“We’re focused on the real economy,” Bessent said. “Ouch,” stocks said. Where did the Trump put go?
By Wolf Richter for WOLF STREET.
One issue is, how do you get an economy addicted to government deficit spending off this drug?
Another issue is, how do you get Corporate America addicted to cheap labor overseas off this drug?
The US has two huge structural deficits: The fiscal deficit and the trade deficit in manufactured goods – the “twin deficits.” Both are massive long-term problems and need to be addressed by sending the economy and Corporate America into “detox,” as this is now called, but it’s going to ruffle some feathers, especially of stocks.
And a third issue is worming its way into the detox conversation: The stock market has gotten addicted to the government’s deficit spending, to the fat profit margins from offshoring production, and to the Fed’s erstwhile free-money policies, including trillions of dollars in money-printing, of which $2.2 trillion have so far been un-printed via QT.
They’re saying the right things, but it’s OUCH for stocks.
“The market and the economy have become hooked, become addicted, to excessive government spending, and there’s going to be a detox period,” Treasury Secretary Scott Bessent told CNBC last Friday.
“There’s going to be a natural adjustment as we move away from public spending to private spending,” he said.
When asked if “detox” was a euphemism for a recession, Bessent told CNBC: “Not at all. Doesn’t have to be because it will depend on how quickly the baton gets handed off,” he said. “Our goal is to have a smooth transition.”
“If you start looking at micro horizons, stocks become very risky”: Bessent.
“We’re focused on the real economy,” Bessent told CNBC on Thursday. They want to “create an environment where there are long-term gains in the market and long-term gains for the American people,” he said. “I’m not concerned about a little bit of volatility over three weeks.”
“The reason stocks are a safe and great investment is because you’re looking over the long term. If you start looking at micro horizons, stocks become very risky. So we are focused over the medium-, long-term,” he said.
“I can tell you that if we put proper policies in place, it’s going to lay the groundwork for a both real income gains and job gains and continued asset gains,” he said.
So where the heck is the Trump put?
“There’s no put,” Bessent said. “The Trump call on the upside is, if we have good policies, then the markets will go up.”
Trump agreed. They’re singing from the same hymn sheet. “You can’t really watch the stock market,” Trump told Fox News last Sunday.
“Markets are going to go up and they’re going to go down,” Trump said on Tuesday from the Oval Office.
Tariffs might cause “a little disturbance, but we’re OK with that”: Trump.
“There will be a little disturbance, but we’re OK with that. It won’t be much,” Trump told Congress to address the side effects of imposing tariffs to encourage companies to manufacture more in the US. Fact is, modern highly automated manufacturing provides huge and important long-term benefits for the economy, including secondary and tertiary benefits.
In terms of the inflationary impact of tariffs, Bessent said that inflation is defined as a persistent increase in prices across a wide variety of goods and services over time, but “the tariffs are a one-time price adjustment.”
How much of that adjustment will make it all the way through to consumer prices is unknown. Automakers, including BMW, have already said that they will have to eat the tariffs because they cannot raise prices without losing sales. That’s why they hate tariffs so much. They wouldn’t mind tariffs if they could pass them on.
That’s what happened last time; they tried to raise prices, but then lost sales and had to roll back those price increases. Inflation is measured by transaction prices, not fantasy sticker prices, and when people don’t buy at higher prices, but buy from a competitor at lower prices, it’s the actual purchases from the competitor that go into inflation measures.
Consumer durable goods would be hit the most by tariffs. This is the CPI for durable goods, shown as price level. There was no visible impact from tariffs in 2018 and 2019:
Even if a portion of the tariffs will get passed on to consumers, given that the economy is now in an inflationary environment, that portion, as Bessent said, will be a one-time bump.
When will a stock market rout trigger a recession?
Tariffs are a tax on corporate profit margins that may be difficult to pass on, so tariffs hit stocks, and they did last time: The S&P 500 tanked 20% in 2018. But it didn’t trigger a recession last time, not even close.
But last time, inflation was below the Fed’s target, and the Fed pivoted in December 2018 when it suggested that the rate hike might have been the last one in the cycle, and it was. That was the Fed’s put perhaps. And Trump had been hyping the Dow incessantly, and he had been keelhauling Powell on a daily basis publicly to end the rate hikes and stop QT. That was the Trump put.
But this time around, inflation is well above the Fed’s target, it’s sticky and stubborn and over the past six months has been accelerating again, and the Fed pivoted at the December meeting from rate cuts to wait-and-see.
At the same time, Trump and Bessent are brushing off concerns about the market: They’re going to fix the real economy, and they’re going to fix the US fiscal nightmare – I mean, good luck, but that’s what they’re saying – and detox can be painful, and so be it.
There is a huge amount of recession talk once again, just like there was in 2022 and 2023.
For the NBER to call out a recession, there would need to be a broad-based economic decline (not just slower growth) and a decline in the labor market.
Measures of the labor market, including weekly measures, are doing just fine. Real GDP growth in Q4 came in at 2.3%, higher than the 15-year average for the US. It was driven by very robust consumer spending growth. In January, retail sales always plunge from December, and huge seasonal adjustment factors are used to iron out the spike in December and the plunge in January. Year-over-year, which eliminates seasonality, January retail sales jumped 4.8%. But seasonally adjusted, from December to January, retail sales declined by 0.9%, likely due to slightly off seasonal adjustment factors (I discussed this here).
But one thing we know from the past – and this may be even more the case now – a stock market rout after a majestic bubble, if deep enough and long enough, will trigger a recession.
We saw that during the Dotcom Bust. The S&P 500 plunged 50% and the Nasdaq plunged 78%, and it triggered a recession. In parts of the US that are depending on the stock market, it triggered a hard recession. In other parts of the country, there was barely a ripple. And it averaged out into a run-of-the-mill national recession.
The biggest spenders – the people with the money to spend freely – always have a large impact on consumer spending. But they also have a large impact on business decisions.
Their wealth is largely tied to stocks, outright company ownership, cryptos, etc. When they lose 30% or 40% or 50% of their net worth, they’re going to get nervous. This includes people with regular jobs, 401ks, and stock options, and people who are business-decision makers.
Many of them have been irrationally exuberant about their stocks and cryptos and real estate and whatnot, after years of huge gains. And if they watch their wealth go up in smoke, they might react, and their decisions move the needle in all kinds of ways:
- As households, they may spend less extravagantly (the reverse “wealth effect”), which will ripple through the economy as businesses react with less investment and spending, and with job cuts.
- As business decision makers, they may batten down the hatches of their businesses: cut spending, cut investments, reduce hiring, and increase layoffs.
For these reasons, a deep sustained rout in the stock market will eventually trigger that recession. But where is the line?
Will the S&P 500 have to drop 40%? 50%? And for how many years? The Dotcom bust took about 30 months to play out, from mid-March 2000 until early October 2002. The rout sandwiched a recession from March 2001 to November 2001. It took a year after the recession ended for stocks to finally bottom out.
Now, stocks are priced at very precarious levels. They’re very vulnerable to a drawn-out rout. And the puts that the market had assumed were there to provide a floor may no longer be there.
And maybe there won’t be that kind deep drawn-out stock market rout of the type that occurred during the Dotcom Bust. And then there may not be a recession at all.
But even if a stock market rout comes along that is deep enough and long enough to trigger a recession, that short-term price may well be worth paying for the long-term risk-reduction that comes with sorting out the US fiscal mess and for the enormous long-term benefits of increasing manufacturing in the US.
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I so agree with this for all Americans and their next generations.
Exactly. Fear of recession killed the value of money. Brave steps are needed.
I dont think a recession is on the horizon, we will have inflationary growth or stagflation.
There are not many countries with economies as good as ours that spend less on government than the US.
The US is at 36% when counting all government (local, state, and federal). Federal only is about 22%.
Europe and Canada are between 40-60%.
We are essentially tied with Russia (36%), China (33%), Switzerland (32%).
South Korea, India and Mexico are all at 29%.
That is literally it for the world’s richest and largest economies.
So what should the US number be if 15% lower than Europe is still too high? If the only countries with comparable economies and lower government spending are Switzerland and South Korea?
Also, it hasn’t been a drastic recent increase either. With the exception of two spikes (Great recession and pandemic), the US has hovered between 33% and 38% since 1974, and we are right now at 36% almost exactly at the average for the last 50-60 years.
So is the idea that we need to get back to 33%? This would mean about an 8% cut to the total budget, not a chainsaw.
One more thing before I go: all federal worker salaries combined only make up 5% of the federal budget and only 1% of national income. So if you fire half of all government employees, you save a mind-blowingly trivial amount of money.
All the fed employee talk is pretty funny considering they’re going to increase the deficit by $4.5 trillion to give tax cuts to billionaires.
Debt to GDP
US: 124%
Switzerland: 38%
Canada: 70%
Europe: 80 something
China: 80 something
Russia: reportedly 20% pre war but who tf knows
Russia uses its state-controlled companies to borrow (in USD and euro) and provide social services such subsidized energy. You have to look at the debt of those companies to get the picture on Russia’s debt.
Agreed about fed employees and tax cuts. Mass firing of federal employees will lower US quality of life and significantly decrease GDP
All I see are government services being stripped for parts and handed off to privatization. EPA and other regulatory frameworks gutted.
The biggest line item essentially untouched. And don’t forget the massive tax cut bill on its way
Ben,
So budget math homework:
If expenditures/GDP are not exceptionally large, but debt/GDP is, then what is different?
For example how can Europe and Canada have higher expenditures and lower debt? They actually raise enough revenue to come closer to balancing their budget. And the US insists on not doing that, and relying on their status as a reserve currency that helps them get away with it.
This can all be solved with a 5% budget cut and a very small tax increase that could be targeted to those who can best afford it. But that’s not what anyone is asking for.
This is within the context that as recently as Q2, 2008, our total public debt as % of GDP stood at 64%. We literally doubled our debt as a % of GDP in 17 years. The issue is less about the size of the government – it’s about the structural deficit. We are running a deficit of 6%+ of GDP every year. In other words, spending 35ish on government, while taking in 29ish in revenues.
And this is how it happened: https://www.cbo.gov/sites/default/files/images/full-reports/2022/57950-vs-fig1-2_revenues-outlays.png
On average we have run a deficit of 3.5% of GDP at the national level for 50 years straight. Thanks to inflation, this level doesn’t result in a significant net increase in debt over time.
During the Clinton boom, we ran a much smaller deficit, and in fact ran a surplus for 3 years. Then came the Bush tax cuts and the dotcom bust, which returned us to the previous average 3% deficit. Then two major spikes in the deficit hit: the Great Recession, which reduced tax revenues and simultaneously increased stimulus expenses, widening the gap to 6-7% for 4 years before returning to normal, and the pandemic stimulus, which widened the gap to 12% for 2 years, before returning to normal.
One trend that is making it harder to balance the budget is the aging of the population. This drives health care and retirement costs up and somewhat reduces tax revenue. Without making any changes to our current system, the deficit will rise slowly due to this factor alone. So without tax increases, we can either cut those benefits, or we can increase our debt. You choose.
