Tax Reform And Trump's Chinese Trade Deficit Conundrum

Authored by MN Gordon via EconomicPrism.com,

Most things come easier said than done.  Take President Trump’s posture on trade with China…

Trump doesn’t want a bigger trade deficit with China.  He wants a smaller trade deficit with China.  In fact, reducing the trade deficit with China is one of Trump’s promises to Make America Great Again.  In May 2016, he even told a campaign crowd:

“We can’t continue to allow China to rape our country and that’s what they’re doing.  It’s the greatest theft in the history of the world.”

Yet as Trump approaches the conclusion of his first year in office, he’s achieved the exact opposite of what he said.  The trade deficit with China hasn’t gotten smaller.  It has gotten bigger.  Actually, it has gotten a lot bigger.

For example, the U.S. trade deficit with China from January through November 2017 was approximately $342 billion.  Over this same period in 2016, the trade deficit with China was $317.4 billion.  This amounts to a 7.7 percent widening of the U.S. trade deficit with China that has occurred on Trump’s watch.

What gives?  Is China better at manipulating its currency than the U.S.?  Does China somehow outplay the U.S. when it comes to both trade strategy and strategery?

Certainly, The Donald will get to the bottom of it…

Unintended Consequences

Earlier this week President Trump called up Chinese President Xi Jinping to have a frank phone conversation on the matter.  From what we gather, Trump “expressed disappointment that the United States’ trade deficit has continued to grow.”

We don’t know what Jinping said in response.  But what he could’ve said was, “Donald, you ain’t seen nothin’ yet!”

One of the unintended consequences of increasing the budget deficit to pay for the GOP tax reform bill is that it also increases the trade deficit.  In other words, the budget imbalance between taxes and government expenditures has a direct impact on foreign trade imbalances.  In an article published in Asia & the Pacific Policy Studies, economist Ralph W. Huenemann explains:

“In 2016, the American government budgets carried a fiscal deficit of $865 billion, and the balance of payments showed a trade deficit of $521 billion.  A surplus of private savings (including substantial retained corporate profits) of about $344 billion over investment partially offset the budget deficit, but as long as there is such a massive deficit on government budgets, the net inflow of imports will continue.  This is inherent in the nature of national income.  No President, Donald Trump or any other, can change this reality without tackling the government budget deficit.”

So if Trump doesn’t want a trade deficit with China then he needs to reduce the government’s budget deficit.  However, reducing the government’s budget deficit is near impossible under the new GOP tax reform bill.  Hence, President Trump is left with a weak hand of bluster.

Tax Reform and Trump’s Chinese Trade Deficit Conundrum

This week Reuters released parts of its exclusive interview with President Trump.  On the prospect of a trade war with China, Trump remarked that he hopes a trade war won’t ensue, “But if there is, there is.”

Trump also commented that any change in China’s purchases of U.S. Treasuries would not hurt the U.S. economy.  This is because, according to Trump, “everybody wants to buy Treasuries.”

Let’s hope Trump knows what he’s talking about.  At the moment, China and Japan account for one-third of all foreign-held Treasuries.  However, China has currently tapered back its Treasury holdings to a four month low.  And Japan has reduced its Treasury holdings to a four year low.

But maybe Trump’s right.  Maybe China and Japan don’t matter.  Maybe someone else – like the Swiss National Bank – will pick up the slack that’s needed to finance Trump’s deficit.

Still, what would this get him?  It wouldn’t address his trade deficit conundrum; rather, it would make it worse.

The point is attempting to spend a nation to prosperity using borrowed money is not without consequences.  In the short run, an illusion of wealth can be erected.  In the long run, the illusion slips into decay and disrepair at the precise moment the bill comes due.

This is one of the tradeoffs of deficit spending based government stimulus that politicians fail to mention when promising free lunches.  Any economic boost that deficit financed tax reform delivers will be short-lived.

Quite frankly, such a contrived economic boost is akin to burning one’s furniture to stay warm.  The heat it produces feels good while it lasts.  But once the furniture’s all burned up, it’s game over.

Source: Zerohedge – Tax Reform And Trump's Chinese Trade Deficit Conundrum

This Is How Chinese Bitcoin Buyers Are Getting Around The Government Ban

China stunned cryptocurrency traders in September when, after announcing a crackdown on ICOs, it went a step further and warned all crypto exchanges operating in mainland China that they would need to wind down their operations by October – effectively killing the nascent cryptocurrency and blockchain industry.

