Jane Hamsher: What Obama Fights For – Giving $9.55 Billion to North Korea to Spend on Nukes

Yves here. This issue may seem a bit off topic to NC readers, but this subsidy to a state we treat as a mortal danger, and at a time of severe expenditure-cutting, illustrates the degree to which business interests drive American policy.

By Jane Hamsher. Cross posted from FireDogLake.

Yesterday the White House took the last step to owning all three leftover Bush NAFTA-expansion deals with Korea, Colombia and Panama by announcing that they would send them to Congress imminently. The Economic Policy Institute estimates that we’ll lose 159,000 jobs with the Korea deal alone.

At a time of high unemployment, it’s difficult to fathom why the President would be fighting to increase our trade deficit and ship tens of thousands of jobs overseas.

Even more stunning, however, is the loophole in the Obama deal that will hand billions over to North Korea to spend on their nuclear weapons program (PDF).

Under the terms of NAFTA, goods have to have 50% domestic-made content in order to qualify for inclusion. However under KORUS, goods with up to 65% non-South-Korean content qualify, as long as final assembly off goods happens in South Korea. That means 65% of all parts can be made China, Vietnam, wherever — giving rise to fears that the South Korea deal will be a back-door extension of NAFTA for China.

But surely, somebody thought to exclude North Korean content from the deal, right? I mean, with all the huffing and puffing about the need for increased sanctions against North Korea to keep them from funding their nuclear program. At the very least, somebody must have included language in KORUS that makes an exception for US sanctions against North Korea, which would otherwise violate NAFTA’s ban on import licenses.

Well if that’s what you thought, you would be wrong.

Every day, 44,000 North Koreans are marched into a North Korea border sweat shop zone called Kaesong to work for 28 center per hour — of which the Kim regime keeps 55%. In 2007 Ambassador Jay Lefkowitz, the U.S. Special Envoy for Human Rights in North Korea, wrote that Kaesong was one of the only sources of cold hard currency North Korea had to fund its nuclear program:

Because the North Korean government takes a major portion of workers’ salaries, these arrangements provide material support for a rogue government, its nuclear ambitions, and its human rights atrocities.

According to research done by Public Citizen, Obama’s NAFTA-Korea deal not only fails to exclude North Korean content, it allows for a massive expansion of the Kaesong district — and the profits that North Korea will reap (PDF):

The U.S. government estimates that the North Korean government currently collects $3 million to $4 million a month from the Kaesong operations now, prior to a massive planned expansion of the border sweatshop zone. South Korea cut off most trade with North Korea after attacks last year, but left Kaesong trade open. There was $1.9 billion in total trade between the two Koreas in 2009, about half of which was through production by South Korean firms in Kaesong. While $1.9 billion is not a lot of money relative to the U.S. or South Korean economy, it constitutes more than a third of North Korea’s total external trade. Given the Department of Defense estimates that North Korea’s nuclear program cost the regime as little as $200 million to develop, the hard currency generated by North Korean trade flows is sufficient to finance the North’s nuclear proliferation regime several times over.

The North Korean government is projected to receive $9.55 billion in economic gains from Kaesong over nine years under a planned major expansion. This is equivalent to 36 percent of North Korea’s estimated national income. Hyundai and the Korea Land Corporation, the principal developers of Kaesong, plan to enlarge the complex from its current 800 acres to a more than 6,000-acre complex (or nine square miles), where 1,500 South Korean and other foreign firms will employ 350,000 North Korean workers. This would make the complex more than half the size of Alexandria, Virginia.

Is this an accident? Hardly. Members of Congress like Brad Sherman have been waving red flags about the dangers of the Kaesong provisions in KORUS. The Chamber is pushing this deal hard, however, and there’s a lot of money to be made in Kaesong. And as we all know, what the Chamber wants, the Chamber gets.

But let’s do the math here. The US government estimates that the North Koreans are 5 years and $200 million away from having nuclear capacity. I understand why KORUS would benefit the mega corporations that use the Chamber of Commerce as their front, the ones that hope to profiteer off of “slave labor” in Kaesong. But how exactly is it good for the American people to allow North Korea access to US markets? I just don’t see the upside to offshoring jobs, increasing the trade deficit and writing a check to North Korea to spend on nukes.

