US Politics

Four Ifs by Fed, Two Ifs by Me? Why the Reserve Board Will Likely keep Its Interest Rate Powder Relatively Dry in 2016

Since announcing last December that it would increase by .25 percent the range of its base interest rate for overnight lending for nearly a decade, the US Federal Reserve has signaled in multiple ways its intent to continue such increases four times during the course of this year. Initially, this intent was signaled by the release, in conjunction with its last 2015 meeting, of the “central tendency” of the projections of the rate-setting “Open Market Committee” participants (the now famous “dot plots” on a graph). Those plots showed that, disregarding the highest and lowest projections, the middle of the pack of opinion was represented by a path of four rate increases of .25 percent each by the start of 2017. While this would be a slower than usual pace of rate increases by past Fed standards, it would nonetheless bring the base rate to a range of 1.25 – 1.50 percent, essentially a full point higher than where the range stands today.

Ever since then, the US financial markets have more or less indicated their displeasure with this “tendency” in the best way they can to get attention. Bond markets rallied with prices higher and interest rates lower, reflecting a conviction among market participants that economic conditions have veered downward with deflation, rather than moving in the direction of continued modest expansion and 2 percent inflation projected by the Fed at its December meeting. Lately, a number of market participants are going even further and predicting the onset of a US recession (two or more consecutive quarters of negative movement in GDP), which would certainly argue for more, not less, Fed “accommodation” to the market–either in the form of another round of quantitative easing in bond purchases to pump lendable money out to banks, or course-reversing decreases in the base interest rate (for which the Fed has only marginal room at best before “going negative,” as Europe has.

Regardless of whether the bond market is right in suggesting a recessionary case, the equity market, which has been at odds with bond market expectations for most of the last few years, has also been shooting flares at the Fed’s intentions in very dramatic fashion. Indeed, there is simply no historical precedent for the precipitous drop in US equities since the first trading day of the year, when on average an investor lost $16 for every $1000 in the market and has kept on losing money ever since through the first two weeks of the year.

There are, of course, multiple rationales for the equity market correction (a 10 percent drop or more), the second in six months. Indeed, some of the reasons are the same as occurred in August: data showing a serious decline in the Chinese export economy, and a precipitous devaluation of the Chinese currency in the context of continued relative strength of the US dollar, as well as the partially-related continuing decline in the price of oil in view of increased current and anticipated market supply and weakening Chinese and emerging market demand, which also led to a drop in the pace of US manufacturing! In addition, there was a perception in some market quarters that the Federal Reserve might take steps to increase interest rates in September, while the US economy was showing signs of increasingly vulnerability to foreign emerging market damage, caused by the rising value of the US dollar against their currencies (exacerbated by the drop on the Chinese yuan) and the ensuing flight of capital from their economies–which would be made worse by such an increase.

Ironically, the decision of the Fed to hold off an expected September rate increase was roundly criticized in some quarters because the Fed expressly cited global economic conditions potentially threatening the US recovery as one of its reasons for deferring the first increase at that time. These critics said the Fed has no business taking foreign situations into account to the extent that it seemed to be adding a “third mandate” in terms of global financial market stability to its list of responsibilities.

Now, the Fed was never adopting a third mandate to work for foreign countries. Its September focus on negative Chinese and global economic trends was quite obviously because of the potential US-side effects of those negatives on the Fed’s statutory twin mandates–optimal employment and stable prices! Indeed, today’s Fed critics are adopting that very same perspective the Fed was criticized for back in September, urging the Fed to most certainly pay heed to the adverse developments in the Chinese and emerging market economies because they may be leading to a global recession that will be imported along with attendant deflation to the US.

Nonetheless, in the past week, both Vice Chair Stanley Fischer and New York Federal Reserve Bank President William Dudley went out of their way in public remarks to assert that the projected four rate increases this year were still “in the ballpark” and definitely on the table, notwithstanding the offshore negatives. Yet the minutes of the Fed’s Open Market Committee’s December meeting, released January 6, reveal the Fed itself was divided and unsure of the direction of the US economy, citing “significant concern about the still low readings on actual inflation” and “risks present in in the inflation outlook.” These concerns would now seem to be increased by the continuing drop of the current market price of oil to levels below $30 per barrel, not seen since 2003.

Coincidentally, the same Business Section of The New York Times that offered the headlines “Oil Prices Decline More than 5 Percent as Stockpiles Increase,” and “New Fears of a Slowdown in China Spur Selling” (January 7, 2016) also contained the article titled “Minutes Indicate That Fed Still Has Inflation Doubts.” The story noted questions about how much farther Fed officials are willing to raise rates without clear evidence the pace of inflation is also rising. Fortune Magazine had a similar take on the Fed’s divided state of mind.

