A Partisan Rift in the US on Trade Issues is needed to keep the US out of a Military Conflict with China

Listening to Robert Lighthizer testify before the US House Ways and Means Committee, it dawns on me that the United States is not interested in “fair trade” with China. The US is interested in China and other large but emerging nations behaving like colonies.

Trade, as I have shared before, is nothing but a developed country’s claim on a less developed country’s resources. China is a “bad guy” because it has the audacity to not just provide cheap labor for American manufacturing, but is willing to leverage the knowledge it gained producing cheap goods for American companies for export back to the US. China is only good to the US if China is willing to pattern its relationship off of the relationship between the original thirteen colonies and England.

This American view is bipartisan as it is held by such progressives as John Lewis, Democrat of Georgia, and conservatives like Kevin Brady, Republican of Texas. The vocal issue expressed by these men is that China’s state-run version of capitalism undercuts American jobs and creates a hostile price environment for American businesses competing with Chinese imports. I believe the real issue for American politicians is how to get China to restructure its political economy so that China looks more like an American political economy.

So how does America wish to go about “aiding” China’s transition to a consumer-driven political economy? By war. The average American MBA, cab driver, pole dancer, lawyer, etc., believes that China is “dangerous” because they are communist thus a threat to American “freedom.”

This one dimensional jingoistic mindset is encouraged by policy makers and bankers to deflect from the real reason for wanting to duke it out with the Asian Tiger: to change the rules of trade such that China becomes another market for capital, foreign exchange, and bond markets. If “bankers” could generate their coin without introducing corporate capitalism and democracy to China, they would do so.

America, a country whose financial and political markets are fixed on two-year windows, and is fixated with disingenuous diversity, does not have the capacity to change the mindset of a nation steeped in centuries of tradition, a clearer lineage, and 50-year economic plans. America can only hope for military conflict, something the “Deplorables” and other feeble-minded ninety-nine percenters and feeble intellects can grasp.

Again, this new twist on American mercantilism has bi-partisan support which is unfortunate because a rift between the left and the right on foreign and trade policy may be what America needs in order to come up with innovative trade policy while keeping young Americans from dying in a trumped up war.

Advertisements

Pocohantas and the Global Payments System

America is an important information node in the global payment system. #ElizabethWarren‘s calls for more regulation of #banks could mean less lending to the very constituents she claims to represent as banks use her anti-bank rhetoric as an excuse to jack up their lending rates while disqualifying lower income borrowers.

Globally, higher rates will run through the rest of the system. Banks, ironically, while lending less could offset less lending to middle class clients with higher interest revenues from more affluent borrowers, making the banks less risky and more profitable while less accessible to lower and middle income borrowers.

Pocohantas may prove herself a double agent for capital after all. Go Poco, Go, Poco.

Should Comcast and Verizon be allowed to enter the information mining game? Yes.

Overview

Proponents of the implementation by the Federal Communications Commission of net neutrality rules have been expressing outwardly that by ensuring no throttling of traffic from websites; no blocking access to favored and lawful websites; transparency when it comes to terms and conditions of service or network management; and the prohibition of favored treatment of one content provider’s traffic over another, that consumers of broadband services will be treated fairly and that edge providers will be able to innovate on the edge of the internet while competing with core providers.

While proponents have successfully convinced millions of Americans that net neutrality is about the consumer’s ability to democratize the web or have their voices equally heard among other, especially larger corporate voices, the real issue is whether core providers should be allowed to participate in the information markets or be kept out by making an 85-year old statute a barrier to their entry.

Battle in the Information Market

The statutory approach recommended by edge providers such as Facebook and Google to ensure that core providers such as Comcast and Verizon are reigned in is to apply Title II of the Communications Act of 1934. Edge providers make their bread and butter by mining information from visitors to or users of their website services and packaging that information into advertising products that they sell to businesses that are trying to get their services before as many eyeballs on the internet as possible.

