OK, almost a Peoplenomics report (no charts though and shorter) but very serious this morning.
On the top of the agenda is a bunch of economic data, but then I get in to a serious rant on how the Fed is inserting itself in globalist trade with a regional Fed chief’s remarks in Ireland. That’s a country which is supposed to recapture $14.5 billion in avoided taxes from Apple, so it’s almost an echo of president Lame Duck’s trying to tell Englishmen how they should vote down Brexit.
And yes, everyone knows Obama lost the Saudi 9/11 lawsuit vote, but that doesn’t mean he won’t find some way for the Lynch Mob to block efforts. Since when does the Law of the Land matter, these days? What?…think you live under an even-handed Constitutional government anymore?
OK, enough…numbers first:
Chasing Percentages in GDP
Hot off the press release…
Looks to me like a country that has peaked.
By the way, one of the reasons we will slide into the Greater Depression in 2017, that I mentioned in a radio interview with Jake Fox of Black Tower Radio up in Ropchester last night, was that we are soon gdoing to start to see defined benefit pension plans blowing up. They were designed for a worst case 5% lower interest rate world and when we bump along the bottom here, it’s only a matter of time till things blow up.
Which gets us back to DGP…I mean in a round-about way.
Real gross domestic product increased at an annual rate of 1.1 percent in the second quarter of 2016 (table 1), according to the “second” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent. The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 1.2 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; revisions to the components of GDP are small (see “Updates to GDP” on page 2).
I pay attention to GDI 0 gross domestic income, up 0.2% because of its closer-to-real-world definition:
Gross domestic income (GDI) is the sum of incomes earned and costs incurred in the production of GDP. In national economic accounting, GDP and GDI are conceptually equal. In practice, GDP and GDI differ because they are constructed using largely independent source data. Real GDI is calculated by deflating gross domestic income using the GDP price index as the deflator, and is therefore conceptually equivalent to real GDP. .
Next stop[ is the Census folks where international trade is down:
Advance International Trade in Goods The international trade deficit was $58.4 billion in August, down $0.4 billion from $58.8 billion in July. Exports of goods for August were $124.6 billion, $0.9 billion more than July exports. Imports of goods for August were $183.0 billion, $0.5 billion more than July imports.
Advance Wholesale Inventories Wholesale inventories for August, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $589.3 billion, down 0.1 percent (±0.4 percent)* from July 2016, and were virtually unchanged (±1.8 percent)* from August 2015. The June 2016 to July 2016 percentage change was revised from virtually unchanged (±0.4 percent)* to down 0.1 percent (±0.4 percent)*.
And in another part of Census, we look in on corporate profits:
This is my “The Harder We Work, the Behinder We Get” poster du jour.
Futures down 27.
A Poor Defense of Globalism
Now that we have been through a morning of “numbers dumps” let’s move on to the bigger picture stuff that will not make a big splash in the MSM because it is complicated, requires thought, and you need to look at things through economics-colored glasses.
I refer to a speech this morning in Dublin, Ireland by Philly Fed President Patrick Harker. He’s off selling Free Trade notions like there is no other course.
However, in our view, he’s dead wrong and trying to mislead people into supporting another Big Lies About Free Trade.
Let’s jump past the foreplay and warm-up, with me politely reminding you this talk was in front of an Irish audience. Remember? A country which was just advised to go collect fair taxes by the EU (from Apple for $14.5 billion) because Ireland was being used as a money drop. This allows a multinational corporation to “tax shop” it’s P&L. The EU has said no, your company IS where your sales ARE, not where you rent a mailbox. At least in general terms.
Back to Patrick Harker’s remarks…this is where my brain started to melt-down and you’ll see why:
“If trade’s benefits are so overwhelmingly positive, why has there been such animosity toward it? I believe the answer is twofold. First, there are common myths attached to trade and its effects. Second, there are, in fact, losers in the trade game.
First, the myths of trade. A frequent strain of the current narrative is that low-wage countries unfairly compete against mature economies, thereby having the double effect of exporting jobs away from developed countries such as the U.S. and creating scenarios in which advanced economies exploit their less developed counterparts.
A more accurate depiction is that low wages are associated with lower productivity, meaning less developed economies do not, in fact, have an edge. Additionally, as trade in these goods shifts, it frees up resources in more developed economies, allowing them to concentrate on more specialized goods made by skilled workers, who, in turn, earn higher wages.
As for lower-wage countries, the simple math is that without trade, those wages would be even lower.”
Take this assertion as a starting point:
“A more accurate depiction is that low wages are associated with lower productivity, meaning less developed economies do not, in fact, have an edge.”
