FedUpUSA

Archive for September 8th, 2010

There are very few things that the top politicians in both political parties agree on these days, but one of the things that that they do agree on is that free trade with China is a good thing.  George W. Bush, Dick Cheney, John McCain, Barack Obama, Nancy Pelosi and Harry Reid have all fully supported our trade relationship with China.  In this day and age, virtually anyone who even dares to question how fair our “free trade” is with China is immediately labeled as a “protectionist” and is dismissed as a loon.  But when you sit down and really analyze it, there are a whole lot of very good reasons why both conservatives and liberals should be fundamentally against our unfair trade relationship with China.  But you won’t hear these reasons being talked about on CNN, MSNBC or Fox News.  You won’t hear many members of Congress get up and give speeches about how trade with China is bleeding our economy dry.  Both major political parties have completely and totally bought into “the benefits” of globalism and free trade and there isn’t even much of a national debate about our trade policies anymore.

But there should be a national debate.  Unfortunately, most conservatives are just going to accept whatever their leaders tell them to believe.  Conservatives have been convinced that to be against unfair trade is to be “anti-business” and no conservative ever wants to be anti-business.

Similarly, most liberals blindly follow whatever Obama, Pelosi and Reid tell them to believe.  Millions of hard working Democrat voters have lost their jobs due to our nightmarish trade relationship with China, but they are still convinced that Obama is their savior and that they must not ever say anything that he does is wrong.

Well, I have a message to members of both political parties….

WAKE UP!  YOU HAVE BEEN LIED TO!  

If you are truly a conservative, there is no way that you should ever support our trade relationship with China.

If you are truly a liberal, there is no way that you should ever support our trade relationship with China.  

Globalism has allowed the big global corporations that dominate our economy to make huge amounts of money, but it has also forced American workers into one gigantic global labor pool. 

Are you willing to work 12 hours a day for less than $2.00 an hour in sweatshop conditions?  

Well, that is your new competition.

The top 1 percent of all Americans is using globalism to make huge profits, but the standard of living for the rest of us is slowly but surely being forced down toward the rest of the world.

Is that what you really want?

If after reading the reasons below you can still consider yourself a good “conservative” or a good “liberal” and still support our current trade relationship with China please leave a comment to this article.  I would love to hear your reasoning.  

10 Reasons Why Conservatives Should Be Against Unfair Trade With China

1 – Conservatives are supposed to be all about creating jobs.  But millions upon millions of good paying middle class jobs have been shipped off to China and they are never coming back.

2 – Once upon a time, conservatives were opposed to communism.  But our trade relationship with China has enabled the largest communist economy in the world to go from third world status to superpower status.  China is now the second largest economy in the world, and that would have never happened without our cooperation.

3 - Conservatives are supposed to be concerned about national security.  But thanks to the massive amount of money they have made from us, the Chinese have been able to dramatically upgrade and modernize their military.  At the top levels of the Chinese government, most officials still believe in the ultimate worldwide triumph of communism, and now thanks to us they have a world class military with which to advance that agenda.

4 – China has a very strict one-child policy which should be absolutely abhorrent to any true conservative.  

5 – China uses mobile abortion vans to help enforce the one-child policy.  How any social conservative can justify trade with China after learning this is a total mystery. 

6 – If Republicans actually started fighting to protect American jobs from going overseas they could win the “angry working class vote” and take both houses of Congress and the White House in 2012.

7 – Conservatives don’t like when other countries try to take advantage of the American people.  Yet China is taking advantage of the American people by keeping their currency artificially low and most conservatives are strangely quiet about this.  This currency manipulation has put large numbers of U.S. small businesses at a huge competitive disadvantage and has forced many of them to shut down.  Essentially, this currency manipulation has enabled China to get us down on the mat and continually beat the stuffing out of us.  Meanwhile, our politicians stand by and do nothing.     

8 – Our trade deficit with China has enabled them to accumulate about a trillion dollars of our debt.  This gives them tremendous leverage over us and is a very serious threat to our economy and to our national security.