Observers expected this to be a huge blow…though Chinese trading volume had already fallen dramatically since January 2017 when authorities forced local exchanges to raise fees and implement AML controls, it was still a crucial market for bitcoin. However, the drop in Chinese trading didn’t stop the pioneering cryptocurrency from rocketing to an all-time high around $20,000 a few months later.

As we noted at the time, several of the largest China-based exchanges, from OKCoin to Binance.com, and wallet services too sought a second life in friendlier Asian jurisdictions, applying for licenses in Japan – solo or via partners – setting up over-the-counter shops in Hong Kong, or laying the groundwork to operate from Singapore and South Korea.

 

But crypto enthusiasts living in mainland China can still transact domestically: But instead of these transactions being routed through exchanges, they’re negotiated on over-the-counter (OTC) trading platforms like Huobi, OKEx and OTCBTC, according to a Yahoo Finance  report.

Of course, Chinese buyers who still want to participate in the market are doing so at significantly higher prices. On OTC platforms, prices are 10% to 20% higher than the prices on traditional exchanges. On Jan. 18, when bitcoin was trading at $11,730 on Coinbase, the biggest US brokerage, the lowest price on the Huobi OTC platform was 84,000 yuan, or $13,085.

The premium that Chinese investors pay is a direct result of the limited OTC coin supply caused by government regulations. For more sophisticated traders, there’s an arbitrage opportunity: Traders will buy cryptocurrencies cheaply on foreign exchanges and immediately sell on domestic OTC platforms at a higher price. But there are risks, including price volatility, slow transaction times and China’s strict control on capital outflows.

On platforms like OTCBTC, buying cryptocurrencies is like shopping on Ebay: choose the coin you want, then offers from multiple sellers appear. Buyers can link their bank accounts or use popular mobile payment methods like Alibaba’s Alipay or Tencent’s WeChat Pay. Once they get their hands on the coins, investors can trade them on any exchange in the world.

Chart showing number of daily transactions on OTCBTC

As we highlighted in November,  several China-based trading platforms, including Huobi and OKEx, which were among the largest exchanges in the world and were included in the ban, decided to take advantage of a loophole: China hadn’t outlawed cryptocurrencies, it just outlawed the operation of exchanges. So, many of the companies that decided to stay soon opened OTC platforms and promoted their new operations by waiving transaction fees.

According to  Yahoo Finance, while it’s hard to measure the exact size of OTC trading across all platforms, one single seller at Huobi recorded more than 10,000 separate bitcoin transactions in the past month. Another Taiwan-based platform, OTCBTC, which now offers more than 40 cryptocurrencies, boasted $100 million in transactions in the first 50 days after it launched last October.

Meanwhile, Huobi and other Chinese companies are still operating crypto exchanges in friendlier, overseas markets.

“Now our focus is the overseas expansion,” Huobi CEO Leon Li tells Yahoo Finance. “More than half of our newly-registered users are from outside China.”

However, concerns about regulatory risks aren’t going away either. Huobi, for example, marks the reminder in red that buyers should not mention sensitive words like “BTC” or “bitcoin” in their bank transfers in order to reduce the likelihood of having the transaction blocked.

 

Source: Zerohedge – This Is How Chinese Bitcoin Buyers Are Getting Around The Government Ban

Pat Buchanan Asks "Is A US-Turkish Clash In Syria Imminent?"

Authored by Patrick Buchanan via Buchanan.org,

The war for dominance in the Middle East, following the crushing of ISIS, appears about to commence in Syria – with NATO allies America and Turkey on opposing sides.

 

Turkey is moving armor and troops south to Syria’s border enclave of Afrin, occupied by Kurds, to drive them out, and then drive the Syrian Kurds out of Manbij further south as well.

Says President Recep Tayyip Erdogan, “We will destroy all terror nests, one by one, in Syria, starting from Afrin and Manbij.”

For Erdogan, the Kurdish YPG, the major U.S. ally in Syria, is an arm of the Kurdish PKK in Turkey, which we and the Turks have designated as a terrorist organization.

While the Kurds were our most effective allies against ISIS in Syria, Turkey views them as a mortal peril and intends to deal with that threat.

If Erdogan is serious, a clash with the U.S. is coming, as our Kurdish allies occupy most of Syria’s border with Turkey.

Moreover, the U.S. has announced plans to create a 30,000-man Border Security Force of Kurds and Arabs to keep ISIS out of Syria.

