump of labor fallacy or the importance of  even unilateral free trade or just free trade in general.

Trump is no friend of economic progress or free trade. He is shockingly ignorant of basic fundamental economic principles.

 -RW