9 – Conservatives are traditionally very protective of national sovereignty and state sovereignty.  But a global economy governed by the G20, the WTO, the IMF and the World Bank is a giant step toward world government and a giant step away from national sovereignty and state sovereignty.

10 - The giant trade deficit that the United States runs is making us poorer as a nation each and every month.  Each year, somewhere around half a trillion dollars of our national wealth gets transferred out of the United States.  Much of that gets transferred to China.  The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.  The transfer of wealth that this represents is absolutely mind blowing.  China is literally bleeding us dry.

10 Reasons Why Liberals Should Be Against Unfair Trade With China

1 - Liberals are supposed to defend unions, yet our trade relationship with China has done more to hurt unions than anything else and most liberal politicians don’t seem to care.  Globalism has put the average American worker in direct competition with the cheapest labor in the world.  Unemployment is going to continue to increase unless something is done to stop the offshoring and outsourcing of our jobs.

2 – Liberals are supposed to care about the environment.  But our trade relationship with China means that thousands of factories and businesses leave our shores and end up in China where the environmental regulations are not nearly as strict.  In fact, China has become a complete and total environmental nightmare at this point.  If liberals truly cared about the environment they would want to keep factories and businesses here.

3 - Our trade relationship with China (and with the rest of the world) has caused the income inequality gap in America to explode.  The top 1% of all Americans have done very well in this environment while the rest of us suffer.  For much more on this phenomenon, please see my recent article entitled “Winners And Losers“.

4 – Dangerous products from China are pouring into the United States. Liberals should be horrified that so many of our products are now made outside the United States far from the watchful eyes of our regulatory agencies.  Over the past couple of years, there has been headline after headline about dangerous products made in China.  The following is just one example of this: 10 Babies Die Mysteriously At Fort Bragg: Toxic Drywall From China Used In Base Homes The Culprit?

5 – In a global economy, every piece of legislation that Democrats intend to help American workers with ends up backfiring.  For example, a rise in the minimum wage or a law increasing worker benefits causes American workers to become even more expensive and gives corporations even more incentive to move jobs overseas.

6 – “Free Trade” has been the most destructive in the inner cities where Democrats have traditionally gotten a tremendous amount of support.  Shiny new factories are going up all over China while at the same time formerly great manufacturing cities such as Detroit have degenerated into rotting war zones.  This is not good for liberals.

7 – Democrats won’t get elected if there are no jobs.  Each month, more jobs leave the United States for China and the growing number of long-term unemployed workers in the U.S. is not going to be inclined to keep the same politicians in office if this continues.  If liberal politicians value their jobs they should start protecting the jobs of average Americans.

8 – Free trade with China threatens to ruin our social safety net.  It is a good thing to help those in need, but there comes a point where too many people jump on to the net and it breaks down.  Already, one out of every six Americans is enrolled in at least one anti-poverty program.  Over 40 million Americans are on food stamps.  These are not good numbers for liberals.

9 – True liberals should be absolutely horrified by the exploitation of labor in China.  In China, millions of people work in horrific conditions for what is essentially slave labor pay.  The fact that big global corporations are getting rich from this should make the stomach of every liberal turn.   

10 - The giant trade deficit that the United States runs is making us poorer as a nation each and every month.  Each year, somewhere around half a trillion dollars of our national wealth gets transferred out of the United States.  Much of that gets transferred to China.  The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.  The transfer of wealth that this represents is absolutely mind blowing.  China is literally bleeding us dry.

Liberals and conservatives should both be able to agree that it is not a good thing for millions of American jobs to leave the United States and go to China.

Liberals and conservatives should both be able to agree that it is not a good thing that billions of dollars in wealth gets transferred from the United States to China every single month.

But will our leaders wake up and start pursuing a more logical approach to China?

Don’t count on it.