In the coming days and weeks, there will be multiple data points to be considered before the Fed’s coming January and March meetings (nobody expects a rate increase in January, but the “four more hikes” play call virtually requires one in March) by a Federal Reserve that has promised its interest rates decisions going forward will be “data dependent,” regardless of their dot-plot projections: fourth-quarter 2015 GDP (currently within 1 percent or less of recession levels in most forecasts); January and February employment reports; manufacturing and service business trajectory; consumer spending levels; retail and housing sales; and, of course, producer and consumer price levels. A generally centrist Fed official, St. Louis Reserve Bank President James Bullard, while not directly contradicting the “four more in 2016” rate rise track, did note the potential impact of falling oil prices on the Fed’s 2 percent inflation target. This note may well imply that such incoming data will prove to be more important than the dot-plot projections of four rate increases this year, especially because of the effects of further downturns in China on the drivers of that data, such as the price of oil and the prospects for currency-related, deflationary discounts on products imported to the US.

But there have been very few mentions of another factor that could tip the balance against four or more rate increase this year: 2016 is a presidential election year. The Fed meets only eight times a year, so four increases would average one increase every other meeting. Assuming the incoming data causes a March deferral, that would leave only six for four, right into the teeth of the nominating and final election campaign. George H. W. Bush famously blamed his re-election loss in 1992 on the Fed’s Alan Greenspan, for his resistance to cutting interest rates faster during the recession preceding the vote.

The Fed certainly would want to avoid a mistake in terms of excessive interest rate increases that tip the economy into recession (that’s why its public statements hedge with respect to “data dependence”). But it would also not want to be perceived to tip the election to one candidate or another; let’s just call that “date dependence”–the date of the election! The prediction here is that this year will see two rate increases at most: one in April or later, and the other after the election in December.

For the moment, Chinese GDP data has come in at 6.9 percent for 2015, down .4 percent from the prior year and in line with reduced expectation, stabilized by retail sales growth of 11.1 percent year over year (just short of estimates), while manufacturing contributions continued to tumble as expected.

These numbers reflect an overall 25-year low in GDP, but also suggest a level of stabilization that left markets in Asia marginally positive, with Shanghai up slightly as well. What remains to be seen is whether these numbers will in turn stabilize the US markets enough for the Fed to jump ahead with a .25 percent increase in March. And that would seem to turn on whether the strong employment data averages of 284,000 net new jobs in Q4 2015 will persist, and whether there emerges actual (not just projected) upward inflation data in Q1 2016. The sense here is “no” on both counts–and that might mean the US equity market could even turn upward, as it did eventually after last September’s Fed flinch.

What Could Trigger the Next US Recession: How About Trump’s Plan to Deport 11+ Million “Illegal” Consumers?

Maybe it’s finally time to take the idea of President Donald Trump seriously. After all, it seems like America’s largest retailer, Walmart, might be doing just that: a few days ago, the giant company lowered its outlook for revenues and earnings, citing a “tougher sales environment” than it expected a year ago (when, of course, Trump was not yet running for President or promising mass deportations). Could it be that the smart, experienced executives who run that company have begun to think through just what the effect on Walmart’s sales would be given a post-election mass deportation of all the estimated 11-12 million undocumented immigrants (plus a goodly number — estimates range from range estimates range from 3.7 million up to 4.5 million — of children born here to undocumented fore whose citizenship Trump plans to revoke by court order)

Likewise, America’s major hospital chains, such as Community Health Systems and LifePoint , have been lowering their expectations for admissions going forward. Perhaps that’s no all due to some or other supposed effect of ObamaCare.

Certainly, there are few if any financial models or precedents for such a mass forced emigration program from the United States. The Japanese internment program in World War II involved only around 127,000 individuals — and most of those persons were held captive within US borders, where they were fed and housed and schooled and provided medical care, while the wartime production economy was booming. The Trump deportation plan (such as it is) involves a vastly larger number of people and logistics, but with the ultimate result of eliminating the equivalent of the entire populations of New York City and Los Angeles from both the production and consumption sides of the US economy. Indeed, the right-wing radio talk show host Rush Limbaugh, who is one of the most consistently vocal backers of Trump’s plan, estimates the number of illegals at 20 million (and that’s just the illegal workers), so he would presumably see the total hit to the economy as including the entire population of America’s five largest cities, plus the Bay Area of San Francisco.

