Reports from Wall Street economists looking ahead to the new year are usually a bunch of crap. You can find the same economist making about five different predictions; one every week or so leading up to the new year. Then, when something of importance happens, the Wall St. economist will brush aside all the strands of predictions that were wrong, hence claiming success in being correct on the one that fits the situation. It’s kind of like Donald Trump claiming to save jobs that were never leaving anyway.
I go straight for the indicators that factually illustrate how well or how badly our so-called Capitalist economy is faring, [which is supposed to be fueled by consumers buying more than just what they need but also what they want—not tax breaks to the rich and huge companies that will supposedly spur company hiring managers to get the green light by CEOs that think, “wow, extra money, let’s hire some folks and give workers raises!”].
Truthfully, the U.S. simply does not operate as a Capitalist economy because Republicans keep deciding who gets and stays rich and who doesn’t by shoveling tax breaks, subsidies, and corporate welfare to whomever will pay them the most money under the table. But for the economy we’re stuck with, I’ll recap my previous articles detailing three legs of our national economic stool that I see as ready to break.
Then, I’ll detail the fourth; trade policy and how so many Americans (including Trump) are wrong by applying micro-economic (business and personal) principles to a macro-economics (governmental) situation.
Recap of First Three Legs of the Stool
- Sub-prime loans are doing to automobiles what they did to housing and will will have the same outcome; huge numbers of defaults and big trouble: Sub-Prime Credit Bubble Ready to Burst (No, Not on Houses) http://progresshg.com/2016/11/29/sub-prime-credit-bubble-ready-to-burstnonot-on-houses/
- The millennial population is more in debt and more jobless than any generation ever before and is also set for huge defaults: The Student Debt Bubble is Stretched Mighty Thin http://progresshg.com/2016/12/14/the-student-debt-bubble-is-stretched-mighty-thin/
- The biggest private pension funds in the country are either insolvent or will be soon and the Pension Benefit Guaranty Corporation doesn’t have anywhere near the funds to cover it any more than the FDIC has anywhere near the funds to cover all the bank accounts we’re lead to believe: Ground Zero for U.S. Economy: Private Pension Insolvencies http://progresshg.com/2016/12/20/ground-zero-for-u-s-economy-private-pension-insolvencies/
As explained in the articles above reveal, more and more Americans are already underwater and soon their private pensions will be insolvent leaving them with nothing. And if the GOP/Trump follows through with their stated plans, Social Security and Medicare will follow suit, and when they get privatized by funds just like the ones that are insolvent now (see #3 above), well, kiss the last remnants of Capitalism good-bye, (which, by the way, hasn’t worked worth a damn because the GOP continues to fight the prime directive of Capitalism):
Capitalism only works if greed and avarice are offset by laws and regulations to prevent fraudulent and deceptive practices.
.But the fourth concerns yet another warning buoy that mirrors Herbert Hoover’s administration; the Great Depression-causing “businessman” President with a GOP-controlled Congress. Hoover’s mistakes that lead to the Great Depression included one of Donald Trump’s most glaring areas of ignorance—being a businessman who has never dealt with, nor understands, macro-economics and especially trade policy, which is Trump’s supposed signature campaign issue only because most Americans don’t understand it either.
Trump’s pledge to renegotiate America’s trade deals, especially those with China, possibly inciting an outright trade war is a code red warning.
Here Is Why Talk of Tariffs By Trump Makes Economists Very Nervous:
A country cannot be run like a business. Period. Countries aren’t meant to turn a profit among many other principles.
Trump’s chest-thumping, aggressive post-election behavior toward Beijing, have economists eating Xanax like a fat baby eats M&Ms.
So just what would Putin’s, I mean Trump’s, Chinese antagonisms mean for that relationship, and for the U.S. economy?
First and foremost, Trump’s Threats on Trade Endangers US Jobs, possibly hundreds of thousands of them, just to score political points and I guess to impress his main personal creditor, Vladimir.
According to the Tax Policy Center and Penn-Wharton Budget Model, (I’m sorry, I couldn’t resist using the school Trump lied about graduating from as the source because, well, I’m evil) researchers recently looked at a possible “border tax adjustment” proposal put forward by House Speaker Paul Ryan and congressional Republicans and supported by Trump. The proposal would tax imports, reduce taxes on exports and be tantamount to a one-time competitive devaluation of the U.S. dollar. Okay. Fine so far.
But what Trump and Republicans don’t understand is that tariffs don’t operate in a vacuum, and it’s how macroeconomics is beset with traps and vicious consequences that don’t exist in microeconomics.