The concern that the edge provider has with the core provider is that given the core provider’s “gateway” service and the core provider’s alleged monopoly or near monopoly control of the access to the internet, the core provider will then be able to capture consumer behavioral information that the edge provider has less access to.

The core provider, the edge provider will argue, is gathering this information from its telecommunications infrastructure; therefore, to ensure fairness, the core provider should not be allowed to call the telecommunications portion of his service an information service just so that they can skirt the information or data collection requirements under Title II.

By creating a net neutrality rule that says that core providers should treat access as a telecommunications service, the edge provider gets the government to apply a barrier to entry to the information market, a barrier that the edge provider has no confidence its superior information services can erect itself.

The Content Endgame: What Would Title II Do and Not Do

If Verizon wanted to use information “that relates to the quantity, technical configuration, type, destination, location, and amount of telecommunications service used by a consumer of a telecommunications service, that information, in general, would be limited in use to services related to the provision of telecommunications services. Verizon would not be able to use information related to the provision of telecommunications services to predict consumer demand for Verizon’s video streaming services.

Interpreting and applying Title II in this manner would help Hulu and Netflix keep Comcast and Verizon at bay. What it may also do is expose Hulu and Netflix’s pricing and cost structures during any public hearing resulting from Hulu and Netflix’s new roles as consumers of telecommunications services. Sections 204 and 205 of Title II provide the Federal Communications Commission the authority to set just and reasonable charges and to have hearings on those charges or on complaints regarding charges and price schedules. What Hulu and Netflix may not understand is that regulation of a market means scrutiny of both of its sides, and challenges to rates charged by a core provider means rebuttal that could include discovery of what economic rationale underlies an edge provider’s assertions. In short, Title II opens the Pandora’s Box for edge providers, too.

What Title II doesn’t do is tell Comcast or Verizon that they couldn’t collect consumer behavioral information from their websites or information portals. This “oversight” is further evidence of how arcane Title II is. A declaration by the courts that a core provider’s services are information services, from end user through a core provider’s entire network would be indication that the State recognizes that core and edge providers equally play in the information markets. Avoiding a balkanized, bifurcated view of broadband service provision would make regulation of advanced communications more efficient because of less time spent having to look at two separated pieces of internet service versus one.

The FCC’s Constitutional Quandry

But even if regulators continued down the two-prong path of regulating core providers, the end game would still be how to treat the content portions of their services. The Federal Communications Commission should not want to be in the position where it would take a hands-off approach to Facebook’s information mining techniques while taking a heavy handed approach to Verizon’s emerging content play. It would cause a constitutional dust up were the Commission to regulate the content of one service provider but not the content of another.

Conclusion

Core providers have the technical knowledge and desire to enter information markets and for that reason alone they should be allowed to profit from the development of content and the extraction and packaging of data that drives a modern economy. Core providers shouldn’t be punished because their basic business model includes the conveyor belts that information is placed on when being extracted. Imagine telling a coal miner that in order to foster competition, they will have to forego their conveyor belt and, like a firm that entered the market late and poorly capitalized, will have to use their hands and wheel barrel to move coal out of the mine. That is not competition but favoritism.

A quick thought on stablecoin, Facebook nation, and government pushback

Just had a thought on creating a digital nation and admittedly I am still just fleshing out the idea so bear with me.

Crypto currencies still have a chance at succeeding, but the issue commenters and the public continue to overlook is that as currencies, Bitcoin, Ethereum, Ripple, and whatever the hell else is out there have no underlying political economies to support them. Currency valuations transmit to the world the value and/or level of economic output a nation has. Bitcoin, for example, is not a nation’s currency. If it were, it would give Zaire’s currency volatility a run for the money. With the advent of stablecoin, particularly Facebook’s expected issue of the digital coin in 2019, we could see the beginning of a truly digital political economy.

Stablecoin is defined as a cryptocurrency pegged to some reserve currency like the U.S. dollar or another crypto currency such as Ethereum. No matter the model, the goal is to provide users with some stability in the coin’s exchange price. Consumers and investors may like the convenience of not having to check Bitcoin’s price every time they want to buy a cup of coffee or make a currency exchange. Stablecoins, at least in theory, helps to avoid all that.