I don’t know how much Harker has looked at the real decision-processes of multinationals, but it appears to me we have a HUGE difference in our definitions of productivity here.
Classically, productivity is a comparison of all inputs. But it’s not. It all depends where the productivity is measured.
Let’s say you have workers in China who make the equivalent of $9,300 per year. They have a longer work-year than we do. Americans tend toward the 1,700 hours level while the Chinese are around 2,200. A good job in China is $4.27 per hour. This compares with an average of $21.64 per hour in the US.
As you can see, the wage spread is (roughly) 4:1. And that means that China’s productivity can be a tiny 25% of US numbers and they will STILL kick our butts.
When a multinational is domiciled offshore, they can load the books with administrative and sales costs (SGNA) wherever the mood strikes.
But since those costs can be jiggered six-ways to Sunday, a $25-dollar in-China built cell phone, might have a much higher booked cost because of SGNA loaded on via a foreign sales company which could be in the Turks, Caymans, Bahamas, or in the case of a Siri-us cell company, Ireland.
Fact is, I’d bet a hundred dollar bill that the actual landed cost of an Asian made product will be not more than 75% of the cost of the same product in America – IF YOU CUT OUT THE ACCOUNTING TRICKERY.
So yes, offshore outfits have many “edges” over American domiciled companies. There are much lower plant and equipment costs, no environmental costs, a vast array of accounting options to optimize the P&L and even when those items are found out, and the Tax Man cometh, as he is to Apple Ireland looking for $14.5 billion in back taxes, it’s an international issue and easy enough to just break down the tent in the middle of the night and move to another domicile.
Until then, a couple of $200k annual lawyers can beat back the tide for a while and gee, coincidentally, here comes a U.S. Official stepping in on behalf of the Globalists again, just like they teed up Obama to try and run the policies of England when he can’t seem to follow the intent of his own Congress here in “the Colonies.” But I digress.
I mean should I mention globalist apologists who insist (example articles) that “it’s just as cheap to make goods in the USA?” It’s NOT or believe me, companies would be building factories like crazy. China does some of the HR, light to non-existent taxes, looser accounting…geez let me count the ways.
This lack of focus on the needs of American workers by the Fed shows up in Harker’s comment here:
“. Additionally, as trade in these goods shifts, it frees up resources in more developed economies, allowing them to concentrate on more specialized goods made by skilled workers, who, in turn, earn higher wages.”
That is bullshit of the highest order. You tell the people of Detroit – yeah I’ve been to the ghetto there – or you tell the people of Flint how this crap about how they can now make higher wages now that outfits like Carrier and Ford are moving whole plants to Mexico.
No, Harker’s selling a bad pitch.
Damn shame we don’t publish an Irish edition. But if we did, we’d headquarter that division in Grand Turk and we’d bury a lot of Bushmill’s bills in the landed cost of our product.
The last out of context snip is this:
“The rewards [he’s speaking of trade here] are reaped in breadth, spread among the 320-plus million people who live in the U.S. On the other hand, those who suffer do so on a catastrophic level — it affects entire industries and the populations that depended on them. Its effects are felt in depth, shouldered by a small fraction of America.”
Got news for Harker: The reason this is a tight presidential contest is that the costs of runaway crony Globalist Capitalism is NOT limited to a small fraction of America.
Harker needs to spend more time in Michigan and less time in Dublin, as we see it.
Donald Trump’s support is not from some “small fraction” and ALL of the old free trade promoters better wake up soon to the fact that patriotic American’s don’t want to depend on other countries to supply the most basic goods we want to buy.
Where is the saving in shipping things four to six times instead of once? When oil goes up far, globalism fails…just another back-of-the-envelope no one talks about.
Go find me an American-made 4K TV, a refrigerator or microwave…and tell me I’m wrong!
Trade is how Globalists enslave the world and then dictate the term of tribute to the peeps.
You need to take the time to read: “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade .” It will cost you 5 GBP but it doesn’t get into tax shopping which is the layer of the game the globalists pretend doesn’t exist. Unless you’re Siri-us about making money, of course.
That is why TPP is secret and you read about it in Wikileaks not the Congressional Record. Trade is the New Big Lie. It’s the Corporate World’s dirty secret.
And made much worst this morning by Harker’s misdirection in Dublin.
He’s like the insurance salesman showing up to talk about the problem you have with your basement flooding. Failing to get to mention the real issue: The House is on Fire!
The Earliest Bling
Special for Madison Ave. Mike: Neanderthals made ‘jewelry.’
Neanderthals are forever, lol.