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Row gently here,

My gondolier,

So softly wake the tide,

That not an ear,

On earth, may hear,

But hers to whom we glide.

Had Heaven but tongues to speak, as well

As starry eyes to see,

Oh, think what tales ’twould have to tell

Of wandering youths like me!

Now rest thee here.

My gondolier;

Hush, hush, for up I go,

To climb yon light

Balcony’s height,

While thou keep’st watch below.

Ah! did we take for Heaven above

But half such pains as we

Take, day and night, for woman’s love,

What Angels we should be.

—Thomas Moore, Venetian Air

Commentary & Analysis
Global Macro Questions Friday

#1: If staying in the EU is so good for UK exports, why is it running a gaping current account deficit and ever-widening current account deficit?

UK Quarterly Current Account Balance 1969-2016:

Interestingly, Germany’s current account balance has done a bit better than the UK’s since the introduction of the euro…

and the argument: “Trade will suffer” if not part of the EU doesn’t seem to apply to non-EU Switzerland…

Nor does it seem to be hurting non-EU Norway (granted oil a big driver here; but still):

#2: Why is European Union Chief Jean-Claude Junker so hubris-filled that he can offer to educate ex-London mayor Boris Johnson about the EU?

“In my February 4 blog entry I argued that while German institutions and policymakers are as responsible as those in peripheral Europe for the debt crisis, in fact it was German and peripheral European workers who ultimately bear the cost of the distortions, and it will be German households who will pay to clean up German banks as, one after another, the debts of peripheral European countries are explicitly or implicitly written down. The overwhelming, and overwhelmingly favorable, response I received makes it clear to me that far more Europeans understand this than perhaps their political leaders want to believe. Among other things this suggests that it does not require lack of solidarity with their fellow Europeans to drive ordinary Germans to refuse to pay for the worsening crisis. It could just as easily be their unwillingness to continue to participate in a process in which workers and middle class households in Europe are being forced to pay to maintain policy mistakes that have benefitted mainly wealthy owners of European assets.”

Professor Michael Pettis;

“While European leaders are focused on the upcoming Brexit referendum, Greece’s seemingly never-ending debt negotiations and the migration issue, buried in the reports of national banks across southern Europe is a trend that should be triggering alarm bells throughout Europe. Southern European economies have been grappling with the problem of non-performing loans, which stand at around 18.1 percent of all debt in Italy (360 billion euros or $403 billion), 12 percent in Portugal (33.7 billion euros) and 10 percent in Spain (129.2 billion euros).”

Lili Bayer,

“The European Union has fragmented with the decline of coherent decision-making and the unwillingness of individual states to adhere to any central authority. Meanwhile, southern Europe remains in a deep depression with more than 20 percent unemployment in Greece. Britain will hold a referendum on whether to leave the EU while independence movements in places like Catalonia have strengthened. On issues ranging from economic dysfunction to the migration problem, Europe’s central crisis has been political. The EU has been unable to make, implement, and enforce effective decisions. As a result, it is facing informal dissolution—a situation where the EU exists, but it is increasingly ignored.”

Geopolitical Futures Special Report on Germany, “Germany’s Invisible Crisis”

#3: If “free-trade” is so good, why does US GDP fall when we have “free-trade” and rise when the US increases tariffs?

“In short, America’s adoption of free trade policies for itself in the seventy years since the Second World War gave rise to protectionist vested interests in the societies of its trading partners. Today, the more that the US continues on the same free trade path the more it will encourage protectionism abroad and the worse that the global imbalances will become.

“There is overwhelming historical evidence that links protectionism with rapid growth, especially in US economic history:

  • Alexander Hamilton’s Tariff Act of 1789 launched the United States as an unapologetically protectionist economy with a 15% average ad valorem tariff imposed “for the encouragement and protection of manufactures.” Between that year and 1827, the average annual GDP growth rate was 4.5%.
  • The 1828 Tariff Act (dubbed “Tariff of Abominations” by the slave-owning southern United States) raised tariffs dramatically (to a 25% ad valorem rate and to 50% on dutiable items). Between 1828 and 1857, this high level of tariffs was maintained virtually intact. The average annual GDP growth rate soared to 5.3% for the 30-year period.
  • The Tariff Act of 1857 reduced tariffs to 15%-18% ad valorem for four years until 1861, during which time the average annual GDP growth rate collapsed to 1.8%.
  • The 1861 Morrill Tariff raised tariffs initially to 26% overall ad valorem and 36% on dutiable items. These were later raised to 38% and 48%, respectively, and inaugurated an era of high protectionism that lasted until 1913. That was the year in which the US became the world’s largest exporter, surpassing Great Britain and Germany. For the half century from 1861 to 1913, the average annual GDP growth rate was 4.53%.
  • The 1913 Underwood-Simmons Tariff reduced rates to 26% on dutiable items and to 12.5% overall ad valorem. The effect of these tariff reductions on GDP cannot be estimated because the First World War intervened. During the war years, GDP growth average 15% but was fueled by a fivefold increase of federal debt. (In the Second World War, with much higher tariffs, GDP growth averaged 16.2% with only a twofold increase in debt).
  • The end of the First War was followed by an economic depression in 1920-22, with a GDP decline of 17% from $88.4 billion to $73.4 billion. That depression ended suddenly and sharply, partly as a result of aggressive protectionist measures.
  • The September 1922 Fordney-McCumber Tariff Act raised the tariff of dutiable items to 39% (from 26%) and the overall ad valorem tariff to 14% (from 12%). What followed was the era of the Roaring Twenties from 1922 to 1929, with an average annual GDP growth rate of 5.7% and a huge reduction of the federal debt. The massive growth that followed these 1922 tariff hikes took place despite the fact that America’s trading partners retaliated with massive tariff hikes of their own.
  • The notorious June 1930 Smoot-Hawley Act, the supposed harbinger of all sorts of Great Depression evils, had much less of a bite than the 1922 Fordney-McCumber tariff hike: by 1935, the overall average ad valorem tariff was 15.6% (up from 14% in the previous tariff regime). Moreover, it can be argued that Smoot-Hawley was enacted by President Hoover as a defensive reaction to boycotts and rate hikes against American exports promoted by foreign governments before Congress passed Smoot-Hawley.

“After the end of the Second World War, the US led the liberal reorganization of world trade under the Bretton Woods Agreements (IMF and GATT). The US opened its hitherto protected domestic markets to imports from war-torn Europe and Japan, at the same time allowing those destroyed economies to raise protective barriers against US exports until such time as their economies recovered.”

Criton Zoakos,

#4: Can there be such a thing as a “currency war” in a world of free-floating rates?

There are lots of people making money by writing books proclaiming “currency wars” will destroy the world. But it is so confusing. These same charlatans analysts said it was a ‘currency war’ when the US dollar was falling; but to them it is a “currency war” still while the US dollar is rising. Hmm…I guess saying there is a global “stimulus war” just doesn’t sell as many books or newsletters.

#5: Why is Paul Krugman, economist extraordinaire and New York Times columnist, still gainfully employed?

It is too perplexing to comprehend.


Happy Friday! Enjoy your weekend.

FYI for my fellow scotch-lovers in the midst: I will be sipping a dram or two of Glenlivet Nadurra later this afternoon—one my all-time favorites (a review from Ralfy). You may wish to add it to your radar screen. And I want to thank Jerry for the Dalwhinnie 15 reco—good stuff indeed. receives a small credit from any purchases through the Amazon links above to help support the free content and features of our site…enjoy!