TTIP, TISA, TTIP: in praise of Jean Arthuis

Eric Zuesse in "Washington's Blog" refers to and quotes from a Figaro article from last year, in which a centrist Euro-MP gives both barrels to the secretive hegemonic US-driven global trade deals - TTIP, TISA, TTIP and all their horrid crew:

An even bigger such conflict within the [US-EU] Alliance concerns Obama’s proposed treaty with European states, the TTIP, which would give international corporations rights to sue national governments in non-appealable global private arbitration panels, the dictates from which will stand above any member-nation’s laws. Elected government officials will have no control over them. This supra-national mega-corporate effort by Obama is also part of his similar effort in his proposed TPP treaty with Asian nations, both of which are additionally aimed to isolate from international trade not just Russia, but China, so as to leave America’s large international corporations controlling virtually the entire world.

As things now stand regarding these ‘trade’ deals, Obama will either need to eliminate some of his demands, or else the European Commission won’t be able to muster enough of its members to support Obama’s proposed treaty with the EU, the TTIP (Transatlantic Trade and Investment Partnership). Also, some key European nations might reject Obama’s proposed treaty on regulations regarding financial and other services: TISA (Trade In Services Agreement). All three of Obama’s proposed ‘trade’ deals, including the TPP (Trans-Pacific Partnership) between the U.S. and Asian countries, are the actual culmination of Obama’s Presidency, and they’re all about far more than just trade and economics. The main proposed deal with Europe might now be dead.

 

On September 27th, France’s newspaper SouthWest featured an exclusive interview with Matthias Fekl, France’s Secretary of State for Foreign Trade, in which he said that “France is considering all options, including outright termination of negotiations” on the TTIP. He explained that, ever since the negotiations began in 2013, “These negotiations have been and are being conducted in a total lack of transparency,” and that France has, as of yet, received “no serious offer from the Americans.”

 

The reasons for this stunning public rejection had probably already been accurately listed more than a year ago. After all, France has, throughout all of the negotiations, received “no serious offer from the Americans”; not now, and not back at the start of the negotiations in 2013. The U.S. has been steadfast. Jean Arthuis, a member of the European Parliament, and formerly France’s Minister of Economy and Finance, headlined in Le Figaro, on 10 April 2014, “7 good reasons to oppose the transatlantic treaty”. There is no indication that the situation has changed since then, as regards the basic demands that President Obama is making. Arthuis said at that time:

 

First, I am opposed to private arbitration of disputes between States and businesses. [It would place corporate arbitrators above any nation’s laws and enable them to make unappealable decisions whenever a corporation sues a nation for alleged damages for alleged violations of its rights by that nation of the trade-treaty.] Such a procedure is strictly contrary to the idea that I have of the sovereignty of States. …

 

Secondly, I am opposed to any questioning of the European system of appellations of origin. Tomorrow, according to the US proposal, there would be a non-binding register, and only for wines and spirits. Such a reform would kill many European local products, whose value is based on their certified origin.

 

Thirdly, I am opposed to the signing of an agreement with a power that legalizes widespread and systematic spying on my fellow European citizens and European businesses. Edward Snowden’s revelations are instructive in this regard. As long as the agreement does not protect the personal data of European and US citizens, it cannot be signed.

 

Fourth, the United States proposes a transatlantic common financial space, but they adamantly refuse a common regulation of finance, and they refuse to abolish systematic discrimination by the US financial markets against European financial services. They want to have their cake and eat it too: I object to the idea of a common area without common rules, and I reject commercial discrimination.

 

Fifth, I object to the questioning of European health protections. Washington must understand once and for all that notwithstanding its insistence, we do not want our plants or animals treated with growth hormones nor products derived from GMOs, or chemical decontamination of meat, or of genetically modified seeds or non-therapeutic antibiotics in animal feed.

 

Sixth, I object to the signing of an agreement if it does not include the end of the US monetary dumping. Since the abolition of the gold convertibility of the dollar and the transition to the system of floating exchange rates, the dollar is both American national currency and the main unit for exchange reserves in the world. The Federal Reserve then continually practices monetary dumping, by influencing the amount of dollars available to facilitate exports from the United States. China proposes to eliminate this unfair advantage by making “special drawing rights” of the IMF the new global reference currency. But as things now stand, America’s monetary weapon has the same effect as customs duties against every other nation. [And he will not sign unless it’s removed.]

 

Seventh, beyond the audiovisual sector alone, which is the current standard of government that serves as a loincloth to its cowardice on all other European interests in these negotiations, I want all the cultural exceptions prohibited. In particular, it is unacceptable to allow the emerging digital services in Europe to be swept up by US giants such as Google, Amazon or Netflix. They’re giant absolute masters in tax optimization, which make Europe a “digital colony.”

