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Rocky VIII: An Economic Metaphor Part 2

8/14/19

4:27

The markets have closed down 800+. And no, it still isn’t the Hong Kong riots that caused the drop. That is just another symptom.

In Hong Kong, as with all drawn-out protests by youth, a Lord of the Flies mentality has set in. Agitators in their little corners of the conflict are fighting for the conch by attacking police and trying to be the toughest boy scout. This will cause them to lose public support and has doomed their fight. China wins. Of course they were always going to. They won’t let ANYTHING change because of this protest. The government is not civilized and they don’t preside over a democracy.

One cop showed incredible restraint when cornered by several attackers using sticks to beat him, quite badly. He drew his weapon but didn’t fire it. If it had been me, there would be dead kids at the Hong Kong airport. That’s one GOOD cop.

But back to the real problem at hand.

Who are tariffs good for? Certainly not consumers. And they don’t help suppliers of goods not protected. As I stated in my January article, they only help the specific industries being protected allowing them to RAISE prices with less competition, but only for a short time. Then everyone looses.


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Thanks to this ridiculous tariff scheme we STILL have silly scenarios like this one: There are tariffs on materials used to make bicycles but no tariffs on bicycles. So U.S. manufacturers of bicycles, already hampered by higher labor costs here, now must pay more for materials and parts. The result? Foreign bike manufacturers, including Chinese companies have an even greater advantage in our market. Come Christmas all the “buy American” slogans in the world will not put an American-made bike under the tree in this country. And the tariff scheme is riddled with this stupidity, as if just launching this campaign wasn’t stupid enough.

So who pulled Trump’s chain?

I don’t know who in the administration stroked Trump’s ego well enough to put him on this idiotic tariff bender, but I’d like to strangle them. We had just emerged from an abysmal 8 years of little of no growth and had just a bit of traction under out feet (even Europe was growing for the first time in a decade) when it was all wiped out with this one impetuous and utterly ill-conceived act.

Yes, many players on the world stage are corrupt and still charge tariffs to please their cronies. Hell, Europe has been enjoying tariffs we allowed since after WWII to give them a shot at recovery. And we completely dominated the world’s economy for 75 years. Europe didn’t become a dominant power. Still, tariffs are an insult to free trade and should have been done away with. But how? With US tariffs? Hardly.

In our last episode a victorious Rocky (the US economy), still injured from his rematch with Creed, is being forced to fight Clubber Lang, Tommy Gunn and Ivan Drago (trading partners) at the same time. Mickey (Trump) said it was for Rocky’s own good (national security).

At the outset, Rocky seemed to be standing his ground. Gunn (Mexico and Canada) didn’t have the stomach for a fight and knew it wasn’t in his best interest. He immediately threw in the towel because Mickey was willing to renegotiate NAFTA. It was a smart move. He leaves the ring, not a hair out of place.

But problems remain.

Lang (Europe) puts up more of a fight. He throws lots of punches at the US economy and calls Mickey a bully but then slips in a few concessions, some of them really good (like zero tariffs on cars – our biggest obstacle). Where Lang might be inclined to turn on Drago in the overall fight and stand with Rocky, he can’t. Every time he tries to step in, Mickey tells Rocky to punch him on the face. Mickey says he doesn’t want parody with Lang, he wants a complete advantage. Instead of taking 80% and turning Lang on Drago, Mickey chooses to post childish and insulting tweets about Lang, pissing him off and reinvigorating him.

Despite a groin injury (zero, and even negative economic growth) Lang persists in the fight. While he isn’t as much of a threat, his continued presence in the ring makes Rocky’s real challenge more difficult. And with each punch he gets weaker, so even if he does eventually try to turn on Drago, he will be too weak to help.

Drago (China’s economy) is huge, everyone says his economy is weak and he can’t stand up to a trade fight with the US. But he has something the Rocky doesn’t have. His corner is a totalitarian police state. The corner will not suffer if Drago takes hits, even severe ones. Drago’s fans will. But they will endure what they are told to endure and they will like it.

It won’t end well.

