Three-decade trend brought about by Corporate America and the religion of globalization.
By Wolf Richter for WOLF STREET.
In the US, stimulating demand for goods means stimulating demand for imports, and thereby stimulating production in the rest of the world. Imports are a drag on GDP. Exports boost GDP, but growth in exports fell woefully short of the spike in imports, and the US trade deficits in goods worsened to the worst level ever.
US imports of goods in November spiked by $40.5 billion, or 19.1% year-over-year to a new record worst of $252 billion, seasonally adjusted, according to the advance estimate by the Census Bureau today. The relentless three-decade trend was brought about by Corporate America – manufacturers, distribution channels, and retailers that have been encouraged to offshore everything to cheaper countries – according to the religion of globalization:
Note the rapid deterioration since 2019, powered by the fiscal and monetary stimulus that kicked in after the March and April 2020 slow-down. When American businesses and consumers buy goods, they buy much of it from other countries.
The only major category of goods where imports improved – meaning, imports declined – were automotive vehicles and components, and they improved for the wrong reasons. The semiconductor shortages hit production not only in the US, but also assembly plants in Japan, Mexico, Canada, and Europe.
But the chip shortages have started to abate in recent month, depending on the automaker, and production overall has picked up some: Auto imports in November, at $28.5 billion, were 10% from two months ago (September).
The table shows imports by major category in November, in billion dollars, compared to November 2020, and the year-over-year percentage change.
|Nov 2021 Billion $||Nov 2020 Billion $||YoY %|
|Industrial Supplies, crude oil, petroleum products||63.2||39.4||60.4%|
|Automotive Vehicles, etc.||28.6||31.3||-8.7%|
|Foods, Feeds, & Beverages||16.5||13.4||22.8%|
Exports of goods in November rose by $28 billion, or 22.2%, to $154.7 billion, seasonally adjusted.
The increase in exports was primarily driven by the 37% surge in exports of industrial supplies, which include petroleum and petroleum products, to $56.7 billion, by far the largest category of exports, accounting for 36.7% of total exports.
The vaunted exports of agricultural goods are in the category of Foods, Feeds, and Beverages, which accounts for only 9.5% of total exports.
The table shows exports by major category in November, in billion dollars, compared to November 2020, and the year-over-year percentage change.
|Nov 2021 Billion $||Nov 2020 Billion $||YoY %|
|Industrial Supplies, crude oil, petroleum products||56.7||41.4||37.0%|
|Foods, Feeds, & Beverages||14.7||12.7||15.3%|
|Automotive Vehicles, etc.||12.2||12.5||-2.4%|
This $28 billion year-over-year increase in exports of goods in November wasn’t nearly enough to counterbalance the $40.5 billion deterioration in imports. As a result, the trade deficit in goods deteriorated to a new worst record of $97.8 billion:
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I wonder what the leadership of China is thinking. Do they look at these numbers and think “It is just going to keep going up and up and up”… or do they say “This is a bubble that is set to burst… how can we contain the damage?”
China is accumulating a huge supply of grains. They are certainly preparing for something … not sure what.
Global Temperature Change.
Bingo. They see the threat and they’re preparing for it.
The Maunder Minimum. AKA: Grand Solar Minimum.
Hey Alex, since you are a big sunspot fan, there is a WOLF minimum around 1325 which is more relevant to the discussion here…I would think.
The likelihood of a slowdown in Ag commodity production due to multiple reasons.
Brazil and Argentina are under hot and dry conditions, especially in southern Brazil.
Fertilizer cost and supply are under strain.
And, “Following the Central Rural Work Conference in Beijing, Chinese President Xi Jinping said it is important for China to safeguard its supply of grains. The strategy includes stabilizing corn production and expanding soybean production. China’s food security goals also include self-sufficiency in pork production.” -from Red River Farm Network on Monday 27 December.
My take is that the word came from Xi to begin accumulating. Another reason may be a calculation it’s cheaper to load up now than wait until southern hemisphere harvest time.
time to implement(of course it can’t be under Biden)
some FAIR TRADE
want our FOOD, then give us ????
no more growth in food exports til we get TRADE IMPORTS DOWN DOWN DOWN
until then – let us bow to our NEW MASTERS
With 335M people in the USA, doesn’t “Only I can do this” sound kinda psychotic to ya? It sure did to me.
But I’d say the dismal charts can be chalked up to Corporate behavior…..they have too much power over EVERYTHING (including our Governments from Fed, and especially State, and are accountable only to their largest shareholders.
Take a look at Chinese Defense expenditure, gold buying, etc. Add to that the corn, etc, and basically the Chinese government is buying the same stuff as the guy with 4 large dogs and 23 rifles up in a mountain cabin in Idaho – they are Doomsday Prepping!
really – you be woke folk???
23 rifles up in mountains
China’s domestic corn prices rose, making imports more affordable. Their swine industry is recovering. Smithfield US has been shut down.
Dumping it on the market to bring down prices, much like everyone is doing with their SPRs to lower the price of crude oil.
Just talking about the SPR releases pushed crude oil prices down. When you sit on a big pile of a commodity, you have the power to push down prices, no problem, with a combination of jawboning and threatening to sell, and then actually dumping large quantities suddenly on top of highly leveraged traders that are then caught on the wrong side of the bet and are forced to sell.
Say a commodity starts at price X, and then you start buying and the price goes up to price Y, threatening to do stuff that will bring the price down to X or lower does not accomplish anything. You are also hurting the value of your own holding. China is also not self sufficient when it comes to food, so this might be something else other than market manipulation.
Yeah crude oil prices headed down a bit, but still far above the glory days when oil futures were trading in negative territory. Also if the government wants to keep oil prices down, then it better stop its saber rattling in the Ukraine.
The King of Saudi Arabia sets oil prices… and he could give a flip about the Ukraine.
How about having everyone in our oil futures markets having to PROVE by LAW that they could take delivery? Same for other bulk commodities.
Would get rid of a lot of parasitic riff-raff and price discovery would still happen.
Sorry if anyone here is doing it…..find something else to gamble on, there is no shortage of casinos, that’s for DAMN sure.
The rice and grains grown in China are tainted because of pollution. Probably not fit for a goat.
There are videos about the severe water pollution in China. Surface water and sub-surface.
Then, if China has a “Texas Style” freeze, then there will be blood.
Only 15% of China’s exports go to America.
First off, that doesn’t really matter. What matters to China is that its economy is so manufactured goods export driven. Ever since 2009 they have been the largest exporter of manufactured goods in the WORLD. That is more of what I am getting at with my comment. It doesn’t matter to China if the U.S. alone starts to tighten the screws on its economy… China can get hurt if the U.S. continues QE and the rest of the developed world tightens.
Second, what matters more than the percentage of their exports sold to America is the profitability of those exports. There is a lot more profit in selling a single pair of Nike basketball shoes to American kids than selling thousands of fake malaria tablets to Africans.
Last but not least, that 15% of China’s exports that goes to America DWARFS the amounts going elsewhere. The next closest country is Japan and we import over three times as much from China as the Japanese do. Moreover, China is a nation without allies… whereas America is tightly woven with every nation China wants to do business with.
I see why you believe what you typed. If you got your news from the whole world instead of the American media, you would have a totally different outlook. What you see as facts are a small part of the whole picture. Your last sentence baffles me. All I can say is “turn off Fox News”.
RODDY… I had to laugh. I actually get my news from the BBC and the Guardian specifically in order to weed out American media “narratives.”
I haven’t watched any FoxNews since Charles Krauthammer died in 2018… and only watched the one show (segment) that he was in for the previous decade or so. Krauthammer and MSNBC’s Chris Matthews were the only two talking heads that I thought worth making time for. Mika Brzezinski occasionally breaks through on “Joe in the Morning” with something interesting but you have to waste two hours listening to those other political mutts on that show to hear her.
As to my last sentence about China’s lack of allies, name ONE besides North Korea. Forget military allies… they don’t have any trade allies. Eight years into the Belt and Road Initiative there still isn’t a single nation on Earth that would join them in economic tit-for-tat trade sanctions with the U.S.
SpencerG, the joke’s on you. Did you know Her Majesty’s nuc**** weapons are maintained by Uncle Sam? The UK and Europe are protectorates of the United States.
BBC and The Guardia have devolved into tabloid trash, all pushing NATO and American party lines. Try reading news from Asian and mideastern countries that do not share “sources” from Langley.
My guess is that the Chinese elites are probably thinking thank god for the Americans–for without them Chinese rulers would have probably needed to transfer substantial wealth and income from themselves to average Chinese citizens.
But instead, under present international arrangements, the Chinese elites (especially Chinese exporters) can continue to use their excess savings to purchase foreign goods, services and assets without having to worry about increasing Chinese household spending.
As long as Chinese elites are able to postpone any domestic rebalancing–which they can continue to do as long as they can dump such excess savings into US assets–their presently favorably domestic power arrangements can be continued a bit longer.
