Morning Call: August 1st, 2018

NATIONAL


AM LINKS

– Trump Advisers Urge Raising Additional China Tariffs to 25%…https://on.wsj.com/2OzAMqO

– 18% of China’s GDP goes to debt services.  Apparently artificially creating trade surpluses is expensive…http://bit.ly/2vb9gbd


Making It Rain

Good news for American workers this week as new data shows wages grew at the fastest pace in a decade…https://on.wsj.com/2Kg4P3h

U.S. workers received their biggest pay increases in nearly a decade over the 12 months through June, a sign the strong labor market is boosting wages as employers compete for scarcer workers.

The Labor Department’s employment-cost index rose 2.8% in the year to June compared, the government said Tuesday. Wages and salaries, which account for about 70% of all employment costs, also rose 2.8% from a year earlier, the strongest gain for both measures since September 2008.

The economy has been in a recovery for almost a decade and the only area of the economy that hadn’t seemed to recover were wages.  This is great news for America and the GOP.  In possibly even better news for President Trump, there are signs that China is starting to feel the impact of this trade war…https://on.wsj.com/2vqa4Ia

China’s leadership pledged to ensure economic stability as its trade fight with the U.S. started to pinch growth, signaling that a bigger stimulus could be on the horizon.

A Tuesday meeting of the Politburo, whose members are China’s top arbiters of power, highlighted the external challenges faced by the world’s second-largest economy. Without specifically mentioning the trade conflict with the U.S., a statement issued after the meeting by state media made clear the brawl is a big threat to growth and stability, trumping issues such as debt control.

The Chinese economy “faces some new problems and new challenges,” the statement said. “There are obvious changes in the external environment.”

President Trump and his supporters are going to be thrilled by this news.  Lowering trade deficits is one of Trump’s biggest campaign pledges.  There is only one problem.  Lowering bilateral deficits will only shift our deficit to another country and our global trade deficit will remain unchanged.  Desmond Lachman explains…http://bit.ly/2NX4pBg

Any country that wishes to eliminate its trade deficit while maintaining full employment must do two things. First, it must lessen its domestic expenditure to make room for the increase in exports and reduction in imports needed to cut the trade deficit. Second, it must weaken its currency so that exporters are incentivized to export and importers are discouraged from importing. The Trump administration is seemingly oblivious to this logic.

If we are not at full employment we could easily increase labor by hiring those who are looking for work.  Unfortunately, when you are at full employment it is difficult to increase production without radically increasing cost which could disincentivize the very expansion.  One of the ways to combat that is by reducing domestic consumption, therefore, allowing domestic production to remain the same.  This also incentives Americans to save.  However, this could create another problem.  Michael Pettis explains…http://ceip.org/2LTPTwA

Policy intervention that addresses the trade account without addressing the capital account can easily create unexpected and damaging distortions for the country that implements the policy. If the United States were to impose a tariff on foreign goods, for example, without implementing policies that restrain capital imports, the resulting surge in capital inflows could well set off an asset bubble and a debt-fueled consumption boom that creates more problems than it resolves.

I spent a good hour yesterday reading Michal Pettis’ paper at the Carnegie Endowment for International Peace that he wrote back in 2017.  Pettis makes a solid argument for reducing out trade deficits with foreign governments.  However, is policy proposals differently greatly from what Trump is proposing.  Pettis believes that trade flows are secondary to capital flows.  Therefore the only way to lower our global trade deficit is to limit capital inflows from foreign nations.

This is actually something that has been floated in Trump’s White House but was quickly shot down.  President Trump has touted his tax cuts as a way to spur more foreign investment in the country.  However doing so creates a capital account surplus therefore balancing it with a current account deficit aka a trade deficit.  This is what is referenced to as a balance of payments.  When one goes up, the other must go down. Therefore, if you believe Pettis’ theory of Capital being primacy to trade. Trump has to cap foreign investments in the US if he wants to reduce our global trade deficit.  This will not be easy.  American businesses love foreign investment and they will fight this tooth and nail.  Then again, no one said being President would be easy…


In Other News

– Facebook has shut down a sophisticated disinformation operation on its platform that engaged in divisive messaging ahead of the U.S. midterm elections.  It is unclear if Facebook was able to steal and then sell their information before shutting them down…https://wapo.st/2v57W9w

– It turns out that Netflix will not be airing a documentary on anti-semite Louis Farrakhan after all.  I’m sure it’s the Jews fault…https://fxn.ws/2O0MysX


NORTH CAROLINA 


AM LINKS

– A North Carolina Surgeon is challenging the state’s “certificate of need” law in the hopes of lowering the cost of MRI’s…http://bit.ly/2KfjSu0

– Subsidies complicate farmers’ plight in growing trade war…http://bit.ly/2O0vAeh


Playing Politics

Remeber when Rep. David Lewis wrote a letter to House Speaker Tim Moore about the possible outside influence on the Constitutional Amendment Publication Committee…

“It appears that the Commission may be falling to outside political pressure, contemplating politicizing the title crafting process, including using long sentences or negative language in order to hurt the amendments’ chances of passing,”

The Democrats sure showed him by *squints* politicizing the constitutional amendments…http://bit.ly/2Auqgy9

Attorney General Josh Stein and Secretary of State Elaine Marshall, both Democrats and members of the Constitutional Amendment Publication Commission, bashed some of the proposed amendments, raising points that were muted or absent from legislative debates. The third commission member, Republican Paul Coble, did not attend the meeting, which gave Stein and Marshall the chance to offer their views without rebuttal.

Stein described one of the amendments as “the most radical restructuring of our government in more than 100 years, since the Civil War. It would essentially give the Legislature the power to run the executive branch.”

I have to apologize to the NCGOP.  I had previously stated that the recent special legislative session was a waste of a time.  I believed that the Democrats on the board would put their responsibilities and duties as commissioners above politics.  Wow, was I wrong!  Talk about snatching defeat from the jaws of victory.  They played right into the GOP’s hand and did exactly what the GOP said they would do. They could have plaid it smart and cool and been professional.  Apparently, they had other plans.


In Other News

– Apparently, you have to destroy ObamaCare to save ObamaCare as Blue Cross Blue Shield announces premium decreases for the first time ever…http://bit.ly/2LTKFRw

– It seems that when millennials do finally get around to getting married they are very concerned that their significant other might one day get half of their avocado toast…http://bit.ly/2M9kcwa

Leave a Reply

Your email address will not be published. Required fields are marked *