This graph makes it clear that almost all of the increase in spending comes from that factor. The line that says discretionary is what most people complain about when it comes to government, and the line that says mandatory is the stuff people like (Social Security, Medicare, Medicaid, unemployment insurance). Only the latter has increased.
https://www.cbo.gov/sites/default/files/images/full-reports/2022/57950-vs-fig3-1_outlays-by-type.png
@numbers, agreed 100%, well said. Let’s raise taxes aggressively on those who can afford it with minimal impact to their consumption/expenditures. As for budget cuts, wish defense spending were on the table… and mostly wish there were an appetite to intelligently, strategically, honestly, and transparently identify and trim Federal inefficiencies. Solid leadership ought to be able to keep most Federal jobs and the benefits of those services, while identifying and trimming the waste and fraud.
How sad then that a large measure of Fed employee cuts has to do with fraud and waste in the programs these employees support – and not combatting inflation.
Lest anyone forget, much of the Fed’s excessive QE was in support of blown up Federal debt.
“There’s going to be a natural adjustment as we move away from public spending to private spending,” he said.
This sounds to me like “public asset stripping” which seems to be a goal of the musketeer anyway.
By what measure of experience and competence should we hand over NOAA to Starlink for instance? Maybe thats hype but we will see.
“There’s going to be a natural adjustment as we move away from public spending to private spending.”
Sure, but hasn’t the problem been the private spending missteps become supported via public spending in the form of bailouts or subsidies for the past 20 years?
Government spending taxpayer money to bail out corporate shareholders and executives. You want more of that?
Not at all. I was refuting Bessent’s quote from the article.
I don’t think Trump has lied about his intentions, in fact he has been very transparent. Probably the most transparent President in my lifetime. Obama and VP Biden promised to cut fiscal waste, but never really followed through.
Concur. The thing that puzzles me is Trump and his familys crypto push. The meme coins – was that to kill that market? Strategic reserve holding bitcoin seems kind of dumb, what is the point? I get that a treasury issued stable coin on a blockchain would be good for tracking all federal payments. All the rest seems dumb to me. Maybe bitcoin was just a giant govt scheme to crowd fund the brute force method to break the highest levels of encryption, who knows?
Classic vote-buying.
True, there is an aspect of vote buying. The crypto industry donated massive amounts to his campaign, so, yes the crypto bros would then vote for him.
The launching of meme coins is simply a wealth transfer, where he can receive large direct payments from foreign actors with no paper trail. He made $100 Million just on the transactions of his meme coin alone. I’m sure huge positions of his were liquidated around $70 a share. It is known that over 800,000 individual accounts got hammered and lost a mint. But, those were probably just his faithful followers, so I’m sure they were happy to take a bath on his behalf. The TikTok coin launched by one of his closest supporters was rug-pulled within hours.
It’s funny to see people wondering why he would want to rattle markets. Gee. I dunno. Maybe he looked a the largest bubble in US Stock history and decided to take large short positions among himself and his friends, then rattle the market and make a mint? Oh, he wouldn’t do that? No, not someone who would launch a meme coin at his inauguration, they would never do such a thing.
“The thing that puzzles me is Trump and his familys crypto push. The meme coins – was that to kill that market?”
It was to cash in! Just like his water, steaks, shoes, bibles, university, you name it. Don’t overthink it….
Trump is an entrepreneur at heart. So he tries to sell all that goofy stuff to make a few more bucks, even though he does not need more money, nor does he need to buy votes. It doesn’t bother me, as long as he spends most of his energy trying fix our country.
Strategic reserve of crypto seems like a smart hedge in my mind. Other countries are trading oil in crypto to get away from us dollar standard. Gold and crypto seem like only alternates to us dollar, so a miniscule investment in crypto hedges bet on outside chance that alternative gains traction in future.
somebody came to Trump – the same group that appraoched Miley in Argentina and made him an offer. We will manage the issue your memecoin and take 20% while you keep 70% and 10% goes to run the thing. People will give you money of their own free will with nothing promised in return. All perfectly legal and above board. Not much different from a call center operation that might call 10 milion people and ask each to send them $1 with no promises made.
He and his family made $50 million or so…that is people voluntarily sent him %50 million,
Now Treasury imagines they can do the same with StableCoins and open a whole new tranch of buyers for government debt.
Obama agreed to sequestration. that’s the largest austerity program implemented in recent decade iirc.
Man there any real hope of fiscal sanity? Feels like the the horse has left the barn and endless inflation is the classical fate of nations like ours historically.
Dalio was suggesting this: (but seems a bridge too far. I’m 55 and remember quasi sensible
politicians on both sides and seems a very long time ago since I’ve seen even and inkling of a fragrant bargain. Almost like they know the ship has sailed fiscally so now focused on blame-storming – plenty to go around. Oy.
To achieve the goal of stabilizing debt relative to income, it would take about an 11% increase in taxes, about a 12% cut in spending, or about a 3% cut in interest rates
Do you mean a cut in nominal interest rates (as in ten year treasury rates decrease from 4.3% to 1.3%) ? As I interpret “a 3% cut in rates”, the ten year yield would decrease to 97% of today’s rate, to about 4.18%.
What are the long-term benefits of increasing manufacturing in the US? I thought that manufacturing, largely automated, created few jobs and it is a small margin activity anyway. Isn’t it commoditized?
Good grief. Do you really don’t know? Has America fallen this far already? Highly automated manufacturing is possibly the best thing that can happen to an economy. It requires high-tech skills to design, build, and install the equipment, then to operate, maintain, and service the equipment. These are specialty jobs and expertise, including software engineers. It requires high skill levels to plan the plant, build it, etc. All of which generate secondary and tertiary activity of specialized companies. Then there is all the activity around supplying the plant with components and materials. Manufacturing generates investment in construction of buildings and infrastructure. It triggers investment in electricity generation and transmission, so the construction of more powerplants, etc. It requires education and training of the specialized workforce. It generates knowhow that gets lost when you abandon manufacturing, and then you cannot do it anymore.
To get a large semiconductor plant up and running, from a cornfield to full production, including equipment, requires about $20 billion – that’s a huge amount of economic activity, and that’s just the beginning of it before actual manufacturing starts, and that’s not even counting all the other activity around it such as selling cars, laptops, smartphones, sandwiches, etc. to the people that work on and in the factory.
Manufacturing generates a large amount of taxes, including local taxes. That’s why states and municipalities are trying so hard to get a company to build a manufacturing plant in their area.
And supply chain security and independence from foreign interference to the economy. Of course, apolitical economists won’t care about these.
Yes, strategic reasons are crucial in all of this. The US economy can be strangled by China, as we have seen during Covid. Chip manufacturing in the US is absolutely necessary for strategic reasons.
Yes and economists aren’t exactly geopolitical realists, are they? More often than not they are shills for free trade interests. Paul Krugman is a notable example but most of the ones whose opinions appear in “mainstream” media fall into this category.
that is all fine and dandy if you actually collect taxes on that manufacturing; what happens in practice is that municipalities race to the bottom with tax breaks and incentives, then those profits are passed on to shareholders largely tax-free
You’re right about that. Municipalities absorb most of the costs of all the transportation and utility infrastructure necessary to keep the company in business. And even worse, these companies pay very little in federal taxes either….all the while continually threatening the municipalities with a pull out and moving someplace else if corporate demands are not met.
Have you ever seen a town where all the companies left?
They do this because it creates jobs, which makes people want to live there, home values increase, property taxes increase, restaurants and small businesses open to support the population is living it that area for the jobs.
All the reasons Wolf cites, plus the retention of productive capacity in strategic sectors associated with national security — you don’t want to be stuck in the habit of buying critical inputs from potential enemies.
For strategic goods I agree. However most goods aren’t and bringing that manufacture in, when it can just be done cheaper offshore, is a form of subsidy, coming from taxes.
@Dani
The primary reason it can be done cheaper offshore is because other countries don’t have as strong of protection for their workers or environment.
Getting to buy my widgets for a little bit cheaper due to the production being done by 10 year olds being exposed to chromium and CFCs in Asia is ethically dubious to say the least. Nor is wasting a tremendous amount of to move cheap plastic goods across a huge ocean very sensible on a finite sphere.
But those are things the free trade people never mention.
You are right. In Sweden they tried to create a car battery factory to produce local batteries made in Europe.
Now its has filed bankruptcy. approx 25 billion € wasted.
We don’t have the proper skills to compete against Asian rivals.
We are falling asleep.
We can play soccer and design fancy ladies bags.
25B wasted? Chump change compared to what we dump into Raytheon, General Dynamics, etc yearly. Might not be the skills more than Swedish people not appreciatiny toxic industrial by products being dumped into their back yards.
Wolf – please remind us all (and especially the labor unions) WHY manufacturing moved out of the USA. As is I have commented in the past – GE has a factory in Mexico making harnesses for aircraft engines and the people are paid $2/hour – and their quality is equal to and/or superior to the product previously produced in the USA factory – at $40 per hour. We HAVE to get back to reasonable wage rates or the exodus will happen again.
“We HAVE to get back to reasonable wage rates or the exodus will happen again.”
Are you suggesting that US wages sink by 95%, or that Mexican wages are to explode by 20X?
$40/ hour is $80k/ year.
Commenters here have endorsed the Commander in Chief in a $100 million grift against the citizenry while in office.
A working man should be able to feed his family, provide a (now million dollar) home and maybe even aspire to pay for some higher education.
I won’t even get into healthcare or retirement.
What we also need is a public consumer willing to pay for U.S. goods. Supporting of our citizenry. We all like a sale, and coupons….while we give the shop away.
Well said.
“For these reasons, a deep sustained rout in the stock market will eventually trigger that recession. But where is the line?”
That’s the 64K question. Most likely, it’s directly tied to some amount of spending cuts Trump is able to push through.
I think DOGE is more marketing that reality, in terms of cuts. We’ll have a good feel for whether or not DOGE & the GOP via the first reconciliation bill whether or not real, lasting cuts to federal spending are on the way.
Looks like a lot more than 30 months Wolf?
”Will the S&P 500 have to drop 40%? 50%? And for how many years? The Dotcom bust took about 30 months to play out, from mid-March 2000 until early October 2022. ”
Re: recession, sooner the better and get it over with; how some ever, there is not any way to ensure the medicine will be sufficient or last long enough due to the indifference of the politicians of all stripes to spend other people’s money!
Why not ease capitalization rates instead of imposing tariffs?
The Trump put is still there, it’s just a bit out of the money still.
The trump put might still be there but my bet is it’s not a thing until the Republicans need to start worrying about primaries. And if they somehow manage the PR/news cycle correctly so people believe this a tearing off the bandaid a necessary evil to fix years of what the Democrats did…all bets are off. The Trump put only exists if Trump massively loses popularity. So far his base seems happy.
Many thanks for connecting dots so cogently. I have read plenty of books that prattle on for 300+ pages and say a lot less. For my part, I am still holding a relatively small allocation of stocks, hoping to cross the gap to the other side of this.