But then, few people do. Poll after poll shows that the vast majority of the American public – across stunningly diverse demographics – oppose these NAFTA-style trade deals. It’s an issue that has oddly united union members and Tea Partiers, progressives and conservatives, Democrats and Republicans in opposition. The AFL-CIO, Carpenters, Teamsters, CWA, Machinists, IBEW, Steelworkers, Painters, Boilermakers, the Sierra Club, Public Citizen and the National Farmers Union all oppose the deal., as do Republicans like Walter Jones, Ron Paul, and the Campaign for Liberty.

Earlier this month, even White House Chief of Staff Bill Daley (whose job is to sell these trade deals and who helped former President Bill Clinton sell NAFTA to a skeptical Congress) said that workers “lose from these agreements” and implied that campaigning against these NAFTA-style trade agreements could even be an electoral advantage.

But if we’ve learned one thing over the past few years, it’s that broad popular opposition is meaningless when it comes to Chamber’s ability to bribe impose its will on our elected officials. If KORUS passes, the hawks will soon be banging the war drums and warning us all that the smoking gun of North Korea has become a mushroom cloud, now is the time to act.

Because three wars are just not enough, I guess.

Stat of the Day: Chicago PMI Smashes Double Dip Theory

The Chicago PMI came in today at a seasonally adjusted 61.1 much higher than expectations of a faltering economy. This number showed a nice jump from the 56.6 in May. More importantly the Production and New Orders components accelerated. With such a strong June report for the manufacturing sector in the Chicago area, the soft patch theory is starting to hold water. Production surged to 66.9 from

International Market Watch

Bull Cartoon 1
                                                                    Not so fast please

Some markets show a buy signal according to 5-10-20 Timer model in Daily Chart. Stochastic, RSI and MACD turning positive as well. Let's view them.


- A S I A -




EWY Korea


FXI China


South Africa

EZA - South Africa

Emerging Markets Middle East & Africa

GAF - Africa

- L A T I N - A M E R I C A -



Emerging Markets Latin America


- E U R O P E -



United Kingdom





We should see some further strength and a higher low by mid July. Currently as of today I cannot see any negatives yet and it is good to know that Global Markets are pointing up together. This bodes very well for US markets.

Push Him! Push Him!

I was taking the day off, but this is the best news the Obama Administration could get right now.* Wonder how they'll screw it up?

I second the (self-)nomination of Dr. Black, on condition he commit to bringing me on as Assistant Secretary of the Treasury for Financial Markets, which was held in its Glory Days by a former boss of mine.**

*It also stands as yet another reason for Republicans to delay any agreement on the debt ceiling, since he would likely be replaced by a Democrat.

**I, in turn, will promise to get my tax difficulties with NY State straightened out.*** Since the current T-Sec had much more recurrent and lasting issues, I don't see this as a problem for confirmation, should such be required.

***They are the direct result on my current firm having accidentally, I presume, input my Social Security number into their system with "fat fingers."

Greenspan: Quantitative Easing Essentially Failed

"There is no evidence that huge inflow of money into the system basically worked…It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion…Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."

                                                                                                                                                             – Former Federal Reserve Chairman Alan Greenspan

In a Special interview to CNBC, Greenspan offered a blunt critique of his successor, Fed Chairman Ben Bernanke. Greenspan said that the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy. No kidding!

Greece Is Now For Sale

And so the Ponzi scheme that has come to be known as the Greek money merry-go-round continues with German banks agreeing to continue the financing of an economy that will fail despite the fact that more money is being poured into it.

As part of the government’s fire sale we can officially say that Greece is now for sale.  Here’s a graphic courtesy of CBC News that illustrates the extent of the privatization plan that the government voted through.


It is important to look at this lunacy one more time. Greece owes the rest of the world more than $500 billion US.

The Greek economy has contracted by 4.5% over the past year, seen the national unemployment rate jump to 16% and was in serious danger of defaulting on July’s debt obligations before George Papandreou was able to reshuffle his cabinet, gain the vote of confidence that his PASOK party so desperately needed and pass austerity measures that will cost the average Greek family of 4 roughly $4,000 US dollars a year.