 

President Obama’s negotiator is his close personal friend, Michael Froman, a man who is even trying to force Europe to reduce its fuel standards against global warming and whose back-room actions run exactly contrary to Obama’s public rhetoric. Froman and Obama have been buddies since they worked together as editors on Harvard Law Review. He knows what Obama’s real goals are. Also: “Froman introduced Mr. Obama to Robert E. Rubin, the former Treasury secretary,” who had brought into the Clinton Administration Timothy Geithner and Larry Summers, and had championed (along with them) the ending of the regulations on banks that the previous Democratic President, Franklin Delano Roosevelt, had put into place. (President Bill Clinton signed that legislation just as he left office, and this enabled the long process to occur with MBS securities and with financial derivatives, which culminated with the 2008 crash, and this same legislation also enabled the mega-banks to get bailed out by U.S. taxpayers for their crash — on exactly the basis that FDR had outlawed.)

 

Froman has always been a pro-mega-corporate, pro-mega-bank champion, who favors only regulations which benefit America’s super-rich, no regulations which benefit the public. Froman’s introducing the Wall Street king Robert Rubin to the then-Senator Obama was crucial to Obama’s becoming enabled to win the U.S. Presidency; Robert Rubin’s contacts among the super-rich were essential in order for that — Obama’s getting a real chance to win the Presidency — to happen. It enabled Obama to compete effectively against Hillary Clinton. Otherwise, he wouldn’t have been able to do that. His winning Robert Rubin’s support was crucial to his becoming President.

The chances, that President Obama will now be able to get the support from any entity but the U.S. Congress for his proposed TTIP treaty with Europe, are reducing by the day. Europe seems to be less corrupt than is the United States, after all.

 

The only independent economic analysis that has been done of the proposed TTIP finds that the only beneficiaries from it will be large international corporations, especially ones that are based in the United States. Workers, consumers, and everybody else, will lose from it, if it passes into law. Apparently, enough European officials care about that, so as to be able to block the deal. Or else: Obama will cede on all seven of the grounds for Europe’s saying no. At this late date, that seems extremely unlikely.

 

 

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House prices - Wave 2

Karl Denninger looks at recently-failed US banks and by comparing their asset valuations with losses charged to the Federal Deposit Insurance Corporation discovers that they overvalued their properties - at the time of failure.

If you add up the nominal assets of the three banks - $903 million - and downgrade them to their real value as implied by the losses borne by FDIC - $602.3 million - you will find the collective assets were overvalued by 49.9%. In other words, current estimated real estate values should be cut by 33.3%.

These were banks operating in (now) economically distressed states - Florida, Illinois (both with official unemployment rates at or exceeding 11%), Maryland (over 7 % unemployment), so you can't necessarily apply that regrading to the whole of the USA.

Nevertheless, those states are relatively heavily populated, and so are the others now showing high rates of unemployment - see this US population map. So it may well be that the US housing market in general may need to be reassessed. If, as Denninger says, he is "generous" in estimating houses to be overvalued by 25%, that means we need to cut nominal prices by 20%.

This is borne out to some extent by reported house sale prices - see this real estate website - though the Northwest has shown a rise (why?).

And then we have to consider properties repossessed by lenders but not sold, and owners who are sitting on their properties and refusing to sell.

The UK, with its much more densely-populated land, maybe somewhat different; but I think that when all the recent financial stimuli stop and we get past the next General Election, we may see clearer evidence of declining valuations here, too.

ADDENDUM (10 March):

A counter-argument would be that the FDIC has applied a "forced-sale" valuation, as with individual or company insolvency. On the other hand, the FDIC must be in no hurry to overstate its obligations/losses - its own finances are already very shaky - and there are already many forced residential property sales actually ongoing, so the regrading of assets may to some extent reflect actual market conditions.

Jerking the chain: China preparing a proxy US bond dump?

A few days ago on the Broad Oak Blog, I referred to Brad Setser's theory that China has been using the UK to make purchases of US Treasury securities, and that this may offer a different view of what has been happening recently (the apparent reduction in Chinese support for US debt).

In response to a comment, I suggested that the reason for this supposed system of proxy purchases was to allay the fears of the American public.

It occurs to me now, belatedly, that the recent reduction in direct Chinese holdings, coupled with the increase in holding by the UK, may be a preparation for a self-protective (or even punitive) dump of Treasuries using the same intermediaries. If their direct holdings remained relatively unchanged, the Chinese could (if their nominees stayed quiet) deny responsibility and forestall a backlash from American public opinion.

Alabamageddon

"People want to kill somebody, but they don't know who to shoot at" ...

US economic weakness to be exploited by China

Padders alerts me to this succinct WSJ article by Zakary Karabell, warning that just as the US leapfrogged a bankrupt Britain in 1945, China looks likely to do the same to the US.