Totally agree.
This was an excellent and in my opinion, accurate portrayal of the current administration’s economic policies.
Thanks Wolf!
I see the thought behind the tariffs and encouraging more jobs and manufacturing in the US, but it has been shown over time that they don’t work in the long run. However, it will help the government to cut their deficit as it brings in money for doing diddly squat.
For me the bigger picture is why we, as consumers, want cheap stuff from overseas. We all complain about the poor quality but still continue to buy it. It seems as if we are addictewd to cheap priced goods at the detriment of quality. I would rather pay more for a product that lasts than simply buy crap and replace it every year. But then if companies are after more sales, why make a good quality product that never needs replacing? But I’m sure if we produced quality again, people might see that buying cheap imported crap is a fals economy.
I like your second point but your first point is wrong.
Tariffs work. They have always been around. They preceded income taxes. And nearly all countries use tariffs, and most of them have far higher tariffs on average than the US. Which is why Trump’s threat of “reciprocal tariffs” — matching their tariffs with our tariffs — is such a powerful tool.
See Michael Hudson’s “America’s Protectionist Takeoff 1815-1914” for US use of tariffs to build its original manufacturing supremacy and Ha Joon Chang’s “Bad Samaritans” for Korea’s transformation — both of which reveal the lies of the “free trade” shills
Is there an argument that tariffs work other than that they have always been around or that other countries use them (which isn’t a fact based argument for them at all actually)?
I would be interested to hear you debate the topic with Mish Shedlock, who i also read and often doubt or disagree with. It would probably be more interesting than watching you dunk on readers in your comments section.
I’m open minded but so far I’m skeptical that tariffs are anything except yet another tax on consumers and businesses. The fact that the party arguing for them also thinks we should all catch measles and that some people are created more in God’s image than others just increased my skepticism (again, not a fact-based argument, which is why I’m interested to hear you discuss it with someone who’s processed the idea on a higher level than why the last Chinese toaster they bought was junk.)
Phil,
Look at my comments and those of a few other people near the top of the comments, where we discuss some of the huge economic and strategic benefits of manufacturing in the US.
China became the world’s #1 manufacturer by imposing massive tariffs, essentially requiring foreign companies who want to sell in China to produce in China, and when they produce in China, requiring them to produce in joint ventures with Chinese partners, and transfer their IP to them. Tesla was the first company that was able to set up manufacturing in China without a joint venture, and they’re probably still leaking IP.
This strategy of using prohibitive tariffs to force local production has performed miracles for China. Don’t tell me tariffs “don’t work.” That’s just BS. China proves they work.
I would argue China became the world’s #1 manufacturer by leveraging an enormous population of desperate people living at a subsistence level, which is something the US doesn’t really have access to- not unless we start actually looking at the people south of us as an opportunity and not a threat. Additionally China was able to do so via a command economy that didn’t concern itself with silly little problems like workers rights and living conditions, self determination or representative government, the environment, climate change, etc- all the kinds of things that the western democracies hamper their industries with in some misguided effort to protect our dignity and our planet.
“Proof” is really hard to come by when things really have many inputs and the effect of any particular input is difficult to tease out from another.
I recognize that my arguments against the Chinese model could actually be used to support tariffs as a way to level the playing field with competitors who “cut corners.” But still, not proof that tariffs work. If you want to just look at a country that uses tariffs and argue that they are proof of success, you would also need to look at a list of all the countries with high tariffs- and when you do, you see a lot of them are actually failed states and basket cases.
“Proof,” it’s a slippery thing.
Mish, whom I met in person a couple of times 2008 -2010 at gold / silver conferences, opted to go into the rabble-rousing business 5 years ago. Apparently more clicks.
@geoff you are right, but the lack of morals is not just within the free traders. The way capitalism is implemented as a whole, no equal opportunities, lobbing, all rotten.
Mish has gone from discussing economics and finance to full on TDS with almost every other article bashing everything Trump has done.
The comments section is even worse with ridiculous stuff outweighing and common sense material.
Best just ignore his blog for a while until all the court cases against Trump reach the Supreme Court so he can have some egg on his face and get back to the real world.
Phil,
“…all the kinds of things that the western democracies hamper their industries with in some misguided effort to protect our dignity and our planet.” Don’t worry, we don’t care about that stuff any more!!!
Phil,
“I’m open minded but so far I’m skeptical that tariffs are anything except yet another tax on consumers and businesses. The fact that the party arguing for them also thinks we should all catch measles and that some people are created more in God’s image than others just increased my skepticism (again, not a fact-based argument, which is why I’m interested to hear you discuss it with someone who’s processed the idea on a higher level than why the last Chinese toaster they bought was junk.)”
Why claim to be open minded when you clearly are not? You obviously have an agenda or your comments on measles and God’s image, in a discussion about tariffs, make no sense whatsoever.
The “proof” you claim to want is impossible to provide because you are not open minded and refuse to see any link between tariffs and China’s industrial development. It is unclear how you define whether a tariff “works” or not. Is the goal of a tariff to generate revenue? Change the calculus of where to produce goods? Encourage the development of manufacturing industries? Any or all of the above? Only after what “works” is defined can an assessment be made of whether a tariff helped accomplish what it was implemented to do.
In the China example cited by Wolf, tariffs “worked” because they served the purpose of allowing for the development of China’s manufacturing capacity. That was the goal of China and tariffs helped achieve that goal. Furthermore, it is unnecessary to “tease out” the impact of tariffs from other conditions that impacted China’s industrial development. The fact China used tariffs, and became the world’s number one manufacturer, is evidence of their efficacy whether you admit it or not. The existence of other conditions that helped China’s development is irrelevant to whether or not tariffs played a role in that development. If you intend to argue otherwise, i.e. tariffs played no role in China’s development as the world’s number one manufacturer, the onus is on you to provide proof for that argument. Otherwise, your arguments are simply a reflection of the appeal to ignorance fallacy.
A great dialogue producing article, to be sure, but Phil is really good around the board, as any good sport should readily admit.
They are only words.
Full disclosure;
I have had acute and chronic (maybe requiring hospitalization) TDS since he came down the escalator. and never watched a single episode of The Apprentice…..so I’m hardly well-rounded intellectually.
Make that not well rounded enough to do adequate “critical thinking”….or have “common sense”……..”intellectuals” are the “woke” bad guys to maybe 40-45% of this country. The rest of the “mandate” came from presently very rich, plus maybe a largish number of top 10, maybe 25%, on up to true oligarchs. Also appears a specific deity’s mandate is now being claimed.
And there is probably not a lick of significant difference between either expression as far as being expressive of one’s basic ability to think…..mostly just different life experiences, especially the early years one doesn’t remember well or at all.
There is no way possible the US can compete with Chinese manufacturing without tariffs or government support. China benefits from the latter when The Party decides it wants to dominate an industry (provides the capital), labor is cheap, and there are minimal (if any) costs of environmental regulations. The only delta in the US’s favor is transportation costs to get the products to market.
But automation costs the same in both countries. And by manufacturing in the US, companies don’t lose their IP.
Wolf Richter is on target. Anyone please present a cogent argument against reciprocal tariffs.
To your second point…
A few years ago I needed a new coffee maker. I wanted a nice one, made in the USA. I spent 8-hours researching (not exaggerating) across the web looking up corporate ownership, place of manufacturing, reviews, etc etc…
I couldn’t find one that wasn’t commercial grade for office buildings / kitchens. Literally not one. The best I could do was find a Bunn with overseas parts but assembled in USA for about $130.
It broke after 3-years, but that’s not the point. I replaced it with a $10 piece of crap from Crapmart that is still working but not as good. So, I guess “I tried”…
I went through this for dryers and ended up with an expensive American-made Speed Queen, which promptly developed a control panel problem and has been nothing but a headache ever since. There’s no guarantee something made in America will be any better than anywhere else.
Two words: Garage Sale (or Yard Sale or Tag Sale depending on where you live).
Seriously, I’ve purchased at least three or four new (in box) or barely used coffee grinders for $5 each (mostly 1980-90’s vintage Braun or Krups). Used one daily for about 8 years; it died due to a a problem with the electrical cord.
Same with many small kitchen appliances (e.g. a 1990’s era Cuisinart food processor new in box with all accessories for $15).
Grab it when you see it.
Agree with the ”false economy” part for sure PJ!
Years ago as a young carpenter apprentice, an older coworker told me to buy only the very best tools, of all kinds, I could find; not only do they last longer, but in general they also perform better or much better.
I have to admit I bought cheap at times, too broke to buy the best at the moment they were needed; however, I still have some from the mid ’60s, and even some power tools from the early ’80s, all of which were made in USA, and still work just they should.
Live and Learn, eh
…reminds me of a conversation with a spectator I had in the paddock at the Sears Point AMA Nationals in ’89. He remarked about the inexpensive tools I was using to fettle the machine that was in my charge, to which I replied: “…yeah, but nothing’s gone ‘missing’ since the tray with my GOOD set of racing-tools got lifted out of this very paddock four years ago…”. (…the look on his face DID make me pause…).
may we all find a better day.
Which “long run” are you looking at and how do you define “work”? Because they were used as a major source of funds by our government for much of our history. Income taxes were a recent innovation by comparison and America was able to build up into a massive industrial economy before their introduction.
Even if quality was the same, there are other things to consider. Let me use an example
I have a niece and she is 18 months old. She already has 100 toys. Why? Because they come from China and are cheap. In an alternate universe should could have 10 toys that were 10x more expensive. I don’t think that would ruin her childhood in anyway.
Similarly we have wear once and throw away apparel. Instead we could wash them and wear them more often.
The problem is that if something is made cheap at the expense of someone else’s job then it is demanded more. But if that good was a bit less then society would adapt….and someone would have a better income and probably buy more of some other stuff (which currently is not being consumed)
All these polices do is shift demand from one to another. There are no solutions….there are only trade-offs.
We need to decide which tradeoff is better.
FYI I am all for tariffs if it increases the wages of the guy who has been screwed over for the last 40 years.
1. Dot com bubble was so 2001. Back then, mostly telephone based brokers. Very little computer-Algo based traders.
2. This time its different. Now everything is internet, automatic and computer based.
3. Housing was not connected to stocks back then. So, even during 2001 housing was solid. So many industries are now connected to stocks.
4. no QE in 2001. The rates 6% were so high compared to 4.25 now. FED are less independent and chicken now.
5. 401K based passive investing was still recent in 2001. but now everything and everyone is in the stocks.
6. Cryptos are also in the mix but its difficult to explain
7. 2025 is going to be crazy. I predict based on astrology, that bubbles with start popping from March end – April to summer.
1. I was trading online through Fidelity in 1998. I can’t imagine most people were still calling a broker, which I did circa 1992, in 2001. During that time I remember online trading being hyped far and wide.
4. The Fed Funds Rate started 2001 above 6%, but went straight down and ended 2001 at 1.82%, much lower than today. There was no QT in 2001 either.
