The EX-IM bank may not be the appropriate tool for leveling the overall playing field in international trade, increasing overall domestic employment, increasing gross domestic income or encouraging small businesses with an 80/20 funding split in favor of large business garnering market share[1]. It may actually cause loss of taxpayer monies[2] as it once did for taxpayers in a 1987 bailout[3]. Understanding the historical root cause in the development of unfavorable US export-import balances of trade and US export-import balances of payments may be helpful from this excerpt for critical thought[4]:

"Major Countries Forced to Abandon Gold Standard

This wonderful, automatic mechanism of international payments represents one of the greatest social instruments ever devised by man. It requires, however, a very special group of conditions for its effective functioning and, as we shall show, these conditions were disappearing by 1900 and were largely wiped away as a result of the economic changes brought about by the First World War. Because of these changes it became impossible to restore the financial system which had existed before 1914. Efforts to restore it were made with great determination, but by 1933 they had obviously failed, and all major countries had been forced to abandon the gold standard and automatic exchanges.

When the gold standard is abandoned, gold flows between countries like any other commodity, and the value of foreign exchanges (no longer tied to gold) can fluctuate much more widely. In theory an unbalance of international payments can be rectified either through a shift in exchange rates or through a shift in internal price levels. On the gold standard this rectification is made by shifts in exchange rates only between the gold points. When the unbalance is so great that exchanges would be forced beyond the gold points, the rectification is made by means of changing internal prices caused by the fact that gold flows at the gold points, instead of the exchanges passing beyond the gold points. On the other hand, when a currency is off the gold standard, fluctuation of exchanges is not confined between any two points but can go indefinitely in either direction. In such a case, the unbalance of international payments is worked out largely by a shift in exchange rates and only remotely by shifts in internal prices. In the period of 1929-1936, the countries of the world went off gold because they preferred to bring their international balances toward equilibrium by means of fluctuating exchanges rather than by means of fluctuating price levels. They feared these last because changing (especially falling) prices led to declines in business activity and shifts in the utilization of economic resources (such as labor, land, and capital) from one activity to another.

Reestablishing the Balance of International Payments

The reestablishment of the balance of international payments when a currency is off gold can be seen from an example. If the value of the pound sterling falls to $4.00 or $3.00, Americans will buy in England increasingly because English prices are cheap for them, but Englishmen will buy in America only with reluctance because they have to pay so much for American money. This will serve to rectify the original excess of exports to England which gave the great supply of pound sterling necessary to drive its value down to $3.00. Such a depreciation in the exchange value of a currency will cause a rise in prices within the country as a result of the increase in demand for the goods of that country.".

The above author did not explicitly mention the practice of maintaining prices by stinting quality and quantity of goods on grocer shelves. Common examples have been Maxwell House arabica coffee bean substitutes and Hershey Chocolate Bar repackaging sizes. Observe for yourself more recent occurences in ice cream packaging and in some instances even the size of ice cream bars on a stick,... a plundering on kids of all ages. Consider the cost of a Hershey's chocolate bar of $0.05 dollars in the 1960's decade to see the multiplier effect of price inflation and compare it to a decent middle class income of $20 thousand during that same period. Even gasoline has risen from $0.29/gallon. This is a 10X - 20X multiplier of price with a 5X multiplier in wages if $100 thousand is now a decent middle class income. The situation becomes distressing for for low income families and senior citizens who must rely on social security when food and fuel inflation is not adjusted for in welfare aid or the SS CPI COLA. Cheap Iphones and Ipads made abroad are small consolation for the cupboard during winter and roundtrips to the store. (Welfare transtion to a GDP::DEBT Indexed NIT is a separate issue)