Since candidate Trump has provided few details of his mass deportation plan as yet, we’ll have to use our imagination to work out the scenario; he has said multiple times, however, that it would proceed humanely. But there are only so many ways to search out, pick up, pack up, pen up and then ship out 20 million people in time for the next election. So let’s visualize: the easy part will be stripping out the undocumented felony prisoners, and they already have a place to stay until their plane is ready. But the vast majority also have families, which would argue for at least trying to round them up at the same time, as Trump has indicated he would like to allow families to stay (i.e., “leave”) together.

After that, let’s assume President Trump follows the usual stereotypes of his talk radio chorus. We can imagine would probably become known as “The Night of the Nanny Snatchers,” doing it after dark would be more humane than picking them up as they drop off their charges at school, or via an ICE sweep through the kitchens of upper Park Avenue and Greenwich at dinner time — great for high TV ratings, Donald, but not the kind you’ll want. Likewise, the Federalized National Guard sweeps through the meat-packing plants in Nebraska and Iowa can be carried out first in the night shifts, and those Midwest locations are hardly major TV markets (but Trump will have to do something about the I-phone Twitter videos — he knows all about Twitter).

Rounding up the kitchen and waiting staff of urban restaurants won’t be pretty (but Trump will point out it could lead for an economic boom from the rediscovery of the automat). Nor will hitting the Catholic Church “sanctuaries”, but Trump can get that done on Sundays while most people are watching football. Finally, getting those pesky “Dreamers” rooted out of their college dorms to rejoin their parents in the processing camps, as well their little brothers and sisters in grade and high schools might be a little tougher yet, especially under Trump’s Second Amendment Enforcement Act, which will allow all those kids and their teacher-sympathizers to be armed to the teeth!

But once it’s all done, will the US really experience the economic nirvana of spending savings and surge in job creation that Trump promises from shrinking the US population by at least 15 million? Even if as he promises “the good ones can come back”, from the back of the line, of course? Let’s think about it.

The housing market, which is now finally and firmly in real recovery, would be hit with a glut of millions of abandoned private homes (and, of course, related mortgage obligations — hardly great for homeowners looking to sell for ordinary reasons, or the banks, which will take another round of hits to their balance sheets as housing prices tumble back down with the a new wave of “for sale” signs). Certainly not great for US GDP, as we have seen before, when that figure went deep in the red with the last great housing meltdown.

As to the “giant sucking sound,” as Ross Perot used to say, this time coming from abandoned rental apartment, a big jump in the vacancy rate would lead to lower rents for us citizens, but the deflationary pressures this would pose for the economy would also keep the Federal Reserve from any serious effort to normalize interest rates, which ironically might now be needed to prevent a deflationary spiral toward recession. Those apartments can’t all be turned into Airbnb units — and who’s going to afford vacations with the onset of another recession.

Cutting against the risk of deflation, however, would be the enormous jump in the price of agricultural commodities. Undocumented immigrants constitute slightly more than an estimated 50 percent of all agricultural workers in the US, or over 600,000, who would not readily and easily be replaced without another Civilian Conservation Corps-type of conscription program for unemployed youth. Trump would at least have to go to Congress to authorize America’s first “Lettuce Draft,” but an enormous jump in grocery prices while that gets approved, set up and running would have its own recessionary impact on the balance of consumer spending on goods and services.

Americas GDP is driven 70 percent by consumer spending, not to mention sales tax receipts for states that depend on those receipts in the absence of income taxes. With the collapse in housing from the bottom up due to a deportation exodus, moreover, property tax receipts in these states would also “head south” (figuratively, of course). Restaurant prices would scale up with the cost of fruits and vegetables, which would hit consumption, too, as our citizen families struggle to pay for salads and smoothies. And just think about what will happen to the new and used car markets and the millions of job we now know depend on them, with so many millions of abandoned vehicles left behind to scavengers and junk yards or at best sold quick and cheap before the owners get forced on the plane.

And just think about the collective hit from housing and retail to the US GDP growth rate, which just established a somewhat firmer but disappointing footing of around 2 percent annually, and to the recently resurgent new and used car markets.

One Trump supporter has suggested that the government could put some of the undocumented to work building Trump’s wall on the Mexican border, but apparently they would be paid in pesos, which won’t do much for currency liquidity in the US. But Trump’s experiment with forced labor camps, mass roundups without trial, temporary concentration camps and mass deportation by bus, plane and ship — irrespective of its moral cost — is surely likely to have a dramatic downward effect on America’s economic growth. Unlike the housing crisis, which first bloomed out of sight in the stealthy canyons of Wall Street, this economic debacle can be foreseen with clear eyes well ahead of time — especially as Trump’s mass deportation “plan” continues, in its politically calculating way, to leave things to our imagination.