5. The bottom 50% of Americans by net worth own about 1% (Q3 2023) of equities and mutual funds. So not everyone and anyone is in stocks.
Yes, but the bottom 50% also make very little, so their spending is only a small fraction of consumer spending, and any fall in it will be barely noticeable.
But for the same reason, any fall in it will involve extreme pain, and they vote. They were already experiencing extreme pain from soaring rents, insurance payments, and other non-optional costs of living. If Trump not only fails to deliver for them, but is clearly seen delivering for the billionaires, they’ll be a reckoning next election (but only if we have one, which he will probably prevent by rigging something like the Reichstag fire and declaring a national emergency).
As a resident of San Francisco’s wsoma area for 25 yrs I know about addiction/addicts and detox/rehab/recovery. Addiction to anything, drugs, drink, gambling, AND debt is nearly impossible to kick. Debt addicts can file for bankruptcy and perhaps can again engage in their addiction, the question at hand is will our elected officials do anything about it. I seriously doubt they will. The USA will go the way of Rome, England and other nations once rich and mighty and now mere whispers of what once was.
Ryan is right. Once you get high on fiat money, especially the awesome global reserve currency variety, it takes an ever increasing amount to just maintain an even keel. That’s just the way it works. What happens then? You might do OK for a long time. You might overdose (hyperinflation). Or you might try to sober up. It’s very difficult, but a lucky few have done it. The withdrawal is extremely painful. And it’s important to know that the withdrawal symptoms might kill you (deflationary depression). My fiat money is on the overdose.
Scientists estimate that more than 99 percent of all species that have ever lived on Earth are now extinct. So don’t get too excited about the rise and fall of empires.
As for Rome, some say it still existed in a variant form with the English Empire, and now with the US Empire. If an ancient Roman senator walked into our Senate today, he would feel at home, except for the clothes being worn and the women senators. Our legal system still uses Latin terms and is based on ancient Roman law. Our important buildings in DC are modified Greco-Roman style, but would be clearly recognizable by an ancient Roman. The letters you see in this comment are from ancient Rome (thank goodness we don’t use Roman numerals much). The Roman Empire did not fall, we are it.
The Roman empire in the west lasted for 400 years and went through several cycles of currency debasement, collapse and ruin followed by renewal (usually by a restoration of the coinage), restoration and greater success than before. Of course the empire in the east went on for 500 years more than the empire in the west and experienced the same thing.
The USSR collapsed in 1990/91 and its imperial Russian core suffered horribly, but the worst was over by 2004 and things have improved for the average person year after year since.
America can re-right itself. Maybe it will take the passing of a generation and a period of chaos, or maybe not – Americans really aren’t as susceptible to massive civil violence and madness as popularly thought. That is much more of a European thing….
Wolf has laid out many of the good things of a possible mfg rebirth in the US. Another one, not mentioned might be a massive reorientation of National education back to engineering, STEM and mechanics
Awesome, Wolf. Thank you!
Adds:
3rd detox restated. Thinking that micro rate changes is a means to run a complex economy is absurd. Thinking that it’s responsible to leverage, after the fact, big bailouts and handouts, is dangerous. The detox fix is bringing the monetary policy back to long run stability. Rates determined by a combination of inflation, taxes and return. And severe debt to GDP limit controls. And preventing screw ups, like dotcom & subprime, with early on regulations and/or enforcement.
The 4th detox, is politicians. They need a daily dosing of accountability. And more skills that are focus on running governance in public interest. Not unique to USA. An issue for hundreds years. But it’s the crux of what tanks empires. Leadership.
Politician accountability such as: Full audits on spending and politicians. Clear reporting. Illegal to make promises that are not pre-funded. Fixed & balanced budgets. Recall for incompetence. Jail for corruption. Reduce debt to targets on GDP. Goaks snd meadures; stick to esssentials. Bring on real jobs. Stop free riding handouts and bailouts. Get more efficient; measured. Separation from insider trading and donor benefits. Their focus is American people.
This 4th is a bigger chalkenge than the other three. However were here by prior political lesdership. And ~75M voters want the swamp drained.
Otherwise, it’s rinse repeat.
I recently went to DC, where the best stock traders live, tried to go to their general hangout and ask for stock tips, but the security guards whose salary I pay refused to let me see them. What a bunch of assholes…
As for swamp draining, I care, but only after I get my hot stock tips.
If I had 10 more years it would be the buying opportunity of generations. The markets are way overvalured by any measure, will correct 30 – 50 percent, and all the hype about growth is just that, without a ten year track record.
Pity the fools in funds as that is where losses come from. Classic sell on the way down and buy on the way up, while smart money trades. How is AI, latest chip, or coins working out for newbies?
SPX is up over 40% the past 2 years, a 30-50% drop isn’t much. And it’d be back up in a year or two. And that’s IF it even drops in the first place. Think about Wolf’s articles on how much cash and savings is out there on the sidelines…
Buy the dip…. Or sheep to the slaughter
Howdy Youngins. Balanced Budgets
1000 Year Republic
The biggest difference this time is EVERYONE is invested in risk assets.
Most are relying on the growth for there retirement plus a large amount of boomers retiring… Messy!
I think they are underestimating the timeframe it could take for assets to recover.
Japan 1989-2003 repeat isn’t out of the question IMO
Yeah, that burst asset prices in Japan.
After the 1929 crash, it took the Dow 25 years to get back ti the pre-crash levels, although changes in the Dow components make the comparison a little dicey.
Remember the stock markets were honest back then nothing like today.
I like to add little tidbits from our business to color the tariff conversation. Truck equipment is ground zero for the negative impacts of NAFTA.
The majority of the production of what we make has now moved south of the border, little by little. Some of the parts in the industry are coming from India and China.
American producers of our product niche, like us, are clinging to maybe 20% of the market, collectively. The market is still sliding south but we are not going down without a fight.
The last few years have seen us pour 100% of our free cash, and a little extra debt back into the business…why? Robotics. We have redesigned products, retooled production lines, and purchased highly productive and accurate CNC equipment. We see this as our only hope to stay competitive with a midwestern US factory.
All business is essentially the purchase and sale of labor in different forms from different parties. Labor is roughly $30/hr more expensive here compared to Mexico for several reasons, mostly linked to the quality of life that American citizens enjoy. Given the hours in our product, this result in the border jumpers having a cost advantage of 10-15%, all else equal. This advantage whittles away at our ability to thrive over time – an engineer here, a sales team there, a new machine…eventually that extra margin allows the competitor to steal all the market share if they use it wisely.
Does the ROI cleanly pencil out in favor of these robotics investments? Probably not. But the business is what supports our family. And we have no choice but to try everything we can to keep it working, within reason. Would we have been better off sticking that cash in the stock market? Maybe…we will see.
People who claim these tariffs are nothing but a net negative tax on consumers are 100% dead wrong. There is a boat load of gray area. There are positives and negatives. I say these tariffs are a tax on the gross margins of our competitors, whose labor arbitrage siphons wealth out of America.
If the tariffs stick, our customers do not have to instantly pay more forever. They will have a strong economic incentive to shop local and they will find us and a few others standing ready to take production back to the American Midwest. To do that, we will need more machinery, more trucking, more metal, and more employees. It will improve our ability to pay our workers a living wage. The loss of this activity has hollowed out the middle class.
Our facility can double output with a little work and some more employees. The fixed cost absorption of better utilizing our capital will actually allow us to sell more cheaply than today and make a reasonable profit.
To some extent, the opportunity to offshore production disincentivizes investment in American factory productivity. I would argue that option to outsource is the primary driver of weak productivity growth of the last few decades.
Maybe some domestic companies will kick back and raise prices and collect those sweet tariff margins. Our business will NOT be doing that. That would be wasting a golden opportunity to put some Ws on the board for a change.
Amen Brother! Here’s hoping there’s a return to prosperity in the Heartland. A return to making and doing things for ourselves again. While we’re at let’s bring back quality too. Aren’t we all tired of faulty crap products?
Been using the same weld wire brand for decades. Started having problems with it last week. The rep saw the spool and immediately knew the problem. They just moved the production to Mexico and they are having quality problems.
I’m very tempted to shop elsewhere and be crystal clear as to why.
Rando62,
You will hopefully appreciate that I nearly always try to source American (or Euro) goods, regardless of price. I’ve paid ridiculous premiums to do so, and occasionally realized I was still duped by “designed in” vs MADE in China, etc. Most I know want the cheapest of a given good/quality, period. So you’re swimming against the tide with them.
Very interesting post, thanks!
Bravo for a succinct and eloquent explanation.
If we have substantial drop in housing prices to accompany a swoon in the stock market, the drunken sailors might drop the bottle for a bit.
Yes, that would be a sobering experience.
Home prices won’t crash. There’s not the same leverage supporting them as 2005-2007. Prices will lag inflation as they have the past couple years (and did from like 1993-1997) until incomes catch up.
Unemployment among college educated workers who thought they had secure jobs is about to spike as Trump’s goons zero out spending on education, medical and scientific research, museums, libraries, NOAA, etcetera etcetera. Mostly homeowners. Surely with 3% mortgages.
A large fraction of new homes bought in the last few years were bought with 1 to 3 year rate buydowns in the belief 3% would return in time to refinance. It won’t.
Inflation in insurance and real estate taxes is imposing a steadily rising burden on homeowners.
These factors are increasingly going to bite and force sales into the headwinds of the coming recession.
Home prices will fall.
I don’t know if this still holds true, but I have heard this both from college finance professors and family who retired very early off of trading the energy crash in the 90s (I think) and then successfully supported themselves for the last 30 years with that money. The advice I was given was you can always tell a market top because every individual investor with no finance background thinks they’re an expert and has a tip for you. I heard this was especially true of the .com bubble.
Well my hairstylist spent my whole last appointment giving me crypto tips and investing advice, my workout buddy was giving me options trading tips yet didn’t understand when I was saying well the diff between buy and hold is that the market eventually comes back up but with options you deadline for that market recovery, and my yoga instructor friend told me 20% year over returns were normal and that I was missing out by having my savings for a house in bonds. This was in the last 2 weeks. I’ve heard a lot of these comments lately and when I ask questions that would just require a basic understanding of finance I get a confused look.
It will be interesting to see if this bubble actually pops.
I play poker at ‘grey market’ aka illegal clubs quite a bit, usually oldest guy there and BOY are those kids crypto fans. They in a nice way try to recruit me, or convince me. Trying to help me out.
It has become heated as I push back to where House says STFU to both of us.
Some of my advice: look up ‘currency’ as in ‘currently’ or normally a means of exchange. BC is not a currency because it fails that test. It has more in common with a stock, at best, or maybe a chain letter at worst. Sure cars etc have traded for BC but that is barter, the seller has to like BC.
How many car sellers need to like the US $.
Next requirement for a decent currency: a store of value. One that drops 20% in a week does not qualify.
Next: convenience and SPEED. The max speed of BC is 6 per second. If networks are busy a single transfer can take an hour. Meanwhile Visa has done millions AND the purchaser has a record, proof of payment, that is instantly available, without going through some techno investigation.
