Senator John Thune is laying the rhetorical groundwork necessary to rationalize the shift he and Mike Rounds will have to make to lift the embargo against Cuba and boost donor Jeff Sveen's chances to sell Hutterite turkey in Havana. Senator Thune told the Sioux Falls Rotary Monday that opening trade with Cuba will boost South Dakota agriculture...

"Soybean production here in South Dakota could meet a lot of needs they have in Cuba for that product and that commodity, so there's upside potential and I think we have to recognize that," Thune said [Ben Dunsmoor, "Thune Open to Cuba Plan If Reforms Made," KELOLand.com, 2014.12.23].

...but Thune's not ready to give up his party's political club:

Before Thune would support anything, he says, he would like to see the communist country make political reform and take other progressive steps such as opening up Internet access.

"There are some things in this that could be beneficial for South Dakota but overall lifting the embargo I think there are conditions that have to be met before I could support that. There's so much more that regime needs to do to prove to the rest of the world that they really are serious about modernizing and reforming," Thune said [Dunsmoor, 2014.12.23].

Republican blogger John Tsitrian calls Senator John Thune's position on Cuba ridiculous. Tsitrian wonders how Senator Thune can subordinate clear economic gains to an ideologically (translate: oppose Obama!) misreading of history:

[R]ejection of a pragmatic consideration in favor of a principle may have some honorable intent, but when the principle itself isn't supported by the reality of History, the intent rings with the hollowness of political dogma. When you consider the advances in living conditions and economic opportunities for billions of people since the evolution of free trade that has been in force since the end of World War II, it seems that Thune lacks an understanding of cause-and-effect. Trade itself has been the medium for the elevation of political and economic freedoms, mainly because ideas and ideals flow just as freely as goods and services when markets open up [John Tsitrian, "Re: The Cuban Trade Embargo. Sounds Like Senator Thune Is More a Student of Polemics Than a Student of History," The Constant Commoner, 2014.12.23].

Mr. Tsitrian makes the case for normalizing trade relations with Cuba almost as well as Senator Thune as made the case for normalizing trade relations with much worse offenders. Let's look at what Senator Thune said about granting Permanent Normal Trade Relations to Cuba's old friend Russia in 2012:

“American businesses and entrepreneurs will no longer face a competitive disadvantage in the Russian market.... The Senate’s adoption of Russia PNTR today opens up new possibilities for American manufacturers, farmers, ranchers, and service providers. Not only does this legislation support American jobs by promoting our products and services abroad, but it will also help to strengthen the rule of law and combat corruption with the inclusion of the Magnitsky human rights provisions. Russia is the fifth largest importer of agricultural products and imported nearly $32 billion in agricultural commodities last year, making it a tremendous opportunity for commodity exporters. I look forward to President Obama signing this bill into law, and ensuring we do not delay job creation and export opportunities both in South Dakota and across the country.” [Senator John Thune, press release, 2012.12.06].

Putin's Russia is repressing political freedom at home and abroad and threatening international peace and stability more than either Castro's Cuba has for the last 25 years. Yet Senator Thune encouraged President Obama to extend the same trade relations to tantruming nuclear tyrant Russia that he's unprepared to extend to far more amenable and unthreatening neighbor Cuba.

Or rewind to May 24, 2000, when Representative John Thune voted to grant Permanent Normal Trade Relations to Communist China. Rep. Thune saw trade with China as an essential part of addressing ag difficulties in South Dakota. In 14 years, Thune has not reversed his China-trade position, despite China's ongoing censorship, human rights abuses, and ongoing war against religion.

U.S. military and intelligence experts determined in 1997 that Cuba posed a "negligible conventional military threat" to the United States and other neighboring countries. Since then, Cuba's military has only declined further. Cuba poses no threat, while Russia and China do. Cuba has 3% of the GDP of Russia and less than 1% of the GDP of China. I suspect those differences explain Senator Thune's free-trade disconnect. He's willing to thump his chest and demand progressive reforms from little guys, but when the big boys with bulging billfolds and bombers come knocking, principle yields to pragmatism, and Senator Thune opens the trade door wide.