Erdogan has branded this BSF a “terror army,” and President Bashar Assad of Syria has called BSF members “traitors.”

This U.S. plan to create a BSF inside Syria, Damascus declared, “represents a blatant attack on the sovereignty and territorial integrity and unity of Syria, and a flagrant violation of international law.”

Does not the Syrian government have a point?

Now that ISIS has been driven out of Raqqa and Syria, by what authority do U.S. forces remain to arm troops to keep the Damascus government from reimposing its authority on its own territory?

Secretary of State Tillerson gave Syria the news Wednesday. The U.S. troop commitment to Syria, he said, is now open-ended.

Our goals: Guarantee al-Qaida and ISIS do not return and set up sanctuary; cope with rising Iranian influence in Damascus; and pursue the removal of Bashar Assad’s ruthless regime.

But who authorized this strategic commitment, of indefinite duration, in Syria, when near two decades in Afghanistan have failed to secure that nation against the return of al-Qaida and ISIS?

Again and again, the American people have said they do not want to be dragged into Syria’s civil war. Donald Trump won the presidency on a promise of no more unnecessary wars.

Have the American people been had again?

Will they support a clash with NATO ally Turkey, to keep armed Kurds on Turkey’s border, when the Turks regard them as terrorists?

Are we prepared for a shooting war with a Syrian army, backed by Russia, Iran, Hezbollah and Shiite militias from Iraq, Afghanistan and Pakistan, to hold onto a fourth of Syria’s territory in alliance with Kurds?

The U.S. coalition in Syria said this week the BSF will be built up “over the next several years” and “be stationed along the borders … to include portions of the Euphrates river valley and international borders to the east and north.”

Remarkable: A U.S.-created border army is going to occupy and control long stretches of Syria’s borders with Turkey and Iraq, over Syria’s objections. And the U.S. military will stand behind the BSF.

Are the 2,000 U.S. troops in Syria really up to that task, should the Turks decide to cleanse the Syrian border of Kurds, or should the Syrian regime decide to take back territory occupied by the Kurds?

Who sanctioned this commitment to a new army, which, if Syria and its Russian and Iranian allies, and the Turks, do not all back down, risks a major U.S. war with no allies but the Kurds?

As for Syria’s Kurds casting their lot with the Americans, one wonders: Did they not observe what happened when their Iraqi cousins, after helping us drive ISIS out of Mosul, were themselves driven out of Kirkuk by the Iraqi army, as their U.S. allies watched?

In the six-year Syrian civil war, which may be about to enter a new phase, America faces a familiar situation.

While our “allies” and adversaries have vital interests there, we do not. The Assads have been in power for the lifetime of most Americans. And we Americans have never shown a desire to fight there.

Assad has a vital interest: preservation of his family regime and the reunification of his country. The Turks have a vital interest in keeping armed Kurds out of their border regions adjacent to their own Kurdish minority, which seeks greater independence.

The Israelis and Saudi royals want the U.S. to keep Iran from securing a land bridge from Tehran to Damascus to Lebanon.

The U.S. War Party wants us to smash Iran and remain in the Middle East forever to assure the hegemony of its favorites.

Have the generals taking us into Syria told the president how and when, if ever, they plan to get us out?

Source: Zerohedge – Pat Buchanan Asks "Is A US-Turkish Clash In Syria Imminent?"

Jared Kushner’s Firm Tied to “Suspicious Transactions” at Deutsche Bank

Deutsche Bank notified German regulators, and Robert Mueller will likely be given the reports.  Mother Jones- A German business magazine is reporting that Deutsche Bank, the German financial giant which is a major lender to both President Donald Trump and his son-in-law Jared Kushner, identified “suspicious transactions” related to Kushner family accounts, and has reported […]

Source: Stopforeclosurefraud – Jared Kushner’s Firm Tied to “Suspicious Transactions” at Deutsche Bank

Bitcoin is US Dollar 2.0 Created by CIA | Kaspersky Co-founder

There’s a reason why China, Russia and South Korea are about to shut down Bitcoin operations in their turf. It has been a CIA project from the very beginning. That explains why there’s no transparency as to who actually created it, and the impending shutdown is bringing bitcoin’s market value down to at least 40%, … Continue reading Bitcoin is US Dollar 2.0 Created by CIA | Kaspersky Co-founder →