China would be doing the opposite pulling everything out of U.S. assets not putting more into U.S. assets. The U.S. dollar is headed for a one-way trip off a cliff.
Nothing could be better for US workers than for the dollar to drop off a cliff. In 1993-1994 the Japanese made a huge effort to ensure make the yen drop off a cliff and make damn sure it stayed at the bottom.
not if their goal is world domination. if dollars are headed for a one way trip, then it makes sense to use those to buy u.s. assets.
The very thing that incensed the founders to rebel against the yoke of wealthy entitlement we are witnessing.
America is experiencing the age old subjecation where the ” children of the heroes” reestablish the aristocracy. We are the children of heroes and we mistake the commercialization of our individuality as innovation. Someone said the Zuckerberg once commented that ” the stupid bastards give it too me for free” I don’t know if that is true or not.
I am entertaining the concept that the Federal Reserve does not have the well being of the median American citizen in mind. Given their inexplicable behavior over the last 100 years, always wrong, unless you are a New York banking mob boss.
You have not convinced me of anything by pointing out the obvious. I already knew.
Best wishes too all in the New Year.
The Federal Reserve should immediately rescind the restriction on their I bonds, currently limited at $10K per year for a 7.12% savings bond available through a Treasury Direct account, to allow unlimited investment for people whose AGI is less than $100K.
Good point dang,
Ten grand @ a seven percent payback is a whopping $700 income per year. Two bucks a day.
Best line from the movie ‘Better Off Dead’: “I want my two dollars!”
“We mistake the commercialization of our individuality as innovation”…..Damn (Dang) that’s good!!!!!!!!!!!!!!!!!
Been watching it get worse my entire life. I dropped out at “Stereo”, and other than a couple kinda expensive but challenging thrill sports, I stuck with Volleyball, hiking, LEARNING, and other PERSONAL challenges that interested ME. (Yeah, good tools, flip phone and computer were/are handy.) Still playing cheap diet/exercise games as old man….will see what happens.
Getting rich has always seemed a VERY stupid personal “challenge”.
PS: Am child of hero, he taught me a lot and well.
the Chineasse are not a reactionary economic force that addapts to the current situation. This what we call China is the continuation of the Chinesse nation existance that ranges 5000 years, and not much has changed (formes change but this essence is the same). They are trend setters in many ways, and the West will soon follow and maybe even immitate the Belt and Road initative. It might react to certain situations but it always has some sort of leverage in place. What helps one understand how they approach a problem long term is the traditional game Baidoo or Go…It sure did help me a lot. Their gratetest asset, the characteristic that makes them stand out – patience and endurance! Not necessearly virtues of the modern (EU and USA) western society. This is a new player that is so large and wise that they are changing the game in their favor (and have been doing so for 50 years).
A fascinatingculture worthy of studying.
Some U.S. corporations own operations overseas such as Exxon owning a fractional interest in a Canadian oil company. The oil is exported from Canada, but Exxon gets the same dividend per share as any other shareholder.
On the other hand, foreign investors own stocks in U.S. companies. This is all recorded in a nation’s current account.
That is one of those indeterminate arguments where there is no right answer. Protecting Exxon’s corruption is not a valid concern because the minute one agrees that it is justifiable is the minute that freedom begins to die.
I still believe the American ethos, that life revolves around the family having enough. Even as it is sucked into the vortex of concentrated wealth, the real problem.
Peace is disturbed by the age old sin, avarice.
Before I stop shooting off my mouth, I would like to point out a cultural acceptance of racist humor that characterizes my heritage, varified by DNA testing. It is the commonly accepted term ” Paddy Wagon”.
Not sure whether I should be incenscents or proud.
10 years ago we had three bright spots in the import/export picture, Commercial Aviation, Semiconductors and Military equipment. All three of those have deteriorated greatly since then with the multiple failures of Boeing and Intel and the recent Duds in Military gear (F35, Littoral combat ships, etc). Not sure what we really have on the horizon to stem the tide. I wish we had not abandoned the industrial robot business 30 years ago and left it to the Japanese and Germans.
I don’t have much insight into the first two… but Foreign Military Sales of Lockheed-Martin’s F-35s are skyrocketing and the U.S. has never had much of an export market for warships so the problems with the LCS are of no real importance there.
The US should still jump all over robot manufacturing but it will never happen. US corporations like it of course, but the investment is going overseas to dodge all regulation and what’s left of human labor needed.
US Corporations are now enjoying closed-door manufacturing overseas where they can do any damn thing they want to cut costs and it will never be known by the US consumer. No wonder container shipping is still at full throttle even with exponential rising costs. Five-year-old kids could be stamping out your new underwear but we will never know it.
Our “Leaders” look the other way while their portfolios swell like a fat dog tick. Besides, no one wants to work anymore with fat stimulus checks coming in the mail, so the government has helped us all turn a cheek to anything productive here besides sit on our ass paper investment.
I agree with your rant and exasperation. America as we knew it has been overthrown by a sanctioned criminal empire called big business. Every function of the US government is now controlled by business cartels.
At first I was agoog at the fact that the mid west rejected the queen of pain, Clinton. Since then I have become aware of their wisdom, even though every mid westerner I have had the unfortunate happenstance to encounter has been painful.
The Gettysburg Address is a dual obituary……Lincoln probably knew it.
We can always sell corn, lumber, coal, wheat, soy beans, etc. like all other 3rd World economies.
Selling sales of subsidized products for jobs. Smart. Must be an Ivy League concept. Like globalization and QE.
Re: your comment on Clinton and mid westerners.
What a backhanded “compliment” inside a generalization. Can you back that up with specific encounters?
My experience has been much the opposite.
How about the Jan 6 “Celebration” of midwestern talk radio and it’s job loss driven ignorance?
BTW, I was lucky (CA) and figured I could piss away my vote and a little money on Bernie….if only just to send her and her party a message. Proud of my home county’s (Mendo and Sonoma) records in the Primary….2:1 for Bernie.
The dollar is dramatically losing purchasing power over foreign produced goods, this is going to slam the lower and middle classes right in the face. Manufacturers cannot shift from China to India that quickly, especially with Covid raging. India is not as high of quality and not as developed as China in a manufacturing sense. Wouldn’t be surprised to see credit card balances shoot up as all the imported stuff gets more expensive here.
Wouldn’t be surprised to see more manufacturing come back to the US and lower class wages rising, exactly because other low wage nations lack the ability to actually make stuff like China.
There are very few industries, where US remains competitive globally. So no manufacturing is coming back. The best you can expect is for some manufacturing to move to Mexico under Chinese, European, Japanese or Korean management.
Great analysis — but not sure corporations truly to blame.
Government sets the policy they operate under, so I consider the fault to be a lack of appropriate government policy.
A policy that would help balance the trade account is Capital Transfer Securities.
The link is included above.
Corporations requests legislation and regulation from Government that are beneficial to their business.
Government says: “Shall I gift wrap this for you Sir”!
Well said. Sadly, this is American democracy.
That last purple chart is just EPIC! At this pace, China might overtake our economy in five years with just about everyone in DC asleep at the wheel or on the take.
If the assets values are deflated by introducing higher interest rates to combat inflation it will take 5 months, not 5 years.
LOL. Uh-huh, sure….
The data does not seem to allow for inflation.
Official US inflation would show the 1993 import figures rising to around $80bn in value by 2021. Shadowstats estimates for inflation would put the value at $630bn. It’s way beyond a quick calculation to estimate the real value of imported goods, but the 2021 value of $252bn is roughly the geometric mean of these two inflation bounds. Exports have risen by a factor of 4, Imports by x5.5
In plain English, it means the value of imported goods is less likely to be higher than the value of exported goods is lower. I would say Exports are the problem, not Imports, relatively speaking.
Looking at China specifically, they are mostly exporting finished products and importing raw materials (like iron ore and corn). That’s how the British Empire was built, since the profits are mostly in the finishing.
Now, the argument for exporting manufacturing from the Western World was that we would all become graphic designers, app writers, and financial products salespeople, since there’s even more profit in that than manufacturing. However, as we can see, that’s proved to be BS, not least because the average IQ of any nation isn’t up to everyone being high tech wizards, and we only need 2% of us driving tractors.
Good post. You describe a colonial relationship, which defined the British Empire, England importing commodities, exporting finished products and colonies weren’t permitted to manufacture, since it would compete with the home country’s industry and profits.
That was one of the main reasons for the American revolution and the dissolution of the British Empire.
Another factor is that the high-end specialist jobs are intertwined with the industrial processes they interface with. You can’t maintain supremacy in the first without also having expertise and control over the second.
In other words, the way you design a widget depends on and can also influence the manufacturing processes used. There’s give and take. The ability to design a better widget is constrained if you don’t also own and develop the manufacturing stack.
Indeed, and further to that if you export the manufacturing you end up having to export, or at least allow the reverse-engineering of, the design process as well as the manufacturing process.