Facebook will reportedly first play in India’s remittance market. As we descendants of the Commonwealth are all to familiar with, the remittance process can be emotionally taxing when the lack of necessary middlemen are not in place to get money to our relatives in Europe, Asia, and the Caribbean.

The blockchain technology platform that Facebook’s stablecoin will use is expected to provide the transparency and peer-to-peer capabilities that ensure that monies are sent and received under a system of trust, verification, and lack of intermediaries.

But I can see Facebook and even Amazon going beyond playing a relatively minor role in a country’s payment system. Not only could Facebook or Amazon issue digital currencies in the next ten years, they could and should go all out in developing their own digital nations.

Facebook could finally add some meat to his currently weak mission of “connecting the world” by leveraging every business and consumer in his network to engage with each other commercially by using his stablecoin. Consumers subscribing to Facebook or Amazon could be assessed annual membership fees or be charged a “tax” substantially less than the average state or local sales tax in exchange for exclusive access to every merchant listed on either platform with the medium of exchange being a stablecoin.

As one of the largest companies in the world with a 2.5 billion people user base, Facebook, via commercial exchange on its platform, can generate the value necessary for traders in currency to express enough faith in the currency to trade in it drive up its value. Unlike current crypto currencies, a “Facecoin” could exhibit more organic and trustworthy movement because it would be backed by a company large enough to be a national economy.

As for local, state, and federal governments, they could be left a few decades from now with nothing left to regulate and tax but physical infrastructure. Would government be understanding and wish more and more taxpayers a fare thee well, or would government act like the pharaoh in the Old Testament, chasing the people with its tax chariots.

The ensuing issue may be the legal relationship between the old State and the new Digital State that online platforms like Facebook and Amazon will hopefully morph into and how best to treat citizens who have to spend time in both worlds.

In this theater, the media is also a combatant

The Board of Governors of the Federal Reserve is meeting over the next two days to discuss whether or not to raise the federal funds rate.  The federal funds rate is an interest rate that banks assess each other when borrowing money overnight from each other.  The Federal Reserve, America’s central bank, drove the rate to near zero in attempt to boost the economy after the financial markets crashed. 

Lenders became wary of the collateral other financial firms were carrying in their portfolios, typically asset and mortgage-backed securities that were declining in value due to the inability of commercial and residential borrowers to keep up with interest and principal payments. By buying these securities from financial firms on poor footing and giving them cash, the Federal Reserve hoped to prime the lending pump and provide financial institutions with the confidence to go out and lend again.

 Mr. Trump has been taking issue with rate hikes, making the argument that the timing is horrible for the financial markets and the economy overall.  To some extent, he has a point; increasing rates could eventually lead to a devaluation of assets sensitive to rate increases, and where these assets are used as collateral for loans, being awarded a loan becomes a lot tougher if a bank does not think collateral is strong enough.

From a political warfare perspective, the media has time to time pointed out Mr. Trump’s apparent lack of respect for the independence of the Federal Reserve, specifically taking issue with Mr. Trump questioning Federal Reserve Board chairman Jerome Powell’s rationale for rate hikes.

But by commenting on the direction of rate hikes, is Mr. Trump really attacking the independence of the Federal Reserve? My answer is no.  

Under the Full Employment Act, the Congress, the Federal Reserve, and the President are to coordinate their activities in order to bring about the effective control of inflation, genuine full employment, production, balanced growth, and a balanced federal budget. The chairman of the Federal Reserve is to connect his monetary policy to the numerical goals established by the president in his economic report. That the President was transparent and vocal in pointing out what he considers the Federal Reserve’s pursuit of a policy that seems out of sync with his may be brash, but is not out of step with the coordination the law requires and even the transparency that many citizens in the United States allegedly prefer.