When Is A Fed Rate Hike Not A Rate Hike? Maybe When it Just Drops The Zero and Goes Back To The Future!

We have lived in an age of the non-denial denial; the non-bank bank; the non-responsive response. Maybe the time is just right for a Federal Reserve interest rate hike that’s really not a rate hike.

The Federal Reserve Board leadership has been stressing the virtue of “transparency” regarding the factors it is considering as it approached the first increase in interest rates since 2006, potentially at it’s mid-September meeting.

Transparency of intentions, however, becomes extremely difficult when the deliberations of the Fed Open Market Committee (which sets the rate) are explicitly data-dependent and the data is mixed! As a result, many of the Committee’s voting members are left, as Jon Hilsenrath documented in the case of San Francisco Reserve Bank Governor John Williams, find themselves “on the fence” as to whether or when to start the increase process.

Such a posture wouldn’t come as a surprise to those inclined to see economists (the profession of most Fed Board members and Governors) as a classic “on the one hand, on the other hand” kind of decision-makers. Politicians, too – and some might say the Fed has a few of those, too — can be that way. Consider the old pejorative political nickname “Mugwumps“: — office-seekers whose “mugs” were perpetually on one side of the fence, while their “wumps” were on the other.

More importantly, however, this posture may be the natural result when the only data available are subject to multiple reasonable interpretations. So it is with the rate decision: even the markets themselves seen as confused as the Fed officials – the bond market has generally been reacting as though no increase should be undertaken just now even though most bond traders seem to think the Fed is already behind and may have missed its chance earlier in the summer to get off the dime.

At the same time bond prices have been showing few signs of an imminently-expected rate increase, the stock market has put itself through a dramatically quick downward correction for the first time in nearly four years. Some commentators considered this late-August move both a cry of pain that the Fed might soon move away from its famous stock market “put” (the zero interest rate policy underwriting and even encouraging a “risk-on” market) but also a cry to the Fed to simply “get it over with already” and end the uncertainty that traders abhor like nature hates a vacuum.

A sudden Chinese currency devaluation led in turn to sudden volatility which in turn triggered computerized trading strategies and ETF pricing difficulties that created a self-reinforcing downward spiral of 1000 Dow points. Some commentators to concluded that the downturn was not merely an overdue correction needed to spur more buying at more attractive valuations but rather the warning signs of global share market vulnerability and a potential bear market, with many US sectors and momentum-driven stocks already down over 20%, the traditional bear market benchmark.

Some even saw the stock price slide as a signal of a coming global recession that could spread to the US itself, despite final revised 3.7% GDP growth in the second quarter of this year — especially if the Fed did not stay its hand. Meanwhile, the IMF and the World Bank have repeatedly warned the Fed not to raise rates just yet because of the effect it might well have on emerging market economies reeling from the impact of the Chinese economic downturn and currency devaluation.

The general sense in the markets and among commentators seemed to be summed up with the well-worn phrase that, in terms of interest rate policy, the Federal Reserve officials were “damned if they do” initiate a rate increase, and “damned if they don’t” as well.

In its July statement on rate policy, the Open Market Committee itself said that in determining how long to maintain the overnight interest rate at the zero to .25% range, it will “assess progress – both realized and expected – toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move n back to its 2 percent objective over the medium term”.Federal Reserve Press Release, July 29, 2015

In addition, in a speech in July, Fed Chair Janet Yellen added that the reference to “medium term” inflation for her meant over “the next few years”. This fairly relaxed standard in terms of estimating the upward path of inflation suggests that current low inflation in the US and further deflationary pressures emanating from China may not be enough to tip the balance against a rate increase in September, especially given recent evidence of “further improvement in the labor market” — including theSeptember 9 release of record job openings in the US.

Even the lower than expected end-August payrolls report of only 173, 000 net new jobs , which also took the unemployment rate down to the 5.1% level expected by the Fed not before year-end, is likely to be revised upward by around 75,00 if the five-year average for August revisions holds.

Accordingly, the September decision seems to hinge primarily on the Fed’s third decision factor: namely, the state of “financial and international developments”. In that connection, the Financial Times reported on September 9 that the World Bank’s chief economist renewed the warning that the Fed risks triggering “panic and turmoil” if it proceeds with a rate increase. Moreover, Citigroups’ chief global economistsopined that the Chinese economy was in worse shape than official statistics indicate and predicted that a coming precipitous fall in Chinese GDP growth would create a 55% chance of a global recession!

In this high-pressure context, it is best to ask ahead of time “What is are the Fed officials thinking?” before we ask later, “What were they thinking?”

