Trump Rejects Globalization at the UN

Trump Rejects Globalization at The UN

It would be remiss not to mention the on-going Supreme Court nomination hearings.  However, the highly charged politicized process in DC is something too partisan to make for a good, positive discussion this week.  We encourage our readers to watch and draw their own conclusions.

But the 24-hour news cycle always delivers stories that can, and, will affect your money. One of those stories was President Trump at the UN this week. Among the many topics he discussed, renouncing globalization was at the top of the list.

And good for him.

Love him or hate him, the President was right to assert the United States’ rejection of the ideology of globalization.  The term globalization does not have a singular meaning.  It can be the rather benign belief in open markets, free trade, and equal justice among nations.

However, that simplistic belief has no relation to how globalization has played out for American workers, and advanced economies, over the last 25+ years.  For those who have seen declines in their standard of living over this period of time, globalization has resulted in unfair trade, lost blue collar employment, and growing economic inequality.  It has also meant an allegiance to global institutions over US sovereignty.  That is morally, ethically – and Constitutionally – wrong.  Free trade is great, but not when only one side is trading freely, and the other is stealing your ideas and preventing you from selling in their market. To suggest such trade is “free” is laughable.

Despite the theoretical positives, globalization in its worst form has negatively impacted American workers and the American economy, and has been a direct threat to the supremacy of American constitutional law and American sovereignty.

Here is a Short History of the Globalization Movement Over the Last 25+ Years:

  1. “Bill Clinton pushed Chinese admission into the World Trade Organization (WTO) and NAFTA”: Globalization’s primary issues are related to trade.  The WTO is a treaty bound organization, and the successor to the General Agreement on Tariffs and Trade (GATT).  GATT and the WTO is an American created, American led organization whose sole purpose was to bid together like-minded Democratic and market economies in a rules-based global trading system.  China was a backward, third world nation in the late-90s.  But when Bill Clinton agreed to their admission to the WTO in 2000, the Chinese economy went into over-drive, benefitting from technological theft of American intellectual property and compliant US businesses.  It is not a democratic country and is not a market-driven capitalist economy.  The results have been predictable.  The US hoped that Chinese admission would help them become more democratic and lead to a freer Chinese economy.  It has not.
  2. “The first President Bush and Bill Clinton negotiated the free trade agreement known as NAFTA”: The second pillar of globalization was NAFTA.  The US Senate ratified the treaty between the United States, Mexico and Canada, in November 1993.  It was designed to create a large free trading bloc eliminating tariffs and expanding GDP for all three countries.  It did expand GDP, but Canada continued to place tariff’s on US agriculture and Canadian firms regularly steal US pharma intellectual property to sell generic drugs at a lower price.  Mexican labor is much cheaper due to few if any environmental or regulatory standards.  President Clinton also promised it would reduce illegal immigration, as expanding markets in Mexico would provide greater opportunities for Mexicans within their home country.  None of that proved true, and nothing more than an unequal marketplace has evolved.
  3. “Clinton argued, as did Bush 43 and President Obama since, that free trade would lead to more money in the pocketbooks of Americans”: On average, household incomes did rise over the last 25 years, but they remain stagnant when adjusted for inflation.  Not all of the rise can be attributed to globalization, and the primary concern is that the average rise in incomes does not reflect an equal distribution, as the highest 1% has been the primary beneficiary from globalization.  Blue collar and middle-income families have seen their wages either flatten, or falling behind (Economic Policy Institute, www.epi.org).  This argument from our leaders has been proven demonstrably false.
  4.  “Globalization has not led to greater global financial stability”: Free trade and the submission of our sovereignty to global institutions, has not led to greater financial stability and unencumbered GDP growth.  In fact, it has led to quite the opposite:

-From 1945 through 1971, there were no substantial financial crises.  This is best known as the “Bretton Woods system.”  This era was a system supported by the US dollar anchored to gold.

-From 1971 through 1980, developed nations went through a period of stagnation and recession due to Nixon’s removal of the dollar from the gold standard, oil shocks, etc., but no systemic crisis threatened western economies.

-From 1980-94, developed economies enjoyed unperilled growth through the Reagan Revolution, led by tax cuts and a “strong dollar” policy.  The 1987 stock market correction had no impact on the larger economy and was concentrated in financial markets for a short period of time.

-But from NAFTA 1994 forward, which most consider the advent of the globalization era, we have seen massive global shocks every few years.  they have included and not been limited to: (A) Asian currency crisis; (B) Russian ruble crisis; (C) Mexican peso crisis; (D) Dot.com bubble burst; (E) Long-term Capital Management bailout; (F) 2008 Financial Crisis.  And there are many more.