How well has the Trump administration, the Board of Governors, and the Congress coordinated on the economy is subject to another discussion, but the point here is that the media and other critics have failed to give the public a full picture of what is entailed in economic management and this lack of full disclosure on the part of media only adds to Mr. trump’s assertion of fake news and unfair targeting of him by the press.

The other takeaway, of course, is going and investigating other sources of information on the management of the American political economy.  In political warfare, you need to know where all the bullets are being fired from.  In this theater, the media is a combatant.   

The “economy” is doing better but I am seeing more homeless in Atlanta

I am seeing more homeless people in my West End Atlanta neighborhood. I have seen at least one sleeping in his vehicle. Others make use of the parks to sleep at night.  What I see on the ground does not coincide with the claims made in Washington of a booming economy.

WABE, citing data collected from the city of Atlanta, reported that the homeless population numbers around 3,000 people and is allegedly on a decline.  And last year, the Atlanta Journal Constitution reported that Atlanta ranks among America’s neediest cities based on 21 metrics including child poverty and the number of uninsured. Homelessness is the result of a number of factors including the lack of affordable housing, poverty, discrimination, and shifts in the economy. Can city policies adequately impact these factors?

Take the factor of affordable housing. Atlanta mayor Keisha Lance Bottoms has made affordable housing one of her top public policies, but it appears to me that such an approach falls out of line with one important goal of a city: to generate tax revenue necessary for providing the amenities that keep citizens interested in living in Atlanta.  Land owners want to see property values rise and see an increase in the revenues that their properties generate.

Also, as city leaders continue their efforts to make Atlanta a job center, they have to keep in mind that as part of the efficiencies offered by a city is the location of housing close to job centers.  Housing located close to job centers may also end up being some of the most costliest housing.

I ride into Buckhead every day from southwest Atlanta. I have blogged before about how the MARTA train feels more like those conveyor belts loaded with coal that go into a furnace to fuel a production facility.  In this case the human coal are the lower and middle income individuals heading into Buckhead to work a job that, ironically, may be on the chopping block in a few years due to artificial intelligence.  If these people can’t afford to live close to an employment center where they can walk to work, the pressures of living will really increase when they have to find alternative employment.

But even with current employment, there may not be enough affordable housing available because landlords will be under pressure to meet rising property taxes resulting from the increased values of their properties, at least in the short run. This rise in value and ensuing property taxes will result from increased demand for housing that Atlanta expects to face over the next ten years.

Let’s not forget the upward pressure expected on interest rates over the next two years.  Property owners will have to increase rents in order to cover higher mortgage rates.  For the city of Atlanta it means higher bond servicing costs as the city continues to raise money through bond issues for its development and operational needs.

Affordable housing, because of the above pressures, won’t increase in supply.  Only an economic downturn may bring about cheaper rentals but even that will be short lived because a downturn in the economy means a slowdown in hiring and the specter of non-affordability due to increased lost income.

Politics wise, it is time for elected officials, particularly Democrats, to eliminate the affordable housing mantra from their campaign slogans.  They won’t be able to achieve it at any meaningful scale.

 

Atlanta should avoid the net neutrality debate. It’s not good for business

Internet Innovation Alliance co-founder Bruce Mehlman posted an article yesterday discussing the positive impact relaxed regulatory requirements can have on investment in and deployment of broadband networks. According to Mr. Mehlman, investment in broadband rose by $1.5 billion to $76.3 billion.  He contrasts this to the $3.2 billion decline in investment between 2015 and 2016.

What made the difference? According to Mr. Mehlman it was the decision last year by the Federal Communications Commission to repeal their 2015 open internet order, a decision that put into regulatory code a number of net neutrality principles.  The 2015 order treated broadband access providers as telephone companies by applying consumer and telephone network management rules that were based on communications law from the 1930s.  That approach, according to Mr. Mehlman, just can’t fly in the 21st century.

Unfortunately, Washington has been embroiled in a debate over how net neutrality principles should be applied.  There is a consensus among opponents to and proponents of net neutrality principles that consumers should be able to access web content of their choice; that content providers should not have their traffic speeds throttled by broadband access providers; and that broadband access providers should be transparent about the terms and conditions of their services.  Whether a rule by a regulatory agency is the best approach to ensuring these policy goals is an issue.