My frustration is that the widgets I am into, high-end audio gear, are for the most part designed in the USA, UK or Germany, but very few are made where they’re designed.
They are “Assembled in China.”
A case in point can be seen in Younstown, Ohio. A talented engineer with a physics and acoustics degree, Mr. Smith Freeman, has designed some great speakers and subwoofers for the company he is employed by.
You would think that making loudspeakers in Ohio would be better than having them made in China and shipping them back to the States, but of course, “Corporate America and the religion of globalization” has them outsourced.
OK, now I’m a broken record again.
In 53 minutes, I will be watching and listening to the Minnesota Orchestra on my local Public Television channel. The speakers and subwoofers in my living room are “Made in the USA.”
And by the way, the bicycle rollers I commented about in Kuppy’s, ‘The Problem With Ponzis …,’ are made in Grand Junction, Colorado.
I should not have included a link to the company, and Wolf so rightly removed it before he published it, but I decided to do so since the products are very well made — right here in the USA.
It’s been just over a decade since I’ve driven my tractor or my combine, but I send my best to Seneca’s Cliff as he runs a manufacturing company in Oregon for implements to be used with tractors.
Remember, “It’s not the size of the plow, but the depth of the furrow that counts the most.”
Shinola, a Detroit company, makes stuff in America. The company has a great story. They mostly make watches and leather goods, but occasionally, I see audio items on their website.
I can’t hear well enough to go too high end in any case. Prices go up exponentially in serious audio. But I’m looking at the Puffin from Parks Audio in Washington state. Darlington Labs. Decware tube amps.there’s some guys in Texas doing hybrid amps and pre’s.
But it’s a short list, and we’re probably lucky it’s not shorter, these shops are taking on Sauron Industries without a Ring.
You may be referring to Valencia, California’s Schiit Audio. They also have production in Corpus Christi, Texas. I use some of their gear.
Shinola turntables are from a collaberation with the Weisfeld family’s VPI Industries, in Cliffwood, New Jersey. VPI makes great gear!
One more thought – IQ is just one piece of a complex puzzle, necessary but hardly sufficient for achievement in intellectually demanding jobs. Culture and habits are critical components of productivity; the panoply of distractions effectively dumbs down many of our brightest minds.
I find myself strangely attracted to the concept of a no-frills/ascetic lifestyle, but then I get back on the interwebs to shitpost and waste my life.
It’s a tricky one these days. I’ve spent untold hours on the interweb in the last 4 years trying to work out where the world was going next. It takes a lot longer than it used to as the media is now a curse rather than a help, and government data is next to useless. And when you are dependent on their next idiocy, you have to find out what they’re up to. However, after a lot of work, I am now effectively independent of whatever happens in the next two years. So, I can restrict myself in hours per day. I also take periods of two or three days with the internet off so I can focus on a design project.
So, I suggest a hard ration of hours each day – makes you more efficient when searching also.
Shadowstats is a joke. If you use them for anything, you end up with a joke. And that’s what you just did.
He said as much years ago. People need to quit taking his BS seriously and do the math on their own. He’s been saying double-digit inflation for over a decade. So let’s do the math:
To use a 10% example, which is lower than his numbers: If the average household had 10% inflation for 10 years, the $4,000 per month spending per household in 2012 would be $10,374 per month in 2021.
To use a 12% 10-year example: If the average household had 12% inflation for 10 years, the $4,000 per month spending per household in 2012 would be $12,423 per month in 2021.
Which means that a household making $4,000 a month in 2012 would have to make $12,423 per month in 2021 to have the same standard of living, which proves that his numbers are just stupid-ass nonsense.
Do the math yourself! It’s easy to show that shadowstats is just a joke that people take seriously.
Yes, inflation is higher than CPI but it’s not anywhere near shadowstats BS number.
Only people who don’t know how to do compounding math or don’t know how to use a financial calculator that does compounding math (such as net present value or future value calculations, payment calculations, etc.) believe in the bullshit that the guy posts.
His numbers cannot be true because the average household that got by 10 years ago with spending $4,000 per month doesn’t need to have $12,423 a month in spending now to maintain their standard of living. But that’s what his number pretend to show. And it’s bullshit.
And people need to quit citing and promoting this BS on my site. I delete a lot of comments for that reason.
25 yrs ago the mortgage on my property value was $1,258/month @ 9%
Now it is free and clear.
Today a 25y mortgage on my property value is $12,0715/month @ 2%
The cost of building a new factory today is out of reach for most.
Inflation is hidden mostly in the face of those today entering the job market that have to do without. . . .pay more for less.
Understood Wolf, which is why I placed it only as an upper bound. You know that the geometric mean puts that estimated figure closer to the official figure than Shadowstats.
Equally, we all know the government figures everywhere for inflation are too low, hence a lower bound.
Having had a little more time now, an inflation figure of 5.9% over the last 30 years would give the rising Import values we see without any actual increase in the 1993 dollar value. This seems within the bounds of reasonableness to me, though probably a little high, so I still maintain my point that exports failure to rise as much is the bigger problem.
And, point taken, I won’t quote SS again.
Talking about real estate, Shadowstats would be in the ballpark where I live. Not sure about anything else though.
Shadowstats indeed has a basic mathematical error, as shown here: https://fullstackeconomics.com/no-the-real-inflation-rate-isnt-14-percent/
The real irony is the fact that a 1-yr subscription to Shadowstats was $175 in 2006 and it still is in 2021, not much inflation there…
Manufacturing and agriculture are the foundation of economic power, not services and definitely not debt.
I know it takes less today to produce the same volume of both but the US is about to test whether producing so many services with little if any actual economic value is enough to maintain long term prosperity. I’m confident it isn’t once it can’t run trillion dollar trade or current account deficits.
When a real hot war erupts, it will matter a lot too. Believing that major power wars are in the past is a delusion. COVID revealed some of the necessities produced elsewhere and hopefully this will be a wake-up call to correct this insanity.
I don’t think an “argument” WAS made regarding what “the rest of us would do”. That implies a social consciousness and as Uncle Milty clearly stated, a corporation’s ONLY responsibility is PROFIT. His weak argument was, “WHO” gets to decide what the Corp’s social duties should be.
Guess he didn’t like democracy much, more of a winner take ALL type, and damn the human and planetary wreckage. But he did have one of those phones Nobel Econ prizes, so the Reagan-puppet masters used his prize winning Chicago School “supply side” mumbo jumbo and the rest is history…..unfortunately.
Now what happens when we pay all of these countries that we have trade deficits with dollars… that we are in the process of severely devaluing?? ;)
We are exporting our inflation to some of these countries as well, which is the reason why many countries are raising rates, is it not?
Would love to hear some perspectives on how domestic inflation impacts foreign countries that we trade with.
The only way for them to retain real value is to buy US stuff, like farmland, with their US dollars. Essentially, running a deficit and the money-printer continuously is selling the USA by the dollar.
It’s nothing new. Check out the lyrics of ‘Selling England by the Pound’, by Genesis (1973).
But we can pass the same kind of laws other countries have to block foreigners from buying our land and businesses. We already do the latter in the case of strategically important businesses.
which would severely damage the value of the dollar, making imports even more expensive.
a lot of the value of the dollar is what you can buy with it. since we don’t make anything, what can you buy with it outside of our assets, like land?
Well, you can try.
Canada has been trying this for years, both Provincially and nationally. The realtors and financial wizards are always one step ahead of the legislators, not least because the legislators seem to leave assorted loopholes in the legislation. And then you notice how the legislators end up with cut-price swimming pools and stunningly large book advances for books that eventually sell 3 copies.
My view is.
As the US inflates domestically moving commodity/goods dollar prices up, countries that internationally using the dollar as the principal settlement currency, then also require more dollars and this demand is the external deflationary force (or the “exorbitant privilege”) that has allowed the Fed and the US government to operate.
Essentially by reflating domestically i.e. putting dollars into the US domestic economy, increases international demand for those dollars, and there is no international mechanism to create dollars. The only way for global trade to work like this is for the US to persistantly run a trade deficit.
This is the reasoning behind the view that Powell is right and the inflation is transitory. And also suggested as a cause for the Arab Spring, when due to Fed inflating, the arab countries faced domestic issues because suddenly they had insufficient dollars for their food imports (which had repriced internationally along with US domestic repricing).
For other countries they can’t follow the Fed because too small and not reserve so no global demand, so their inflation or lack of it is purely a result of the domestic policies they have chosen for themselves. So e.g. Bank of England already raised rates a bit because Britain sadly not what it was can’t get away with the printing.
This is all good until the day USD is no longer means of settling international transactions. And that day might near if SWIFT is used as a leverage on other nations which is being suggested from time to time. However, USD will loose it’s dominance in the world trade bit by bit even without some huge shifts and IMO in 10 years americans will start really feeling the trade deficit results.
Sri Lanka just started to pay Iran for oil by shipping tea to Iran. Sri Lanka is out of cash and Iran is sanctioned away from SWIFT.
