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Putting The 'Great' In Great Depression, Stephen Roach Warns On TPP's Currency Rules
Authored by Stephen Roach, originally posted at Project Syndicate,
As the US Congress grapples with the ever-contentious Trans-Pacific Partnership – President Barack Obama’s signature trade legislation – a major stumbling block looms. On May 22, the Senate avoided it, by narrowly defeating – 51 to 48 – a proposed “currency manipulation” amendment to a bill that gives Obama so-called “fast-track” authority to negotiate the TPP. But the issue could be resurrected as the debate shifts to the House of Representatives, where support is strong for “enforceable currency rules.”
For at least a decade, Congress has been focusing on currency manipulation – a charge leveled at countries that purportedly intervene in foreign-exchange markets in order to suppress their currencies’ value, thereby subsidizing exports. In 2005, Senators Charles Schumer, a liberal Democrat from New York, and Lindsey Graham, a conservative Republican from South Carolina, formed an unlikely alliance to defend beleaguered middle-class US workers from supposedly unfair competitive practices. Stop the currency manipulation, went the argument, and America’s gaping trade deficit would narrow – providing lasting and meaningful benefits to hard-pressed workers.
A decade ago, the original Schumer-Graham proposal was a thinly veiled anti-China initiative. The ire that motivated that proposal remains today, with China accounting for 47% of America’s still outsize merchandise trade deficit in 2014. Never mind that the Chinese renminbi has risen some 33% against the US dollar since mid-1995 to a level that the International Monetary Fund no longer considers undervalued, or that China’s current-account surplus has shrunk from 10% of GDP in 2007 to an estimated 2% in 2014. China remains in the crosshairs of US politicians who believe that American workers are the victims of its unfair trading practices.
While this argument has great emotional and political appeal, it is deeply flawed, because the United States has an insidious saving problem. America’s net national saving rate – the sum total of household, business, and government saving (adjusted for the depreciation of aging capacity) – currently stands at 2.5% of national income. While that is better than the negative saving rates of 2008-2011, it remains well short of the 6.3% average of the final three decades of the twentieth century.
Lacking in saving and wanting to grow, America must import surplus savings from abroad. And to attract that foreign capital, it has no choice but to run equally large balance-of-payments deficits.
So it is no coincidence that the US economy has a chronic current-account deficit. While this shortfall has narrowed from a peak of 5.8% of GDP in 2006 to 2.4% in 2014, it still leaves the US heavily dependent on surplus foreign savings in order to grow.
This is where the trade deficit comes into play. The US does not just pluck surplus foreign savings out of thin air. To attract the capital it needs, America must send dollars overseas through foreign trade.
And it is here that the currency manipulation argument falls apart. In 2014, the US ran trade deficits with some 95 countries. In other words, America does not suffer from a small number of bilateral trade deficits that can be tied to charges of currency manipulation by countries like China, Japan, Malaysia, or Singapore. Rather, the US suffers from a multilateral trade imbalance with many countries, and this cannot be remedied through the imposition of bilateral penalties such as tariffs.
Without fixing its savings problem, restricting trade with a few so-called currency manipulators would simply redistribute the US trade deficit to its other trading partners. In effect, America’s trade balance is like a water balloon – applying pressure on one spot would simply cause the water to slosh elsewhere.
Moreover, this approach could easily backfire. For example, assuming that there is no increase in domestic US saving, penalizing a low-cost producer like China for currency manipulation would most likely cause the Chinese piece of America’s trade deficit to be reallocated to higher-cost producers. That would be the functional equivalent of a tax hike on middle-class families – precisely the constituency that so concerns Congress. Further complications would arise from putting the verdict on currency manipulation – presumably dependent on some type of “fair value” metric – in the hands of politicians.
This is also the twist that underscores the ultimate congressional hypocrisy. The charge of currency manipulation is nothing but a foil for the US to duck responsibility for fixing America’s saving problem. Lacking any semblance of a strategy to boost savings – not just a long-term fix to the federal government’s budget deficit, but also meaningful incentives for personal saving – US politicians have turned to yet another quick fix.
In the end, there is no way around it: If Congress does not like trade deficits, it needs to address America’s saving problem and stop fixating on misplaced concerns over currency manipulation.
None of this is to argue that the US should ignore unfair trading practices. As a member of the World Trade Organization, the US has ample opportunity to use that body’s dispute-resolution mechanism to adjudicate major problems with its trading partners. And it has enjoyed success with this approach. What Congress cannot do is pretend that wrong-footed trade policy is the answer to its inability or unwillingness to refocus its domestic policy agenda.