The basic tenets of globalization have proven untrue, and the consequences have been quite damaging to individual American families:

  1. China does not play by the rules, they do not enforce the same standards as western countries, and regularly steals US technological advances and intellectual property. They sell into our market with impunity, while restricting US companies from access to Chinese markets.  We were told they would become more democratic from this engagement.  This has proven untrue.
  2. Mexico was supposed to see an increase in GDP and business expansion which would slow illegal immigration into the United States. That has proven to be woefully untrue.
  3. Expanded wealth has not occurred, and US blue collar labor has been hollowed out by companies leaving to seek lower labor costs.
  4. There has been increased inequality, as most of the gains have gone to the upper end of the wage scale.

Globalization has proven to be a negative for US policy and more importantly US citizens.  The promises of increased wealth for everyone has only proven to serve as increased wealth for foreign countries on the backs of US intellectual property and innovation.  And actually, it has increased the wealth and power of a communist enemy of our country.

Globalization has not resulted in free trade or fair trade….it has only proven to be a bad deal for America.

 Whether you love the President or loathe him, on this policy, he is absolutely correct.  Globalization should be rejected by American leaders.

Don't Forget About The Debt

Don’t Forget the Debt!

Two years of economic positives have been the regular headlines in the nation’s financial news media.  The “Trump Bump” has seen a stock market boom, unparalleled economic growth, massive business expansion and much more. We have seen for the first time in 10 years wage growth exceeding 2% and outpacing inflation.  Job growth has been exponential, with the longest period of sub-4% unemployment in decades.

Imports are up, exports are up … fears of trade wars hurting US markets have been disproven (which we all knew, since trade wars negatively impact the country with the trade surplus, not the country with the negative trade balance). It is not just an over-heated economy with the good times rolling – this has all occurred while the Fed continues to raise interest rates, which is historically a market depressant.  That means it is durable, and substantive.

Without question,  what goes up always comes down.  The growth fueled from 2009-2017 occurred from government intervention, not natural market performance.  Zero interest rates, quantitative easing, inflationary fiscal policy … ALL contributed to artificial GDP growth: stock market appreciation without wage and job growth.  Nonetheless, combined with the robust Trump pro-growth policies, we have enjoyed an historic bull run.

But one subject, of many, that could derail the good times is the mounting US federal debt.

Yes, this sounds familiar.  This is the proverbial “boy who cried wolf” story coming from the “gloom and doomers.” Skeptics rightly point out that those conservatives in the Republican Party have been complaining about the debt for decades.  But whether in OR OUT of power – and they are currently in power – Republicans still continually vote for more government spending.

Our readers are smart enough to know that being a Republican “politician” is quite different than whether they actually vote on true, conservative economic orthodoxy that recognizes the risks from liberal spending habits with the taxpayer dime, regardless of party.

The debt is a danger not just to economic growth and economic good times, but to our very way of life.  We have already passed the point of dealing with it with just a little pain – moving forward the solutions will be difficult and costly.

Here are some debt figures – US debt “by the numbers”:

  1. “Total Federal Debt”: $21 trillion and rising.
  2. “Unfunded liabilities of the Federal Government”: $114 trillion.  These are future obligations of the federal government, such as pensions, government retirees and future social security recipients.
  3. “Federal Debt as owed per capita within the United States”: $65,000+.
  4. “Federal debt as owed per taxpayer”: $176,000.
  5.   “Projected year of Social Security insolvency”: 2034. Although this projection, like so much of the government’s accounting gimmicks, is not really an accurate estimate.  Social Security is already bankrupt – there is no trust fund, just $2 trillion of “IOU’s.”  The US pays social security from existing tax revenue and borrowing.  The year 2034 is simply the date it is projected that tax revenue will not support the current payment obligations, and the US will have to raise taxes or lower benefits to satisfy our social security obligations.

These numbers are merely accountant entries as compared the tsunami of state and local debt, personal debt, and blue state pension obligations all taken together.  The chance we can reasonably pay-off these obligations grows smaller and smaller each day.  More than likely, the risk of default and non-payment is increasingly the most likely outcome, with unknown consequences as the result.  It will not be easy or pretty when the day of reckoning arrives.

What does a solution look like?  Massive cuts in government spending, an increase in the age you can receive social security benefits, means-testing social security and Medicare, virtually eliminating disability, increasing the collection of tax revenue in some capacity or another … these are just the beginning steps that will need to be taken and soon if they are to make a difference.  The American people have always been willing to sacrifice for the greater good – but this plan could not pass if recommended to the voter by our current crop of leaders.  Government sacrifice must come first – cut Congressional pay, cut staff, cut staff pay, no retirement, healthcare like the public has – take those steps and the goodwill could be found for some compromise on debt reduction.  But Congress and the President taking such steps feels like the “snowball’s chance” as it approaches the gates of hell.