Well, there is a question if those other countries run a trade deficit or not. Those that have balance or better in their trade with other countries do not necessarily need the US dollars. They can settle their trade in other currencies or by other means.
SPX daily : the narrowest two consecutive days in the last twenty days.
The market is resting.
Or folks on the street are on vacation and actually spending time with their friends and family (gasp)
Wolf, per your request I will post again my question to you regarding passive investing and its outsized impact on the current market situation:
Lately I have been listening to Danielle DiMartino Booth give a great interview talk with Mike Green who is a portfolio manager. They have interviews available on YouTube both in Nov 2020 and Dec 2021.
One of the most fascinating things I heard from their interviews was Mike’s theory regarding why equities have taken off over the past couple of years. Basically, his theory is that passive investing has created so much price inelastic / illiquidity in the equities markets that the effective float of available stocks to purchase have effectively decreased to the point where it is impacting pricing. Because passive investors are price insensitive, they buy at any price and never sell. When one wants to buy into a pool of equities that are shrinking in volume, the float of available share grows smaller and smaller, thus raising the bid/prices on said stocks.
Wanted to know what your thought was on this? I know this is off topic but you specifically requested that I post this question.
And share buybacks and increasing the monetary base, and the Fed jawboning their long term intentions to buy and hold stocks on their balance sheet which the SNB is already doing. Limiting the number of shares increases the price at which the turnover is being made, but it’s still turnover, for every seller there has to be a buyer. Its become anti-axiomatic that volume is a weapon of the bull, low volume is how you juggle stocks higher with very little buying. This is probably reason two why the Fed pumped the monetary base egregiously as they did. Volume slows, then it stops, and that is the classic definition of a liquidity problem. Or what happens when everyone who wants stocks has them? The churn in the markets far exceeds the real demand. End game, what happened in the oil markets 2020 will happen in stock futures, expiration and those who are long have no place to store the product. Everyone is full of stocks. Futures go negative. The US stock casino pays out more than it takes in, and you have to print your own money tp do that. Hence inflation and the players lose confidence in the game. That is the moment when the shorts get theirs, and they literally rip it from the hands of the poor suckers who are buy and hold players. They have to outlaw shorts in that case because it is very demoralizing and denigrates their mission to pump stock values by printing fiat currency..
A close look at the supply and demand for shares is important, but they’ve oversimplified.
1) Passive investors DO sell: that’s how retirees (including pensions) fund retirements. Dividends and interest payouts market-wide are too low to fund retiree income needs. (Bonus: wait for the next serious decline and find out how many “passive” investors aren’t so passive after all…)
2) There are other sources of “share supply” in the market: stock options grants, IPOs, secondary offerings, convertible bonds, SPACs etc.
right now, so many people are conditioned to think that the fed will never let stocks go down, and has that ability. all it will take is a large decline, and a fed official coming out and saying that there’s nothing they can do, and watch the remaining “buy and hold” people panic to the exits.
that’s how it always is.
…or the US Fed emulates BoJ and kicks off a program to purchase equities directly onto their balance sheet?
And then what??
If that happens I’m selling everything I own and putting all my savings in the megacaps.
Notice that the Nikkei Dow is still lower than it was in 1989, even after the BOJ did that?
The only instance where I recall this working was when the Hong Kong Monetary Authority did it in 1997. The Hang Seng has badly underperformed since but never totally crashed either.
Enough people are also aware of the increasing wealth inequality. At some point further artificial expansion will not be politically supportable. That’s part of the sentiment behind the wealth tax proposal.
FRB does not exist in a parallel universe like a lot of posters here seem to believe.
Yes, look at what the BoJ’s equity purchases did to the Nikkei: it is down 25% from where it was 30 years ago.
“Yes, look at what the BoJ’s equity purchases did to the Nikkei: it is down 25% from where it was 30 years ago.”
They didn’t go big enough. They need to talk to Bubbles Bernanke.
On second thought, my reply is getting too long for a comment. I will likely post it as an article — and spend a little extra time thinking about it and looking for typos :-]
The same argument applied in 2008.
It was a rationalization then and is one now.
It’s a mania, plain and simple and behavior demonstrates it, paying so much for so little value, including momentum buying solely because prices are rising.
Don’t think that passive investing is the main problem. If I remember correctly the stock market is over valued by every major measure except one and that is when compared to bonds. The Fed is the main reason, everything else is a sideshow.
Plus asset managers are really asset gathers and like to milk clients for 1% – 2% each year. Only about 10% beat SP500 over 15 years.
Nancy “there’s a floor under the stock market” Pelosi and Co. have been speculating in stocks the entire time. That’s all you need to know.
So what! Scammerica has printed 10 trillion in fake fiat toilet paper and borrowed another 10 trillion with negative real returns rates in the last 10 years and the fools keep sending their hard work and products! Why does scamerica even bother producing anything? really? it’s a vaild question as scamcurrency or reserve currency is in such demand, and to ensure it is always in demand we will destroy your country if you refuse it! Scamcurrency is the imperial taxation of the world!
Watched documentaries on Ponzi, John Law and Tech bust. You could have avoided them all by not giving your hard earned money to a shyster trying to get rich by selling you a scam.
Same thing going on now. John Law = Ben Bernanke. Charles Ponzi = Elon Musk. Tech Bust = Crypto Bust.
Dan, i see you’re commenting here and i was gonna comment on the last article where we were talking, so i wanna RE-POST your link you gave to me in the earlier ponzi article because my mind is completely blown that Wolf and you covered this stuff back in 2015!—
i think/hope this Stephanie Senoff book, “Toxic Legacy” about what glyphosate has done to …well, EVERYTHING from autistic lost bees that cannot return to hives as well as screwing up our bodies and DNA into future generations… i hope her readable books brings this all to light so that we can stop from being poisoned.
i know ….one MORE thing to add to the huge massive pile. but it’s a way of THINKING. long game stuff. (uh…if we’re lucky to have that kinda time.)
and if you and your beloved decide to get attention for the other situation via a book, i think that might be a good idea when you’re ready.
She may write an open letter to the U S Supreme Court to be published in social media.
Waiting for State Attorney General review unit to look at her situation first. Got a confirmation that it is their docket on Tuesday, but no guarantee or timeframe yet given.
“Life without parole on circumstantial evidence.” Makes a good reason for the highest court to give her a chance I would hope.
Thank you Erika.
What is your current recommendation on how people in America should eat / shop for food?
Thanks in Advance,
Peanut THAT IS THE ZILLION DOLLAR QUESTION, isn’t it???
because it’s become completely Existential at this point and relates to Everything. it’s why Stephanie Senoff’s book made me realize this is an entire revolutionary movement that is also related to Wolf’s constant dissection of the financial industrial complex. it’s ALL related.
i have to admit that i was FINE with chemicals before because i couldn’t CARE or AFFORD non-chemical food. less salt and fat and less ANYTHING and chemicals costs sooo much more. i figured “screw it, we’ll have to build tolerances and hope for the best.”
but when Stephanie Senoff talked about how glyphosate (roundup) messes with DNA into the FUTURE and how the effects seemed innocuous enough at first (not really), but lo!– what it did to deform future generations of piglets and rats / but Monsanto figured 3-month studies were good enough and so did everyone else set to keep an eye out for humans because there’s soooo much money to be made out of it.
(sound familiar to the reason we are here in the first place?)
so i took a break and i started reading “San Fransicko” by Michael Shellenberger but had to put it down for a minute, too. James is reading it in my stead, telling me bits and i cannot take anymore just now. it’s a lot about the Homeless Industrial Complex and how it just keeps getting worse and how do you all keep paying ALL THESE TAXES so willingly when the government is doing lines of coke off all our naked, freshly-sodomized backsides?…
to that, I’m also reading Simon Sheridan’s “The Devouring Mother” to understand WHY any of this because we’re so far from No God.
this is why i have little to say on Wolfstreet these days. i’ve got nothing to add give or deploy except existential shrieks. wondering HOW and WHY we got here, i’m surrounded by dozens of books–bought (thanks to Wolf’s Christmas money along with James’ mother’s) as well as books from the library, that is apparently trying to go ALL digital now.
and so it goes…
Reading the ingredients is a good first step. So much of what’s in the grocery store has high fructose corn syrup as an ingredient. It’ll probably surprise you if you look closely.
Other than that, the only real recommendation is to avoid processed food that have tons of salt in them. Look at the sodium content on Knorr brand ‘Pasta Sides Alfredo.’ The package boasts: No artificial flavors; No colors from artificial sources; No added MSG. Yet, one package (which is my normal serving size) has 1,390 mg of sodium! It’s better & cheaper to boil some pasta with a touch of butter and olive & grate some cheese.
What the article from 2015 doesn’t make clear enough is the widespread use of glyphosate to not only reduce weeds at time of harvest, but also make the combining of the crop easier and more timely for the farmer. It is done on damn near everything.