You see, ultimately, that is where controlled economies must end up. You can’t control economics like you are planning a birthday party, although idiots who call themselves economists and politicians try every day. But you can oppress people. The more control exercted over the economy, the greater the oppression must be. I give you Free College for All, The Green New Deal and Tax the Hell Out of the Rich as examples.

Where will this end? It remains to be seen. But it won’t end well. Serious and unnecessary damage has been done and it will take a while to unwind.

Leaving the ring for the real world, we have two options to fix this and move on:

  1. Real free trade

OR

  1. Demanding tariff-free trade among all our trading partners

I’ll address number 2 first.

U.S. Dominated Trade

We can start by country or by region or with all our trading partners at once. Congress passes a law that states by a date certain there will be no tariffs anywhere in trading with the United States. We send you our Spaghetti-o’s, you send us your kumquats. They are sold to our respective consumers unencumbered by tariffs. If you keep or create tariffs, you have sold your last kumquat in the US. Subsidies would have be eliminated at the same time as they are just the B side of the same 45, created to thwart competition.1

This is preferable to the existing fight and the pre-existing status quo. However, it isn’t really free trade. If trade takes place under the auspices of the US government, like it as we may, it isn’t free. Making a product and gaining market share at home or abroad is up to the companies who wish to trade, not the government!

And, oh, by the way, try to wrestle sugar or corn subsidies from the political whores on Capitol Hill or the cronies they protect. They’ll tell you the economy is too complex and you just don’t understand why we have to take the bribes we take to help market sectors. Poor, ignorant you.

Market-Dominated Trade

Number 1, above, is actually the real answer. Free trade. Really free.

Sadly for the dupes who think the government is obligated to get your rubber dogshit into novelty stores in Poland, this scenario pretty much resembles the situation we have right now, based on how ignorant other trading partners remain.

If you, unlike most politicians and career government workers, have brains and vision, you understand that having rich trading partners is better than having poor ones. So rule number one for healthy trade is don’t impoverish your customers. You are not obliged to prop them up, but you don’t kick the stool out from under them either.

Further, if Heinz wants to sell ketchup in Germany and pay a hefty tariff to do so, that is none of the U.S. Government’s business. That is 100% up to Heinz and the board of directors. It is up to that company if they wish to move into a market where they are made artificially less competitive based on price. If they didn’t think they could use the popularity of their brand and quality of their product to make money in that market, they wouldn’t send their stuff there to begin with. And if Berliners wish to pay more for ketchup or pay tax money to their own ketchup companies in the form of subsidies, that is their concern ONLY.

Naturally, if Heinz finds a political whore who will go and fight and threaten the Germans or initiate tariffs here, I suspect Heinz would make huge campaign contributions and pay tens of thousands of dollars for speeches to be made by the whore in return. But that doesn’t make it right.

The lesser of two evils? Meh, Maybe.

I support choice number 2 over the status quo. But I know choice number 1 is the best long-term answer to all of this. I hold out absolutely no hope that ANY of our politicians have the guts to start the process by winding down our existing market protections to undeserving cronies. And I also despair at Trump’s lack of intellectual curiosity on the matter.

How bloody it gets depends on how long people insist on being stupid. But when it all finally shakes out we will all be financially weaker and pretty much the same place we were relative to the rest of the world when this all started.

So, Rocky is screwed on this one. We all are. But don’t worry. You’re screwed on lots of other ways as well. Maybe next time we’ll revisit how Facebook, Google (and politicians that are supposedly “taking on the tech giants”) are playing all of you for total suckers

 


Don’t be a political pansy! Read Street Politics, the book that predicted it all!

1. But we’ll deal with subsidies in another article.  I did deal with them in my book.  See the link above.

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Rocky VIII: An Economic Metaphor Part 1

8/14/19

It is 1:14 PM. The Dow is off 722 points after an already crappy previous week.

You’ve missed me haven’t you?

I have been away too long. I have been toiling away in the shop making furniture and trinkets. I do that to get away from the moronspeak[1] that is American politics. And there is a glut of morons speaking in the last few years.

Note the date. It is more significant than you might know. It is surely more significant than the “experts” on TV know. But three months from now they will review tape and say, “See? This is where it started to really unravel. I knew it all along.”

