Five Things You Need to Know: China to Export Photo-Op to U.S. Treasury Secretary; China to Add Taint to Exports at No Extra Charge; Congress Votes to Save $80 Billion Bank Fee Industry; You Mean, Just Like Now?; Welcome to the Church of Credit
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. China to Export Photo-Op to U.S. Treasury Secretary, Illusion of Comfortable Standard of Living to U.S. Consumers
A high-level Chinese delegation which includes Vice-Premier Wu Yi has arrived in the U.S. for two days of talks on trade and economic cooperation with a team of 15 U.S. delegates led by Treasury Secretary Henry Paulson.
- The meeting is of the ongoing "Strategic Economic Dialogue" created by presidents Bush and Hu to discuss economic issues between the U.S. and China.
- "We both face challenges of domestic protectionism and questions about the merits of trade and globalization" Treasury Secretary Paulson said in prepared remarks.
- Chinese Vice Premier Wu Yi said it was important to resist "trade protectionism of all kinds."
- Meanwhile, the yuan rose the most in a week ahead of the meetings.
- It has now gained 8.1% since China moved to end the fixed exchange rate in July 2005 by slightly widening the the yuan's trading band.
- Paulson says the U.S. wants a stronger yuan to help reduce the U.S. trade deficit with China.
- Paulson is taking Wu to Capitol Hill tomorrow and Thursday to talk with US lawmakers who are threatening more aggressive protectionist measures to satiate growing anti-China sentiment from their constituents.
- Bottom Line: China agrees to export photo-op to U.S. Treasury Secretary and Congressional protectionists.
- Bottom Line Part Two: Paulson to publicly demand China raise yuan, cost of exports to U.S.
- Bottom Line Part Three: Those cheap China exports are the only thing keeping Mr. and Mrs. U.S. Consumer from noticing their deteriorating standard of living. They won't be ending anytime soon, we hope.
U.S. Running Massive Photo-Op Deficit with China
2. China to Add Taint to Exports at No Extra Charge
Speaking of Chinese exports, the Food and Drug Administration detained 107 food imports from China at U.S. ports last month, according to agency documents, along with more than 1,000 shipments of tainted Chinese dietary supplements, toxic Chinese cosmetics and counterfeit Chinese medicines, the Washington Post reported.
- This topic will fall under the part of the Strategic Economic Dialogue agenda known as "Areas for Improvement."
- Among the items detained, according to the FDA, were:
- Dried apples preserved with a cancer-causing chemical
- Scallops and sardines coated with putrefying bacteria
- Mushrooms laced with illegal pesticides
- Documents from the FDA also revealed that more than 1,000 shipments of tainted Chinese dietary supplements, toxic Chinese cosmetics and counterfeit Chinese medicines were detained.
- Why don't we just stop these imports?
- Simple. As noted in today's Number One, above, because U.S. companies have become so dependent on the Chinese economy that tighter rules on imports will harm the U.S. economy too.
- Did you think we were just making that up?
- Cheap imports benefit consumers. But this is also about sellers.
- It's not just about cheap imports, Carol Tucker Foreman, a former assistant secretary of agriculture now at the Consumer Federation of America, told the Washington Post.
- "Our farmers and food processors have drooled for years to be able to sell their food to that massive market," Foreman said. "The Chinese counterfeit. They have a serious piracy problem. But we put up with it because we want to sell to them."
- U.S. agricultural exports to China have grown to more than $5 billion a year.
3. Congress Votes to Save $80 Billion Bank Fee Industry
The U.S. House of Representatives voted to block commercial firms and retailers from opening their own banks, limiting competition and effectively preserving the $80 billion bank fee industry.
- Legislation that would bar commercial companies like Wal-Mart (WMT) and Home Depot (HD) from owning banks overwhelmingly cleared the House of Representatives on Monday.
- The bill passed the House 371-16 on Monday.
- It prohibits nonfinancial companies from setting up or owning so-called industrial loan companies (ILC's), federally insured institutions that can issue credit cards, make loans and take deposits.
- According to MoneyNews.com, critics of ILC's say they dangerously blur the line between banking and commerce, concentrating assets in the hands of a few big companies, stifling competition and hurting consumers.
4. You Mean, Just Like Now?
Yikes! Those ILC's could have been a real disaster for us consumers, right? Thanks for looking out for us, critics!
- But wait, how does that dire ILC-burnished banking future Congress voted down compare to today's banking industry landscape?
- According to MoneyNews.com, critics of ILC's say they 1) dangerously blur the line between banking and commerce, 2) would concentrate assets in the hands of a few big companies, 3) would stifle competition and 4) hurt consumers.
- That's funny, because we just took a look around and found that we already have 1) a blurry line between banking and commerce...
- ... 2) banking assets concentrated in the hands of a few big companies...
- ... 3) stifled competition...
- and 4) consumers hurt by $80 billion bank fee industry.
5. Welcome to the Church of Credit
Steps to address lending problems that led to a jump in U.S. mortgage delinquencies and foreclosures should curb abusive practices but not choke off all loans to borrowers with weak credit, a Federal Reserve official said yesterday according to Reuters.
- Speaking before a House of Representatives government oversight panel hearing in Cleveland, Sandra Braunstein, director of the Fed's division of consumer and community affairs, said it was important to take careful measures in response to abuses identified in subprime mortgage markets.
- "Mortgage market problems need to be addressed in a way that addresses unfair and abusive practices while preserving incentives for responsible subprime lenders," Braunstein said.
- In other words, there are some people out there who it seems haven't taken the subprime bait.
- "Constricting the market and returning to a situation where some borrowers have very limited access to credit is not acceptable and reduces the flexibility of individuals and communities," she added.
- Oh, Lord yes, we gotta keep that market from being constricted.
- We gotta keep things flexible.
- It's the church of credit and we can't stop until every pew is filled.
- Now, everyone turn to Chapter 11 in your bibles.
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