Source: Geopolitics – Bitcoin is US Dollar 2.0 Created by CIA | Kaspersky Co-founder

TFH 1/21/18 | Exclusive Tell-All Eye-Witness Interview With a Retiring Mainland Big Law Supervising Foreclosure Attorney

COMING TO YOU LIVE DIRECTLY FROM THE DUBIN LAW OFFICES AT HARBOR COURT, DOWNTOWN HONOLULU, HAWAII LISTEN TO KHVH-AM (830 ON THE AM RADIO DIAL) ALSO AVAILABLE ON KHVH-AM ON THE iHEART APP ON THE INTERNET . . Sunday – January 21, 2018  ——————— Exclusive Tell-All Eye-Witness Interview With a Retiring Mainland Big Law Supervising […]

Source: Stopforeclosurefraud – TFH 1/21/18 | Exclusive Tell-All Eye-Witness Interview With a Retiring Mainland Big Law Supervising Foreclosure Attorney

A comprehensive guide to corporate online surveillance in everyday life

Cracked Labs’ massive report on online surveillance by corporations dissects all the different ways in which our digital lives are tracked, from the ad-beacons that follow us around the web to the apps that track our physical locations as we move around the world. Importantly, the report shows how tracking companies join up the dots we leave behind, creating stable identifiers that can connect the data-trails from purchases, apps, devices, and clicks, creating a fantastically detailed picture of our lives built up our of these fragmentary details.

Source: Blacklistednews – A comprehensive guide to corporate online surveillance in everyday life

Army Major: "We're Killing These Kids, We're Breaking The Army!"

Authored by Major Danny Sjursen via TheAmericanConservative.com,

Our soldiers are still redeploying at a frenetic pace that cannot keep up with reality – and the cracks are showing…

 

I’ll admit I was taken aback. This senior officer and mentor – with nearly 28 years of military service – wasn’t one for hyperbole. No, he believed what he was saying to me just then.

“We’re killing these kids, we’re breaking the army!” he exclaimed.

He went on to explain the competing requirements for standard, conventional army units – to say nothing of the overstretched Special Forces – in 2018: balancing Russia in Eastern Europe, deterrence rotations in South Korea, advise and assist missions in Africa. Add to that deployments to the usual hotspots in Syria, Iraq, and Afghanistan.

He was genuinely concerned about the physical and emotional toll on the active-duty force, pushed to its limits by 17 years of perpetual combat. After all, with high military suicide rates now labeled the “new normal,” and a recent succession of accidental training deaths, it seems reasonable to wonder whether we are, indeed, “killing [our] kids.”

The overall effects of this rapid operations tempo on morale and readiness are difficult to measure in a disciplined, professional, all-volunteer military such as the one the United States possesses. What we do know is that despite former president Obama’s ongoing promises that “the tide of war is receding” and that America could finally “start nation-building at home,” nothing of the sort occurred then, or is now, under President Trump. Though the U.S. military (thankfully) no longer maintains six-figure troop counts in either Iraq or Afghanistan, American soldiers are still there, as well as serving in 70 percent of the world’s countries in one capacity or another in what has become a “generational war.” America’s troops are still being killed, though in admittedly fewer numbers. Nevertheless, U.S. servicemen continued to die in combat in several countries in 2017, including Syria, Iraq, Afghanistan, Somalia, Yemen, and Niger.

After major drawdowns in Iraq (2011) and Afghanistan (2014), many soldiers, myself included, looked forward to longer “dwell time” at home stations and, just maybe, something resembling peace and even normalcy.

It was not to be. Aside from deployments to Afghanistan, Iraq, and Syria, conventional U.S. Army brigades currently support regular overseas rotations to Kuwait, South Korea, and Eastern Europe. To use just one example, the 1st Armored Division webpage currently boasts that the division has soldiers supporting 20 missions on five continents. Of my three former classmates and colleagues in the West Point History Department (2014-2016), two are currently deployed: one in Romania, another to the ubiquitous Mid-East region. That’s just about as busy as we all were back in the bad old days of 2006-2007.

The military – and the Army in particular – brought some of this upon itself. As conventional ground combat elements (of which the Army owns the preponderance) withdrew from Iraq and Afghanistan, and President Obama signaled a strategic pivot to Asia, U.S. Army leaders became understandably concerned. The Asia pivot would, logically, lean more heavily on the Air Force and Navy—especially when new military doctrine took the (exclusive) name “Air-Sea Battle.” As the economy struggled and budgets tightened, the various service chiefs fought to convince Congress and administration kingmakers of their continued “relevance.” If the Army didn’t appear busy—engaged in a countless number of vital missions—well, it’d be hard to justify its current budget.