The Economic Collapse

Negative equity at such a large scale is a rather unique phenomenon from this housing bubble.  Even just a decade ago, a person got into a negative equity position due to a really significant shift in a localized market.  For example, a city lost a major manufacturing company that supported most jobs and home values subsequently collapsed.  You can think of places like Detroit that were already facing falling home values even before the bubble hit.  The trump card however was always the down payment.  It was extremely rare for any market niche to fall by 20 percent all of a sudden.  So at the very least, there was a buffer to support a needed quick home sale.  Another important aspect of the housing market before was that home prices were cheaper so people actually built up more equity quickly and the vast majority of loans paid principal in each payment.  Yet the market radically shifted from the late 1990s to 2007 and one of the most pervasive problems we face today is that of negative equity.

Yet negative equity, the position of owing more on your home than it is worth, is really a market specific problem.  Take a look at this map that pinpoints negative equity metro areas around the country:

Source:  The Atlantic

“The first map above, prepared by Zara Matheson of the Martin Prosperity Institute based on data from Core Logic, shows the percentages of mortgages that are underwater across U.S. metros. Las Vegas tops the list with nearly three-quarters of all mortgages underwater. More than half of all mortgages are underwater in Stockton, Modesto, Vallejo-Fairfield, Bakersfield, and Riverside, California; Port St. Lucie, Orlando, Cape Coral, and Fort Lauderdale, Florida; Phoenix, and Reno. In Miami, Tampa, and Detroit, more than 45 percent of all mortgages are underwater.”

The above map clearly shows where the real negative equity is.  The entire state of California and Florida is virtually in a deep negative equity position.  Is this only a big state problem?  Actually it isn’t.  If we take a look at Texas some of the worst negative equity regions there have 5 to 15 percent negative equity.  This isn’t to say that they were completely immune but clearly being a big state doesn’t mean you’ll be underwater.  One thing Texas had was stricter regulations on home equity loans that kept people from using their homes like piggybanks and depleting their already built home equity.

The worst market in terms of negative equity is Las Vegas.  Nearly 73 percent of all loans are underwater!  This is simply incredible.  Much of the Las Vegas bubble was built from home equity from places like California.  That is why the market has taken a bigger hit than California.  I wanted to break down the actual data from the above article even further.  There are 7 statistical areas from the CoreLogic report that actually have a negative balance for the entire market.  These are the negative equity epicenters: 

Source:  CoreLogic

It is rather straightforward to examine.  For example, the total property value of mortgaged Las Vegas property is $73 billion.  At the same time, there are $96 billion in loans outstanding on these locations.  These areas are highly concentrated in California, Nevada, and Florida.  Phoenix didn’t show up because it is basically a no equity zone.  In other words, the stock of real estate with mortgages has no equity on aggregate.  This isn’t to say that many homes in the area are underwater because they are.  Even the map above shows you that 56% of mortgaged homes in Phoenix are underwater.  Yet you have other homes with enough equity that bring the market to a breakeven point.  However you slice it, this is horrible news for these markets.

Negative equity is the aphrodisiac to strategic defaults and more foreclosures.  Given the above data and the research on negative equity, we can expect foreclosures to be dominated by these markets.

So it isn’t a surprise when we see the last month of foreclosure filings looking like this:

Expect the trend to continue with the large amounts of negative equity.

My Budget360

Consumers have had enough of high interest rates on credit cards but its a case of one plastic for another. Bloomberg reports Cardholders Prefer Debit as Credit-Card Use Falls

Americans are shunning their credit cards and using debit to avoid incurring more debt, said Javelin Strategy & Research.

Total payment volume for debit cards surpassed credit-card volume for the first time in 2009 and will continue to eclipse it in 2010, according to a report released today by the Pleasanton, California-based market-research firm that specializes in financial services.

At San Francisco-based Visa Inc., the world’s biggest payments network, the total payment volume for debit cards increased by 7.9 percent in 2009 to $883 billion as credit-card volume declined by 7.3 percent to $764 billion. Volume for debit cards at No. 2 MasterCard Inc. in Purchase, New York, rose by 5.8 percent and 2.8 percent at No. 4 Riverwoods, Illinois-based Discover Financial Services.