Getting to yes on net neutrality may be best brought about by an action of Congress.  Defining net neutrality in the law and laying out the components of its meaning will give content providers and broadband access providers definitive guideposts that help settle any conflicts in the future.  Without a congressional action, the industry and consumers run the risk of a back and forth regulatory battle driven by changes in political power, particularly when a new presidential administration takes over and a new chairman is appointed.  That type of uncertainty every four years is not good for consumers or business.

As more people and businesses move to Atlanta, regulatory certainty becomes an asset for the person who telecommutes; for the financial technology company that needs to maintain connection to its app subscribers; to the student who relies on distance learning to complete assignments.

Treating a broadband provider facing competition from three or four more broadband providers as if they were a monopoly local telephone company in 1934 won’t contribute to Atlanta’s continued growth.

Don’t expect a Trump-Democratic love fest over the AT&T-Time Warner merger

Last July, the U.S. Department of Justice filed an appeal of a U.S. District Court-District of the District of Columbia finding that AT&T’s acquisition of Time Warner Media would not hurt competition. The Justice Department, according to The Hill, believes the acquisition would harm competition where AT&T might not provide access to its newly acquired content by other competing content providers or video delivery networks.

Democrats today hinted that once they take-over the U.S. House, they would investigate the Trump administration’s opposition to the merger. Since the campaign for the presidency in 2016, Mr. Trump has verbalized his concern that a merger between the telecommunications giant and the media giant would be a bad thing because of the size of the new entity. In addition, Mr. Trump has expressed no love for CNN, the cable news network that would be one of the crown jewels on AT&T’s new portfolio.

As if any one needed a reminder of the no love lost between the Trump administration and the Atlanta-based news organization, one needed look no further than the spat between CNN’s Jim Acosta and President Trump during a press conference last week. Mr. Trump had no problem suspending Mr. Acosta’s access to the White House.

Congressional Democrats have attacked the merger from the net neutrality angle. Democrats such as Senator Ed Markey have come out against the merger in part due to antitrust and consumer protection reasons. According to Senator Markey, telecommunications policy should ensure that, ” … those with the best ideas, not simply the best access, can share their content with the world.”

But given that net neutrality was not at the top of voters’ holiday shopping list last week, I don’t expect Democrats to approach the Trump administration with anything that looks like a temporary truce. According to analysisanalysis by Gizmodo, a sweep of 1,180 campaign websites saw very few office seekers trumpeting the call for a free and open internet. Real household issues, such as healthcare and the economy, were on the top of family priorities.

I’ve read analysis where it is expected that outgoing Republicans licking their wounds from their 2018 defeat will vote to approve the resolution that passed last May in the U.S. Senate to repeal the Federal Communications Commission’s Restoring Internet Freedom order. This order, passed in 2017 by the Commission, repealed a 2015 Commission order that implemented net neutrality rules. The argument is that outgoing GOP congressmen who probably leaned toward the open internet philosophy would want to appease their former constituents by supporting net neutrality rules. I don’t see that happening.

I expect that outgoing Republicans will pay attention to whatever housekeeping matters are on the agenda, including tomorrow’s testimony by Federal Reserve chairman Jerome Powell before the House financial services committee. Besides, why would a GOP former congressman want to relieve themselves of their conservative bona fides so early after an election. You just don’t relieve yourself so quickly of political capital that you will need for any future political endeavors.

The banking industry prepares itself for Maxine Waters

The past 48 hours have been filling up with analysis as to what the next moves by the House Democrats will be as they take over the lower chamber on 3 January 2019.  Here is my quick take.

U.S. Representative Maxine Waters, Democrat of California, is expected to become chairman of the U.S. House Committee on Financial Services and using her new position to seek increased regulation of the major banks in the United States.  These banks may include JP Morgan Chase, Bank of America, and Wells Fargo.