Come on, Senator Thune! Havana hotels and Cuban beaches beckon! Get consistent, and lift the embargo now!

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Small sacrifice to fight Putin and jihadis?

Bob Mercer notes that county emergency responders lack the training and resources to deal with oil train accidents. County emergency management officials don't even get updates on what sort of toxic train materials are moving through or parking in their counties. State Emergency Response Commission chairman Bob McGrath says that in response to this increased risk to emergency responders and the public at large, the Legislature is likely to do nothing:

The commission’s chairman, Bob McGrath of White, said training money is available, but he doesn’t know where equipment money would be found.

McGrath said he doesn’t foresee the Legislature imposing fees and won’t allow special tax assessments. “I think the legislation approach probably is not going to work,” he said [Bob Mercer, "Oil Trains Present Unmet Challenges for South Dakota," Aberdeen American News, 2014.12.16].

The Emergency Response Commission called for no action.

As we wait unprepared for the next messy derailment, let us take comfort in the fact that we are sacrificing our local safety to support the global war on bad guys. Our oil production is putting a serious crimp in Vladimir Putin's style:

Putin's Russia, like the USSR before it, is only as strong as the price of oil. In the 1970s, we made the mistake of thinking that the USSR's invasion of Afghanistan meant that we were losing the Cold War, when the reality was that they had stumbled into their own Vietnam and could only afford to feed their people as long as oil stayed sky-high. The USSR's economic mirage, though, became apparent to everybody—none less than their own people, who had to scrounge in empty supermarkets—after oil prices bottomed out in the 1980s. That history is repeating itself now, just without the Marxist-Leninism. Putin could afford to invade Georgia and Ukraine when oil prices were comfortably in the triple digits, but not when they're half that. Russia can't afford anything then [Matt O'Brien, "Sorry, Putin. Russia's Economy Is Doomed," Washington Post: Wonkblog, 2014.12.15].

We and the Saudis are also helping beat the Islamic State thugs, who can't command as high a price for the product of their commandeered oil fields. Well, that, and we're blowing up the oil infrastructure they control.

So anyone willing to trade local emergency responder safety and environmental integrity for geopolitical wins against Russia and the caliphate?

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Saudi Arabia gave a Black Friday gift to the world oil market. The Saudis have persuaded their OPEC partners to sustain OPEC's current oil production rates (30 million barrels per day) rather than cutting production to pull oil prices out of their current slide. The Saudis' main objective is to crush North American producers with low prices and regain market share.

Remember that our country's booming oil production is based on hydraulic fracturing, or fracking. 80% of the fracking fields in the U.S. require oil prices of $80 per barrel or more to remain profitable. Canadian oil firms have been making their budget projections around assumptions of oil hanging around $80 per barrel. Immediately after OPEC's decision, the price for North American oil, West Texas Intermediate, dropped to $69.05.

Venezuelan Foreign Minister Rafael Ramirez confirms the basic profit equation and declares himself a friend of U.S. environmentalists opposed to fracking:

"OPEC is always fighting with the United States because the United States has declared it is always against OPEC... Shale oil is a disaster as a method of production, the fracking. But also it is too expensive. And there we are going to see what will happen with production," he said [Alex Lawler, Amena Bakr and Dmitry Zhdannikov, "Inside OPEC Room, Naimi Declares Price War on U.S. Shale Oil," Reuters via KELO Radio, 2014.11.28].

If you're pumping gasoline into your car, you should be cheering this price war, right? Cheaper oil means cheaper gasoline, which means we can all drive around and buy more stuff, stimulating the economy.

The OPEC price war could save North Dakota from the ills of petro-state chaos and corruption. American drillers aren't going to keep pumping oil at a loss out of patriotism or a love of the view of Minot from the man camps. The Saudis drove Americans out of the oil business in 1986; they could do it again.

