Category: International Commerce

Time for Your Weekly Tanker Saga Update

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First, lets start with my analysis. As soon as Airbus proposed the A330, Boeing knew that they were facing a larger, more modern, and more capable plane.

They stuck with the 767 for a very simply reason, they believed that they were God’s gift to tankers, and commercial clients still wanted to buy the 777, so they thought that it was more convenient.

First, Boeing has filed a formal protest on the award, which is as surprising as the sun coming up in the morning. (See here, here, and here.)

Needless to say, Democrats are using this to take shots against John Mccain (Read a fantastically funny riff on the politics here)

Truth be told, the first deal to lease was corrupt, with DoD and Boeing officials going to jail over the deal, and. McCain was right to challenge the deal.

A lot of the problem for Boeing is that they were unbelievably arrogant and unresponsive to the DoD:

“The Boeing team was not responsive and often was not even polite,” said Loren B. Thompson, a defense analyst at the Lexington Institute in Arlington, Va., based on conversations he said he had with defense officials. “Somehow that all eluded senior management,” Mr. Thompson said. “They were not even aware there was a problem.”

Add to this that Boeing’s record in defense contracting is worse than that of Northrop Grumman in terms of being on time and on budget, and that they had an inferior product, and this was a done deal.

Boeing was hoping to rest on its laurels, and the fact that much of the Congress would flip out over the choice.

Of course it doesn’t help that McCain campaign staffers lobbied for EADS.

Additionally, one of Boeings arguments, that EADS was ill equipped to create a working boom (boom and probe primarily used by the USAF, and products developed for the USAF, everyone else uses hose and drogue), was not accurate. They were already developing a boom for Australia (I guess for their F-111s, the F-18s use hose and drogue).

Furthermore, EADS was motivated to move work to the us, because they wanted to take advantage of the cheap dollar. That’s a reason that all the A330 freighter assembly will be moving to the US. It’s cheaper for them now.

For what it’s worth, The Council for Citizens Against Government Waste (CCAGW) has issued a statement supporting the deal, so it met their snif test.

Boeing has now released the specifics of its complaint against the process:

  • That the formula used to rate the competitors was changed at the last minute.
  • That this changed favored EADS by making range and payload more important, and ramp space requirements less so.
  • That they failed to give Boeing credit for its commercial airliner experience.

My comment on the last point is that the DoD took a look at your contracting performance with them and decided that you sucked.

Austan Goolsbee Blowback in Canada

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I think that it’s increasingly clear that the leak of this story was orchestrated by Steven Harper and his bully boys, in this case Michael Wilson, ambassador to the US, though the underlying facts, that Goolsbee said it’s just politics, appear to be true.

The fact is that Harper is in charge of an unpopular minority government, and having an election in parallel with the US would probably cut against them, so now is a good time for the opposition to get a no-confidence vote.

The Canadian people are almost as sick of Bush as the American people, and by holding elections near the same time, it makes the choice clear.

Any followers of Canadian politics want to explain why the opposition is not trying to get snap elections?

When the Financial Times of London Sounds Like the Workers Daily World, The Times are a Changing

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London has long had a policy of allowing rich foreigners to live there tax free.

FT columnist Martin Wolf looks at proposals to eliminate this immoral give away to the rich, and finds that too many people in the UK subscribe to the Leona Helmsley way of doing thing.

We live in strange times, as evidenced by his concluding paragraph:

Yet the experience also shows that the case for a simple, neutral and stable fiscal system, which taxes the worldwide incomes of all long-stay residents on the basis of ability to pay, is overwhelming. As soon as one departs from that principle one enters in a maze of special pleading or invidious distinctions, in which failed ideas of industrial policy – subsidising winners through the tax system – return to the fore. If the application of that great principle means some rich people leave the country, so be it.

(Emphasis mine)

Economics Update

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I’m not sure if it even qualifies as news any more, but
oil hit a new record today, topping $107/bbl. Gasoline prices are following this trend, with prices rising $0.09/gallon over the past two weeks.

When this is combined with the fact that houshold wealth fell by $533 billion, (3.6% apr), in q4 of 2007. That’s without considering inflation.

When inflation is taken into account, all of 2007 is down.

In the ever entertaining world of the monoliner insurance, MBIA, is asking Fitch to stop rating its insurance units. They think that Fitch’s model is inaccurate, because Fitch is still considering a downgrade.

MBIA is insolvent, Fitch gets it, and S&P and Moody’s don’t.