And then there is all the ‘wash trading’ illegal for a stock
And then….
Or like the House said… STFU.
Man, I totally forgot about chain mailings. Thanks for the memories. Lol!
Heh. Old timers I knew used to say something similar like, “When the newspaper boy or the shoeshine boy gives you stock tips….”
Recently, one of my employees asked me if I gambled..err invested using Forex. Of course, I said I have no idea. Then, he proceed to tell me blah blah blah. I wanted to tell him to shut up, sit down and listen carefully.
If you FA, you are going to FO what it means to lose your fcking shirt.
He is young. He will recover…in ten years, as a wiser older man.
Pain is the ultimate teacher.
I am waiting for the deals to come crashing down for me. I am all cash and ready to go. I am sensing 50% off deals on nice cre I have been eyeing for a minute. Cash offer and quick close. Good luck!
Same. You, me… Buffett. The smart ones are just waiting the exuberance out.
It’s the old “shoeshine boy” story, often associated with Joseph Kennedy Sr. According to the story, in 1929, Kennedy was getting his shoes shined when the shoeshine boy began giving him stock tips. This made Kennedy realize that the market was overvalued and overly popular, leading him to sell his entire portfolio before the stock market crash. Perhaps true, perhaps not, but it is worth thinking about.
I made a perfect market-top exit just before the Dotcom bubble burst because I overheard a teenager talking about “investing” in JDS Uniphase. Not a market timer then or ever, but I have always been value conscious and well aware of the apocryphal shoe shine boy stock tip story of 1929. Also, I think I was just lucky. But some things correlate.
My personal conspiracy theory is they want to crash the market. They need inflation to come down. They also need interest rates to come down. There’s a lot of people out there who need to be able refi their debt…
Only way that happens is with a recession. Even better a recession you can blame of fixing the predecessors mistakes and paint yourself as the hero making the tough choices that are for the greater good.
No, they don’t need to get interest rates down. They need to get prices down. So, you increase the income and transaction’s velocity of funds while draining the money stock.
What does that do? Higher savings, via higher and firmer real rates of interest, needs to be channeled into higher investments in real things.
Increased productivity, from higher levels of CAPEX, would be the offset.
“A chicken in every pot and two cars in every garage” (regardless of skewed demographics). Huey P. Long, “Every Man a King” and “Share our Wealth” (1934)
Bernanke’s “wealth effect” is exactly the opposite of what he claims. The demise of mature economies is due to leakages in the circuit income velocity of funds. see: “Changes in Wealth and the Velocity of Money”
By need, I was referring to our presidents friends and diners. Tech needs lower interest rates. A lot of CME owners need to refi ASAP, etc. Personally I like rates where they are, it’s nice to actually make money on my savings risk free.
Oh and a weaker labor market means more power for CEOs and more ease enforcing RTO.
My biggest point is I think they want a recession.
*donors, my phone’s autocorrect is terrible
Japan is living proof that Bernanke’s policies didn’t work.
“Even better a recession you can blame of fixing the predecessors mistakes and paint yourself as the hero making the tough choices that are for the greater good.”
Tons of evidence of this b.s. already.
Can this society withstand the long-term value destruction to labor markets, colleges and universities, RE markets, awaiting this huge makeover of value chains, capital and resource flows? The human cost of this do-over is MASSIVE and EVERYWHERE and pretty sudden and soon. The financial health and fitness of households is completely not calibrated for this. Whose regions will sink into recession, with the national redistribution mechanism preventing this since the New Deal dismantled. The bureaucratic infrastructure for managing anything like this will be decimated and dispersed. Why would capital wait patiently around here through all this mayhem? Tens of millions of (former) consumers have bet all-in on a future life path suddenly not going to happen. Essentially nobody is trained up for this supposed and very contingent and ill-structured future. Essentially nobody has the spare capital to migrate to these new location. Meanwhile conditions on the places not recapitalized grow impossible. All= kinds of RE suddenly goes empty, or zooms like crazy in new boom towns. The USA has never deindustrialized-reindustrialized on this scale, with all this already in place. If the hoped for very new “new job” is simple enough to train for, it is unaffordable on current USA human job pay scale. Nobody is standing here with the skills reset ready, or willingness to hire the tens of millions dislocated. Street crime, addiction, social problems explode. Meanwhile, China, with all value chains already there, piles of products ready and aching for sale worldwide, wins. It is costly for them to set up places as their consumer markets, yeah. But this is Trump’s same old pipe dream, except 45 years out of date. The only historical parallel I can think of is the USSR in he 1920’s. And if you know any history, you know how that went down for millions of people. The rest of the world now has a path imaginable to circumvent the now-impoverished US consumer — and dollar. Meanwhile privatizations and this valley of nest egg value dip have sucked out all the remaining tiny pips of capitals households have, to adjust from their end. Just because the old way was drifting into unsustainability does not mean here is a feasible path out, or this is it. Trump at last handed China the stick to beat us down with. Russia can dance around the periphery and opportunize, again without changes ti its fundamental operating model. This is not some economist’s thought experiment, a seamless world of perfect markets and perfectly efficient capital flows and actors. It is the actual situation and lives of a few hundred million people. Seems to me a whole pack of stuff orders of magnitude beyond what the voters never imagined or gave a mandate for. I invite different comments, I ask not too raging or ad hominem. If I’m wrong, how will that actually work? I have heard nothing like an answer. Trump’s imagination seems not to have gone there. He is no Stalin.
This sounds great until one sees how ramshackle and long-shot it appears to be in practice.
Sounds pretty panicky. But you’re exaggerating a little and making up problems that don’t really exist and you’re letting your imagination run wild. Relax, have a good drink, and watch it unfold.
What I would say is that their approach to the economic and fiscal issues has been chaotic. Chaos is not a good background for decision making.
Trump is a populist. He will change course when the economy tanks. The scenario you state simply won’t play out, because people don’t stick with their plans once faced with reality. Like Mike Tyson says, “Everyone has a plan until they are punched in the face.” Same thing with economics.
deejay T does not care. He is profiting handsomely at the moment with his crypto bribery play while owning the DOJ.
A criminal has never had it as good as he does right now.
He’s not going to change a thing until he sees pitchforks and torches up close like.
He is hands down the most likely President to bail on the country in a getaway plane called Air Force one.
He not like us.
All in your head, fantasy.
Sounds a little panicky, but it makes sense.
Agree with Wolf phleep:
Been watching and living through and hearing about the manipulations of the economy by politicians and the financial folx since the 1950s, mainly at first from those who ”self identified” as conservatives.
Seems as though each time there has been a change of ”political party” in all those years there has included some move to make sure the public knows from which side ”the money” comes from, so, really, nothing new.
Just one more reason to get rid of the FRB whose only ”real” purpose is to protect the oligarchy, banksters, and other financial folx at the expense of the workers and savers, as has been, and will continue to be, happening again now.
re: “Street crime, addiction, social problems explode”
That’s just a math equation.
Choosing to do nothing is a choice also, so it seems important to ask if that path is workable either.
As I commented above, it’s truly repulsive how American culture has decided it is okay for us to offshore our pollution, and ignore the implications of what is going on in the labor markets these companies are exploiting.
It turns out that a lot of people in America only care about pollution and child exploitation when it happens here. As long as the disposable junk at the store is cheap, the kids being crippled in Malaysia can just pull on their bootstraps.
Sometimes the only choices are devil you know and the one you don’t, and the devil we know involves somehow maintaining a fantasy where the US gets to consume 25% of the worlds energy with 5% of the population, and filling the oceans with trash islands from the junk we buy and throw away. I have no idea if Trumponomics is going to work or crash and burn horribly, but I know the path we are on is 100mph at a brick wall. Pick your poison.
Geoff – well-said, and a very-longstanding state of affairs dating back to the first ‘Earth Day’ here in the states, when the pollution was so clear and present it obscured the flat-out necessity for the nation to retain, at the least, much more strategic manufacturing (…isn’t it all? But that’s a different conversation…). We squandered the opportunity for the environmental and industrial communities to be ‘encouraged’, via tariffs, to work together so the U.S. might lead the globe in clean industry. Took the quick-and-dirty cleanup route (sorry) of exporting our industrial pollution along with a good slice of our mfg. base, and a corporate bonus of cheaper (MUCH cheaper) overseas labor. If ever there was a time for tariffs (including environmental and labor protection equivalents). it was then.
may we all find a better day.
I understand that it is going to be pretty difficult to right the boat. However, IMHO it has to start sometime and now is as good a time as any. But I can only hope they have the gumption to dismantle and build if so required instead of developing cold feet along the way when the going gets tough. In addition to developing cold feet, my biggest worry is The Fed will also develop cold feet and start meddling by lowering interest rates again to 0 and starting QE. Should this happen I would say we are doomed.
How much manufacturing to we expect to get moved to the US due to tariffs on Canada, though?
Just off the top of my head: GM and Ford have assembly and engine plants in Canada, so they can easily transfer production of US-bound vehicles from Canada to the US, and they’re already talking about it. That’s high-value manufacturing. There are component makers in Canada that can transfer production to the US. There are all kinds of other manufacturers. You see, with regards to the US, Canada has always positioned itself as a lower-cost labor country.
“Under the new United Auto Workers agreement in the United States, full-time union workers will make between US$30 and US$42 an hour by 2028, or between US$60,000 and US$84,000 a year.
Canadian auto workers recently reached similarly sweet three-year deals with GM, Ford and Stellantis, the latter still pending ratification. They include base hourly wage increases of nearly 20 per cent for production and 25 per cent for skilled trades over the lifetime of the agreement, including 10 per cent in the first year. By the end of three years, a top-rated production assembler will be paid $44.52 an hour, plus a cost of living allowance; a journeyperson skilled trades worker will get $55.97 an hour, with cost of living. Pension plan improvements are also part of the deals.”
Simple math…roughly 2,000 hrs per year worked X rate per both agreements.
The unstated expense is the cost of employer provided health care in the US, but then again Canada is a higher tax area.
Looks about the same to me.
It will come and go. Business people are savvy enough to know what to do. Canada doesn’t really have a “car” manufacturer. So all the cars will get imported to Canada. Canada will level the playing field by allowing Chinese companies in with just 10-20% tariffs — wiping out the market for Ford/GM.
Then Ford/GM will have to cut back US production and lay off workers.
People think tariff is an easy 1 way solution but it’s more complex than that.
Wherever this will lead, it is hard to know. But the people in Trump’s circle are about making money — that is all their lives. They are US execs that made a bundle for themselves, their companies, their US shareholders. Suddenly, one day — they decided to abandon all that. Yeah, right.
During the boom years everyone is always right.
It’s the bust years where you can really make the best returns.
Hi Wolf,
I’ve been reading your stuff for a while and really appreciate your data driven information. You clear explanations of tariffs have been especially good.
I understand tariffs for goods coming from countries with cheap labor and lax environmental laws. But what about other advanced economies? Do tariffs make sense when you are trading with roughly equivalent countries? Doesn’t trade between equals benefit both?