Of course, it is always easier to blame others than to look in the mirror. But history has not been kind to major trade blunders. Just as the Smoot-Hawley Tariff Act of 1930 sparked a global trade war that may well have put the “great” in the Great Depression, Congressional enactment of enforceable currency rules today could spark retaliatory actions that might devastate the free flow of trade that a sluggish global economy desperately needs.
The US Senate was wise in rejecting this dangerous option. We can only hope that similar wisdom prevails in the House of Representatives. Currency manipulation legislation is one tragedy that can and should be avoided.
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Sigh. Dear mother, born in 1949, experieinced a general upward trend her whole life. My life's trajectory will be very different.
The main reason Barry & Co (the most transparent administration ever!) kept TTP under lock and key is the hidden UN gun grab in it. Even though the Constitution has been ignored for decades now, this is treason of the highest most disgusting order, which is punishable by death.
Death happens to everyone.
Making 'it' special for some is problematic....
As a (not so) practicing Catholic...I've wondered (even on shrooms) if maybe this is purgatory?
We already know..Absolutely, conclusively..DEFINITELY... That this shit they're 'selling' is BOGUS.
Once that's been established as FACT (it has been)..
Wow..
What comes next?
Hoot Smalley bitchez! - lol
Obama hope and change.
Obongo corrupt coke homo head.
Hillary! Hillary! Hillary!
Is there anything left in that Bottle...?
Stephen Roach is a pile of banker shit.
So far the Fed.gov's been able to avoid a Smoot-Hawley face plant-one that would create a worldwide depression from a regional recession.
TPP is just such a face plant
Even if it passes the House, doesn't it still depend on foreign countries signing on, too? And how likely is it that foreign countries are going to keep this secret?
Or do we get screwed if only one country, say Japan, signs it. They'll sign anything, as long as we continue to take their untested food exports. Hint, hint.
"by Senator Reed Smoot and Representative Willis C. Hawley and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.[2]"
Hm... I have to read the article again.
Raising Tariffs would be like a change in Exchange rate OR Currency.
Many wonder about the advantage of a Global Currency, fictitious currency. It has to be fantasy since all are Fiat today. To use PM or a Basket of Goods, is to use Wealth as a gauge of a fiat or a country's worth. Normally Wealth is static except to USA, CHINA, BRIICS, EU.
Will the Countries of the UN agree to have their wealth Appraised at a point in time for eternity... unless they are one of the growing ones with liberal banking policies like China??
Communism owns the Banks.
Communism owns the Land.
Communism owns the Energy.
Communism owns the Press, Info, Data.
America, do you want to put yourself up against a government that owns everything, controls everything, and all the Data.
One world currency? One world Labor Rate? One world Worker Rights? One world Liberal Financial Standards? One world Liberal Accounting?
So...things are so F(&*ing bad that TPTB are saying we need something like TPP (sounds a lot like TARP, doesn't it?) to save us, when we all know that TPP simply enhances TPTB's power at THE PEOPLE"S expense...same sh$t, different day
Yeah, I am pretty sure tarrifs worked quite well back in the 1800s... Roach is way off here. Even if this is just a drop in the bucket to try and help American workers, at least they are trying... maybe...
They're dont trying to help American workers. The future is immigrants and H1-B's. Oh, and robots. Immigrant robots. Too expensive to manufacture here.
How about a warning that TPP Arbitration is done by a Self Regulating Organization (SRO).
Whoops. Just like Bankers, Stock Exchanges, and Lawyers.
Disappointed in Stephen. It is the currency manipulation and foreign purchases of our debt to support their neomercantilist growth that crowds out domestic savings via artificially cheap imports and low cost financing.
The Triffin paradox won't confront American central planners indefinitely.
Wasn't that a Star Trek episode? The 'Trouble With Triffins'? I love those guys.
Hm... I thought it was institutionalized corruption that was the problem. Artificially cheap propaganda, as icing. The ghost of Max Weber on the American Dream: to be just like THEM.
we could stop sending money to the M E. this ridiculous automobile centered economy is fubar, we import cars and parts to burn imported oil and pay the military to insure we can continue to senselessly run on this hamster wheel to hell. are we really that dumb?
Tariffs, barriers, controls, embargos, subsidies, penalties, priority lists and statuses, economic security interests, economic henchmen, quotas etc., you name it, that's what made America great. America revolutionaries knew what they were doing throwing of the ship all the English tea. It was our way or we sent Gen. S.Butler and proud and many Marines for you to wise up.