As a result of this, we are seeing more of the non-profit and state run college lenders unable to secure financing, and hence unable to make loans.

Remember, these loans cannot be discharged by bankruptcy, and they are federally guaranteed, and no one will buy the paper.

This might explain why Lehman Bros. is cutting 5% of its workforce, about 1400 jobs.

One bit of good news is that China’s trade surplus dropped 63% in February, though one wonders how much of that is currencies readjusting, how much is a slowdown in the world economy, and how much is the winter storm that shut down the country for about a week.

BTW, its official, Malaysia is a Kleptocracy. That’s the only way to explain why, following a defeat that kept the National Front in the majority, but at less than 2/3, that the Kuala Lumpur Composite Index fell so sharply that they had to shut down trading.

This wasn’t even a change in party rule, just a drop below 2/3, and everyone was scrambling to get out because their business positions were predicated on corruption.

O happy day.

For what it’s worth, things are not much better in the US, where hedge funds are seeing margin calls on US treasuries. If treasuries go bad, forget the Honda full of silver, you need ammunition and canned goods.

Foreigners Own Us

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Representatives of Treasury Department, SEC and Fed told Congress that it was crucial to the economic health of the United States to all sovereign wealth funds to have free reign to purchase US companies.

Congress is concerned after Abu Dhabi bought a significant portion of Citi, and other sovereign wealth funds have done so with other financial institutions, as a result of fall out from the credit implosion.

The regulators basically said, without foreigners buying this stuff, we’d be flat broke.

What they neglected to say is that we are flat broke anyway, from years of budget and trade deficits.

Another Twist in Goolsbee/Canada Saga

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It appears that the sequence of events was rather different from what I had originally thought. Spefically, it appears that the Canadian consulate contacted Goolsbee and asked him questions, to which he responded.

They apparently did the same with Clinton’s and McCain’s economics gurus, and then they wrote up the responses and forwarded them upstairs, but once they reached the political levels of government *cough* right winger Canadian PM Steven Harper *cough*, they were leaked to do damage, because Harper Bush’s other poodle.

Goolsbee is largely blameless in this, though I’m not sure how much that means in presidential politics in the US. He still needs to stay away from the media for a few weeks.

Memo Shows That Goolsbee Did Talk Down Opposition to NAFTA to Canadian Ambassador

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Austan Goolsbee needs to be released from the Obama campaign. The Republicans, and the McCain loving press, will “Gore” Obama over this if he doesn’t.

We now have documentation. The memo says of Goolsbee that, “He cautioned that this messaging should not be taken out of context and should be viewed as more about political positioning than a clear articulation of policy plans.”

It should be stated that Goolsbee disputes this characterization, though, it would appear, not the meeting.

He may have done nothing wrong. It doesn’t matter. Goolsbee needs to be let go. He is now a liability for the campaign, though it would seem not as big a liability as Penn is for Hillary.

BTW, the original hed for the article wass, “Obama Adviser Denies Trade Remarks“, it’s now, “Canadian Memo Recounts Meeting”.

I’m sorry but the first headline was just plain deceptive. Not a fault of the reporters, who do not do the heds.

Austan Goolsbee Fingered as NAFTA Contact In Obama Campaign

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So reprots CTV News.

There are three possibilities.

The first is that these discussions never happened, in which case both Obama and Goolsbee deserve an apology.

The second is that Goolsbee did talk to the ambassador with the approval of the campaign, in which case everyone in the campaign deserves a dope slap and a severance notice.

This would be unnecessary and stupid, and I do not think that the members of Obama campaign are that stupid. (If they are, then they deserve to lose)

The third possibility is that Goolsbee decided to do this unofficially on his own.

If that’s the case, he needs to be dropped in an ostentatiously public manner, because you can’t afford to have someone freelancing like this on policy or diplomacy.

I do know that Mr. Goolsbee has occasionally read my blog, so if he wants to make a statement, I will post it unedited.

Obama Staffer: NAFTA Rhetoric “Not Serious”

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This could be bullsh&^, or it could be some staffer or economic adviser freelancing.

Or the report that a staffer told the Canadian ambassador that, “criticisms would only be campaign rhetoric, and should not be taken at face value“, could be true.

CTV is fairly reliable, and I think that Obama is way to savvy to knowingly let someone do this, even if that [b]WAS[/b] his real position (which it probably is, he voted for CAFTA).