There is some good news – ALL current US assets are priced at $138 trillion – that is above the total of unfunded government obligations for the first time in years.  In other words, we have a net worth!  Tax reform has increased revenue into the government – pro-growth and strong dollar policies will increase money for the government to pay our bills.  But our willingness to step back from international affairs is signaling the US is okay with other powers taking the lead in hotspots around the globe.  This is the prevailing sentiment of US voters and Trump’s preferred foreign policy position.  BUT … that is also leading other world powers to reconsider the use of the dollar.  The American people do not seem to connect that “exorbitant privilege” also came with the responsibilities of maintaining global order.   Replace the dollar and our ability to run deficits of their current size becomes nearly impossible.

So many issues are going our way, it would be a shame to squander this moment in history.  But political will is needed to address the debt – it is growing while our ability to pay it is shrinking.

 These events have consequences.  Call now to get your money into a principal protected product. (877) 912-1919

The Day Lehman Died – The 10th Anniversary of the Financial Crisis of 2008

The Day Lehman Died – The 10th Anniversary of the Financial Crisis of 2008

The month of September has some chilling reminders that the world is not immune to global catastrophe.  We took time this week to remember the fallen from the cowardly terror attacks on September 11, 2001.  That day, much like Pearl Harbor, will always be a day of infamy in American and world history.  The “Global War on Terror,” continues to this day and wartime operations continue in Afghanistan, making it the longest war in US history.

But September also is the month of the most momentous economic calamity of this century, and perhaps second only to the Great Depression.  We have described the events leading up to the “Financial Crisis of 2008” in previous blogs in July and August, and they reflected a rolling crisis over an extended period dating back to the 4th quarter of 2007. However, the grand tsunami of financial catastrophe can be traced to the bankruptcy filing of Lehman Brothers on September 15, 2008.

The Day Lehman Died – The 10th Anniversary of the Financial Crisis of 2008

 Lehman Brothers had been an American banking icon on Wall Street since 1850.  It is hard to understate its role in American finance. They were involved in some of the most important and most lucrative deals in US history!  Just consider Lehman’s history:

The History of Lehman Brothers included some of the biggest moments in global finance:

  1. It issued the stock for some of America’s most iconic brand names: W. Woolworth Company, Macy’s, Gimbel Brothers, Inc., The Studebaker Corporation, B.F. Goodrich Co., RCA, Compaq Computers, among many others.
  2. Lehman arranged the first financing for major oil companies often in the news such as Kerr-McGee and Halliburton.
  3. Famous merger in 1983-1990 with Shearson/American Express in 1984 and then Shearson/Lehman merged with EF Hutton in 1988 (“When EF Hutton talks, people listen.”)

The Day Lehman Died – The 10th Anniversary of the Financial Crisis of 2008

  1. Lehman backed the take-over bid by the management team of F. Ross Johnson and RJR Nabisco, ultimately losing the bid to Kohlberg Kravis Roberts in what was then one of the largest “leveraged buyouts” in Wall Street history. It was dramatized in popular culture by the famous book and then movie – “Barbarians at the Gate.”

The Day Lehman Died – The 10th Anniversary of the Financial Crisis of 2008 

Lehman was in the same category as Salomon Brothers, Goldman Sachs, KKR, during Wall Street’s hey-day.  They were among the giants of Wall Street.  Their movement into mortgage origination in 1997 would become the most profitable department within the bank.  By 2006, mortgage loans and mortgage backed securities were generating almost $250 million a month in revenue.

Lehman, however, was exposed to – and some would say helped create – the contagion of sub-prime mortgages.  The government’s reduction of lending standards, requirements to lend into poor credit neighborhoods, and the government’s willingness to underwrite the paper on many sub-standard loan packages, led to a collapse in credit quality and underwriting standards.  We created an over-sized market of bad credit debt.  When adjustable rates adjusted upwards, people stopped paying.  Foreclosures commenced, the value of the mortgages dropped, the values could not be priced as they all dropped at the same time.  In the first quarter of 2008, Lehman was sitting on $680 billion of mortgage notes, and only $22.5 billion in firm capital to back it up.