I’m a US citizen living in Canada and I don’t understand the reason for the tariffs on Canada. OK maybe the trade agreement has to be renegotiated again but why the trade war?
TK
The tariffs don’t make sense from a Canadian point of view, obviously. But they make sense from a US point of view, obviously. Canada has positioned itself as a lower-wage country for manufacturer supplying the US — including through the management of the CAD and through the constant large influx of immigrants, which helps to keep wages down. A low exchange rate makes Canadian labor cheaper in USD than US labor. So the US had a $63 billion trade deficit in goods with Canada in 2024. There is no reason for US automakers to manufacture cars, engines, and components in Canada for export to the US. Now they’re already talking about shifting production of US-bound vehicles and components to the US. That’s the purpose of tariffs. And it will reduce the trade deficit in goods that the US has with Canada.
You would know a lot more about the auto industry than I do, but aren’t the North American auto supply chains integrated such that parts cross the border repeatedly?
In any event I suspect that the bulk of Canada’s trade surplus with the US is in the energy sector, along with lumber and aluminum.
Finally, how is a country of 40 million ever going to buy as much from its neighbour that has a population over 300 million?
With regard to your final question, the relative sizes of the populations don’t matter for trade imbalances. Shouldn’t Canadians want to import goods in equivalent value to those they’ve produced and exported to the US? Canada’s production and exports are based on a population of 40 million, and all things being equal their imports should reflect the needs of those same 40 million people. Canada doesn’t need to buy as much as 300 million people, it only needs to buy as much as its 40 million people export for trade to be balanced. The larger population size of the US doesn’t matter.
Imbalanced trade is the reflection of policy differences between countries and has nothing to do with relative population sizes. China’s population is almost 5 times that of the US, and yet, like Canada, it also runs a massive trade surplus with the US. Your question implies this is not possible because it focuses on population which isn’t relevant to trade imbalances.
Exactly. Canadian’s are exporting their natural resources, lumber, oil, aluminum for example, at their expense while the U.S. is exporting goods, many that require no natural resources other then for production.
Making whisky does require some replenishment of water and corn.
In addition to goods trade there is services and travel: add these and the two are roughly in balance.
Aluminium is not a natural resource. There are no aluminium mines. The metal does not occur in nature. Canada imports the bauxite ore. It is turned into aluminium via the Hall process using huge amounts of electricity created by hydro electric generators.
Nick Kelly
Services exports, such as Microsoft selling 5 million subscription of Office 365 in Canada, are worthless for anything other than Microsoft profit. There is zero economic activity in the US involved if Microsoft sells this to Canada. The software was designed and is being updated, whether anyone in Canada buys it or not. Same with other software services, movies, etc. Canada is just extra profit for Microsoft.
Canadian tourists spending money in the US is also a US services export, but this is very low-level services activity of lodging, restaurants, cars rentals, etc.
It is utterly disingenuous to cite services as a counterweight to manufactured goods. The morons that got us into abandoning manufacturing decades ago (Clinton, Summers, et al) also cited services as a counterweight. Their song and dance: We buy their cars and ships and trains and computers and semiconductors, and in return we sell them stuff that creates no or little economic activity in the US. I’m really sick of hearing this stupid manipulative BS.
BTW, the US exported more electricity to Canada last year than it imported from Canada for the first time in over two decades.
https://economics.td.com/ca-canada-us-trade-balance
Energy accounts for all of the U.S. trade deficit with Canada. If Canada just shipped their oil to China and the US did not export so much of their oil and used it internally, the U.S. trade deficit would be a surplus. Because of the integrated North American energy economy and the way pipelines have developed, energy is more of north-south commodity, but this really is not for the USA.
Additionally, a fact that is not well known: the U.S. is a net exporter to Canada of manufacturing goods, particularly motor vehicles and parts.
The US approach to tariffs is not grounded in facts.
Removing only Canadian energy exports to the US from the trade balance, without removing US energy exports to Canada — which is what the article you cited does — is manipulative BS because the US exports a lot of energy products to Canada:
1. US exports electricity to Canada and it imports electricity from Canada. In the fall of 2023, the US exports to Canada exceed imports from Canada for the first time in two decades and this persisted in 2024 (EIA data).
2. US exported 302 million barrels of crude oil and petroleum products to Canada, while it imported 1,700 million barrels from Canada.
3. US exported 1 trillion cubic feet of natural gas to Canada, and imported 3.1 trillion cubic feet from Canada.
So if you take all energy trade in both directions out of the mix, your assertion and the assertion of this manipulative piece from TD Bank fall on flat on their ass.
So manufacturing is good for the economy. Fine, but why did the manufacturing go offshore in the first place? Because private companies determined it was cheaper. Manufacturing was much more labour intensive. It was much cheaper to build a factory, acquire parts. and staff it in Asia than at home.
It wasn’t government policy that lost manufacturing, it was economics. Unless you refer to Chinese policies that made it easier, faster and cheaper for factories to be financed and created in China, and for individuals and foreign corporations to get rich by doing so. They didn’t need tariffs.
Tariffs can provide some push and pricing for American based manufacturing. At least for factories that serve the US market.
It’s going to take many years to rebuild the US into a manufacturing economy. China didn’t happen overnight, even with their economic and regulatory advantages. Does that mean a decade or three of steep tariffs?
What would be the long term implications of steep tariffs that stay in place for decades,? Much of the world is currently of the mind to trade with the US only if there are no other alternatives.
Off-shoring was all the rage among academic economists in the 1970s and 1980s. I remember back in 1981 in grad school, a professor was arguing how great it would be for us. I really could not understand it, why closing the great textile mills of the Carolinas would be good for Carolina workers, for example. And also I thought about the strategic (military) disadvantages. It all started when Nixon (Kissinger’s stooge) opened our doors to China, which I also thought was a big mistake. You don’t welcome trading with your enemy. Clinton and the rest of the imbecile liberal economists cursed us with NAFTA, something I also thought was stupid. We were always told not to eat fruit and vegetables in Mexico, and now we are importing them.
On a more personal note, I was driving my 1954 VW bug through West Virginia in 1975 and the generator pulley decided to fail. I bought one from a a car parts store and noticed it was made in Brazil. It broke after about a hundred miles. I then bought one made in Germany. It cost more but I never had any trouble with it.
Wolf, any chance of getting an article quantifying the tariffs other countries have had for decades on their imports (including our goods)? I know there’s a lot but haven’t seen a real summary of conditions anywhere yet. Perhaps just the G20 nations …or something to kind of see what reciprocal would look like?
Trade and government spending benefit the stock market because they increase profits. So the Trump administration is trying to cut available avenues for corporate profits? And here’s what I don’t understand: the continuing resolution just passed by the Senate only seems to cut government deficits by $23 billion IIRC. And the tariffs are only being applied by executive (not legislative) action. If it takes 6 years to build and a manufacturing plant in the US and Trump will be gone in 4, why wouldn’t I just wait it out? And what is it that is going to reignite corporate profits and the market after the potentially reduced twin deficits?
“If it takes 6 years to build and a manufacturing plant in the US and Trump will be gone in 4, why wouldn’t I just wait it out?”
With that defeatist attitude (if we can’t do it overnight, it’s not worth doing), you’re just praying at the altar of one-sided globalization that has caused so much damage in the US.
Good point. What politician will have the courage to pursue Trump’s policies when Trump is gone? I don’t see anyone. I just see spineless yes men riding his coat tails.
For starters, you have to keep the business lobby on it’s heels. A party pawn isn’t able to do that
It is going to be far more painful and disruptive than anyone currently imagines.
America has gotten fat, dumb and happy in every sense of the phrase. Nobody wants to do hard, dirty work anymore.
China has and will continue to eat our lunch.
The bottom line is American “exceptionalism” needs a big kick in the ass to bring us down to a real (as in really earned) level of wealth and living. No more wealth playing investments all day long.
“China has and will continue to eat our lunch.”
You may want to look into the demographic bomb China is facing within this next decade. Geopolitical types and other people who study China’s massive structural problems are saying that the collapse of China’s economy in the near term is going to be breathtaking.
If prices didn’t go up then what is the incentive to produce in the USA? Businesses need higher prices to overcome the higher costs of producing here. No pain no gain.
Manufacturing has always gotten more efficient, as automation gets better, designs get better, etc., and so typically over the longer term, prices of manufactured goods get cheaper (mild deflation in manufactured goods is essentially normal). To increase revenues, companies come up with improvements of their products (think of cars) that people are will to spend more money on.
The huge spike in prices of manufactured goods we saw in 2021 and 2022 was a one-time event in recent history, cause by specific circumstances, and has since then gotten partially unwound.
I may not have been clear enough. You showed a chart for the CPI of durable goods indicating Trump 1.0 tariffs did not cause a price increase. I am concluding that no manufacturing of said durable goods would have been re-shored as a result. Yes manufacturing gets more efficient but that’s true regardless of where it is performed.
It takes YEARS to plan and build a factory, and start production. So in 2019, those plans started to be discussed. In early 2020, covid stopped everything for a while, but then by mid-2021, the first plans were being finalized, some properties had been purchased, and the first big wave of factory construction started in mid-2021. And it became a tsunami in 2022 and hasn’t stopped since.
Wolf – there are many industries (automotive) where designs change and the end product is easily adapted to automation. As well, there are many that are not – I sound like a broken record but making aircraft harnesses is labor intensive and the designs change about every 20 years (the manufacturers are required to keep spare parts and repair capability for 25 years or down to the last 5 aircraft flying). While this may not be a glamorous product it is essential to our economy – can’t fly without them.
There’s lots of non-monetary reasons too. Simpler (more reliable?) supply chain, quicker lead times, people like buying things made in their home country, seeing +ve impact in the local community, probably better for the environment as well (no need to ship across the world, right?).
Wolf — are deportations actually happening in any material number so at to [negatively] affect overall employment ?
I wonder if what’s happening will have a chilling effect on immigration of all kinds — legal / illegal — and in and of itself slow economic growth and/or put upward pressure on wages in certain industries.
Enjoyed the thoughts on the potential impact of reverse wealth effect.
Deportations are happening, but at a slow pace, from what I read. In terms of illegal immigrants that are already established in the US (rather than those turned around at the border), it’s in the few hundreds a day, which is a lot less than promised. If they deport 300 people a day, five days a week, it amounts to 78,000 a year, not millions. If it’s double that rate, 600 a day, it would be 156,000 a year, which is still maybe too small to show up in the vast overall labor market, though specific employers could be hit. It’s hard and time-consuming to deport, for all kinds of reasons, including legal reasons, and countries refusing to take their citizens back. And it seems, some illegals are “self-deporting,” but I don’t know how big the numbers are, maybe too small to matter.
What IS making a big difference is that the daily flood of illegals coming across the border has nearly ended. So the influx is just a small fraction of what it was two years ago. So that’s essentially the most important part.
Wolf – question on “What IS making a big difference is that the daily flood of illegals coming across the border has nearly ended.”