It’s simply too politically stupid.

I think that it was one of his economic advisers freelancing, and whoever it was, they should be fired today.

A New Study Shows that the “Rising Tide” Lifts Fewer Boats than Previously Counted

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A new study of purchasing power parity (PPP) is showing that living standards for the bulk of populations in developing countries are far lower than previously estimated.

Basically, the relative purchasing power of currencies have been miscalculated, giving an unrealistic picture of the living standards of the average person in what is sometimes called the “3rd World”.

It means that poverty and inequality are far higher than under previous estimates:

Suddenly the world has more poor. Incomes declined in emerging economies: down by 40 percent in China and India, 17 percent in Indonesia, 41 percent in the Philippines, 32 percent in South Africa and 24 percent in Argentina. For Indonesia, the decline was far worse than the Asian crisis, and for China and India, the decline was worse than the one experienced by Germany during the Great Depression. Yet hardly anyone noticed.

The event was the release of new estimates of purchasing power parity, or PPP. Measured as part of a large international endeavor called the International Comparison Program, PPP aims to accurately calculate a country’s economic power rather than simply dividing total national output by a country’s population.

It’s hard to see this as anything but a full bore refutation of the facts that the free trade zealots use.

Bad Investments

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Interesting numbers on foreign investments in the US:

Foreign investors exploited the declining U.S. dollar during the past three months to snap up American companies, taking the biggest share of U.S. deals in at least a decade.

Buyers from Dubai to the Netherlands accounted for 46 percent of the $230.5 billion of U.S. mergers and acquisitions announced in the fourth quarter, the largest portion since 1998 when Bloomberg started compiling the data. The total excludes $17.9 billion of so-called passive investments by state-run funds in Asia and the Middle East in U.S. banks, including New York-based Citigroup Inc.

So, counting the “passive investments” we’re over 50%.

This reminds me of when the Japanese bought in the US in the early 1990s, and later sold at a 30% loss.

This time though, I think that it’s more likely that the losses will come from a plummeting dollar.

Economic Update

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The Institute of Supply Management’s manufacturing index had declined for the first time in 11 months. Predictions had placed it at 50.5, rather slow growth, but it came in at 47.7, on drops in orders and production, and we have the same thing happening worldwide, with the Global manufacturing PMI falling to a 4½ year low, which seems to indicate that the rest of the world has not “decoupled” from the US economy.

Singapore’s economy is taking a hit, because Americans are no longer able to buy their stuff.

Then we have the other Mecca of Anglo-Saxon capitalism going through the same real-estate crisis that is hitting in the US

The latest figures indicate that 23 per cent of people – 9.5 million adults – were finding their current level of debt “unmanageable”. Although the Bank of England cut the base rate of interest last month, an estimated 1.4 million people will still have to pay more for their home loans when their fixed-rate deals come to an end this year, costing an extra £150 to £250 a month.

Sounds familiar.

Merrill Lynch has sold itself for some more cash, which seems to indicates taht there are some more losses, probably significant ones, that have not yet found their way to the balance sheets and quarterly reports.

In further banking news, General Electric and the Blackstone Group had to backoff of a buyout of PHH, a mortgage and auto-leasing company, because their financing fell through.

Finally, we have reports that dollar-based assets held by the world’s national banks have fallen to a record low. There is not yet a stampede to the door, but people are definitely standing up and stretching their legs.

The data indicated that of the $3.8 trillion in allocated reserves, about 63.8 percent was held in U.S. dollars, down from 65 percent at the end of the second quarter this year.

Japanese Bank on Big Sh%$pile Bailout Fund: F$%# You White Man

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It appears that the major Japanese banks are getting government pressure to help bailout subprime financial instruments, and they are profoundly disinterested in doing so.

Japan big banks reluctant to pay for subprime fund
Mon Dec 17, 2007 5:44am EST

By Nathan Layne and Taro Fuse

TOKYO (Reuters) – Japan’s top three banks are expected to resist a request to put up a total of $15 billion for a U.S.-led subprime rescue fund, a move that could further cloud prospects for the bailout plan.

Sources told Reuters last week that Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research), Mizuho Financial Group (8411.T: Quote, Profile, Research) and Sumitomo Mitsui Financial Group Inc (8316.T: Quote, Profile, Research) had each been asked to pony up $5 billion, and to give an answer this week.

…

But the issue could yet become political, the megabank executive said. Japanese banks are eager to expand their presence overseas and will not want to be seen as turning a blind eye to the health of the global financial system.