Recent public speeches and interviews of the voting members of the Open Market Committee that will decide show a house seriously divided. Two voters, Jeffrey Lacker of the Richmond Reserve Bank and Dennis Lockhart of Atlanta, have both come out rather forcefully in favor of a rate increase in September even in the face of global concerns.

Charles Dudley
of the New York Fed, hover, recently opined that the case of a September increase has become “less compelling”. Also, Vice Chair Stanley Fischergave an interview to CNBC that appeared to leave a September increase clearly on the table. But in a speech the next day observed that he and his colleagues “are following developments in the Chinese economy and their actual and potential effects on the other economies even more closly than usual”.

Fed Governor Lael Brainard spoke in June of the danger of overestimating the positive effects of dollar appreciation and oil depreciation on the US economy, and underestimating the negative effects. Thus fed Chair Janet Yellen faces the prospects of more than one dissent from either a decision to raise the federal funds rate from it current range, of instead to continue with what Brainard called a policy of “watchful waiting”.

The key fact is this: multiple dissents from any September decision would present serious market challenges to the Fed’s credibility, so it is safe to assume that Chair Yellen will want to find a way to thread the interest rate policy needle in such a way as to keep any dissents to a minimum. Thus the most likely and optimal September policy choice would seem to be the one that would produce the fewest dissents. Could there be a way that both the rate “hawks” and “doves” could claim enough of a win to sign on to the statement without dissenting?

How about this: start with a achieving consensus that, whatever the international financial risks, the current level of strength in the US economy and labor markets is decidedly inconsistent with a “zero interest rate policy”. No voting member of the Fed’s Open Market Committee has challenged this view, regardless of whatever his or her view is of the world economic situation. Then consider the possibility that the Fed could simply abandon its “target range” focus (which it initiated only in December 2008 when it created to current range of zero to .25%) and revert instead to its former practice of setting a specific funds rate target.

Combining those two steps, it is conceivable that Yellen could limit dissents to either just one or even none by a decision at the September meeting to set the new specific “target” for federal funds interest rate at .25% — ie, just dropping the zero rate!

Doing the latter should please (if not fully satisfy) the Fed “hawks”; and setting the new target at .25% — consistent with the rate the Fed current pays on bank reserve deposits with the Fed – should mollify the “doves”. Moreover, both the IMF and World Bank could reasonably conclude that going forward merely at the top end of the current target range would not constitute any real change and thus not e perceived as an attack on emerging market economies.

Call this maneuver a “baby step” or a “back to the future” finesse if you will — but sometimes the simplest way is the best route out of a complex policy box!

Revoking 14th Amendment Birthright Citizenship: The Ultimate in Voter Suppression

Presidential candidate Donald Trump and several of his Republican competitors have now endorsed the notion of doing away with the very first sentence of the 14th Amendment to the United States Constitution, at least insofar as it has been interpreted to grant automatic citizenship to children born of undocumented immigrants. And, Trump adds, this policy should be retroactive with respect to those currently considered citizens.

That Amendment provides that:

“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.”

While many commentators have assumed that such a change would require a new constitutional amendment to accomplish this goal, many of those who seek to deny future citizenship (or potentially even revoke existing citizenship) of children of undocumented parents would prefer to attempt to make the change under the simpler route of congressional legislation or, as Trump has proposed, by court action re-interpreting the 14th Amendment language.

The legislative route would involve passing a law deeming that any person born in the United States would not be considered “subject to the jurisdiction” of the United States within the meaning of the 14th Amendment language unless at least one of his or her parents was, within nine or so months previous to his or her birth (to obviate the issue where a father dies before birth but after conception), a citizen or legal resident of the United States. Congress has specific power under Section 5 of the 14th Amendment “to enforce, by appropriate legislation, the Amendment’s provisions.”

Congress also has power, under Article I, Section 8 of the Constitution, to establish “a uniform Rule of Naturalization” — but this provision would seem not applicable in terms of defining who exactly is automatically a citizen by virtue of being “born” here rather than being “naturalized” under congressional rule.

Such legislation, if passed by a Congress under Republican control and signed by a GOP president (or possibly an Independent President Trump), would of course be subject to legal challenge in terms of the definitive meaning of the birthright citizenship clause in the 14th Amendment. The history here is not absolutely clear.

In terms of legislative history, the focus was clearly on granting citizenship to children of slaves with unmistakable clarity, and the main bone of contention involved children of Indians with whom the U.S. had treaties, which fuzzed-up the issue of “jurisdiction.” The sponsor of the Amendment in the Senate said that the jurisdiction clause was intended to exclude only children born in the U.S. whose parents were ministers and ambassadors from foreign nations; the Chair of the Senate Judiciary Committee also agreed. As noted in the link, opponents of birthright citizenship often misquote the sponsor by eliding and adding to his literal words.