It is just during last thirty years that these morons in power gave whole circus away for their gluttonous ways and left Americans to inhale their own fashion designed farts during Hollywood induced orgasmic sessions of freedom.
Do we need to hear from one more stooge of global oligarchs?
N? xi?ng c? xié? N? xi?ng chángshì m?iguó hànb?o hé m?iguó de xìngyùn b?ngg?n?
( translation - you want shoe shine? You want to try American hamburger and American fortune cookie?)
May as well start learning now... Next week I'll study street maps of Beijing.
the usa is going down the shitter i don't care what anyone says or does it won't make any difference.
US doesn't have anything to do with currency rules. Thems bankster concerns. Banksters make the currency and the contractors will do what they are paid to do.
The US was a major exporter and creditor in the 1920s and it suffered most from a drop in trade. Today, the exact opposite is the case. The U.S. (and Spain) has the most to gain, relative to other nations, from a global trade war. China (and Germany) has the most to lose.
These groups believe that they can manufacture trade with policy. Real trade doesn't work that way ever. I suspect the people pushing the policy have never worked a day in their lives.
We say to the world, "If you want to buy oil then you must pay for it in dollars."
So to get the dollars to pay for their oil they do whatever it takes to export to us. Without oil a nation exists at a 19th century standard of living. This is how we lost our manufacturing industries.
That is, until the new energy source starts to leak out from under National Security. Granted, Oil has more uses than powering things, but when it is no longer as useful there, then what?
What about QE being the biggest 'currency manipulation' move in history?
True. But, as I pointed out yesterday, you can bet your ass(ets) that the TPP Currency will be the good old USD.
It's the Fed's way of front-running the AIIB and the Yuan, and a way to preserve it's GRC hegemony. Duh!
Hasn't Tyler told/spoon-fed you that yet? ;-)
Great minds think alike.
I agree TPP is a strategy to keep Hegemony. And I don't think the Wealthy will part with their USD.
Wealth transfers happen all the time. Federal Budget being a prime, Target Rich Environment including MEDICARE/MEDICAID, Social Security, Employee Paychecks, you name it.
I may not have understood the article posted by Stephen Roach, but QE is the most obvious wealth transfer in modern history unless we look at Sub-prime housing bubble.
recently watching farenheit 911 a member of the US congress said we dont read these things, this is just theatre to make people think they have representation.
I thought Moore made many excellent points. If anything, he didn't go far enough. But he's still walking.
yeah i think his aim was to make people think, thats the hardest thing to do in modern times.
Normally, half-wit (I'm being generous) mikey moore references send me into a fury.
You however seem like a genuinely naive person, and I actually like that.
Been their and done it. In fact I'm STILL naive and although it's somewhat disconcerting...It's nice to admit I'm alive too.
Way less naive though.
If you live long enough...(hope you do) then I imagine you'll also become less naive.
The shit is FAR worse than you are capable of comprehending at this point in your journey-:)
Hang in there though sport!
yeah i was not really giving him a big high five, maybe a waist high one. The senator laughing saying we dont read these things said it all to me. Do u have any thoughts on China and US, could they be working together or at different ends?
Michael Moore is kind of a mine field. He choses good topics of controversy for profit.
- I like his topics of US Health Care, 911, Wall Street
- But Moore seems to want to make pronouncements like a King
- In the USA we have a complicated system that many including myself don't fully grasp, States have power to ratify Federal Legislation, but they have the power to correct deficiencies in Laws on their own
- Therefore Moore assumes a Giant Ego able to fully Grasp State Law and make Federal Law
I was young once and perhaps wanted to strengthen the USA with Ronald Reagan's Leadership. We could still use part of Reagan's ideas of strength. But who do we give the power to Micheal Moore or Barack Obama, Michelle Obama, Dick Cheney, Victoria Nuland?
Making Movies has no Responsibility. But Mr. Moore did energize interest in the US Health Care System. Sean Hannity and O'Reily have no Responsibility either.
Come to think of it. US Congress made up of mostly Lawyers has little sense of responsibility either.
BAR Association is Worthless. lawyers have been Attacking the US Constitution, Conservative Banking, Fair Elections, USD, Court Systems, and the Common Man for like 35 years.
Maybe Micheal Moore with get together with his Lawyers and make a Movie about the Damage to USA by Lawyers.
Please.