The OPEC price war could also make the Keystone XL pipeline disappear. Canadian tar sands oil requires a price of $85 per barrel to make scooping that goop profitable.

For bonus geopolitical excitement, the Russians need $100 per barrel to balance their budget. Vladimir Putin will have a hard time continuing his invasion of Ukraine if low oil prices threaten a repeat of the Soviet collapse. Then again, Putin is not Gorbachev. Faced with economic hard times, rather than retreating, restructuring, and releasing his grip on his neighbors, Putin might lash out, reaching for more land, resources, and power.

But then we get to a strangely familiar and ugly economic scenario. Big banks have made big loans to finance Big Oil in North America. The frackers carry a lot of junk-bond debt. If oil stays low, we could see defaults that could create another financial crisis:

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry....

“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report [Andrew Critchlow, "Oil Price Slump to Trigger New US Debt Default Crisis as OPEC Waits," UK Telegraph, 2014.11.14].

Critchlow hears 2007 all over again. Just like bankers underwriting real estaters in a housing bubble pre-2007, bankers are underwriting oilers in an oil bubble based on possibly unsustainable prices. The Saudis are now popping the bubble.

But if the joys of cheap gasoline are crushed by the pain of junk-bond defaults, at least you'll be able to blame Obama right alongside the Saudis:

...This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries [Critchlow, 2014.11.14].

The Saudis are dropping our gasoline prices more surely than anything Mike Rounds or Kristi Noem has promised us. OPEC may shut down fracking and Keystone XL more effectively than any spirit camp. But the potential for a financial crisis that could swamp the benefits of cheap gasoline should make us beware Saudis bearing gifts.

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Amidst the mind-boggling complexities of the Governor's Office of Economic Development/EB-5 visa/Northern Beef Packers/Richard Benda/Mike Rounds scandal, I find this small kettle of stinky fish.

During the first year of construction, Northern Beef Packers made at least three wire transfers to an offshore account held by Ultracare Holdings Inc. at P.O. Box 957, Offshore Incorporations Centre Road, Tortole, British Virgin Islands. NBP bank statements list what looks like a $504,350 wire transfer to Ultracare in December, 2007; $308,500 on January 4, 2008; and $687,225* on April 21, 2008.

You can view annotated snippets from the three relevant bank statements here.

Ultracare Holdings Limited is based in Cyprus. It is a subsidiary of Globaltrans Investment Inc., a freight rail company in Russia.

Northern Beef Packers had other offshore dealings, specifically the convoluted financing deal in which it got the state banking commission to approve a $30 million loan from secret investors calling themselves Epoch Star Limited in the British Virgin Islands, took only $3 million, then used $35 million in EB-5 visa investor money to buy Epoch Star Limited and apparently make that loan disappear. A key part of winning state approval of that loan was convincing the state that Epoch Star was a one-time outfit with no prior or future dealings with Northern Beef Packers.

Maybe this offshore loan was a one-time deal with one-time investors. These bank statements, however, show that NBP already had $1.5 million in dealings with someone in the British Virgin Islands.

I invite any local beef packing and financing experts to explain how a beef packing plant in South Dakota ends up sending $1.5 million to and offshore account connected with the Russians.

Update 2013.11.17 08:45 CST: I originally published this figure as $887,225. A source puts his magnifying glass to the bank statements and says the first digit is a 6.

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Last weekend's New York Times had a wonderful story about creative cultural development in Perm, Russia. Perm was one of the Soviet Union's "closed cities." Westerners couldn't go there; Perm didn't even appear on Soviet maps. The Soviets built tanks and artillery in Perm, and they didn't want us capitalist dogs snooping on their manufacturing might... or on all the political prisoners shipped through this gateway to the Urals and Siberia.