BASF has guidelines for canola growers to use their products to desiccate the crop. Canola oil is good and healthy, right? About 50%, conservatively, that is grown in North Dakota gets sprayed before harvest.
A few years ago, a friend of mine in Hoople, ND pulled down 80,000 bushels (80 bu/acre on 1,000 acres) of hard red spring wheat to take to the elevator and go into the food chain. It was hit with Roundup before he harvested. “Dan, I have to get the ‘taters in when they’re ready (grown under contract for Target brand potato chips), and I can’t worry about timing with the wheat. I spay the wheat based on when I can get up the potatoes!”
All I can do myself, is try to eat as much fresh fruit & veggies and do almost all food prep myself. But it’s not an easy task for those with kids and jobs to take a bit of time in the kitchen slicing’ and dicing’ like I enjoy doing.
My body is a machine. I like to be fast and strong. Just like my motorbike & car, I run best on high-octane fuel!
Thank you for the inquiry.
In the last 6 months USD trend is up, but USD/CNY cont to decay
ending at 6.37 today. The weaker dollar vs the Yuan INCREASED the trade deficit. Blame FX, not consumers demand. USD/CNY downtrend will soon end !
Blame FX not consumer demand? Cmon now US consumer runs the world, not some FX traders, no matter how wealthy.
The USA has been debt happy since at the very least the space race, and until the inevitable crash and burn happens they ain’t gonna fix it.
In 1971 non-compliant capable scammerica broke the Bretton woods pact where it had reserve currency status as long as it was backed by gold. Lord Keynes and the other bureaucrats knew the profound importance of a country controlling the reserve currency–which America didn’t deserve due to its late entry into ww2. Scamamericas duplicity and abuse of the reserve currency status will have limits and when it breaks the empire built on fake currency will tumble into the abyss!
Transition to a new world order is in process now, similar to the inter-war period.
Presumably this time from the US to China.
Have you read about China’s “social credit score system” and all that crap? That’s not a world I will live in. I refuse. I’d rather eat a bullet. I’m not kidding. Freedom is everything to me. I don’t like totalitarian regimes.
The difference in petroleum products may reflect fewer exports of crude, opening of the SPR, and more imports of refined product. A strong dollar and a wide trade deficit spell deflation. At least we’ll have someplace to monetize those treasury bonds in the form of foreign reserves. Suppose the Congress turns over in 22 and the GOP rips up the spending bill. Could the US balance the budget maybe even run a surplus and have zero exports? Will producer nations pay us to take their goods?
All releases from the SPR increased crude oil exports. What else are they going to do with it? Eat it? Domestic demand doesn’t change with those releases.
The US (in places like California) imports crude oil, refines it, and exports the gasoline, diesel, and aviation fuel (value added) to other countries, mostly Latin America. This is a big profitable business, and Bay Area refineries are up to their necks into it. I see those full tankers heading out all the time.
The petroleum trade is very complex these days.
I question the interpretation of trade-deficit data in light of the well-known corporate finance games. They tune invoices to make sure the cash profits end up where they get the best tax treatment.
Also, along the same lines, there are fundamental trade accounting equations (mathematical identities) which require the global reserve currency nation to run large trade deficits. The world demands dollars and the only way the US can supply them is by paying more for imports than it receives for exports. This has been covered thoroughly by several serious economists.
It matters less which nation the cash sits in, as who owns it.
But it does matter a lot if a nation can’t produce what it needs, and then trade shuts down! However, you can’t always assess that from trade balances.
The trade deficit is also hard to measure because it credits the exporter with the full value of the import, even if it wasn’t fully produced there.
I’ve read that when Apple imports an iPhone, as little as $10 is actually valued added in China, the final assembly.
I don’t know if it’s true but if so, inflates the trade surplus for China at least in terms of actual production, even if not financially.
I’m not sure why all the hand-wringing. As JR Ewing said, after he had just put one over on Bobby, “Things change. Usually for the better.” Most of the stuff from China is low fruit on the totem pole and easily made/ assembled more cheaply there (or Vietnam or Thailand, etc.) than here. The alternative is, if we made it here, the prices would surely be much higher and you wouldn’t be able to take that trip or give money to your g’kids or go out to eat or buy that new thingy you want.
Historically, governments don’t have an obligation to provide a job or make sure everyone makes $100k/year. Yes, change hurts some people and helps multitudes more. The car revolution in the early 1900s left lots of sh*t shovelers and buggy repairmen behind. That’s life. I started over 4 times. Instead of complaining, take advantage of the world-wide arbitrage in trade and enjoy comforts kings didn’t even know to wish for 200yrs ago.
The idea that tech innovation somehow miraculously always creates more jobs in new areas is bunk, especially so as the difficulty and complexity of adding value increases.
Yes, it’s equivalent to using cycles as evidence when the number of cycles is very few.
What you described is based upon the belief that perpetually rising living standards are a given which I agree is nonsense.
For most of history, living standards stagnated and the vast majority were poor or dirt poor.
The last century or two are an anomaly, not an indication that it’s manifest destiny. We just do not know.
It decreases jobs self checkout at grocery stores ,gas stations,robots building cars not a good situation for people
“Most of the stuff from China is low fruit on the totem pole and easily made/ assembled more cheaply there”
Much of the US auto components manufacturing industry has moved to China, including the design centers from the entities that used to be part of GM and Ford. Electronics production has moved to China, semiconductor manufacturing, etc. Not exactly low hanging fruit. It has gotten to the point where certain things can no longer be made in the US because production shifted to other countries, and so did the expertise and the infrastructure. This is a huge insidious problem.
That’s a good point regarding electronics production moving to China.
As I commented a few weeks ago, Cambridge Audio of London makes a $6,000 100 watt per channel integrated amp in China that says. “Great British Sound” on the back panel.
For six grand a unit, I would think they could make it in England, no?
Yes… they COULD make it in England… but it would cost more to do so. So the leadership of Cambridge Audio has it made in China and then pockets the extra profits. The shareholders benefit… the unemployed British workers (and U.K. government) not so much.
They make them for pennies and sell them for as much as they can.
They could, but, it would be shit. British “common sense” management would see to that.
In my opinion, the only people in England who consistently can make innovative, high-quality, high-performance products, are the “Cottage Designers”. Most of those businesses are created by talented engineers and technicians, that are driven out in the wilderness by corner cutting crass management, like Alan Sugar and his ilk :)
I deleted the word between “crass” and “management.” You know which one. Inappropriate here.
Last year I purchased a new 100 watt per channel hybrid ( tube preamp section) integrated amp for $3500 that is made in a U.S. factory mostly of US components including hand wound transformers, and in-house circuit boards. So Cambridge is just being greedy sending a unit at that price to China. Or they lack the skills and infrastructure to do it themselves because they farmed it out long ago.
I always tell my kids that beyond a certain price you don’t get what you pay for, you get basically the same stuff just packaged up for people with “more money than brains”. And that you can always find someone who will let you pay as much as you like for nearly anything. Ladies’ Handbags, luxury cars, the top-of-the-line Macs and other luxury goods often aren’t about luxury-quality or performance, but about showing off how rich (and emotionally insecure) the owner wants you to think they are.
Yes… just because China loses production doesn’t mean that it will come back to America. Only those products that we have a national interest in will return to our shores… pharmaceuticals for instance. Computer chips.
But just because nations other than China would get the bulk of production instead of the U.S. doesn’t mean that we shouldn’t encourage that movement. China has had twenty years to get with the WTO “rules-based” program… and just refuses to do so. Moreover, they are using the profits from their trade with America to compete with us in the diplomatic and military spheres. Say what you will about the leadership of Vietnam, Thailand, and the rest of the Third World… they aren’t likely to build hypersonic missiles to aim at the Golden Goose.
“The tensions of the world are rising higher
We’re probably due another war with all this ire
I’m not smart enough to change a thing
I have no answers, only questions
Don’t you ask a thing
Oh, silver-tongue suits and cartoons
They rule my world
Singin’ it’s a high time for hypersonic missiles
When the bombs drop, darling
Can you say that you’ve lived your life?
Oh, this is a high time for hypersonic missiles”
President Putin & President Biden are set to have a phone call today …
!BOOM! > ..bust..
Macro speaking capital goods were considered as P,P and E. Property, Plants and Equipment. The way Gov’t data fraud works I bet you could find some real whiz bang doozies in that 44B capital good export # as it compares qualitatively to the 65B import #. Wolf has to use the data as it is and I make no argument to that at all. Just a jaded thought goes through my head every time I see Gov’t data. This horse has been beaten so many times I proabaly should have holstered my fingers.
I wonder whether the benefit of wage arbitrage with China has eroded. I had a team of engineers in the PRC 10 years ago. Initially, wages were 1/5th of US. However, that was changing quickly. Keeping quality people was tough. Not unlike in Silicon Valley, in some areas, employees could just walk across the street and earn 20-30% more resulting in lots of turnover. Add to that the complexity and overhead of remote management, a very different culture, I never saw the offshoring of engineering/development as productive. Same held for SW engineering in India. It will be interesting to watch as a lot of the development and manufacturing leaves the PRC for lower-cost SE Asia destinations. Our trade deficit will continue to rise regardless.
