The Witch is dead!

The (recession) Is dead...

The National Bureau of Economic Research issued a statement that the “trough” ended in June 2009.
So  how come we feel like the house fell on us?

  • Inavailability of skilled machinists
  • China continues to manipulate its currency;
  • North American OEMS continue to try to move work to China;
  • Inavailability of credit from Banks;

PMPA’s Business Trends Sales Index proclaimed “The Lost Decade” in March and “A New Normal” in April.
The Lost Decade was when our sales index returned to year 2000 levels. The New Normal is its new range at those year 2000 levels.
See our announcement here.


Poorly served by our Executive Branch!

After postponements and a head fake by the Chinese, the US Department of the Treasury has once again failed to name China as a currency manipulator.
You can read the Treasury Department  Report to Congress here.
Here’s what Treasury Tim Geithner had to say:
“What matters is how far and how fast the renminbi appreciates…We will closely and regularly monitor the appreciation of the renminbi and will continue to work towards expanded U.S. export opportunities in China that support employment in the United States, in close consultation with Congress.”
Hey Tim,  how many more years do you guys think you’ll need to closely and regularly monitor this?

 Chinese Yuans to 1 USD (invert,data) 

Chart courtesy  

When do you guys think it will be time for action? This is the same old do nothing approach we suffered through from the last administration. (PMPA has been active on this issue since 2004 when we joined the China Currency Coalition)
When was that “Change”you guys campaigned about  supposed to arrive? 
On the China Currency Issue, NOTHING HAS CHANGED
We mentioned this before here, here and here.
So what can you do? Help us get Congress to do what the Administration can’t won’t.
National Currency Call-in  DayInstructions. Today!
Manufacturers from all across the United States will be contacting their legislators asking them to support Senate Bill 3134 and co-sponsor House Bill 2378. 
Congress needs to hear from manufacturers on this important issue, so they’ll move on legislation to provide the Administration with additional tools to prosecute illegal currency manipulators. Clearly, the Executive Branch can’t get it done. 
The time to act is now.
Photo credit: Poster, Yuan

Guest post by Peter Morici “The fact is nothing the Fed does can appreciably accelerate U.S. economic recovery or stem deflation as long as China continues to print yuan, buy dollars and U.S. securities, and make its products woefully cheaper than its comparative advantage warrants in the United States and Europe.”

Through the boom years of the last decade, Beijing printed yuan to purchase hundreds of billions of dollars in foreign exchange markets. That made the yuan and Chinese products on U.S. store shelves artificially cheap, and imports from China, coupled with higher prices for imported oil, pushed the U.S. trade deficit to more than five percent of GDP from 2004 to 2008.When Americans spend that much more abroad than foreigners purchase in the United States, American goods pile up in warehouses and a steep recession will result, unless Americans spend much more than they earn or produce.During the boom, China facilitated such folly by using its dollars to purchase U.S. Treasury securities, and that kept U.S. long interest rates artificially low, even in the face of Federal Reserve efforts to reign in spending.From 2003 to 2006, easy terms prevailed on mortgages, homeowner lines of credit, car loans, and credit cards even as the Fed raised the federal funds rate. Americans borrowed against their homes, pushed real estate prices to unreasonable levels, and spent on Chinese goods at Wal-Mart until the credit bubble burst in late 2007 and 2008.China continues to recklessly print yuan to buy dollars and U.S. Treasuries, and all those yuan are creating inflation and real estate speculation in China that Beijing can’t contain.
With the dollar still overvalued by some 40 or 50 percent against the yuan, the U.S. trade deficit with China, and other Asian countries practicing similar currency mercantilism, is growing again. This deficit saps demand for U.S. goods and services, slows U.S. recovery, and suppresses U.S. land values and fuels fears of deflation in the United States, even though the U.S. banking system is flush with cheap credit from the Fed.
The fact is nothing the Fed does can appreciably accelerate U.S. economic recovery or stem deflation as long as China continues to print yuan, buy dollars and U.S. securities, and make its products woefully cheaper than its comparative advantage warrants in the United States and Europe.
Coupled with its high tariffs and administrative barriers to imports on anything the Chinese can make themselves, no matter how awkwardly or inefficiently, Beijing is hogging growth and jobs, and spreading unemployment and budget misery among workers and governments from Sacramento to Athens.
This past weekend, Beijing announced it will permit some more exchange rate flexibility but we have heard those words before. China will likely permit the yuan to rise slightly against the dollar-much less than six percent a year-while the true value of the yuan rises much more, thanks to Chinese modernization and productivity improvements.
China’s announcement is a cynical ploy to assuage critics less than a week before G20 meetings, and without a substantial one-off revaluation of the yuan, Beijing’s words are hypocritical and selfish.
China’s yuan policy makes the Fed nearly irrelevant but for crisis management-bailing out big banks and European governments that make fatal mistakes.
Worse, President Obama’s failure to take strong action against Chinese currency manipulation-for example, a tax on dollar-yuan conversion to make the price of Chinese products reflect their true underlying cost-crippled the jobs creation effectiveness of his $787 billion dollar stimulus package and delivers ineffective his broader efforts to resurrect the U.S. economy.
Obama’s exclusive reliance on diplomacy forfeits U.S. monetary policy to Beijing, renders impotent U.S. fiscal policy, and visits enormous pain on American workers.
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.