In the Slaughterhouse Cases, 83 U.S.36 (1873), the US Supreme Court, in dicta merely noted in passing irrelevant to its actual holding on another issue, stated that the “jurisdiction” phrase was “intended to exclude from its operation children of ministers, consuls and citizens or subjects of foreign States born within the United States.”

Twenty-five years later, however, the Court decided specifically on point that a person born in the United States of parents who, at the time of such birth, are subjects of a foreign power and presently domiciled within the United States, conducting a business and not employed in any diplomatic or official capacity, would automatically become a citizen of the United States under the 14th Amendment language and centuries of precedent [United States v. Wong Kim Ack, 169 U.S. 649 (1898)]. In this case, however, the parents were legally present in the U.S. at the time of birth, so it could be distinguished from a situation where the parents are undocumented. Births to undocumented parents amount to somewhere around 340,000 to 400,000 per year, according to estimates, and total about 4 million citizens as of now.

Accordingly, while it has been common practice for over a century to treat children of undocumented immigrants born in the U.S. as citizens by birth, one must take seriously the gathering momentum behind efforts like Trump’s, to force a new Supreme Court decision in today’s circumstances on the point of such children either directly, by challenging the century-old Wong holding, or by legislation purporting to deny or even revoke such an outcome under cover of the 14th Amendment’s own enforcement clause. Revocation would not constitute an “ex post facto” law prohibited by Article I, section 9, because it would not create a criminal offense after the fact but merely potential civil grounds for deportation. (See “The United States Constitution: What It says, what it means” by

Trump’s proposal makes no mention of a Constitutional amendment route, and could even be taken to suggest that he would try to accomplish the result through an executive order, if he could (perhaps based on an 1873 attorney general’s opinion). But, at the very least, any GOP president could attempt to work his or her will through a Congress still in control of the Republicans.

Members of the GOP have already attempted, in both Arizona and Mexico, to deny such citizenship in practice through legislation (Arizona) or, through administrative “security” rulings (Texas Health Commission), to deny birth certificates to children of undocumented immigrants on the basis that parentage cannot be proven one way or the other by any acceptable documentation of their parents’ status.

If federal legislation were to be passed on the “subject to jurisdiction” clause, as outlined above, and then survive constitutional challenge in today’s GOP-dominated Supreme Court, then essentially the same effect would ensue.

In addition to being unable to attend public school and receive medical care, or public assistance of any kind, because of their lack of even a birth certificate, the U.S.-born children of the undocumented would ipso facto no longer be citizens, and thus would no longer enjoy the rights under the Constitution specially applicable to citizens: the “privileges and immunities” clause of the 14th Amendment, and the right to vote under the 15th Amendment.

If congressional legislation actually attempted to revoke all such existing citizenships (as Trump proposes to do by court action), there would doubtless be a push at the state level to purge voting rolls of all those who cannot prove that at least one of their parents was either a U.S. citizen or legal resident — a task of enormous complexity requiring not only herculean research efforts by millions of voters themselves, but also (and ironically) the very kind of “big, intrusive government” enforcement and record-keeping operations that many in today’s Republican Party profess to abhor.

Thus, we would, under the Trump proposal as well as perhaps those of Governors Walker, Christie and Jindal and possibly Senator Cruz, not only undertake mass deportation of 11 million undocumented persons, but also a mass purge of state voting rolls. Remember: if any of these contenders becomes the GOP nominee, these outcomes would in all likelihood be enshrined — indeed, even promised — in the Party’s official campaign platform. The economic consequences of such unprecedented social disruption in terms of collapse in housing demand and values, loss of tax revenue, federal budget deficits growth and collapse in GDP, are almost unfathomable.

Gratefully, there are significant complications in this scenario. If the end result is accomplished by legislation that declares such children formally outside the “jurisdiction” of the United States, then how exactly could the federal government actually “deport” them? They would not have “entered” the country illegally (a finable misdemeanor, but not in itself ground for deportation in any event). Once “born” here without citizenship or papers, however, they would be “present” without documentation. Normally, that would be the formal grounds for civil deportation procedures. But that requires “jurisdiction,” which Congress would have just declared to be absent!

So there would be a new, unprecedented, official permanent “underclass” in America, thanks to government action: with no rights as citizens, but un-deportable by operation of the very law that denies them citizenship. (Perhaps this is the reason for Trump’s proposal for a well-funded “refugee” plan for expanding foster care — but even that is practically impossible, without birth certificates, under state law.)