According to reporting by CNBC, Mrs. Waters would like to shut down Wells Fargo for good.  Mrs. Waters holds the financial industry responsible for foreclosures that occurred during and in the wake of the 2008-2009 financial crisis.  She wants higher fines for financial institutions that break the law and some banks believe that Mrs. Waters will use the committee’s subpoena powers to harass Wells Fargo and other banks. It is also believed that Mrs. Waters would focus on the Consumer Financial Protection Bureau and housing reform should she become chairman.

According to analysis by MarketWatch, elevated levels of headline risks are expected for banks with Ms. Waters at the helm of the House financial services committee. While her measures won’t pass the Republican-dominated Senate, it is the negative perceptions she may create about the financial industry that has analyst worried.

And these negative perceptions may be generated by investigative powers stemming from Mrs. Waters ability to issue subpoenas once she assumes the chairmanship.

The American Bankers Association acknowledges the flip in agendas resulting from a new chairman at the helm and expects Congress to be very involved in oversight. The ABA wants the banking industry to brace itself for something it has never seen before in terms of the tone of the potential incoming chairman.  Given Mrs. Waters tenor, the ABA hopes that remaining moderates on the Committee can move Mrs. Waters toward pragmatism.

The ABA is has identified top issues for the 116th Congress including anti-money laundering, data security, cannabis banking, and reform in government sponsored entities. With one-third of the house financial services committee expected to be new members, the ABA is ready to launch an education campaign toward these members.

Watching Mrs. Waters at the helm of the Committee will be an experience to say the least.

Urbanization: Atlanta isn’t Delhi … yet

According to economist Dambisa Moyo in her book, Edge of Chaos: Why Democracy is Failing to Deliver Economic Growth and How to Fix It, 55% of the world’s population lives in urban areas and that number is rising.  In this Bloomberg podcast, Stephanie Flanders provides some insights into the inequality brewing in urban areas while at the same time serving as a hub for attracting workers seeking higher incomes.

In the podcast, Ms.. Flanders uses Delhi, Mumbai, and other cities in India as case studies for urban population and economic growth, the problems with governance, and income and wealth inequality. I don’t have to travel to south central Asia to witness inequality.  Living in Atlanta I see inequality everyday where a significant population of Blacks and Latinos take the train into Atlanta’s core to go to work.  Cranes are everywhere downtown as the city continues to put up new office and residential buildings.

And just this evening, Atlanta’s city council heard over seven hours of public comment before approving a proposed project that would turn 40 acres of downtown space into a complex of residential and commercial space.

The concerns about inequality have leaked into public policy proposals, including promises in 2017 by then mayoral candidate Keisha Lance Bottoms to increase the amount of affordable housing in Atlanta.  Today, Mrs. Bottoms is mayor and, to her credit, has made affordable housing the tip of her economic development spear.  Late last evening Mayor Bottoms scored big in persuading Atlanta’s city council to approve the $5 billion project.  One condition of project approval was for developers to set aside a required minimum affordable housing units of 20% or 200, whichever is larger.

I think even with these efforts, Atlanta is on its way to being unaffordable for middle income residents.  Buckhead, Midtown, and soon downtown will be out of reach for the middle class.  Even residential areas in the southwest and southeast quadrants of the city may be unaffordable for an increasing number of residents as people moving back into the city with either sufficient capital or credit have been able to take advantage of low rates and purchase homes in the West End, Westview, and Adair Park sections of the city.

What should Atlanta policymakers do? Nothing. A tax and income redistribution scheme may only provide very short term relief to the middle income populace. Higher property taxes would threaten housing values and give homeowners second thoughts about maintaining residence in Atlanta.  Requiring developers to set aside affordable units for each of their projects can only go so far given the limit on the number of appropriate projects in the first place.

As Ms. Flanders points out in her podcast, municipalities in the United States may have a bit more independence and flexibility to effect affordable housing policy but eventually the market for housing, available capital, and credit markets will limit the availability of units overall and affordable housing in particular making urbanization a difficult environment for the middle class.