It should come as no surprise that around this time the Army touted the versatility of its Regionally Aligned Forces (RAF) brigades—units trained and tailored to support an array of missions for specific geographic combatant commanders. Army leaders also emphasized threats from Russia and North Korea and the need for deterrent brigades on the ground in those theaters. And, with Special Operations Command under strain, the Army also provided six new Security Force Assistance Brigades (SFABs) to carry some of the advise-and-assist workload around the globe. This is not to say that Army leaders fabricated threats or invented missions. It’s all far more complex. Rather, brutal budget squabbles on Capitol Hill combined with increasingly politicized foreign policy threat assessments created an atmosphere where demonstrating “relevance” and “busyness” presented the only sure path to funding at the rates to which the various services had become accustomed.

Relevance is a double-edged sword—well-justified budgets require a frenzied operational pace and an overwrought Army.

Some troopers, at least, appear fed up with the scope and pace of deployments in year 18 of the conflict formerly known as the “war on terror.” No one is publicly sounding the alarm, but there are signals—if you know where to look. When Vice President Mike Pence made a surprise holiday season visit to Kabul and publicly praised U.S. forces in Afghanistan, one observer described the crowd as “subdued,” and noted “several troops stood with their arms crossed or their hands folded behind their backs and listened, but did not applaud.” Polls also demonstrate that although the current president is slightly more popular among the military than the general public, among officers Trump counts only a 30 percent approval rate. More concerning are the February 2017 polls indicating that military service member satisfaction has dropped 50 percent since 2009, due in part, one assumes, to never-ending deployments and time spent away from families. And, among the ever-strained Special Operations forces, reports indicate that mental distress and suicide are again on the rise.

As it stands, the system just about holds together – no doubt due to the determination of leaders and dutiful sacrifice of soldiers – but one wonders whether the active component force could truly weather even one major regional crisis. Something, it seems, would have to give – a drawdown in other missions, compressed training schedules, or—heaven forbid!—calling up the reserves, something American politicians certainly wish to avoid.

The all-volunteer force was always a devil’s bargain: by cutting out the citizenry in the form of a draft out of the equation, presidents, pols, and military leadership could move soldiers around the chessboard with fewer checks on their authority and the decision-making process.

That’s all well and good, until the system cracks. The president’s modest troop escalations in Afghanistan and Iraq, if combined with a (ever more likely) shooting war in Korea, could be just the thing to “break” the professional, volunteer military.

At that point Americans would have some tough decisions to make: ante up some cash and bodies to keep the U.S. military on top, or, just maybe, do less. Let’s hope it never comes to that. In the meantime, count on Congress and the American people to cover their eyes and let the “war on terror’s” third straight president run its cherished heroes into the ground.

What a way to say “thanks for your service!”

*  *  *

Major Danny Sjursen is a U.S. Army officer and former history instructor at West Point. He served tours with reconnaissance units in Iraq and Afghanistan, and has written a memoir and critical analysis of the Iraq War, Ghost Riders of Baghdad: Soldiers, Civilians, and the Myth of the Surge. 

Source: Zerohedge – Army Major: "We're Killing These Kids, We're Breaking The Army!"

The State Of 'Freedom' Worldwide (According To Democratic Think-Tanks)

Democratic watchdog organization Freedom House has released its annual ranking of the world’s most free and the world’s most suppressed nations. For the twelfth year in a row, global freedom has been found to have declined.

As Staista’s Martin Armstrong notes, 71 countries experienced a decline in freedom with only 35 making a move in the right direction. Of the 195 countries assessed in 2017, 45 percent were rated as ‘free’, 30 percent as ‘partly free’, and 25 percent as ‘not free’.

You will find more statistics at Statista

The United States, while still classed as ‘free’, saw a year-on.year decrease in its score, from 89/100 in 2016 to 86/100.

According to Freedom House, this is mainly due to a fall in its political rights, citing “growing evidence of Russian interference in the 2016 election”, “violations of basic ethical standards by the new administration” and “a reduction in government transparency” as key factors.

One wonders what a Republican Think Tank would ‘think’?

Source: Zerohedge – The State Of 'Freedom' Worldwide (According To Democratic Think-Tanks)