Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis


by Lindsay Beyerstein, Media Consortium blogger

Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.

The Fed justifies the purchase as an infusion of cash into the U.S. economy. The buy-up will certainly be an infusion of cash into U.S. banks. In effect, the Fed will help the government pay back the banks that lent money to finance deficit spending. The hope is that these banks, suddenly flush with cash, will help the U.S. economy by lending money to finance projects that will create wealth and jobs (i.e. opening factories and hiring more workers).

However, as Hudson points out, there’s no guarantee that the banks are going to use the windfall to build wealth in the U.S. On the contrary, he argues, there’s every reason to suspect that they’ll invest the money overseas in currency speculation deals. Why? Because the Fed has also put massive pressure on Congress to push China into raising its currency by 20%. The banks know this because the House voted overwhelmingly to approve such a threat in September.

If the banks convert their extra billions to Chinese currency, and China raises the value of its currency in response to the threat of an across-the-board U.S. tariff on its imports, then banks that bought Chinese RMB when it was still artificially cheap will reap huge profits overnight.

Later in the Democracy Now! broadcast, Nobel Laureate Joseph Stiglitz describes how the U.S. employed a similar strategy of currency devaluation to insulate itself against the ravages of the Great Depression, with devastating global consequences:

So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar.

Trade war between the U.S. and China

The U.S. and China have a longstanding trade rivalry, but suddenly the two powers seem to be even more at odds than usual.

William Greider of The Nation argues that plummeting global demand has ratcheted up tensions as the two exporting nations fight over a dwindling pool of customers. The U.S. accuses China of artificially deflating its currency to make its exports cheaper. In retaliation, the U.S. imposed tariffs on Chinese tires and tubular steel. China, in turn, imposed a tariff on U.S. poultry. As I mentioned above, the House voted 348-79 in September to impose additional tariffs on nearly all Chinese imports if China doesn’t revalue its currency, though the Senate has yet to vote on this legislation.

The U.S. acts indignant about China manipulating its currency, but Grieder argues that this stance is hypocritical in light of the Federal Reserve’s decision to buy an additional $600 billion worth of Treasury bonds from the federal government to help finance the budget deficit. One effect will be to weaken the U.S. dollar, which will make our exports more competitive relative to those of China.

Voters reject free-for-all trade

In last week’s midterm elections, voters rewarded candidates who oppose unfettered free trade, according to Kari Lydersen of Working In These Times. According to a new report by Public Citizen, 60 congressional races were fought wholly or largely on trade issues in 2010. Only 37 candidates favored NAFTA-style free trade pacts and half of them lost. Not all the candidates who won on a protectionist trade platform were advocating a progressive agenda of fairly compensating trading partners, protecting American jobs, and upholding environmental regulations. Senator-Elect Rand Paul (R-KY) argued that the World Trade Organization is a threat to U.S. sovereignty.

Anti-union ballot initiatives win big

Mikhail Zinshteyn of Campus Progress brings us an update on the anti-union initiatives that appeared on the ballots in many states last week. Voters in Arizona, South Carolina, South Dakota and Utah approved legislation to preemptively neutralize the already-stalled Employee Free Choice Act (EFCA), should it ever become federal law. EFCA, also known as card check or majority sign-up, would allow workers to organize by signing up for a union, instead of going through a grueling National Labor Relations Board (NLRB) election process, which makes workers sitting ducks for management threats and propaganda.

Bean there, done that

Move over, Elizabeth Warren. The White House may be poised to appoint one of Wall Street’s favorite Democrats to head the new Consumer Financial Protection Bureau. Andy Kroll and David Corn report in Mother Jones that Rep. Melissa Bean (D-IL) is a favored contender for the job if her still-undecided race for reelection doesn’t work out. That would be heartening news for Bean’s former chief of staff, John Michael Gonzalez, now a leading lobbyist for Big Finance.

Bean, who serves on the House finance and small business committees, has received over $2.5 million in campaign contributions from the financial sector over the course of her 5-year career. Bean was also a big beneficiary of the Chamber of Commerce, which vehemently opposed the Dodd-Frank financial reform bill that created the CFPB in the first place. Bean ultimately voted for the bill, but not before she unsuccessfully attempted to water down the consumer financial protections therein, the very provisions Bean would be tasked with enforcing.

“The White House needs to beat back the Bean idea, otherwise they’ll look like fools,” one Democratic strategist told Corn and Kroll. “This is the craziest thing I’ve ever seen. She’s a tool of the financial industries.”

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The China Blames Game

Cross-posted at River Twice Research.

So bipartisanship isn’t dead. By a vote of 348-79, Democrats and Republicans alike put aside their acrimonious differences and agreed, at least for a moment, to stop blaming each other for the sad state of American economic life. Instead, they agreed to blame China.

The bill authorizes the president of the United States to impose tariffs on Chinese goods in response to what it considers an illegal subsidy of Chinese exports in the form of an undervalued currency. It helps that the supporters in the House know that this bill has precious little chance of becoming law; it will not pass the Senate and it is unlikely that it would be signed into law by Obama if it ever came to that. As a result, the bill is the perfect campaign gesture, bombastic, angry, self-righteous, and without much real-world consequence.