Perm's manufacturing economy took a hard hit from the collapse of Communism, just like the rest of Russia. Jobs and population declined:

"A city must have a dream," said Oleg Chirkunov, 52, who was appointed governor of Perm Province in 2004. A local supermarket magnate fond of blogging about art and culture, Mr. Chirkunov works in a drab, Soviet-era government building that looms over Perm's central square like a guillotine. "When I got appointed, Perm was losing a large portion of its young people: 160,000 in eight years. Something needed to be done to make this an attractive place to live." Options considered included making Perm a center for medical care or higher education. "We wanted something that would bring quicker results," Mr. Chirkunov said [Finn-Olaf Jones, "A Bilboa on Siberia's Edge?," New York Times, 2011.07.22].

Perm needed something new to define itself and revitalize its economy. But Perm's leaders didn't just cling to their history as a manufacturing center. Perm turned to the arts:

[Mr. Chirkunov] brought in a team to "rebrand" the city, appointing as the minister of culture not a politician but Boris Milgram, a former university classmate who had left Perm to become an avant-garde theater director in Moscow. He also hired city planners and Dutch-based KCAP architects to oversee a 50-year master plan for citywide construction and the development of the Kama River waterfront. According to Mr. Chirkunov, almost 3 percent of the region's budget, 1.5 billion rubles ($53 million), has been set aside this year for cultural development [Jones, 2011].

The results? Perm now has a dozen theaters. It is drawing comparisons with and audiences from Moscow and St. Petersburg. Its central square is packed with arts festivals all summer long. Street art is springing up in numerous locations. NYT's reporter sampled local sentiment:

A formidable-looking middle-age Russian Valkyrie paused to watch me photograph a stylized metal mermaid that seemed to leap out of the sidewalk. I asked her what she thought of the city's street art, and she shrugged her broad shoulders. "I don't know what to make of it," she said, "but it brought you here, didn't it? It's nice to see foreigners in Perm" [Jones, 2011].

You don't have to be a paint-spattered dreamer to recognize the value of the arts in revitalizing a city. The Lake Area Improvement Corporation's failed Forward Madison program seems to have ignored the arts. Perm's leaders faced an even harder economic downturn than Madison's during the last decade, and their push for creative cultural development is producing some preliminarily promising results. Perhaps our leaders can learn from our failure and from Perm's example and take a different tack on Forward Madison II.

Related: Maybe we could combine artistic revitalization with downtown renovation. Rapid City's working on that. Says new mayor Sam Kooiker of his city's big downtown project, "I believe Main Street Square will help continue the path of revitalizing downtown.... A dying downtown is a sign of a dying town, and we already do have a thriving downtown, and this will create additional synergy and excitement."Sam must be studying run-on sentences with Kristi Noem... but he's reading the right stuff on economic development!

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There are no signs yet that the 2011 South Dakota Legislature will revisit the ill-conceived Blog Control Acts that died in the 2010 session. I suggest our legislators not touch any other legislation until they have a working budget in committee. But in case our representatives in Pierre do try fiddling with the First Amendment again, perhaps they should consider a couple of bad examples from across the old Iron Curtain:

  • Hungary is imposing a new media law that allows Budapest to fine media outlets for any new article the government deems too "unbalanced." Oof: impose a scheme like that, and South Dakota's whole political blogosphere would be whipped! "Irrespective of the justifications given, such media-muzzling laws are always in contradiction with the rule of law; they destroy democracy and corrupt the society," says Polish Gazeta Wyborcza editor Adam Michnik.
  • The Russians are up to Soviet-style Newspeak again, cloaking media oppression in patriotism and national security. The CIS, the loose co-op of Russia and six former Soviet states, has shut down hundreds of Web sites and promises a new and constant "information war" to fight "extremist organizations all over the world [that] widely use the Web as a means of propagandizing their delirious ideas." Wow: that sounds like the commenters Newquist and I get on KELO telling us to leave South Dakota....
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