A border tax would boost inflation by dramatically increasing the cost of everyday items imported from China and elsewhere regardless of income tax breaks. Corporations even break out their income tax breaks because they they have diminished importance as to operational profits,(see EBITDA). Retailers and manufacturers would have to pass those tariff costs along to consumers, buy them from a U.S. manufacturer with higher labor costs–which would also be passed along to the consumer–or just stop selling the item(s). Either way, the consumer’s discretionary income, if they have any, gets pinched or they have fewer choices from fewer competitors which means higher prices as well.
And if a U.S. manufacturer is going to lose profit from inflationary higher costs and fewer customers with less discretionary income, they will either close or automate; and there goes rising unemployment and/or stagnant/lower wages…which Trumps tariffs were supposed to solve to begin with. Higher inflation, fewer choices, fewer discount prices at WalMart, Target, etc., equals even more retail unemployment. The Federal Reserve would be forced to raise interest rates in order to attempt to quell the inflation….and the inflationary cycle begins. Ummm, and not to beat a dead horse, but hello again: 1928 and causes of the Great Depression.
Tariffs also frequently trigger retaliation by other countries, damaging American companies that depend on exporting their goods. Regardless of domestic tax breaks, if nobody will by your shit, tax breaks mean nothing. So imports become more expensive due to tariffs and exports become less desirable to buyers because of the strengthening dollar (the stronger the dollar, the more foreign currency it takes to buy our goods…there’s that macroeconomic bugaboo again). Okay for rich people, not so much for the 99% who are consumers and the forgotten part of supply and demand by supply-side economics.
And another macro-economic principle that escapes business people like Trump; if the dollar becomes too strong–read:expensive—it could even lose its World Reserve Currency status because China is parlaying hard to keep their currency low. They’ve been pushing hard for a takeover of the Reserve Currency status for years and the longer the dollar keeps going up, the stronger their case becomes. This would cost the U.S. billions a year in the revenue the U.S. makes from countries like Ecuador that has no currency of its own and buys U.S. dollars to use as its currency.
But the truly disastrous effect that eclipses all others would be the world abandoning the dollar as the PetroDollar (I’ve frequently written about the our dependency on the U.S. dollar being the only currency that can be used for all worldwide oil trades). It’s why China and Japan have to hold so much of our bond paper…for the petrodollars needed to trade oil.
The “National Debt” is so misunderstood I don’t think the masses will ever get it, but here’s who’s money we already have—because they purchase our money for which we will owe small amounts of interest IF they hold the bonds to maturity—we would owe them next to nothing but their own money if they redeem them early:
Note: China and Japan may have swapped positions since this graph. China, (many people are saying) might be preparing to challenge for the petrocurrency in retaliation for Trump’s numerous slights before he’s even taken office.
Given persistent stagnant wages in addition to nuclear meltdown-sized warning signs that prices are set to begin an inflationary cycle that we haven’t seen since the 1970s, Yep, that could be a problem.
Historically very accurate indicators [plus Comrade Trump’s inability to understand or care about the difference between microeconomics and macroeconomics], point toward some serious inflation on the horizon, like we haven’t seen in decades.Again, maybe not a problem for the 1%, but the rest of us? BAD!
Anticipating even more strengthening of the dollar, bond prices have tanked like the Hindenburg since Trump’s election, based on the assumption that Trump will be able to launch the fiscal stimulus plan for infrastructure repair. But because it’s so very late in the economic cycle since the Bush’s Housing Crash [when America was hemorrhaging 700,000 jobs a month] it will have a minimal effect. Had Republicans implemented the infrastructure stimulus when unemployment was around 10% it would have mattered. With unemployment now below 5% any economist that didn’t get their PhD from a box of CrackerJacks will tell you that implementing it now will only result in a rapid increase in inflation without any offsetting wage growth…stagflation, another 1970s term we’d better learn again.
This is what bonds have done since Trump’s November win:
So there you have it:
- Sub-prime loan defaults.
- Student loan defaults.
- Private and probably Social Security/medicare privatization (vouchers for and you pay the rest).
- Trade war inflation and loss of the jobs which tariffs will inevitably bring.
It’s next to impossible to predict exactly when big bubbles will burst (see 2007 that NO ONE in politics saw coming). But the elements are all there; and they’re much worse than in 2007,including fewer but even larger too-big-to-fail banks. Toss into the mix massive complications that surround repealing ObamaCare, [the hospital industry, the AMA, etc., are forecasting mass hospital closures, (especially rural hospitals for the very people who voted Trump into office] and health insurance spikes that make the paltry increases this year look good. All told, consumers could be in for a helluva bumpy road. The conditions for a collapse are building like a reservoir filling too full behind a weakened dam; impossible to say when it will break. Maybe it won’t be 2017 but I just don’t see what could extend the status quo much longer. And a trade war with China would be like taking a pile driver to the middle of that dam…if it happens it will exponentially quicken the break.