In 2017 the Cost of living the new lifestyle in the modern urban areas of China was as high or higher than in comparable parts of Us.
Offshoring has always been driven by C-Suite/MBA guys that don’t know jack about what their companies do and how they do it.
In my ~28 years of watching this unfold as a contractor, only 3 of our dozens of clients ever did an analysis of what they were getting by offshoring. Two figured, after all the overhead was considered, that the cost savings were about 5 to 10 percent over native US staff. With the aggravation involved to make it work, it was a wash.
The third, a medical device company, tasked the US based SW team over a weekend to have their people do a review of the offshore code from India. Found about a dozen major problems in that 48 hour period that *would have killed* patients if the SW went live. So… they fired their Indian SW company, brought the work home and replaced the entire team with a few guys in the US. At a far lower cost.
Friend of mine made a proposal to fire their Indian offshore group and setup a design shop in the US midwest. Would have been cheaper, with people only 2 time zones away… No Dice.
Truth is all the world brains were absorbed about 20 years ago. Now if you are picking up offshore talent you are getting people overseas with the equivalent of a 2 year Associates degree here. It will take about 4 to 6 years to get them to the level of a native new college hire from a State U. *If, they stay that long.* Most get a year or two and bail and go off to work for another outfit.
 A lot of clients run Microsoft Exchange. It’s a hobby, when working with a client that has an Indian offshore group, to go look at the organization info in the profiles of the engineers we deal with. Exchange will show you the manager and any direct reports. So you can go up the chain and count levels. I have counted as many as 14 layers of management between the low level guy doing the work and the top Indian manager reporting to the US manager running the program I was contracting on. Some of the Titles… lol
So in response to a few or no comments here, and in general:
The US has to raise a lot of taxes in various forms, including from income taxes. Everyone hates paying taxes. One form of tax is tariffs. The exporter in the other country or the importer pays them. And maybe they can pass them on, and maybe they cannot because they’re competing with companies that don’t have to pay tariffs, and prices are set in the market place, and are not based on costs.
If the costs of tariffs cannot be passed on, they’re a tax on corporate profit margins. That’s why companies totally HATE tariffs. And that’s why there should be more tariffs.
It’s a red herring that tariffs are passed on to consumers. Companies always charge the maximum price the market will bear. If a company’s costs go up, but another company’s costs don’t go up, it’s the low-cost producer that wins market share, and the high-cost producer has to respond by cutting prices.
The fact that tariffs are a tax on corporate profit margins is why the Trump White House never seriously went after Corporate America on broad tariffs. Instead they selectively picked a bunch of products made in China and some other places and played political games with it. That didn’t accomplish the job. They just didn’t have the guts to confront Corporate America and their ferocious lobbing machine.
The tariffs the US uses are far too selective and many are too low. The US should put 25% tariffs on everything that is imported, and encourage other countries to do the same (some countries already have far higher tariffs). This would reduce the incentives by Corporate America to import, and would encourage local production globally.
And things that other countries can make enough cheaper to justify paying the 25% tariffs, well, those things will be imported, no problem, and there will still be plenty of it. This would also raise a lot of taxes, much of it paid by companies in other countries and by corporate profit margins. Those tax revenues in the US would be sorely needed to address the gigantic budget deficits.
Trump should have said to Corporate America:
“I gave you big-fat corporate tax cuts, and I’m going to make you pay for some of them through tariffs as a tax on your profit margin. If you don’t want to pay that tax on profit margins, don’t import. End of story.”
But he didn’t.
So right now, the entire system in the US, including the tax code, incentivizes Corporate America to import as much as possible.
Thank you Wolf. Once again you’re telling it like it is.
Wolf for President!
One should be reminded that capital is, after all dead labor! In places like the United States, it is not the sheeple that could elect and bestow authority on politicians, but rather money or the moneyed! For example, recent ruling by the US Supreme Court has emphatically asserted that not only corporations have legal personality, but can also elect their favored politicians, via money! Since politicos swarm where there is money, one cannot find easier bait! This is probably where the phrase ‘money talks bullshit walks’ came from. In short, grand political corruption has become an integral part of political governance.
Crony capitalism is a defense mechanism against mob rule in a democracy.
There will never be the day where the elites will be stripped of their political defenses so that they can be plundered by the people to pay for someone’s progressive dreams. Hell will freeze over first.
That hell is hot is maybe just a carryover from middle eastern culture. It is not universal, to the Vikings hell was freezing cold. Now, if hell is cold, the day may come. ;)
…am still waiting to hear a serious discussion about corporate ‘personhood’ and why that doesn’t imply that corps. should register and be subject to the draft (like a ‘private’ citizen…).
may we all find a better day.
I think many of our sovereign-elites are infuriated they cannot buy their guy (politician) because the globalists will just flat out steal their guy and they have almost unlimited financial resources.
When Trump said we’re going to return power to the people; I think what he really means is that ‘we the elites’ who stand to be diminished from a globalist totalitarian agenda is going to dismantle this deep state sphere of influence so our ‘America First’ companies will have the power to buy their politicians without foreign interference and the rigging of elections against our national interests.
At the end of the day, it’s up to us to decentralize the monetary prison walls we have built around us.
Can Biden step up and say to Corporate America what Trump did not?
I think — and that’s just my ignorant opinion — in my adulthood, there were only two presidents who might have had the cojones to stand up in a big bold manner to Corporate America, but neither one of them did: Reagan and Trump. Biden doesn’t care about stocks, which gives him some wiggle room, so he’s whittling away at some things (antitrust, securities regulation, etc.), and those are good baby steps, but he lacks the boldness Trump had. There is only one Trump, but he was misguided and misdirected. He took possession of the DOW, and from that point on, he could never go against Corporate America in a serious way. He could tweet, but he couldn’t make serious moves. Maybe Biden understands that in this country, you cannot boldly go against Corporate America, but you can whittle away at it with a thousand cuts, and we’re seeing some of it. But I don’t expect anything bold coming out of Biden.
Wolf, why do you believe Biden doesn’t care about stocks?
Senator Credit Card, definitely cared about the markets. Now he doesn’t even know where he is, sad to see. But sadder for America.
He “doesn’t care about stocks?” HAH!!!
“Goldman Sachs and others said if we don’t pass Build Back Better, we’re in trouble, because it’s going to grow the economy,” the POTUS told reporters following a speech on COVID-19. “Without it, we’re not going to grow. And what happened? Stock prices went way down. It took a real dip.”
We need a bipartisan, intelligent-populist kind of leader to overrun one party while having enough appeal to grab half the votes from the other, winning by a 45-50 state landslide, to get the kind of change this country needs.
Trump only made it halfway.
Biden isn’t the guy.
But neither is anyone else the parties are promoting right now – the elites don’t want such a person.
The good news is that the party-promoted candidates have gotten so bad that the bar is getting lower and lower for the insurgent to win. Trump showed that.
But the insurgent needs some independent media voices to counter the MSM-oligarchic propaganda mouthpieces.
LOL… if Trump wins in 2024 he may say exactly that. I doubt he has any love left for corporate bigwigs at this point. Then again the question is whether or not he could get the Republicans in Congress to go along. As I heard said one time, “In the battle between the Populists and the Establishment… over the long run you want to bet on the Establishment.”
He’s not going to win in 2024. People like myself – swing voters – are why he got elected in the first place. Once he welched on his promises, and turned into a stock market pimp after deriding Yellen, he lost all credibility and we didn’t vote for him again. I don’t even think he’ll win the nomination in the primary.
As of now I am not sure he is going to even run again. Right now he looks like he is replaying the script from Sarah Palin. In 2009 and early 2010 she was the Sweetheart of the Republican Rodeo. By 2012 she wasn’t even in a position to mount a campaign against a milquetoast like Mitt Romney. There are a lot of obstacles that can befall an “inevitable” political run.
Maybe Donald Trump will make the oppo believe he’s running and they can foam at the mouth all over media to little effect while he marks the target for the fastmover candidate,whoever it is, sneaking in under the radar. He would be term limited and ineffective, sadly perhaps. I could see him cracking the whip on the NCAA. Make Bowl games Great Again. We don’t need 43 bowl games.
If the Donald isn’t the gop nominee his supporters are staying home or going third party. No rehashed establishment leftover is going to win.
WTO might preclude tariffs.
Tariffs do not boost domestic exporters.
Capital Transfer Securities lacks these deficiencies.
The WTO is a big part of the problem. China abused it, other countries did too. The US should just leave the WTO if the WTO throws a hissy fit. Better yet, the US should persuade the WTO that 25% tariffs on everything by all countries would level the playing field, encourage local production everywhere, and discourage shipping stuff all over the world multiple times as it is assembled into a one final product.