Okay, what's going to keep us up so high?

Another collapsist

Last month, Marc Faber used the word "collapse"; now, Max Keiser says the same: the dollar will halve, gold will leap 50 - 100%, import prices will soar. In this interview, Keiser is a bit less gonzo and correspondingly more credible.

The question is, how bad is it for other countries (e.g. the UK) and what will trading partners do to stop their export markets being hit? If all major countries try to devalue their currency, then maybe only certain commodities will be worth holding on to while the winds blow.

And Keiser says the wealthy have been shifting their capital out of America since 9/11. He's been choosing defensive stocks, ones that will survive high unemployment, consumer boycott and anti-American sentiment. One big and possibly vulnerable name he mentions is Coca-Cola (remember Qibla Cola?) - a staple of Warren Buffett's portfolio.

Every little thing's gonna be all right

Dr Mark Perry reckons it's all been on the up-and-up since 1929. Yes, production has become more efficient over time. But can it be quite as rosy as it seems, when the last quarter-century has seen an explosion of debt?

UK public debt worse than USA

It's reported in the Press that UK national debt will reach c. £1 trillion by the end of the year, and when the Office of National Statistics adds-in the cost of bank bailouts to Lloyds TSB and Royal Bank of Scotland, the total should be £2.5 trillion. This will make our position worse than that of the United States, as shown in the graph below.

Income mobility and income structure

A chewy piece from Professor Perry about the widely-held perception that the American middle class has essentially gotten nowhere since 1980. The research he discusses purports to show that large numbers of individuals have moved up and down between income brackets.

Elsewhere, I've read that the middle earning bracket as a whole has not advanced, and the top end has become wildly richer. But if individuals can progress up this ladder, does it matter that the gap between the rungs has stretched?

Water wars

James Quinn raises another critical resource issue, namely, water.

Taking his list "Total Renewable Freshwater Supply, by Country" (which excludes Australia, though the situation there could easily become much more challenging), I divided the figures by population size to obtain a per capita water supply, as follows:

From this we note that Canada may have something to offer the USA (Al Capone would be into mineral water now, I guess), and that India may face an even more desperate shortage than China, unless and until desalination plants take off. And parts of South America may have their attractions.

But the Congo: no. I once taught a lad whose family trekked 1,000 miles to the coast to get away from the civil war, and he very nearly didn't make it, because of a blood-thirsty armed patrol. His father nominated him for the chop rather than the favourite son, but they eventually relented.

Any views from survivalists as to where to move the family for a long-term future?

Massive inequality

I've said more than once that the housing market is segmented geographically and by price bracket, so discussion of house price movements in aggregate is not very helpful.

The same can be said of the savings rate, and here Andrew Kaplan plays with figures to show that US income is so unequally distributed that the top 1% could theoretically account for all the savings in the US. It is getting dangerous, I feel - I sense (I hear) among many ordinary people an inchoate rage against the financial elite, as well as against the remote political class that services them.

This concentration of wealth and power is exactly what sparked the American revolt of the 1770s. But a colonial secessionary war is quite different from a civil war; making peace after the latter is much harder. "O Freunde, nicht diese Töne."

The long crisis, and the rediscovery of the family

Calculated Risk plots the actual and projected change in demographics from 1950 to 2050, adds the observation that over-65s cost 3 times as much in medical care as their juniors, and the rest is future history.

Meanwhile, Leo Kolivakis looks at the looming meltdown in US pension schemes, mirroring what's going on now in the UK.

Long term, it looks like down with house prices (since the younger generation will have much less free income to take on debt) and (thanks to the oldies' rising income need) down with stocks.

Nurture your young.

Turning point; hiatus

Reading around in the wisdom of others, I predicted Dow 9,000 here, here and here. Now it's happened. Good for you day-traders, but a fraidy-cat like me is staying away.

Since Marc Faber and others have been saying for some considerable time that they can't see anything worth getting into, and now the dollar is getting closer to having the carpet yanked out from under its feet, and the British pound may follow suit thanks to the miserable state of the British economy, and China is busy blowing an inflationary bubble to maintain its vampire trading relationship with the West, and the gold-bugs are chirruping ever louder (though the US Government might not only seize gold as it did in 1933, but for those smarties who invest in overseas gold stores the bad news may be that Uncle Sam will also seize US citizens' title to those stores), the question is... where to hide your stash?

For the private investor, maybe part of the answer is to look at the currency market, for a country that isn't over-dependent on international trade, has enough natural resources to survive if the world system goes down, and is reasonably stable by second or third world standards. Sadly, I have even less expertise here than elsewhere, but any thoughts on e.g. the Thai baht?