How do we know / track this? Is it possible that the number of documented illegal crossings/apprehensions is down but actual crossings — simply not tracked — unchanged?
Border crossers are tracked. So we know those numbers. Under Biden, there were millions of them a year, some of them sent back, that then came and tried again (“multiple border crossers”). These people weren’t smuggled in. They walked across the border, sometimes whole convoys of them, and gave themselves up to the Border Patrol, asking for asylum, etc. They were identified, went into a data base, and then were let loose in the US. That’s how the vast majority of illegal immigration happened under Biden. Then there is another portion that is trying to sneak across the border that are then found by the Border Patrol, and it starts all over again. So we know those numbers, how huge they had been, and how far that has now plunged. It started plunging in 2024, after Biden tightened up the rules. And the flow has essentially collapsed over the past two months.
I can’t imagine that border crossings will ever cease, just that they’ll shift from “walking across” to being smuggled in. I’ll leave it at that because of course I don’t have the data — but I get your point on the number of crossings now having collapsed compared to a year or two ago.
What’s the problem with a trade deficit? We don’t and can’t make everything. It only seems to be a problem if you piss off all your allies and end the free trade agreements you signed yourself.
I don’t know whether to laugh or cry? The trade deficit in goods was a record $1.2 trillion in 2024. You really don’t know what the problem is with becoming completely dependent on China and other countries for manufactured goods, from semiconductors to automotive components? You really don’t know what it means long-term to abandon manufacturing in the US?
Being dependent on adversaries for goods vital to national security is obviously not good. I’m saying there is nothing *inherently* bad about a trade deficit, it depends on context (and on your time horizon). Being somewhat dependent on neighboring allies, who you provide military protection for when you have worldwide military supremacy, is not really an issue. This also doesn’t mean you need to abandon manufacturing, it’s not that black and white.
Not “a trade deficit” but a $1.2 TRILLION a year trade deficit in goods. Manufacturing has been GUTTED in the US.
What it inherently means is that the US has backed this outsourcing of manufacturing with the fists of Uncle Sam. Trumps biggest fear is a play against the dollar.
Exhibit A: Results of learning economics from MSNBC, as opposed to taking ECON101 in college.
The unpredictability in the current economic strategy is staggering, and that alone increases the cost of time—time for businesses to adjust, for consumers to adapt, and for markets to find stability. History offers insights, but it’s not a perfect guide, especially when technological advances and global economic shifts introduce new dynamics that weren’t present in past trade or fiscal policy debates.
Trump’s approach—going all-in without clear safeguards or accountability—creates an environment of extreme volatility. The assumption seems to be that aggressive disruption will ultimately force positive structural changes. While few Americans oppose the idea of major economic reform, the method matters. The “move fast and break things” philosophy from the tech sector may work for startups where failure is an expected cost of innovation, but when applied to a national economy, the consequences are much higher.
The biggest risk is that if these policies cause too much economic pain—particularly for the working and middle class—then the political and financial blowback could spiral. If businesses face higher costs and uncertainty, they will pass those costs on or cut jobs. If households struggle with rising prices and stagnant wages, consumer spending contracts. That kind of economic tightening doesn’t just stay confined to lower-income groups; it eventually reverberates upward, affecting investment, corporate profits, and overall market stability.
The administration is betting that this kind of economic “detox” can happen without triggering a deep recession, but history suggests that market confidence and economic shifts don’t always move in predictable, linear ways. If the transition away from cheap labor and deficit-driven growth isn’t managed carefully, the economy could end up weaker rather than stronger. The risk is that the long-term benefits of reshoring and fiscal responsibility may be overshadowed by the short-term chaos created by an abrupt and untested approach.
The primary reason a stock goes up is the promise of growth not just profits. The markets are priced to Perfection. ORCL and others beat the numbers and raised guidance and were sold. Buybacks since 2016 thanks to tax cuts and Fed firehose lifted the markets to extremes and a return to mean is over due. Tariffs. No tariffs doesn’t matter. It’s overdue . For myself I am taking intensive options strategy classes to learn how to profit from premium. My “ entitlements” are on the chopping block and I plan to be proactive. I am also a hard core DIY. I curse all the time at crap American made products. Screws that strip
Paint that needs three plus coats to cover and the lousy equipment to get it on the walls. Sad all around
One of my favorite things about WS comments is the economic filter applied to the larger global picture. Tariffs with Canada? Let’s discuss the finer points of the merits and demerits.
You do realize he also threatened Canada’s sovereignty as an independent nation as well, right?? …. right??? Or, do we just dismiss that and act like this is a rational discussion of tariff policy? I guess the latter.
Tariff benefits, if there are any, will be far offset by total regional destabilization. If you want to re-negotiate a trade agreement in good faith with your closest neighbors, go ahead. If you want to threaten your neighbors and destabilize the region, you’re just doing Putin’s work for him. There will be Chinese naval bases in Nova Scotia long before Canada gives in to trump.
“You do realize he also threatened Canada’s sovereignty as an independent nation as well, right??”
Glad you brought it up. Look, Trump says a lot of bullshit. You cannot take the bullshit seriously. But there is other stuff you need to take seriously. So you need to distinguish the two.
In his first term, every morning, I woke up and steeled myself for whatever crazy bullshit “Trump said” was in the headlines, and that stuff just doesn’t come to pass. These utterances are total clickbait, maybe his way of trying to hog the front pages. And now we have it again. Some of it is just kind of a bad joke, such as the Canada as 51st state.
So you have to distinguish the things you need to take seriously, and the bullshit/joke stuff that you need to brush off and maybe laugh about. I know it’s hard to do, but it gets easier with practice.
That’s one of the reasons why there isn’t a huge uproar about the Canada 51st state nonsense here. I think most people who have been listening to Trump for years understand that it’s a bad joke.
I agree with you. I just believe in consistency. If we’re going to say his destabilzation talk is just crazy psychobabble, then perhaps we shouldn’t spend so much time trying to articulate a cohesive economic strategy out of spur of the moment tweets and empty threats. If he’s a crazy loon in the corner let’s treat him as such. If we’re going to take him seriously, then let’s consider the whole package and not pick and choose what we’d like to hear.
Exactly….so, what does he mean? He likes to shake things up. He says these things to break barriers in conversation. He rattles your cage, you take the bait. You fear him. He uses that leverage making deals with countries because they believe what he says. They cave. He is not psychotic, but a brilliant player. You need to study the man , without your prejudice. Drop the hate and fear, you’ll understand so much more. You also need not agree with him, but learn from him.
How about the proposed new FBI building in Greenbelt , MD being a 3 hour drive from DC? Or Zelenski’s approval rating at 4%? Or Bidenflation at 40%?
“I think most people who have been listening to Trump for years understand that it’s a bad joke.”
A little bit like how he, in his words, was “being sarcastic” about being able to end the war in Ukraine in 24 hours. Belly laughs all around!!
Wolf is exactly right about Trump. Seriously, no conservative MAGA type wants Canada to be the 51st state. They would not want two leftist/liberal Senators. Maybe merging Canada into Minnesota would be acceptable, but truly, nobody wants Canada’s massive economic problems. We have enough of our own.
Trump likes to laugh and joke around. You have to watch him for a while to see what to take seriously and what to ignore. His advisors will generally give you a good idea the next day after they “clarify” what Trump says. For economic stuff, listen to what Bessent says.
As a european born in the Soviet Union who has been watching Putin a lot, I kind of feel like Trump is currently copying Putins homework with a lot of what he is saying, including about Canada. I kind of get the impression that USA is becoming Russia at warp speed. Of course, this may look like BS to americans who have been living in democracy for so long and who experience it as extremely resilient.
But I cannot help my thoughts after seeing how Putin destroyed the democracy in Russia while people stayed complacent and knowing from history how short it took for Hitler to destroy democracy in Germany.
Wolf: something to keep in mind. We are in a far more precarious situation now than the past. First, the people Trump is firing are sometimes essential to the smooth operation of the economy (think air traffic controllers or medical staff at Va), second, net consumption is now 50% driven by top 10% of the population making pain of a pullback more severe. Those top 10% if they cut spending by say 10%, would trigger a recession that would be very deep because 70% of gdp is consumer spending (10% X .5 X .7) = 3.5% gdp drop
As Dr. Philip George says: “The velocity of money is a function of interest rates” Dr. Philip George wrote: “The Riddle of Money Finally Solved”.
As Dr. Philip George puts it: “Changes in velocity have nothing to do with the speed at which money moves from hand to hand but are entirely the result of movements between demand deposits and other kinds of deposits.”
MMMFs have grown by 19% y-o-y. All the motives which induce the holding of a larger volume of money will tend to increase the demand for money – and reduce its velocity
I agree with the general direction the administration is moving. The cuts to our size of government needs to be deep.
My concern is more with the shared pain of these cuts. Corporate profits have grown disproportionately to the general wages of the average person, so the dream of working hard for a slice of the capitalist pie seems lost, and that also means lower general tax revenue from the working class while the corporations will get tax cuts at the same time we speak of shared pain.
Also, I’m confused by the push towards greater oil and gas (subsidized) while the technological revolution is moving towards alternative energy, EV’s, software, and technology advancement in general. Seems we are not supporting this critical area that is the future and this could open the door to other countries taking a lead.
The great increase in wealth benefited the rich more than the poor. I personally benefited more. But I do not see my children sharing the same size slice of pie that me and my wife enjoyed. If the pain in solving the problems is not equally shared, societal turmoil will likely increase, affecting us all.
Trump needs to get the SEC to eliminate stock based compensation and stock buybacks. Those 2 things created a huge incentive to lie and grift which screwed millions of investors.
Speaking of which, there are 2 more candidates to the list of imploded stocks, rng which is ring cameras and lsf which is laird superfoods. Really shameful all these stock scams were allowed to operate, along with crypto and nfts.
There’s no chance he’d make those changes. This country is anti-regulation now, remember? I’d be less surprised to see laws rolled back like the Securities Act of 1933 and Dodd-Frank. Consumer Protection was so 2024.
True anti regulation should translate to no bailouts if things crash. Let’s see if that happens
The Plaza Accord came at the same time as the U.S. turned from a creditor nation to a debtor nation. Contrary to the Accord, that’s what allowed for the depreciation of the dollar’s exchange rate.
Impossible to know Trump’s end game with tariffs. Is he trying to use it for pointless leverage in many cases or does he believe higher tariffs across the board will generate trillions. At best perhaps a trillion over a decade while it at the same time being regressive hurting poor and working people the most. There is history to look at and clearly nobody is taking those lessons to heart. I lean on the side of narcissist madman without a clue other than appealing to a class of people thinking any change is better than status quo. Careful what you wish for.
Time will tell whether his efforts are sincere, but balanced trade is definitely worth pursuing, no matter which party drives it.
Canada has taken a new stance on tariffs and has decided to deal with that issue in a truly adult and mature manner with a total cutoff of traffic on the internet to the Canadian web site known as Pornhub.