Then, what happen when that 25% tariff is applied on exports by countries that sit on a large part of some commodity/raw material needed by all other countries for their manufacturing?
Then for environmental reason cutting back on mining or whatever, making said commodity/raw material even more scarce? No problem to them, they can make up in price what they do not get on volume…
Export tariffs and export bans are already being used, by Argentina on beef, for example. The US used to ban the export of crude oil, except to certain approved countries. There are export controls on all kinds of tech products, military hardware, etc. This is nothing new.
So if a country slaps on a 25% tariff on an export commodity, its customers are going to buy that commodity from another country. If all countries do the same, the customers pay the tariffs, and those countries get the tax revenues, and those tax revenues would be sorely needed right now.
The idea that you are promoting, therefore that tariffs are good for US, means that the US cannot compete with communist foreign countries/producers. Basically you undermine the idea of capitalism as the best production sistem.
When Hamilton and List introduced these ideas for undeveloped countries it was a great idea and China basically built its economy on there ideas. To read on this blog that this somehow is a great idea for the USA … wow, that’s what I call a radical line of thought.
Today I read that South Korea has 940+ robots per 100.000 people and that the USA has 256 robots per 100.000 people and China has 246.
Tariffs therefore cannot solve the deficits, because in the longrun the problem is deeper. The west thought that globalisation will be without consequences, but it radically changed the ability of eastern countries to aquire production methods and means. Nowadays, the Bejing University produces 10.000 engineers per year and with all the capital at China’s disposal it can innovate way faster than ever before.
The US does not have a strategy to compete anymore. It is trying only to block the other countries’ development … the US acts like a jealous rejected lover, who goes around talking trash about the other, because it does not believe that it is really capable of getting the “mojo” back.
“The idea that you are promoting, therefore that tariffs are good for US, means that the US cannot compete with communist foreign countries/producers. Basically you undermine the idea of capitalism as the best production sistem.”
Hahahaha… you’re in the Eurozone with which the US has a huge trade deficit, and your exporters got rich and fat of the US trade deficits with the Eurozone. And so now, you’re upset that the US should be trying to do something about this trade deficit. You guys are just ridiculous.
What you said is the same red herring that has been thrown around for 30 years, for the benefit of Corporate America and for exporters in the Eurozone, China, etc.
There are HUGE incentives in the US tax code to import. Tariffs will balance those out, and they will raise taxes from foreign entities, which is good for the US.
And as I said, you’re encourage to apply the same 25% tariffs on all your imports, but the Eurozone already knows how to protect its economy and is very aggressive in applying tariffs.
My friend, concerns by foreigners about this issue are your own problem. This is US policy to benefit the US economy, not your economy. You guys have gotten rich off this trade deficit long enough.
But, but…. comparative advantage!
Isn’t there a more efficient way to tax corporate profits?
25% tariffs would put many medium sized US manufacturers out of business immediately, the steel we use is imported and noone is opening a steel mill quickly enough to save us. Why is 25% the magical tipping point where it becomes cheaper to manufacture in the US? US Labor is more than 25% expensive relative to China/India, try 200-300%.
Also, you can’t ignore the geopolitical ramifications of tariffs, which are historically very significant.
It’s far too subjective but I do think the goal should be free trade only with free people. The less free the people, the bigger the tariff. The mechanics of making that work are a nightmare and too political to expect perfect results but I do like the incentives that creates for government for rewarding freedom.
I don’t think government should get a windfall of tax income solely because a good is imported, but I do agree with the concept that producing locally should be encouraged. In a way, transportation costs would be the tariff for trade between regions.
This is NOT about free trade. Trade would still be free. Trading partners are free to buy wherever they want to. But the government needs to raise taxes. How? It’s doing so from the income of Americans. Why not raise some of those taxes from foreign companies trying to export their products to the US, and from Corporate America’s profit margins if they’re importing stuff? TRADE IS STILL FREE. But there are taxes on it, just like there are taxes on the fruits of labor. And it would encourage something that is very beneficial for a host of reasons: more local production, less global shipping.
He was the ONLY GOP Primary candidate who dared to say he was going to kick lot’s of “outsourcing corporate ass”. But he had no problem totally lying, and never did. Any fool could see he made ALL his money off rich people, why should he rock their boat?
But he sure had the talk radio friends who were experts at “preying on the prejudices of the people” (Lincoln’s words), and the rest is now unfortunate and damaging history.
I didn’t read the other comments so maybe I missed a trend but it seems to me like the raw numbers don’t distinguish between price per unit and price per volume. All prices have been volatile but petroleum prices have been especially erratic.
In an economy, the units don’t really matter. The dollars do. For example, new vehicle sales are WAY down from prior years in terms of units, but because everything shifted to high-end high-priced loaded units, and low-end less-loaded units are being deprioritized, there are lots of dollars flowing, record gross profits per unit, and lots of revenues. And those dollars, in the GDP calculus is what matters, not the number of vehicles.
Does that mean you can Just Print and Print and Print and your Economy will Grow forever and everybody will BE Happy Just watching Netflix and flipping houses ?
Imagine those fools Who Made your country great by Something so silly as “Work”. Good Thing there has Been Progress.
You’re not wrong.
GDP doesn’t measure economic production which I assume was the point of the above post. It purports to measure the financial value of economic transactions which are adjusted by an inaccurate estimate of price changes. Many of these transactions don’t make the country richer but poorer or have little if any value.
Disagree. In the real world it’s the units (and quality of them) that is paramount.
Only in financial engineering do those get disregarded in favor of dollar-volume accounting.
Airlines can’t fly planes based on dollar-volumes of jet fuel… or on equivalent volumes of diesel. Total energy content and format is critical.
Supermarkets can’t feed cities based on dollar-volumes of food. Total calories matter.
Economists look at dollars because they’re easier to count, but that’s just lazy…
In the real world, if you build one huge mega mansion with 30 rooms, you will have a vastly larger impact on the real economy than if you build one starter shack. If you build a $100k truck, you will have a much larger impact on the real economy than if you build an econo-box. This goes from demand for materials and components, to demand for equipment to build these things, to labor. In terms of economic impact, one is NOT equal one.
WS, judging from who I see shopping in supermarkets around here, I think the management of that shop overdid it on calculating calories per shopper.
Belated reply – Wolf you were detailing factors related to what I was calling “quality” of units, not quantity.
Yes, the quality of the units matters – Fiestas are not F-150s, and Mega Mansions are not Starter Shacks.
BUT – it’s the unit volumes (at each level of quality) that matter. The value of the Fiesta OR the F-150 is not in its price, but it’s usefulness. If the price of an exported F-150 changes, that flows to the trade deficit, but there’s not necessarily any change in the actual quantity of goods being traded.
So if supply chain issues cause the price of every imported vehicle (or component) to rise 20%, the trade deficit in dollars goes up about (20-10 = 10%) but the unit trade deficit is not impacted – unless the number of physical items imported also changes.
If in 2020 I sold you 10 million barrels of oil at $30/barrel, and you sold me 10 thousand cars at $30,000 per car, our dollar trade deficit would be zero – since both total out at $300M/year.
But in 2021, if I sold you the exact same quantity and quality of oil, and you sold me the same quantity of same-model cars, I’d suddenly be running a huge trade surplus. Physically nothing changed, you still bought 10M barrels of oil and I still bought 10,000 cars. But although you raised the price on your cars (so I paid 20-50% more in dollars for them), the price of oil more than doubled so you paid me 100% more in dollars (even after the friends & family discount!).
So the trade deficit can swing around even when the underlying economy is not changing. Conversely, the underlying economy could be having fits of stress but if unit-volume declines are masked by price increases, people won’t see that in the top-line dollar-value trade deficits.
To properly understand trade it’s really important to look at what is being imported & exported, both quantity and quality, and how those are changing. But no one does that much anymore (maybe because the implications are politically fraught…) and I think that’s bad for policymaking.
P.S. If in fact the trade deficit is going up because the US is building more Mansions and F150s and fewer Starter Shacks and Fiestas, that could imply rising standards of living, which is not necessarily a bad thing. Unless of course it’s all bought on credit about to be defaulted!
If you’re a country that is either energy or food insecure, then you’re not getting stimulus from US money printing, you’re getting crippling inflation. Doesn’t matter if you’re a developing or developed country; just look at the craziness in Europe re: energy.
Look for more export tariffs and export bans. China’s already banning phosphate through 2022. Indonesia is banning a lot more of its raw commodities, and instead processing them directly.
I am not sure I follow… why would U.S. money printing give another nation crippling inflation?
All excess money is invested.
Stocks are looking pretty saturated now, so the tsunami of money flows into commodities, such as natural gas and electricity, which drive up prices.
Countries like Sweden, that like to keep their currency constantly devalued to boost exports, are finding that this also boost the exports of stuff one needs to produce those exported products, like electricity.
Energy prices in Europe are 80% a financial thing and 20% a Russia^3 thing.
Therefore nothing can be done and this will be a long and exciting ride!