There is a good youtube playlist of eight Khan Academy video tutorials on Youtube called "Currency" which introduce basic concepts of currency exchange and currency manipulation in 1.5 hours[5]. One may glean from the viewing that currency manipulation may reduce the purchasing power of taxpaying consumers when both country's governments engage in seigniorage to increase their respective money supplies or put simply, "print money" to spur one government's export trade at the expense of the other to help that latter government focus on its budget deficit attention disorder. Each government benefits from new money created at the expense of future inflation costs on taxpayers in both countries. Ensuing public outrage at higher prices and/or higher taxes may be redirected as blame toward the foreign country, company, some external supply threat from abroad or a natural phenomenon of the market. In addition to creating inflation, each newly printed currency unit(dollar, pound, euro, yuan, etc) along with borrowing interest costs is added to the national debt along with eventual tax increases to finance the increase in arrears. Prolonging a trade imblance with currency manipulation depletes the resources of taxpaying consumers in both countries and may hazard liquidity in both economies requiring yet further government borrowing through the central banking system (a convenient tool for seigniorage) to ensure the welfare state and further distort the market with government spending trends leading to curtailing consumer abilities to satisfy wants in the market from existing private enterprises that suffer losses as a result. This inflationary trend may then lead to further deflationary actions by government (austerity) on taxpayers to unwind the debt clock, popularized by former BIS chief economist and IMF Head, Jacobsson[7]. Debauching the currency was not his goal, but the means applied achieved that outcome, according to his economist daughter[6]. (On a side note for being a whodunnit fan, I do recommend the Peter Oldfeld detective novels)

A middle party that also benefits is the currency exchanger who charges a fee for each transaction in the FOREX, transparently. This may be a form of "Shadow Revenue" for the middle party's investors if I may interpret the term used by Rhys-Williams in that fashion [7]. It is no wonder that countries vie now to host promising Yuan exchanges, given the prospect of a growing volume and value of renminbi currency transfer fees being now achieved at the expense of other currencies.

Appropriating taxpayer monies to address the export-import problem through Export Credit Agencies like the EX-IM Bank is not a promising way for government to achieve BOT and BOP equilibrium and a healthy, productive domestic economy. Relying on financial engineering and cooperating with domestic/foreign business/government interests in this practice is a questionable way for government to manage it's debt financing and then claim it helps taxpayers by primarily subsidizing multinational owners of Big Business. It is disturbing to imagine that our contemporary politicians would consider the wishes of affluent foreign/domestic lobbyist/business campaign donor opinions, out-of-office sweetheart deals for ex-politicians, insider investing opportunities and middle party desires over taxpayer's best interests for consumption. Employing the taxpayer as a source of collateral, influence and protection for financing loans and loan insurance for foreign countries and companies, especially for investment in the most volatile regions of the world, is neither a lucrative means nor end to a favorable economic outcome for the domestic economy. Trade following the flag encourages expansionism to the extent of military intervention to safeguard commerce and ITA or equivalent government directives which is additionally and separately funded by the taxpayer. The trend may promote the economic broken window fallacy abroad. DeRugy has compiled some interesting data on the EX-IM Bank that empirically punctuate the numbers as mentioned in [8], along with commentary from Katz[9]. Media influence on the public has not changed much in the past century [10].

The EX-IM Bank is not really on the square of the international board of finance in an advantageous position to benefit taxpayers. It is rather a pawn that may be used as a sacrificial offering for larger players at ultimate taxpayer expense and risk of purse and person that serves not the overwhelming 99% majority of small domestic businesses nor levels the playing field in a mutually beneficial manner of freely voluntary transactions between buyers and sellers across national boundaries. Unravelling the mysteries of achieving BOT and BOP equilibrium is like trying to scratch your back with chinese finger handcuffs on.

[1] The Export-Import Bank: What the Scholarship Says, Heritage Foundation, Furth, 8/7/2014

[2] Testimony on US Export-Import Bank, DeRugy, House Committe on Financial Services, 6/25/2014.

and

Testimony on Estimates of the Cost of the Credit Programs of the Export-Import Bank, Congressional Budget Office, 6/25/2014.

[3] U.S. EXPORT BANK SEEKS $3 BILLION, FARNSWORTH, New York Times, 12/21/1987

[4] Tragedy and Hope, Quigley, 1966.

[5] Currency, Khan Academy, Youtube playlist, https://www.youtube.com/playlist?list=PL22572D36838CA3DC

[6] A Life for Sound Money, Clarendon Oxford, Jacobsson, 1979.

[7] A New Look at Britain's Economic Policy, Rhys-Williams, Penguin Books, 1965

[8] DeRugy:Lefty Liz backs subsidies for big biz, megabanks, DeRugy, Boston Herald, 8/21/2014.

[9] Commentary: A Conduit for Corporate Welfare, Global Atlanta, Katz, 7/28/2014.

[10] The Free Press, Belloc, 1918.