Thursday, May 21, 2015

An existential quandary for opponents of the Export-Import Bank

I see in the news that conservatives in Congress are declaring victory over the Export Import Bank of the United States. Despite the loss of thousands of jobs, they want to see the Ex-Im Bank go. Seems like anything that costs jobs is a good thing for conservatives in Congress, doesn't it?

Let's see if we can put this situation in context. The Ex-Im Bank exists to provide loans, insurance and guarantees to American businesses to ensure that American products can meet demand in foreign countries. It's not allowed to compete against private banks, yet, that is what it does. To put it simply, the Ex-Im Bank takes the business that commercial banks don't want.

Getting rid of the Ex-Im Bank actually makes sense, if you have balanced trade or even a trade surplus. But we haven't seen that in decades. According to this chart, we haven't see a surplus since 1982:


Seems rather interesting that we haven't seen a trade surplus since Reagan was elected to office. Granted, the Ex-Im Bank was created in 1945 so it would seem that even during surplus years, there was a need for the bank. But considering the trade deficits of the last 30 years, wouldn't the need for the Ex-Im Bank be even more pressing? Why would anyone be so hot to see it go?

Robert Samuelson, an economics journalist and contributor to the Washington Post has this to say:
"The central fact about the Ex-Im Bank is that, in the $3.5 trillion federal budget, it is a pygmy. It has about 400 employees. In 2013, its operating budget — its overhead — totaled $90 million, according to a report from the Congressional Research Service (CRS). But these expenses were fully paid by fees and interest from Ex-Im’s private customers. There was no direct drain on taxpayers. Indeed, the bank turned a profit in 2013 and paid $1.1 billion to the Treasury. If it were eliminated, future deficits would probably increase, albeit by small amounts."
Wow. They pay their own way and they gave money back to the Treasury. Yet, Republicans want to toss thousands of people on the street looking for jobs just to eliminate a government bank that makes money for the government? Shouldn't *that* be the news?

If Republicans really want to get serious about trade, they should look no further than the strong dollar policy they started in 1981. The shortest path to balanced trade is fighting currency manipulation. Sure, there are some who like to manipulate currency for fun and profit, you know, like the traders at the 4 biggest American banks that just pleaded guilty and agreed to pay more than $5 billion in fines. None of the C-class executives or traders who took part will ever see jail time, but no one is talking about their impact in trade either. Besides, that's pocket change compared to the broader context.

China has $4 trillion in currency reserves, the largest of any reserve in the world, 3 times larger than #2. They don't say much about the composition of the reserve, but most economists say that it is almost all denominated in US dollars. This is currency manipulation, to keep the trade deficit looming large in the United States. China isn't the only one, either. Many of the Asian countries have amassed large dollar reserves to keep the dollar strong, to ensure that their exports are competitive.

Asian countries have been collecting dollars since the currency crisis in Asia in 1992. But the trade deficits started long before then. All this dollar hoarding has been largely unreported by the mainstream press. What I mean to say is that the dollar hoarding has been unreported in the context of maintaining a strong dollar. It's almost as if the intention is never allow the middle class to notice that the hoarding is permitted in order to keep the dollar strong.

If you want to profit from imports, keep the US job market weak to suppress wages and not get noticed, ensuring that the link between large foreign reserves and the trade deficit are obscured would be a priority. If Congress wants to let the Ex-Im Bank die, so be it. But they need to be clear about the trade deficit and do something about it. Instead they're letting the debate over the Ex-Im Bank obscure the real problem with trade, the strong dollar.

Maybe a threat of default on the debt would be a good thing. But it might not be enough to balance US trade with the world.
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