Guest Post by Peter Morici, Professor and former Chief Economist, US Trade Commission.
The Washington Post reported on Friday morning that Treasury Secretary Timothy Geithner and Chinese Vice Premier Wang Qishan were close to a deal that would permit the Chinese yuan to appreciate by 3 percent this year.  

3%! Woo Hoo! We're REALLY Impressed!

This is wholly inadequate and would do little to resolve the U.S.-China trade imbalance, which was $227 billion in 2009 and 60 percent of the total U.S. trade deficit. The balance was largely oil. 
China’s yuan is likely overvalued by 40 percent, and Beijing accomplishes this by printing yuan and selling those for dollars to augment private transactions. In 2009, those purchases were $450 billion or about 10 percent of its GDP and 28 percent of its exports of goods and services. 
The U.S. trade deficit with China and on oil causes a shortage of demand for U.S. made goods and services and stifles investment in U.S. export industries, which are the most productive and R&D-intensive industries. 
In 2010, the trade deficit with China is reducing U.S. GDP by more than $400 billion or nearly three percent. Unemployment would be falling rapidly and the U.S. economy recovering more rapidly but for the trade deficit with China and Beijing’s currency policies. 
Longer term, China’s currency policies reduce U.S. growth by one percentage point a year. The U.S. economy would likely be $1 trillion larger today, but for the trade deficits with China over the last 10 years. 
A three percent revaluation of its currency will do little to change those numbers. In fact, because of Chinese modernization, the intrinsic value of China’s currency rises each year. Hence, a three percent revaluation over the next year would not even amount to the change in yuan undervaluation. 
As the U.S. trade balance with China grew worse, Beijing could say “see exchange rates don’t matter.” 
Beijing is playing the Obama Administration for fools. 
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.

The Precision Machined Products Association recently joined forces with the Forging Industry Association, Industrial Fasteners Institute, National Association for Surface Finishing, National Tooling and Machining Association and the Precision Metalforming Association in a formal letter to U.S. Treasury Secretary, Timothy Geithner, asking the Secretary to cite China as an illegal currency manipulator in the Treasury Department’s Semi-Annual Report on International Economic and Exchange Rate Policies.
This joint letter urges Secretary Geithner to take action on this critical issue facing domestic manufacturers. Review the formal letter here.

China's currency manipulation puts rest of world at a disadvantage.

Why is the China Currency Issue important?
It is a threat to the Global Economy.

If China continues to beggar the world with its currency manipulation, as it dumps cheap products here, and stockpiles currency reserves, we will continue to suffer from  

Direct result of currrency manipulation.

  1. Global trade imbalances;
  2. Unemployment (especially manufacturing unemployment) in the US 
  3. Increasing pressure for protectionism everywhere.

 How much is the Yuan undervalued? A mere 40% according to Bryan Rich.
“While most of China’s major economic competitors around the world have seen their currencies climb against the dollar by 20%, 30%,40%, even 50% in the last eight months, the Chinese yuan has been virtually unchanged” he wrote last October.

40 % undervalue currency exports unemployment to USA.

Money and Markets Graph
What can you do? We’re glad you asked!
Send Action Alert to your officials.

Michelle Applebaum is the analyst we follow for steel industry developments.
She has the best handle on the statistics that we care about and a lifetime of experience to help her craft that “handle.”
In her latest piece  for American Metal Market  Ms. Applebaum lists 3 meaningful structural issues to be addressed:
1) Call China a currency manipulator once and for all.
2) Steer clear of trade agreements that turn into legalized rape.
3) Create a government platform where stability – of environmental costs, social costs, and defense against assaults on our trade laws will enable industry to make long term financial commitments.
Michelle led her piece with the following line- I think it is really the perfect closing to this discussion:
“Its absurd- and even arrogant- to expect to be able to export our products into other countries when we can’t even defend our markets at home.”

How 'bout them apples?

How ’bout them apples?

Exports hit $130.7 billion during the month as global trade perked up, bringing China’s full-year export figure to $1.20 trillion, according to figures from the General Administration of Customs.
The nation’s trade surplus hit $18.4 billion for the month of December,
According to Agence France, ” With China’s trade data for all of 2009 now out, the nation’s crowning as the 2009 export champion is expected to be confirmed when Germany releases full-year trade figures on February 9.”

Exports up from China? We're Shocked!

 We wonder if predatory currency manipulation might be involved?
Ya think?

Great discussion of this issue here.