That’s hilarious. Canada officially won the trade war! /s
Wolf, what’s Europe and more specifically Germany’s response to China’s manufacturing juggernaut challenge? As I understand it, China bought lots of advanced high precision tools from Germany but are now moving up in the value chains and start producing the same advanced tools that compete with the Germans. Chinese are now dominating in the fields of battery technology and EVs.
The former head economist of IMF Ken Rogoff (sp?) was just on TV saying the thing most worrying business is T’s unpredictable decision making: ‘it’s like it depends which side of bed he got of that morning’
Imagine running a business that imports goods in this environment. It’s hard enough to strategize for stocks…
Globalization just means “outsource to China”. It’s been the West’s biggest geopolitical mistake of the past 500 years. Closing down factories and jobs in democratic Michigan, and moving them to communist Shanghai, never made much sense. Whether Trump can overturn 50 years of post-Nixon folly in 4 years, I very much doubt. But applaud him for trying.
Wealth and power is highly concentrated now. It won’t be given up without a fight. Any policies that disrupt the global equity and RE markets will face stiff powerful resistance.
Say what you want about Trump, but I don’t see another politician with enough power to challenge those forces. Reciprocal tariffs are a great way to eliminate the harmful effects of globalization without destroying its benefits.
If Democrats want to survive, they should start recognizing the harmful impacts of unbalanced trade. A policy isn’t bad just because Trump supports it.
Some part of me thinks Democrats will never learn. I just listened to two starry eyed Dem economists talk abstractly about “abundance”
….Sigh.
I agree. I hope Trump is successful at bringing manufacturing back to the US. That would be great for this country. Not sure why all the other vindictive things are needed to achieve that goal, but at this point I think you are right, the Democrats never learn and won’t focus on what is best to regrow middle class.
Good news for all us
“The Dotcom bust took about 30 months to play out, from mid-March 2000 until early October 2002.”
Managers with free shares in company stock went from gloating to moping practically overnight.
“The only problem with paper wealth is it has a tendency to vanish rather quickly, without much warning.”
MW: Wall Street begins to cut S&P 500 targets as tariff worries rock the stock market.
It’s amazing the number of posters who are worried about higher
prices due to tariffs, but are ok lower wages and the loss of jobs due to Free Trade policies.
S
Not amazing AT ALL. These commenters fear THEY may be subject to higher prices.
The job loss and lower wages DO NOT affect them directly. It BENEFITS them via lower prices.
They think, break the OTHER FOLKS rice bowls, NOT MINE !!!
Chickens coming home to roost……
I think we would do much better if we eliminated public trading, returned companies back to private and had profit sharing for employees. The incentives would be for employees to bust their ass for more money and not the execs suppressing wages and squeezing productivity to maximize profits for the rich getting richer…
Government done right can achieve great results too. Technology in the iPhone originated in public sector which makes up about 70% of it. Apple built and OS and packaged it and makes all the profit.
I have no issue with people getting a return on investment but I agree the market as it exists puts us on a train to nowhere. If an economy doesn’t exist to serve the needs of all of society then something is wrong.
I’ve come around to that point of view as well after working for both public and private companies. Employees on the whole do better under a private company, c suite not so much. And wall street withers as it should, they add no value to an economy. If people knew how much effort goes into managing wall street expectations when you’re public, it would sicken them.
Love your coverage on tariffs and trade. Very helpful.
I can’t remember the last time I’ve heard so much whistling past the graveyard.
As I said: “I think most stocks are headed down.”
December 27, 2024 at 7:57 AM
I think the viewpoint that this adjustment was inevitable, so bring it on now is the basis of the Trump actions.
Was it inevitable to have a crisis at the end of the exorbitant privilege? Yes. To have it now while we still have a lot of wealth to burn in the conflagration is a bit of a gift. That said, the instability of the implementation is causing more than a little bit of damage.
Our economic model of perpetual growth is insane over the long term. We can no more grow until the trees scrape the lunar regolith, especially now the boomers are going to be divesting in all their assets. The boomers drove the largest expansions of wealth in world history in America, and their insatiable demand was reflected in how the last 40 years has included a relentless drive for more. One of the largest retailers in America is now Goodwill, recycling America’s chinese junk.
In short, we will now have the worst part of economics, inflation in daily needs, deflation in assets. But hey, we will have jobs manufacturing, again. We really need to raise taxes, stop trying to “reform” gummint by insanity, and start working on saving our healthcare system. Which has been totally ignored this time after the failed repeal Obamacare fiasco.
Anyone who is liquidating stocks because of Trump’s mercurial tariff policy probably isn’t doing it right. Sure, the tariff policy is not being done correctly, as changing tariff rates by the week creates uncertainty and raises risk for making capital expenditures. But Trump could, and probably would, turn them off if the market tanked by 50%. Heck, he has backed off some over 3% swings, and the last time the market tanked out and people were out of work he mailed out checks with his name on them. You are market timing, and that usually ends in tears.
The time to probably diversify your assets because of the long bull market was years ago when US markets for a long term valuation perspective was getting bad and now looks dot-com ish. Like Buffet. He is still heavy in American assets, he just owns most of his holdings 100%, which the average investor cannot.
But he was building up his cash holdings for years because he wasn’t a fan of high valuations and loses his edge when he goes international. But he got slapped with some pain as the s&p 500 slapped you with around 20% annual returns and inflation. That’s why you diversify, not sell, and there is no guarantee that you will end up better off over the long run – you just hopefully end up around the same place with less volatility.
Statistically speaking, if you trade off of headlines or vibes, you will likely reduce market returns because you are constantly buying high and selling low. It’s why the average investor constantly has below average returns. Many already missed out on the diversify away from us window, if it turns out to have been optimal, and will miss out on the later overweight us equities window.
As far as the tariffs – poorly executed but should have been done decades ago. We let China and Mexico devour our low tier manufacturing lunch because we thought it would turn China into a democracy and make Mexico less of a s**tshow. We saw how this turned out. The bad execution may trigger a bear market, but a bear was likely inevitable…GameStop…TSLA at those category comps…Bitcoin then metaverse then AI? This market was not serious.
DM: Dollar General CEO reveals alarming change in consumer behavior: ‘We are not anticipating improvement’
Dollar General’s concerned CEO revealed the popular discount store has seen less shoppers because of their ‘worsened’ financial situations.
LOL. All these dollar store chains are in trouble — several have filed for bankruptcy already and they all have closed many hundreds of stores in 2023 and 2024 — because they’re ripping customers off with small-quantity items that are very expensive, and people have figured it out and they upgraded to the internet and to Walmart, LOL. These retail CEOs keep blaming customers that buy somewhere else when they should blame themselves. This is a running theme here.
Yeah dollar stores are just fat camp for spenders. You starve but the root problem – living paycheck to paycheck – is never fixed.
The S&P is a LOCK to see 4500 again at some point. It could go a lot lower, but 4500 is my lock number. 4000 is definitely plausible, and 3500, the 2022 low is possible. Very low probability it falls that much, but possible nonetheless. (A SPY 350 put option –for THIS JUNE–was over $1.00 last week, that’s a little scary.) Total market cap stands at $46.467 Trillion, down from over $50 Trillion at the peak last month. That is just the S&P 500, not all stocks. Still in very big bubble territory measured by many metrics which I’m not going to bother listing again, and which most readers here are probably aware of. The S&P has averaged annual gains of 10% since 1928 not accounting for inflation, but since 2008, it has averaged outsized gains of almost 14%/year for the past 16 years. It would need to go sideways for the next five years just to have a reversion to the historical average of about 10%. Of course, it won’t go “sideways,” it’s going to move, and I see it moving much lower. Expect volatility to remain at elevated levels.
Money has to go somewhere and with fairly low tax rates, the wealthy especially, need to put there money somewhere. If you have 10s of millions or more you are likely just living off interest and dividends and not touching the rest. Not disagreeing there won’t be some ups and downs but the purpose is just to have more concentrated wealth.
I think unreasonable to think things will return to a historical norm.
A big challenge ahead is AI of course is you can only eliminate so many jobs with it since those people are also consumers. Not that some aspect hasn’t existed but coming after white color jobs now.
CNBC: Treasury Secretary Bessent says White House is heading off a ‘guaranteed’ financial crisis
US Treasury Secretary Scott Bessent said Sunday the Trump administration is focused on preventing a financial crisis that could be the result of massive government spending over the past few years.
“What I could guarantee is we would have had a financial crisis. I’ve studied it, I’ve taught it, and if we had kept up at these spending levels that — everything was unsustainable,” Bessent said on NBC’s “Meet the Press.” “We are resetting, and we are putting things on a sustainable path.”
President Donald Trump has made getting the government’s fiscal house in order a priority since taking office. He created the so-called Department of Government Efficiency, led by Elon Musk, to spearhead job cuts and early retirement incentives across multiple federal agencies.
Still, the U.S. debt and deficit problem worsened during Trump’s first month in office, as the budget shortfall for February passed the $1 trillion mark.
Bessent noted that there are “no guarantees” there won’t be a recession.
Bessent also said on CNBC:
“I’ve been in the investment business for 35 years, and I can tell you that corrections are healthy. They’re normal,” he said. “What’s not healthy is straight up, that you get these euphoric markets. That’s how you get a financial crisis. It would have been much healthier if someone had put the brakes on in ’06, ’07. We wouldn’t have had the problems in ’08.”
“I’m not worried about the markets. Over the long term, if we put good tax policy in place, deregulation and energy security, the markets will do great,” Bessent added. “I say that one week does not the market make.”
Regarding “The US has two huge structural deficits: The fiscal deficit…” presumably a key metric is the deficit over GPD:
https://fred.stlouisfed.org/series/FYFSGDA188S
Ray Dalio claims that this needs to be in the neighborhood of 3% to avoid a dire situation (correct?), which would say a rapid increase in GDP and/or a reduction in the deficit. It would seem that the former will be challenging to do quickly, and so we would be looking at cutting the deficit by half, or ~$1T? Is this basically the game plan? I have not heard any explicit goals out of the Trump administration relative to the fiscal problem, but is this a reasonable one? And what happens if we follow the “do nothing” plan (which seems likely–Congress cutting ~$1T out of the budget seems unrealistic)?
ohh, and nobody talks about true reason which will cause markets to dive,
imagine share buybacks will stop, while short seller must buy back to close their position (support the market), in case of corps stop buybacks, it’s literally rug pull event, 1T will disappear from markets in days…
will FED fill in with another QE? who knows?
Musk’s DOGE “slash and burn” has made one think abundantly clear: even ignoring the errors, double-counts, “cancellation” of contracts that were already over our never existed, and general misunderstanding of the Federal Acquisition Regulations System, it’s a for in the bucket. We’re not going to cut our way to fiscal stability. Impossible. Taxes will need to go up. But that’s not going to happen.
I agree our trade imbalances and account deficits have been a problem and we’re reaching goose liver to goie gras levels. Tarrifs are inefficient to counter this though. I guess bringing attention is better than complete inaction.
Biden kept the China tarrifs, so there is acknowledgement and consistency in that regard.