I think i will give a try at answering your question.
When Americans buy exported goods, we pay the producer with… dollars.
And when the US devalues the dollar drastically (like how it just did), those dollars that we pay exporters overseas are worth less than before. So they need more dollars to maintain the same amount of purchasing power as they did before? Which is inflation?
Commodities speculation for one. Speculators ignore that commodities represent the things people need to survive, treating it as another “investment”.
Bookkeepingwise, a current account deficit (of which the trade deficit is by far the major component) is nothing other than a transfer of domestic net worth to the rest of the world. The US has transferred a lot of net worth to the rest of the world in recent decades and, in consequence, switched from being the world’s largest creditor to the world’s largest debtor. But who cares? It’s only bookkeeping. Also, a current account deficit is nothing other than cross-border deficit spending for the rest of the world, stimulating growth, income, employment and wealth in the rest of the world. One wonders what state the rest of the world were in if there weren’t the USofA!
Blame the People Bank Of China not US consumers. Chinese tourists and students are “constricted” in US, Europe and other countries. Their influx to the world almost stopped. China tourists consume less dollars, therefor USD/CNY is getting stronger, since Trump.
Great Article and comments. I’m still laughing re the comments regarding UK/British Manufacturing and then I remember all of the jokes regarding Lucas and reference to the “prince of darkness”. 😂😂
“British made is best made!” my dad would tell me as a kid. He was raised in Bolton, England from age 2 to 10 in the 1930s.
Two years ago, I upgraded my phono system. British made Rega ‘table, arm & cartridge. British made Graham Slee moving coil phono preamp.
Dad would be proud of his son’s choices.
The closest McLaren dealership is 650 km away (by road) in Chicago. This spring, I will may take a road trip to check out the McLaren GT.
I had not realized, till I saw a video recently ,that all through the 60’s and most of the 70’s matchbox cars were made in Britain. Very cool.
Those matchbox cars were the best cars the British made in the 60’s and 70’s. /s
I was an owner of a 1967 MGB and an ealry 70’s Jensen Healey. The Jensen was a car you only drove with a friend in the passenger seat as you needed help pushing it back home when it died somewhere.
We had a Jensen dealer in a shore town along Route 1 in Connecticut, about 40 miles south of me. I recall bringing the car there for some kind of minor service I could not get parts for. They told me that the Jensen line of cars was the most profitable line they had and most profits were made in the service department.
My MGB was not bad, and really was much more reliable except at night when you really need headlights (LOL – thanks to Lucas). There is still a big following for these older MGB/C cars in the U.S.
I was finally cured of the “British car flu” by the time I bought my first Corvette.
Friends of mine had a Jensen Interceptor. It was a great car for a couple without kids, if you had a degree in engineering, which they both had. Throw out all the dodgy (e.g. Lucas) stuff and replace it with reliable components (usually robbed off Land Rovers or Jaguars), fettle the rest with the shop tools (we all have two lathes, welding gear, and a 20 ton press in the corner, don’t we? ;) ), and they were great, reliable cars ;).
I rode a GPZ900R, so I only saw the Jensen in my mirrors.
long ago in the moto-import biz i learned that Lucas had the capability to produce decent electrics if an auto/moto manufacturer was willing to pay for them (Truck-think you’d find many of those ‘reliable’ Jag/Land Rover components were also from the Prince of Darkness). The smoke-transmitting bits usually found in most Britmobiles of the era were of the absolutely cheapest spec., specified by the manufacturer, that would function long enough to get units off the dealers’ lots. Management well-divorced from any familiarity/interest in their firm’s actual products drove the stake through the heart of the U.K.’s large-scale motor industry (not unlike our now-historic arc here in the U.S.) …
may we all find a better day.
Truckman, on an oil & gas adventure when I was working (I did oil & gas M & A work), I found a Jensen Interceptor in a old barn in south Louisiana (it looked complete too).
It was probably sitting for decades and the “varmints” had their way with it. I often wondered how one of those made it all the way to Louisiana (LOL)!
Currently hiring an MG3 on holidays. Thank god I’m hiring it and don’t own it! The automatic transmission is just awful. The car has less than 900km on the odo. In a few months time this car will reveal itself as a lemon.
No lathes, but a tall floor-standing drill press, a TIG welder and 1/2 horsepower-driven tube coping machine that will precisely cope thin-wall 4130 steel tubing up to a 60 degree angle in various diameters from .5 inches to to 1 5/8 inches in the basement. Plus, it can cope dead-center or any adjustment to one side or the other of tubing stock.
My friend, Brian Klose, who is now President and COO of EMJ Metals set me and the U of MN Formula SAE Team up with sponsorship providing tubing and neat 1 inch square stainless steel bar stock for me to make the machine tool with.
The 1997 & 1998 teams made their chassis in my basement.
So yeah, I do have that stuff. Works great to make all kinds of furniture and tools too.
The Interceptor had a big-block Dodge did it not?
“He kept her in a Jensen Interceptor
Delivered her with roses to my door
She rocked the night away
Fooling with her date
What’s she taking me for?”
It’s last large task was with the 2005 U of MN Solar race car borrowed the ‘Romig Machine’ to make the suspension components of their car. U of Mich came in 1st & U of MN took 2nd.
The presidential election cycle theory, posits that equity market returns follow a predictable pattern each time a new U.S. president is elected. According to this theory, U.S. stock markets perform weakest in the first year, then recover, peaking in the third year, before falling in the fourth and final year of the presidential term, after which point the cycle begins again with the next presidential election.
That’s wrong IMHO, but there is a clear list of recessions and market declines correlated with party-in-power transitions: 1980, 1992, 2000, 2008, 2020 all fit the pattern. 2016 is the only outlier but that election result was a surprise to everyone. I think there’s an underlying cause-effect relationship but it’s hard to explain via mobile device.
The above is a multiple of presidential cycles so it’ll show up in data-mining based on 4-year cycles… but it’s not strictly a 4-year thing.
But, in the presidential-cycle theory, If first-year in office is weakest, given the huge run-up in 2021, the S&P will have to be a doozy next 2 years!
Triffin’s Dilemma in its final Stage.
Maybe the World will Decide IT does Not Neef a “Reserve currency” and everybody Just Doing their Thing IS Just fine. And If it’s Backed by Something real that’s Just swell.
China is trying hard to get rid of production. They’re going to shut down all heavy industry in the northern half of China from Jan 1 to March, in order to have clear skies for the Winter Olympics.
Nobody cares about the Olympics any more, and very few tourists will be there to appreciate the clear skies. This grandiose publicity-seeking makes no sense even by Chinese standards.
Hosting the Olympics is an honor and will be noted in the permanent record. Take away the clear skies, the lackluster crowds, the number of countries boycotting. Instead focus on the mark it will leave in 20, 50 and beyond. Georgia (USA) got the honor and still is proud of the moment. At the time the focus was all about a pipe bomb and how the FBI arrested the wrong guy. History will only remember the date/time of the Olympics. This is a W for China
The erection of trade walls in the last 4 years resulted in a collapse of foreign students in my college classes. This was an export of services by us, and an import of money (tuition, rent, etc.). It was also an export of ideas: property and contract rights, and the rule of law, as taught in my classes. So, Americans continue to buy Chinese goods and pay tariffs (where their system can distribute the related loss across their population by fiat), while our exports have been reduced. The traditional student travel (and all the revenues for us, and a very positive advertisement of the USA’s ways, at least as they have existed) wither. A Chinese woman student told me she would give anything to live here, versus her polluted town.
Phleep, don’t have to name the specific institute but where in the country do you teach? And which subjects?
It was also only a matter of time before the Chinese increased the number and capacity of its universities to educate the bulk of their students in-country. My wife was in China in 2018 with a utility business delegation and toured a brand new “ yet to be occupied” university a built ten miles outside of one of the main cities. It was intended for 30,000 students and she said the state of the art facilities made UCLA look like a community college. They were just completing a high speed rail line to get the students from the center of town to the campus. I expect the Chinese student gravy train in US universities is over for good.
True, and they graduate about ten times the engineers we do.
Not hard to predict the future.
If we fail to invest due to misplaced miserly instinct, we will be, economically, in distant second place, at best.
I lectured at university in Canada a few years ago. All the Chinese students cheated. I warned them twice. They still did it in the final exam, so I reported them to the University. Two were failed and two allowed to resit. I had to write a second complete exam for the resits, which is why many colleagues never reported cheating on their courses. The official policy is that students who cheat are notified to their next set of lecturers. They weren’t. I asked a colleague who had one of them to ask HR if any of his students had cheated. He was told he wasn’t allowed to know “for privacy reasons”, and that his request had been recorded on his record.
So, now you know. The foreign students are killing degree credibility because the university authorities only care about the money.
If true, widespread and not just anecdotal, and not just a super competitive Chinese student’s innate nature, then it’s even more all out war, based on the old adage, “a capitalist will sell you the rope to hang him (or his country) with.”