China needs the U.S. economy to recover strongly and renew its import growth. Otherwise, China will have a tough time sustaining its recovery,” said Eswar Prasad, an economist at Cornell University. That is one of the key reasons China is reluctant to lift its currency now.”
So it’s up to US to keep buying?


 Guest Post by Peter Morici 
No economic policy could better serve Americans than genuine free trade but open trade policies are failing Americans. Free trade is a compelling idea. Let each nation do more of what it does best, and specialization will raise productivity and incomes. Americans are not sharing in those benefits because President Obama, like President Bush, permits China and others to cheat on the rules, unchallenged, to the detriment of the U.S. interests he was elected to champion. 
The World Trade Organization has greatly reduced tariffs, prohibits virtually all export subsidies, and regulates other national policies that could subvert trade, such as health and product safety standards arbitrarily slanted to favor domestic suppliers. 
For these rules to optimize trade, raise productivity and boost incomes, exchange rates must adjust to reasonably reflect production costs. To buy Chinese televisions, Americans must be able to purchase yuan with dollars; however, an artificially strong dollar that overprices U.S. tractors and software in China will unravel the benefits of trade by denying Americans opportunities to export to pay for those televisions. 
Exchange rates are established in currency markets, created by businesses trading through major financial institutions. Unfortunately, China and several other Asian governments blatantly manipulate those markets without a credible U.S. response and with ruinous consequences for American workers. 
The United States annually exports $1.6 trillion in goods and services, and these finance a like amount of imports. This raises U.S. gross domestic product by about $170 billion, because workers are about 10 percent more productive in export industries, such as software, than in import-competing industries, such as apparel.
 Unfortunately, U.S. imports exceed exports by another $400 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, where productivity is at least 50 percent lower. This slashes GDP by about $200 billion, overwhelming the gains from trade, and requires workers displaced by imports to accept lower wages.
Imports exceed exports.

 The trade deficit creates an excess supply of dollars in international currency markets, as Americans offer more dollars to purchase foreign products than foreigners demand to purchase U.S. products.
 Simple supply and demand should drive down the value of the dollar against the yuan and other currencies, make U.S. imports more expensive and exports cheaper, and reduce or eliminate the trade deficit. But the Chinese government subverts this process by habitually printing and selling yuan for dollars in currency markets, keeping its currency and exports artificially cheap.
 Currency manipulation creates a 25 percent subsidy on China’s exports, and other Asian countries are impelled to follow similar policies, lest their exports lose competitiveness to Chinese products.
 Also, huge trade imbalances between Asia and the West, perpetuated by currency mercantilism, create an imbalance in demand-a shortage of demand for the goods and services produced in the United States and Europe, and artificially robust demand for products made in China and elsewhere in Asia.
Who's on top?

 Consequently, to keep the U.S. economy going, Americans must both borrow from foreigners and spend too much, as they did through 2008, or their government must amass huge budget deficits by borrowing from abroad, as it is now does thanks to stimulus spending and the TARP.
 In the bargain, the United States sends manufacturing jobs to Asia in industries that would be competitive, but for rigged exchange rates. The trade deficit slices $400 to $600 billion off GDP, and Americans suffer unemployment above 10 percent.
Effect of policy inaction.
 China grows at nearly 10 percent a year and makes American diplomats look like fools for advocating free markets as a growth policy.
 Campaigning for the Presidency, Barack Obama promised to do something about Chinese currency manipulation. Instead, like a good supplicant, he now thanks Chinese officials for buying U.S. Treasury securities.
 China’s development policies make its leaders look smart but nothing makes them look like geniuses better than an American president who appeases their beggar-thy-neighbor policies.
 It will be impossible for the United States to create the 9 million jobs needed to bring unemployment down to pre-recession levels without taking on China’s currency manipulation and other unfair trade practices. 
For that Americans may need to wait for a better president-one with the courage to stand up to China. 
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.

Currency Photo credit.

So much for Change…
The Associated Press reports that “the Obama administration on Thursday declined to name China as a country that is manipulating its currency to gain unfair trade advantages.”
“The Treasury Department did say it has “serious concerns” about a lack of flexibility in the value of China’s currency against other currencies, and the country’s rapid accumulation of foreign exchange reserves including U.S. dollars.”
“The administration’s decision came in a report the Treasury is required to submit to Congress twice a year. Based on a 1988 law, the administration must designate countries judged to be manipulating their currencies to boost their exports to the United States or make U.S. products more expensive in overseas markets.”
Obama promised to take a tougher stance against China on trade issues

"Where's the Beef?"
"Where's the Beef?"

during his  campaign for the White House last year.  He pledged to take a tougher approach to China than the Bush administration did. He said the failure by Bush and Paulson to label China a currency manipulator was “unacceptable,” and he endorsed legislation to let US companies seek import duties to compensate for the advantage an undervalued currency gives their Chinese competitors.
But in both the April and the current October report, the administration declined to name China a currency manipulator.
Here’s the story from the AP: