Tag Archives: political economy

PRC Markets

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The PRC stock market tanked again earlier in the week. It’s a broader drop than just a fall in the PRC’s benchmark Shanghai Composite Index, though.

China’s outstanding margin loans—money investors borrow to buy stocks—declined for 16 consecutive sessions to Jan 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.

“Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing,” said Chang Chengwei, analyst at brokerage Hengtai Futures [a PRC-based financial investments player].

Fox Business lays much of this drop off to continued low (and perhaps lowering) oil prices. It’s not just oil, though. All those erstwhile investors have had their faces rubbed in the fact that it’s not (if it ever was) a price-sensitive market; it’s a government-sensitive market. And that it never had any contact with the underlying economy; it is a purely speculation play.

Empirical Socialism

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Bernie Sanders style. You remember him: the Independent Senator from Vermont, Democratic Party Presidential candidate, avowed Socialist, and as of Monday night’s Democratic Party Town Hall “debate” an avowed Democratic Socialist. In that “debate” (because it really wasn’t a debate; the three candidates appeared sequentially and answered carefully selected questions—and not even the same ones), Sanders assured us, one and all, that he really will raise taxes on us if he’s elected President.

From The Washington Examiner we get a list of just how bad his tax increase will be.SandersTaxes

To put that in perspective, the Congressional Budget Office projects that federal revenues over the next 10 years will be a total of $41.6 trillion, meaning that Sanders would raise taxes by 47% over current levels.

Guess what happens when Government takes that much money away from working Americans, removes that much money from the economy?

Yup.

It Must Be Dissolved

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Consumer Financial Protection Bureau, that is. Consider this example of its egregious behavior. When one of CFPB’s internal judges decided that

a New Jersey lender [PHH Corp] took illegal “kickbacks” from mortgage insurers, boosting costs for borrowers[,]

he fined the company $6 million. PHH appealed.

Richard Cordray, Director of the CFPB, took personal charge of the case and raised the penalty to $109 million. How dare a private company dispute with the CFPB!?

This abuse of power, even a power that the Democratic Party-controlled House and Senate conferred on the CFPB, together with a budget consisting of a blank check drawn on the Federal Reserve Bank System, when they created this thing six years ago, is a clear demonstration of the need to get rid of the CFPB and everything and everyone associated with it.

PHH’s case has been appealed to the DC Circuit, but there’s no need to wait. Get rid of this abusive, unaccountable board. Put this abusive, unaccountable Boyar out of a job.

The Supreme Court and Utilities

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The Supreme Court on Monday upheld the federal government’s ability to spur incentives for industrial businesses, schools and other large energy consumers to reduce power usage at times of peak demand.

The court, in a 6-2 ruling by Justice Elena Kagan, said the Federal Energy Regulatory Commission acted within its powers when it issued an order in 2011 requiring higher levels of compensation for some power customers that agreed to reduce their electricity use.

The Court likely is right on this, in that FERC’s rule is within the confines of the underlying law. However, this still is the government picking winners and losers, and this still is the government dictating to private enterprise what it must do.

The corrective answers that are required, then, are two: one is to withdraw FERC’s authority to issue such rules, to rescind Congress’ delegation of such rule-making to FERC (such a rescission is required across the board, but that’s for another writing).

The other required answer is to alter the underlying law that the FERC rule was…fleshing out. It’s a law that is no longer necessary and that, as the FERC rule demonstrates, has become vulnerable to Executive Branch abuse.

That law is Section 201 of the Federal Power Act, which

empowers FERC to regulate “the sale of electric energy at wholesale in interstate commerce.”

Congress’ authority (not an Executive Branch agency’s) to regulate interstate commerce is constitutionally limited to regularizing commerce among the States, not to dictate the terms of that commerce. Of course, for Congress to recover this authority and its limits, a third required answer consists of correcting a number of Supreme Court mistakes regarding how far Big Government may reach inside any State to regulate commerce there.

Another Advantage

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…of low oil prices. Low prices are good for American consumers, especially in winter, when we not only have to drive, but we have to heat our homes.

Here’s an additional advantage, though.

But falling crude prices, US-led sanctions and diminished oil exploration threaten Russia’s oil industry and raise questions about its capacity to continue underwriting President Vladimir Putin’s ambitions at home and abroad.

Sanctions hurt Russia in a lot of economic ways, but that interference with Putin’s designs on eastern Europe can last only as long as the sanctions régime holds up. The falloff in exploration actually would work to Russia’s (and Iran’s) benefit, were it to last a long time, as that would diminish supply relative to demand, and so would raise oil prices.

That’s the kicker, though. Russia (and Iran) need $100+ oil in order to balance their budgets. Today’s $30 price, which I think will last at least into the intermediate future, if fracking and shale oil haven’t more permanently altered the supply availability environment, means that if Putin wants to continue his aggression against his neighbors, if he wants to continue to try to reconquer those nations and so reconstitute the old Soviet Union empire, he’ll have to borrow money to do so.

However, the only thing he has with which to repay such debt is revenue from oil and natural gas sales; the Russian economy is that dependent on extraction—it produces nothing else. At today’s prices, Putin will have to sell 3+ times as much oil as he would have had to just a couple of years ago. That creates a vicious circle: the more oil he produces and sells, the longer downward pressure on oil price continues.

And with Iranian production entering the market shortly, courtesy of Khamenei’s Best Bud President Barack Obama, those prices will be the recipient of additional downward pressure.