The office AFL-CIO union leader Richard Trumka issued a statement that encapsulated the thinking behind the bill: “the House of Representatives voted to put an end to the Chinese government’s currency manipulation, which has destroyed millions of good American manufacturing jobs. For more than a decade, the Chinese government has deliberately manipulated the value of its currency, ballooning our trade deficit with China and costing American communities good jobs….Working people continue to mobilize to elect candidates who will put America’s workers first and are committed to rebuilding an economy that values working people. This November we will send a powerful message that we will support those who vote for an economy that works for everyone.”


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Picture Us In Uganda

Ready for a math nightmare -- every US Dollar is 1,800 Ugandan Shillings! Here's a test for you: if  something costs 51,450 shillings -- what is that in US dollars? (No cheating with a calculator...)

Aside from mental mathematics, Uganda is much more affordable than the other countries in East Africa. With the exception of taxis (petrol is a fortune for drivers), everything here is a bit less expensive than Uganda's neighbors: Rwanda, Tanzania and Kenya. That's of course if you don't go Gorilla Tracking (at least $USD200 per person) or whitewater rafting at the source of the Nile ($USD125 per person). Looks like our schedule will prevent us from the first and bad weather kept us from the latter.  But we love this country so much we have no doubt we'll be back sometime in the future and we'll try to do both!

People here are also very laid back -- I've even gone three days without a cup of coffee here and didn't seem to mind.

You hear the words "Hakuna Matata" everywhere. Literally.

Internet services down nationwide all day? Hakuna Matata...

Flights cancelled? Hakuna Matata...

Two hours in wall-to-wall rush hours in Kampala? Hakuna Matata...

I am just trying to let go and not be that stereotypical American traveler who can't go with the flow....(and sometimes failing miserably at it)...

We like the money here, no former or current presidents or war generals, just birds and mammals on the bills. And they are all different colors--very pretty.

We also tried the local beer -- called Club -- which reminded me of Budweiser (no offense to  to Dani's home state of Missouri).They have a darker local beer aptly called "Nile" which we will try before leaving. Oh, and for some reason Smirnoff is not only the vodka of choice -- but those little Smirnoff Ice wine coolers are ubiquitous in local hands...

I can't complain about the toilets (mostly clean, toilet seats almost everywhere in Kampala, but almost nowhere outside the city) -- mostly because Uganda offered me my first hot shower since landing in Ethiopia!

Follow us as we visit toilets, drink beer, and spend money across East Africa ;-). Check out Ethiopia, Kenya, and Tanzania.

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Picture Us In Tanzania

Currency: Any country will seem affordable once you leave Kenya -- but we've fallen in love with the Tanzania shilling for three reasons:

(1) The US dollar is a lot less mighty on the road -- but in Tanzania it is still golden. One dollar is worth approx a whopping 1350 shillings -- meaning you can get a good budget hotel for less than $20 dollars.  

(2) It pays in Tanzania to be vegetarian! Not only do most menus have a "vegetarian page" (thank you India and China!) -- but veg food, unlike in the United States, also costs considerably less on the menu.

(3) Unlike most countries -- no dead or living presidents on the Tanzanian currency! Instead, the lions, rhinos, and buffaloes rule--the 10,000 bill features a elephant, the 5,000 bill features a rhino, and the 500 shilling bill features the buffalo.

Toilets: We've also been surprised by how many nice flushing toilets we found, even outside of Dar or Zanzibar.

Beer: Ok, so -- Kilimanjaro beer is terrific (smooth light taste, cool looking label, one of the best beers we've had in East Africa) and we were ready to move Tanzania to the front of the line in the best beer category -- until we tasted their other main local beer Serengeti. Don't be fooled by the cute cheetah looking cartoon on the front, this brew sucks and leaves a lingering aftertaste. It may be the only beverage (and certainly only beer) that we disliked so much that we categorize it in the same company with Starbucks "drip coffee," which they intentionally make taste so terrible that you're forced to shell out an extra $3 to buy a latte or a mocha.

Check out our previous "countries in photos" posts -- click here for Ethiopia and here for Kenya.

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The U.S. and China - The Defining Issue of Our Day

Cross-posted at River Twice Research.

In his current Asian trip, President Obama visits Japan, then addresses a forum of leaders in Singapore, and eventually ends up in Seoul to discuss nukes and North Korea. But make no mistake, the axis of this week is the time Obama will spend in China, which has catapulted to the forefront of international affairs and is on its way to joining the United States as the alpha and omega of the global economic system.

That China has emerged is secret to no one, but the consequences haven't been fully integrated - either by the United States or by China. The level of intertwinement between the two economies has reached the point where they have effectively merged, forming what I've called an economic "superfusion." But that fusion hasn't yet altered political and cultural mindsets.

The ministers of the world still beseech the United States to "do something" about a weakening dollar, and U.S representatives on the eve of this trip announced that after the financial morass of the past 15 months, the United States "is back." Yes, the United States remains the world's largest economy - though technically the combined income of the European Union is greater. But size isn't everything - just look at Japan, which is still the world's second largest economy but whose influence and impact are substantially less. China may be poor on a per capita basis (perhaps $5000 per person relative to nearly $50,000 in the United States), but it is changing more rapidly and consuming more hungrily that any other society in the world. It is the change factor in the global system.

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