Fifty-six percent of consumers said they had used a credit card in the past month compared with 87 percent who said they had in 2007, according to the study, which surveyed 3,294 people in November 2009 for that question. Other findings were based on data collected online from 5,211 respondents in March 2010 and 5,000 consumers in November 2009. If the rate of decline continues, 45 percent of consumers will reach for a credit card in 2010, the study said.

Long-Term Shift

Another cause for reduced credit-card use is financial reform aimed at protecting consumers, which has decreased the number of new cards given and cut available spending limits, the Javelin report said. Federal legislation that limits overdraft fees, caps on fees banks charge merchants for debit-card transactions and credit-card legislation mean banks have to recoup losses and are only giving cards to the most creditworthy borrowers, the study said.

Younger people also favor debit over credit because of the immediate nature of making a payment, which means the shift to debit will be long-term, said Van Dyke. And since younger cardholders favor the convenience of debit cards, they won’t turn to cash or checks, he said.

Purchase transactions generated by credit and debit cards in the U.S. totaled more than 27 billion from Jan. 1 through June 30, according to the Nilson Report, an industry newsletter in Carpinteria, California. Debit-card purchases accounted for 65 percent of all sales, up from 62.3 percent, the Nilson Report said.

Total Revolving Credit

Revolving Credit Percent Change From Year Ago

Reasons For Decline In Credit Usage

• Bankruptcies
• Other Loan Writeoffs
• Consumers Paying Down Debt
• Increasing Favoritism Towards Debit Cards
• Gift Cards
• Bank Lending Standards Increase

Unprecedented Drop in Revolving Credit

This is all part of an overall secular shift in consumer attitudes towards credit and debt, and bank attitudes towards lending. It’s a good thing but Bernanke will not see it that way.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

The CEBS has just issued the following statement on the recent disclosure by the WSJ that not only was the stress test a fraud, but all sovereign debt representations continue to be lies (and EuroStat still has no clue what the real debt of Greece is). In other words it all contained – buy stocks, sell puts, take our a 7th mortgage and buy that long awaited 576th iPad. In the meantime, lies and fraud shall continue until confidence returns.

CEBS Statement on the disclosure of sovereign exposures in the context of the 2010 EU-wide stress testing exercise.

CEBS notes that the EU-wide stress testing exercise conducted on 91 European banks and published on 23 July 2010 was an unprecedented exercise designed to assess the resilience of the EU banking system to possible adverse economic developments, in particular shocks to credit and market risks, including sovereign risks.

Individual disclosures of sovereign exposures were an essential component of the exercise and a great enhancement in terms of transparency. This transparency efficiently complemented the design of the sovereign shocks applied in the adverse scenario of the stress test exercise, which excluded the possibility of a sovereign default. In order to harmonize the reporting and to provide a meaningful and consistent view of banks exposures to sovereign debt, CEBS and national authorities jointly developed guidance to the participating banks. In particular:

The “gross exposures” disclosed were on-balance sheet exposures net of impairments but gross of collateral and hedging. In order to provide a meaningful picture of the economic risk borne in the trading book, banks were allowed to deduct offsetting short positions when reporting gross exposures.

CEBS notes that comparison with other sources should be treated with caution as a result of different reporting dates and reporting methodologies. For instance, data provided by the Bank for International Settlements (BIS), is aggregated in a way which makes comparison with the data disclosed by banks during the CEBS exercise impossible.

So a gross number becomes even more “gross” when adjusting form something totally different? There was a time this was called “netting”… but in ECB-ponzi Europe, gross is to net as mark-to-market is to mark-to-unicorn.

And now you know – it is not fraud, it is merely “impossible” to compare two numbers that differ by 3 zeroes cause, you know, it’s Europe after all. And nobody knows anything. So all is good.

ZeroHedge