The new underclass would apparently still be considered constitutional “persons,” for the several protections and rights the Constitution provides expressly to “persons” or “the people” (e.g., 5th Amendment, 2nd Amendment), or federal, state and local anti-discrimination laws, focus not solely or specifically on protecting “citizens.” Congress might try to draft around this problem by attempting artfully to preserve “jurisdiction” for the sole purpose of deportation, but that could weaken the case for affirming such statute at the Supreme Court, or at the very least trigger an even broader effort to deport all those whose citizenship would be revoked, bringing the deportation total target to at least 15 million.

Presently, the fashionable view seems to be to treat the immigration proposals of Trump and others along these lines with the back of the hand or even with derision. This scenario analysis suggests a more serious study of these proposed implications for the kind of American “Exceptionalism” — a core of which is our longstanding commitment to birthright citizenship — which really is an exception compared to most countries, especially those in Europe. By the way, current experience in Europeclearly shows that the absence of birthright citizenship does virtually nothing to stem the tide of undocumented migration!

Besides setting off the mother of all voter suppression legislation and enforcement, revoking birthright citizenship and deportation of 11-15 million residents of the U.S. would have enormous adverse economic consequences: for housing demand, finance and prices; food prices and employment in the agriculture industry; economic activity, consumer spending and GDP, and foreign trade.

The sheer cost of the proposed mass deportations has been estimated (see above link) at over a quarter trillion dollars.

It has been fashionable for some Republicans and progressives to dismiss the Trump candidacy with contempt, or just with laughter. But the level of support in the average of polling data suggests that at least his first formal policy proposal regarding immigration is no laughing matter, and should be analyzed and evaluated on its own merits (and dangers).

Putin’ On The Ritz: Why Western Business Undermines Sanctions To Put Profits Ahead Of Patriotism

Content previously published on The Huffington Post


Putin’ On The Ritz: Why Western Business Undermines Sanctions To Put Profits Ahead Of Patriotism


Want to put the squeeze on the outlaw Putin by dialing back the offshore shenanigans of his pals among the Russian super-rich? Wait just a minute, Mr. President: what might that do to the London real estate market? Let’s see which side Prime Minister David Cameron ultimately takes on the question of whether to punish Vlad the Invader or protect the City of London’s offshore ATM machine.


Want to double-down on sanctions that would dial back the Russian gas and oil supply contracts for most of Europe? Hold on. Who wants to bite the hand that heats us in the midst of this cold winter, which, after all, is America’s fault? Let’s see just how forcefully Chancellor Merkel uses her recent re-election and de facto queenship of the Eurozone to leverage her “good cop” chit-chats with the Russian President into a threat he might take seriously to undermine the 50% of his economy that comes from energy exports.


President Obama’s problem isn’t whether President Putin will listen to him, as so many U.S. commentators harp on. The question is whether our NATO allies in the Western end of Europe will put their money where their mouths are when it comes to drawing a red line in favor Ukraine sovereignty. These countries are not in the vulnerable position of our NATO allies in Poland, Latvia, Lithuania and Estonia, or even Slovakia, the Czech Republic, etc., on the Russian border. These countries have plenty of ethnic Russians on their side of those borders. And they are rightfully concerned about Putin’s version of the George W. Bush/Dick Cheney “pre-emptive war” doctrine – namely, that he can march troops (with or without identification) across the borders to preemptively prevent alleged abuse of such Rethnicsussian.


Of course, if the British, French and Germans continue to waffle and wobble on whether to become more dependent on potential U.S. energy resources rather than their Putin pipelines, the U.S. idea of sanctions will have to be replaced by putting some anti-missle defenses back on the table, on the Russian border of those former Soviet states. But this resort to a militarized rather than economic action against Putin would only serve to escalate the threat of unintended warlike consequences further. We would not need to do so if the leading European states would be willing to share the pain of tough sanctions on the Russian economy. Not bloody likely!


The same goes for American big business with major investments in the Russian economy. Are the mining equipment companies, oil and gas drillers, pipeline suppliers, investment banks, and other U.S.-based exporters of goods and services to Russian countries joining the Republican hawks in calling for tough sanctions on Russia’s economy?  Conspicuous silence. Except for their lobbyists, of course, who are fiercely lobbying the Administration against such sanctions.


And what about the supposedly easy solution to Europe’s energy dilemma of simply lifting American prohibition on exporting American oil and natural gas (which, by the way are not Obama decisions but acts of a previous Congress which can only be changed by Congress)?  Let’s see how soon – if ever – Congress gets around to taking action to lift those bans in the face of the opposition from U.S.-based chemical and utility companies (how many Congressional districts don’t have a power plant)?