The real question that remains now is whether or not the massive cuts and fire-sales  announced by the government will actually curtail growth rather than spur it. I argue the prior. 

Then we have the ECB’s recent tone with regards to interest rate hikes. Trichet has been hawkish of late talking up even more rate increases and the market is pricing one in for the next month.  Here is a “zone” struggling with massive debt and the leader of its central bank wants to burden them even more with increased borrowing costs.

While the European Central Bank is the largest individual creditor, with about €49 billion ($70 billion) owed to it, Greek banks are the holders of approximately $100 billion (US dollars) of the country's total debt and they would most probably collapse under the weight of everyone trying to rush to get their money out in a default scenario.  Next in line are the Germans and their banks and then there is France with two of its biggest banks also having large ownership positions in some over-exposed Greek Banks.

Back to Greece, my view remains unchanged from when their debt problem emerged last year.  That is that they have simply borrowed so much money that they will never be able to pay it back and that at some point, a default on that debt will be inevitable.  What Greece, The European Central Bank and the IMF were really doing is looking out for the banks.  According to Barclay’s Capital, exposure to Greek debt is large and highly concentrated;  “the top 10 names account for 50% of holdings, the top 30 for 70% and the top 40 for close to 72%.”

The following are at risk:

  • BNP Paribas holds about €5 billion ($7 billion) on its balance sheet;
  • Dexia, a French-Belgium-Luxembourg operation, comes second with €3.5 billion ($5 billion),
  • Italy’s Generali and Germany’s Commerzbank with €3 and €2.9 billion each respectively
  • France’s Societe Generale (€2.9 billion)
  • Axa (also French, €1.9 billion)
  • Deutsche Bank from Germany (€1.6 billion)
  • and the Royal Bank of Scotland (€1.1 billion)

This afternoon Germany’s biggest banks agreed on a proposal to “roll over” Greek debt holdings. In essence what that means is that they will be reinvesting money from maturing bonds into new Greek bonds.  According to the deal, German banks have agreed to roll over at a minimum, the Greek bonds they’re holding that mature through 2014, which amount to about 2 billion euros ($2.9 billion).  So you see, Greece is getting money not to pay their creditors or bond holders but in order to keep the banks alive because a roll-over of debt simply means an extension of the payback terms of the loan.

The money Greece has taken from the IMF and ECB since last year’s bailout did nothing to curtail their crisis. Is the world so naive to think that this tranche will have any different outcome? 

For now the money shell game continues at the expense of the Greek people so that the banks can stay afloat.

Pre-Holiday Weekend Reading List

Some interesting reads for your weekend pleasure:

• In U.S. Monetary Policy, a Boon to Banks (Pro Publica)
• The CDO at the heart of the eurozone (FT)
• It’s That Time of Year: Calendar Can Trump Fundamentals (Barron’s)
• S&P to deeply cut U.S. ratings if debt payment missed (Reuters)
• BRUTAL TRUTH: Senior RIM exec tells all as co crumbles around him (BGR)
• A Fringe of Foam on Foreign Shores (Caixin)
Clive Thompson on Establishing Rules in the Videocam Age (Wired)
• Basketball: Larger Than Real Life (Sports Illustrated)
• Triple Agent’: The final days of the suicide bomber who attacked the CIA (Washington Post)
Monty Python members reunite for Graham Chapman film (BBC)

What are you reading?

Next Time The Value Of The Dollar Declines By 97% Won’t Take A 100 Years. I Think It Will Happen In 10-15 Years

The dollar, the terminal value of the dollar is precisely zero, the printing cost of bank note that is the intrinsic value of the dollar. But it will not move there right away. since the formation of the federal reserve, in 1913, the price of gold has gone up from USD 25/oz to over US 1400/oz.

In other words the value of a dollar bill has gone down by 97% in gold terms and it took more than a 100 years. Now the next time the value of the dollar declines by 97% won’t take a 100 years I think it will happen in 10-15 years.

Related: IShares Silver ETF (SLV), SPDR Gold ETF (GLD), PowerShares DB US Dollar Index Bullish (NYSE:UUP), PowerShares DB US Dollar Index Bearish (NYSE:UDN)

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.
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