HIATUS

We're going on holiday now, to a place where cellphones don't work (and it's in the UK) and our place has no broadband. Best wishes to you all, hope to be back in touch soon.

Step by step - how the dollar is recycled via China

A propos China and monetary inflation, please see two very useful and enlightening articles by The Contrarian Investor - this explaining why the money supply is growing there, and this detailing the steps by which money from the US goes on a round trip to China and back.

North Dakota? Or New Mexico?

Interactive WSJ diachronic unemployment map here. (htp: Tim Iacono)

Locking the doors

The dethroning of the US dollar as the international trading currency is under way. New bonds issued by the International Monetary Fund in the form of "Special Drawing Rights" are related to a basket of currencies, thus diluting the dollar element and reducing America's opportunity to cheat the world by devaluation.

The same article describes a Chinese proposal to start issuing bonds denominated in renminbi, so that if the dollar does drop against the Chinese currency, all that will happen is that the dollar cost of the capital debt will increase.

It occurs to me that such extra security for lenders may help interest rates to remain lower than they otherwise would be. So the threat to borrowers is not that interest rates will increase, but that debt outstanding will continue to feel heavy, since inflation won't lighten the burden. In fact, the burden of foreign debt could get worse, if the dollar weakens in this new foreign-currency-mortgage era.

Another factor, which may be a deliberate strategy with an eye to the above, is China's own expansion of credit. If monetary inflation goes global - including in the East - then there's less hope that Western businesses could use relative currency devaluation to increase the demand for their goods and services. Manufacturers here will still be unable to compete and debt will grow. Our creditors will own us - we'll "owe our soul to the company store".

It's time to grasp the nettle - bust the banks who got us into this, have a tremendous clearout of debt from the system, reset wages and prices at lower (more internationally competitive) levels, get the people back to work and shrink the dead weight of government and its dependants.

That, or see what's left of our wealth leak away, and then suffer all the above as well - at even lower levels of per capita assets and income.

Doubtless the politically-favoured option is the latter - "Let it all happen on someone else's watch, after we've made ourselves into the New European Aristocracy and gone to our country estates." This would be a mistake. The palace of Versailles didn't protect Louis XVI, nor Waldsiedlung the East German communist elite.

We own you

The Big Picture selects several articles for us on US debt.

This one points out that to balance the US budget with borrowing, new bonds must be sold totalling 3 times the amount issued last year. Bearing in mind that there's less money around, and that people are getting nervous about America's credit rating, inflation and the value of the dollar on the international market, it seems very unlikely that this new debt auction would succeed; and if it did, it would have to be on the basis of higher interest rates, to factor-in the various increased risks.

Alternatively, it's time for the repo man - with a twist. Nassim Taleb and Mark Spitznagel suggest that banks could take part of homeowners' equity in exchange for lower interest rates. But if houses continue to decline in price? I bet the banks have thought of that, so if such a scheme were introduced, they'd want a bigger share than most homeowners would be willing to give them. My guess is that when houseowners realize that the market isn't going to turn soon, there'll be more voluntary bankruptcies and doorkeys in the post. That, plus rising and lengthening unemployment could set off the domino chain.

But returning to the Sprott analysis, note that late last year, 28% of US debt was foreign-owned. Look out for some form of debt-for-equity here - if not the sale of equities, then in the form of favours and concessions. He who pays the piper calls the tune.

Where did the funny money go?

A few days ago, I charted American public debt in the 2oth century. I also wrote to the Spectator (they didn't publish) to point out that Ronald Reagan and the Bushes were far from conservative when it came to fiscal matters, and that this did not result in benefit to the average American.

Now I come across a graph that makes it plain:

I suppose much the same happened here in the UK. So that's why we got all those posh-cooking and property-in -Provence TV programmes. We were encouraged to dream about the top echelon, not try to join them. As Eva Peron said, "I am taking the jewels from the oligarchs for you"; but somehow we never got to wear them ourselves. Not unless we went into hock for them.

This Wiki entry on the Gini coefficient remarks "Overall, there is a clear negative correlation between Gini coefficient and GDP per capita; although the U.S.A, Hong Kong and Singapore are all rich and have high Gini coefficients." Perhaps there is going to be a reversion to the standard international model: a poorer USA with a high Gini coefficient. Or (same source) a reversion to the social stratification of 1929:

"Gini indices for the United States at various times, according to the US Census Bureau:

1929: 45.0 (estimated)
1947: 37.6 (estimated)
1967: 39.7 (first year reported)
1968: 38.6 (lowest index reported)
1970: 39.4
1980: 40.3
1990: 42.8
2000: 46.2
2007: 46.3"

This blog projects a Gini convergence between the USA and Mexico - perhaps it makes sense, on the reversion-to-mean basis:

The dolorous stroke