My guess is that TPP 'fixes' the issue for the corporations playing ball with these deranged satanistas presently ruling America.
For all the 'people'???
Soon enough, it ain't gunna matter.
All these kids playing 'Charlie, Charlie'? Dick Cheney answers.
Ah come on sweetie... Dick makes obozo blush..
He's still jealous
Even after all this time.
You do know that influencial figures go to China to beg them to keep buying our debt right? That's including George W. Bush. Chinese finance American spending while creating demand for dollars which prevent run away dollar devaluation, other wise somebody else has to pick up the slack. This is where America gets to consume on credit and how the US government can spend money that has some kind of value.
We either have ignorant congressional people, or just plain obfuscation. Americans don't save, they spend, so where do Americans spend on capital maintenance and infrastructure, or invest in businesses? We don't that's why we are a consumer economy that had ties to the old gold standard.
Troll?
Probably not.
The gangs who run America don't pay for intelligence. They pay for loyalty.
If you have questions???
Start with EVERY FUCKING THING YOU EVER 'THOUGHT' WAS TRUE FIRST.
After that?
Good fucking luck.
But Seriously and from a human being perscpective....The way it should be.
Free.
Alive.
Meaning.
"While this argument has great emotional and political appeal, it is deeply flawed, because the United States has an insidious saving problem. Lacking in saving and wanting to grow, America must import surplus savings from abroad. And to attract that foreign capital, it has no choice but to run equally large balance-of-payments deficits."
Pure nonsense. The problem is not spending, but who is stealing and pissing away the American people's savings, and ultimately futures.
When one makes a deposit into one of Zion's banks, the banksters steal it, combine it with more theft from others via counterfeiting (price inflation), and then fence that theft through a "borrower."
The FedRes steals more when they "print" their poisonous fiat each time the DC US comes a calling for more funds to use to steal and kill people with.
And regardless of the level of saving by the American people, if they saved more, the banksters and government would just steal more.
The so-called "savings problem" is caused be the banksters' and government's theft of the American people's savings and futures, not some kind of defect in the American people.
The banksters and governmnet then force exchange rates to certain levels to prolong and maintain their ponzis and thefts, and to hold off the inevitable price-inflation as long as possible. The price of that scheme is the need to export the victim country's manufacturing base overseas.
Of course the whole scheme only works if it can be combined with their own cheap goods outlet that will enable them to profit further and induce other outlets to also sale cheap crap from abroad; That outlet be Walmart.
Liberty is a demand. Tyranny is submission..
Save Mankind
Guillotine a Bankster
"Stop the currency manipulation, went the argument, and America’s gaping trade deficit would narrow – providing lasting and meaningful benefits to hard-pressed workers."
Net saving as a percentage of gross national income
2014:Q4: 2.5 Percent (+ see more)
Quarterly, Seasonally Adjusted Annual Rate, W207RC1Q156SBEA, Updated: 2015-03-27
Go back to 1980 the low from the Recession was 6.5% Savings to GDP/GNP.
At no point in US History is 2.5% Savings Rate Normal.
Why is the MSM Not Talking about Fundamentals? (Totally Owned)
There has never been in FRED Chart History 1947-01-01 a Savings Rate of 2.5% and not in Recessions either, totally record breaking Risk, Totally Reckless Banking & Federal Government.
Check the Chart, Assholes.
"US suffers from a multilateral trade imbalance with many countries, and this cannot be remedied through the imposition of bilateral penalties such as tariffs."
Ah, we agree here. Why the hell didn't you say so quicker.
I don't think the TPP addresses major weaknesses in the US Trade or Domestic Economy.
- Low Velocity
- 12 years in a Credit Bubble, 17 years of stupid Financing
- economic dependence on Housing, MIC, Government Projects, Fake Health Industry
- Households leaking Wealth on Health Care, Education, Big Mortgages, Interest Payments
- US Economy Leaking Money to Foreign Trade, Federal Spending Overseas, Foreign Ownership/Investments in the USA, Foreign Ownership of US Debt (Federal Debt), Decapitalization of US Industries, Wealth moving Off Shore
There is no such thing as a "global economy".
There is 'global corporate mercantilism' that seeks to rape economies around the globe in a government sanctioned uniform manner.
Dear Windago: born 1942, in a country full of bombed out buildings, bomb craters, food shortages, ration books, poverty, and fathers retuning home from six years of war, many not having seen their children.
Now in 2015 seeing the start of a possible ww3 and worrying about great grand children, who maybe will see those times repeat. Sigh!