“What did America do when we had our non-performing loan problem? They just pushed us into the corner. European banks also ran away. Why should Japan now shoulder this burden?” said the megabank executive. “But this is a decision made at a high political level and could end up defying logic.

Part of this is the fact that the rest of the world pretended not to know them during the Japanese crisis, but another, larger part is the fact that the Japanese banks have largely cleaned up their act. The lack of transparency, cozy relationships, and self dealing in the subprime debacle mirror their experience 15 years ago.

What’s more, they understand that this bailout will interfere with reform, because it will largely serve to allow the worst miscreants to dump their investments on someone further down the economic knowledge chain (you know, teachers’ retirement funds, etc).

Edwards condemns NAFTA

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His point is not that trade deals are bad, but that bad trade deals are bad. This is how he couches his condmenation:

“NAFTA was sold to the American people with promises that it would grow the economy and create millions of new jobs. But today, we know those promises were empty,” he said in remarks prepared for delivery at a town hall forum in Derry. “In all three countries, it has hurt workers and families while helping corporate insiders.”

…….

“The folks in Washington say that trade is good for the economy, even if it hurts a few ‘losers,'” he said. “That’s the word they use, losers, and it tells you something about how they see regular American workers and families who are struggling to compete.”

This attitude on trade deals ties into an attitude of, “What’s good for Wall Street is good for the country,” which the has led to many of the problems we see now (housing crash, credit crunch, etc.)

Putin Appears to be Making Arrangements for His Installation as a Dictator

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It appears that following electionsRussia will attempt to institute constitutional reforms to create a position for Vladimir Putin of “National Leader, which sounds a lot like “president for life”.

I think that to a very large degree, the anti-Democratic forces in Russia are currently in the ascendancy because of Western actions following the fall of the USSR.

We defined democracy as allowing Russian property to be stolen by politically connected people largely for the benefit of Western bankers, actively cheered on Yeltsin when he shelled the Russian Duma, and allowed Boris Yeltsin’s re-election campaign to be neither free nor fair as a result (he controlled all public mass media, and the private mass media was controlled through the Oligarchs, whom he installed).

It’s no wonder that the Russian people, and the Russian political class, see Democracy as nothing more than the window dressing for an attempt to prostitute their people.

Consequences of a Falling Dollar

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The Center for Economic and Policy Research*, or more accurately Mark Weisbrot, one of its founders has an interesting take on the falling dollar.

His take is that a “strong dollar” policy, which is more accurately described as an “overvalued dollar” policy, is a bad thing. It amounts to a subsidy one imports, and a tariff on imports.

Like most bad policy, there’s a conflict of interest underlying the resistance to having the dollar move to a more competitive level. Robert Rubin is now Chairman of Citigroup. (Both Rubin and Paulson are former CEO’s of Goldman-Sachs). The big bankers and the financial sector generally do not have much interest in promoting growth and high levels of employment in the domestic economy, and certainly not rising wages. For them, inflation is the only real enemy, since it erodes the value of financial assets. (Rising wages are viewed negatively by these people because wage increases are seen as increasing inflationary pressures).

If you read the business press you might have noticed that when unemployment goes up, the bond market generally rallies. That is a reflection of the financial sector’s direct interest in lower inflation and lower wage growth even if it hurts the vast majority of the country. A high, even overvalued, dollar helps hold inflation in check by keeping import prices lower. On the flip side, as the dollar adjusts to a more sustainable level, at least some increase in inflation is inevitable as import prices increase.

Some of our big transnational corporations also like a high dollar because it makes everything they buy overseas – including other companies as well as labor – cheaper for them. And of course for those whose first priority is an affordable vacation in Europe – well they are out of luck when the Euro rises, as it has now, to $1.45.

But for the vast majority of the country, a “strong dollar” is more like a “strong influenza virus” – something to be avoided whenever possible.

I do wish that he had commented on China’s “weak Yuan” policy, because it makes a good counterpoint. Their exports are burgeoning, but inflation is eating them alive right now.

I think that it is clear that a falling dollar will result in more goods and services being produced in the US, but we will also have high inflation, and high interest rates. At the end of the tunnel, the Average American will be better iff, but during the adjustment, when imports costs rise, and there is no domestic capacity to take up the slack, and house prices tank because of higher interest rates, it will be ugly.

*They are a liberal economic think tank. Check out there about us page.