It turns out our own devotion to liberty and international law only goes so far when somebody’s profits and dividends and executive compensation are put at risk. Talk is cheap, but patriotism is expensive, as it turns out. Too expensive for American and European industries with close economic ties and dependencies on Putin and his own somewhat Soviet version of “crony capitalism.” Right now, for many of our “Western” business people, it’s a matter of protecting their Russian partners, at all costs – particularly to Ukraine.


China may hold our debt, but it’s Putin who has England’s equity, Germany’s furnaces, and France’s keys to Iranian contracts.  And while sanctions against Iran have precluded only potential business for law-abiding U.S. businesses, sanctions that really bite the Russian bear would hurt existing U.S. business interests. Let’s see if the Congress – so vocal about “doing something” to stop Putin – will actually vote to hurt the U.S. chemical and utility industries by allowing oil or gas exports to Europe. Maybe if Putin threatens to “liberate” the ethic Russian population of Brooklyn from New York’s “stop and frisk” practices. But more likely by then we’re back to missile crisis time anyway.


The fact is that it is not the American President but rather American, English, German and French businesses that won’t lift a thumb off their profit scales to save Crimea or even the whole of Ukraine. And why should we be surprised? U.S. businesses refuse to hire until it gets more tax breaks and lobbies ferociously against any increase in the minimum wage to protect their bottom lines and “shareholder values.” Just watch and see over the next week or so how many business commentators start to talk about how sanctions against Russia will hurt “American jobs.”


Their apologists in the business media, particularly the so-called “reporters” on CNBC (apart from Steve Leisman) spread blatant untruths about the demographic makeup of the minimum wage workforce to protect the de facto wage freeze on low income Americans. One CNBC anchor confidently observed that those on minimum wage were just teenagers who don’t deserve a raise – while the facts any true reporter would find are that only 16% of minimum-wage workers are under 20. The average age of all such workers is actually 35 and most of them are women of child-rearing age.


When CNBC’s “free market advocates” have to stoop to economic fraud, that couldn’t survive in an SEC prospectus review, to protect their patrons’ profits, we should pay attention to how far some business leaders will now go to stop the President and Congress from imposing truly effective sanctions against Russian invasions of a sovereign state, which ironically would prefer to adopt some form of capitalism.


Just watch and see over the next couple of weeks how many of CNBC’s business “experts” start talking about how imposing sanctions on Russian interests will hurt the U.S. economic recovery and of course, “American jobs.” Russian contracts are as sacred it seems, as private equity’s “carried interests”– which are truly carried by all other U.S. taxpayers.


In short, some of America’s most influential capitalists can live without a free Ukraine, but can’t seem to survive without their friends in the Kremlin.  Profits, like politics, make for strange bedfellows.




By Terry Connelly, Dean Emeritus, Ageno School of Business, Golden Gate University


Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University in San Francisco. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore, global chief of staff at Salomon Brothers investment banking firm and global head of investment banking at Cowen & Company. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education.








For Once, a Consequential Fed Meeting

Wednesday’s conclusion of the first Fed meeting of 2012 may herald a new working majority at the Board more closely aligned with Chairrman Ben Bernanke’s view of the economy and the role of the Fed in supporting employement as well as restraining inflation. What would be the consequences?

First, the identification  of an inflation rate of 2% , give or take a few basis points, as the specific target of Fed policy. Secondly, related to that objective, a new transparency with respect to the individual expectation of the Reserve  Board members as to the likely course of interest rates over the next several quarters and indeed as far out as 2014. This will not be revealed by name but by a sort of collective range of projections, dropping off the highs and the lows to try to contain market speculation as to who on the Board  specifically is the high or the low. Thirdly, related to these projections, would be a change in the language of the Fed’s starement heretofore guaranteeing low interest rates through mid-2013 — words will be added to in effect EXTEND the period of low rates into 2014. And finally, there may even be an initiation of a form of QE3 — the Fed’ s version of stimulus — this time focused squarely on the housing market by way of extending the Fed’s purchases of bonds from Treasuries to mortgage-backed securities.

All four of these actions may not be reflected in the official post-meeting statement ,and some may come out shortly after the meeting. But any one of these four actions would lead the financial markets to anticipate the other three in due course. The main concern, if and when the entire policy package comes together, is whether the markets will somehow misinterpret the Fed’s “new transparency” in ways which the Fed does not intend and would soon have to correct, especially in the face of continued market nervousness about the Euro debt crisis. (The US markets simply have yet to understand that all negotiations continue on to the next Euro “Summit” —  because no side can politically or financially afford to leave an impression that they gave in too soon – this is all that is really going on with the Greek debt issue.)