 

The Timeline of the Lehman Brothers collapse:

  1. “August 2007 – closure of sub-prime office BNC Mortgage”: Twelve-hundred positions and 23 branch offices were all eliminated due to “deterioration” in the mortgage market.  Lehman would continue underwriting mortgage backed securities.
  2. “September 2007 – the last gasp of profitability”: The stock price jumped 46% on a report that Lehman would still conclude its 55th straight quarter of profitability.  The moves out of sub-prime were being rewarded by the market.
  3. “June 9, 2008 – the days appear numbered”: Reporting a substantial loss for the first time in years, major staff shake-ups were announced.  CEO Richard Fuld, who had been with the company since starting in the basement as an intern, remained in his position, but was isolated from other management staff.  The stock got a bump in August when reports of the Korean Development Bank (KDB) were considering buying into the company.  But when talks broke off in September, there were signs of storm clouds closing in, as KDB officials were quoted in the Wall Street Journal as saying they “….could not properly price the firm’s capital holdings, and therefore could not make an informed decision on an offer sheet.”
  4. “September 9, 2008 – KDB is out, stock plunges”: When the news hit the public, Lehman’s stock price collapsed, dropping 45% in one day and driving the S&P down 3.4%.  It was clear that Lehman’s size would have a direct and proximate impact on the overall marketplace…. the original “Too Big to Fail” bank.
  5. “9/11 – Down Goes Lehman”: A very sad day indeed.  Lehman Brothers had occupied several floors in the Twin Towers 7 years earlier when the terrorist attacks occurred.  Hundreds of employees lost their lives.   9/11 would be another dark day in Lehman’s history, as the stock price dropped 40%, and the Federal Government announced they would not bail out the company.
  6. “9/13 – Paulson, Geithner, steal Lehman’s deal”: In an emergency meeting at the New York Federal Reserve offices, a deal was negotiated to save Lehman through a merger/acquisition by Barclay’s Bank in England and Bank of America.  The Brits, however, after agreeing in principle, backed out, under pressure from their own government.  Bank of America, fearful of taking on a deal they could not underwrite, went to the Hank Paulson, the US Treasury Secretary, and Timothy Geithner, Chairman of the New York fed, asking for a bailout, or another partner.  Fearing problems with Morgan Stanley, the Feds let the BOA withdraw, leaving Lehman without a bailout savior.
  7. “9/15 – The Board votes to liquidate”: Infuriated that the Feds would not grant a bailout, despite doing so in the past (Bear Stearns, Long Term Capital Management), and blaming Paulson and Geithner for not keeping Bank of America at the table, the Board of Directors for Lehman voted at 1 AM, on September 15th, to put the company in bankruptcy.  The collapse of real estate prices had destroyed the value of the mortgage securities market, and Lehman did not have the capital to support what it owed.  Thousands of employees would be laid off the next morning.Lehman Board votes to liquidate
  8. “September 2008 and what followed – The Financial Fallout”: The bankruptcy filing announcement precipitated the worst intra-day drop in the stock market’s history (over 1000 points) and finished down 554 points.   While the volatility continued with up and down days through the remainder of the year, the downward trend and sense of dread in the larger economy was a constant feeling.  The market would drop again 449 points on 9/17 … again dropping 774 points on 9/29 … the Dow would end up down 13% by the end of October.

Lehman’s employees were immediately let go on the day of the bankruptcy filing.  Scenes of employees leaving with personal items in boxes was an indelible portrait of the fearful times which followed.  Although the stock market would continue to decline until reaching bottom in March 2009 (Closing at 6443, a 50% drop since October 2007), the hinge-point in the Financial Crisis was the Lehman Brothers collapse.  The Feds – so willing to bail out banks and everyone else on Wall Street after Lehman – most likely could have prevented the entire crisis by saving Lehman Brothers that September 2008. 

 Since then, Congress enacted a great deal of regulation to help prevent the next crisis from occurring.  But most analysts will tell you – big banks are bigger than ever, they are too big to fail, and the next crisis we may not be able to bail ourselves out of.  The public will not be in the mood to bail out anyone, and much of our political division comes from the Financial Crisis:  bankers were bailed out by Main Street – the taxpayer.  Now, the same people are richer than ever, but Main Street lost their homes, their savings – no one bailed them out.

Our financial system is the greatest system of wealth creation ever conceived by mankind.  But that does not prevent the system from malfunctioning thanks to government intervention.  Policies that force banks to lend to poor credit quality note-holders was doomed to fail, and it did.

Capitalism and the free market are the only systems that work for a free society, but what goes up will come down.  We have been in a 9-year bull market, super-charged by the pro-economy policies of the current Administration.  History, and common sense, suggest we are due for a correction.  Is your money protected? We may be able to help. Give us a call at (877) 912-1919 or visit TyJYoung.net.