On 19 January of this year I made a case against tariffs as economic policy or foreign policy. So far, my conclusions have been proven correct. And today, I was heralded to my laptop by absolutely terrifying words from the FOX Business channel. These words are repeated at the outset of every market crash.


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Varney: Trump! Trump! He’s our man…

If you read my stuff you’ll know what those words are: “It’s different this time.” Stuart Varney – I tune in every morning even though Varney is a Trump cheerleader every day, rain or shine – is backing up these words up saying that the severe yield inversion we see in U.S. Treasuries is different from previous inversions.

Why? He says it is because money is pouring in from all over the world, retreating to the safety of our economy.

There are three problems with that assessment:

  1. Money is doing that because we have created weakness AND instability across the globe with our tariff debacle.
  2. The computers that trigger sell-offs on Wall Street and average people who don’t take a philosophical long view when they see their 401Ks trashed, CANNOT consider nuance. For that matter neither do most professional investors. They read fundamentals. If you fuck with the fundamentals they panic.
  3. Money does this all the time when Europe is broke. It pours in even when we are in an actual recession.   So money pouring in won’t save us from this world-wide slow down.

Some are saying the slide is due to riots in Hong Kong. Well…maybe 100 points can be attributed to that. But the real reason was the announcement that the 10-year yield was at 1.58!

So how did we get here and how will all this end. I’ll use an analogy I’ve employed on social media, trying to explain reality to morons on both sides of the political fence.

Beating up Rocky Balboa.

Our story opens with Rocky (the US economy) going toe to toe with Apollo Creed (economic planners). Rocky got beaten badly in 2008 when people thought they could defy the laws of economics and create false value in the housing market. They spent more than a decade trying to push mortgages on people who could not pay them back and encouraging homeowners to treat their homes like an ATM machine. We all know how the fight ended. Both fighters ended up in the hospital. Rocky lost.

I will leave the abuses of politicians and a corrupt Central Bank that occurred before the rematch for another time. But Rocky did meet with Apollo during the election of 2016. That was when manager Mickey (Donald Trump) said we are not going to fight the way we are expected to. Apollo expects to see a plodding southpaw this time. But we will switch and be controversial and confrontational.

That was all it took. It was a tough battle. Rocky rallied late in the fight banging at the planners ribs with deregulation, deregulation, again and again, until the planners were spitting up blood. And then WHAM! Tax cuts to the chin!

After going the distance (eight years of Obama)[2] and actually creating economic growth, especially with the tax cuts, Rocky was staggering to his corner. He was blind in one eye, his nose was broken. Rocky’s arm were now to heavy to lift. He was out of adrenaline. In his words even “his hair hurts.”

For some reason, at that very moment, Mickey decided to put Clubber Lang, Tommy Gunn and Ivan Drago (multiple tariff fights) into the ring to FIGHT ROCKY immediately!

Now, all during the run up to the original rematch and through the fight itself, Mickey’s detractors said he should be fired. He was a racist, a hater. He was Hitler. This didn’t stop when the economy emerged victorious. But Mickey is none of those things. He has lots of faults to be sure. Some asshole talked him into letting the other three into the ring. But that is the only legitimate reason Mickey can be impeached. According the boxing commission (the US Constitution) Mickey has no right to create a fight (install tariffs) and certainly not when his fighter is so vulnerable. Only licensed promoters (Congress) can do that.

But Mickey says, “I am doing this for Rocky’s well-being (national security).” Of course, everyone listening, including the ones who want the fight to go on, know those words are unadulterated bullshit. Too many think that since Rocky beat Creed Mickey is now their god and can do no wrong. They will make every excuse for him.

So how is this new fight shaping up?

Tell ya what. I’ll call that from ring-side in my next article.

Here’s a preview: Everyone is bleeding and looking for an exit.


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[1] I made that word up as homage to George Orwell. But it encapsulates perfectly my view of modern discourse.

[2] Obama’s legacy will be saying “1.5% growth is the new normal” and “it was Bush’s fault.”

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Part 3: I Am Throwing My Hands Into the Air. The Imperial Trump

  What did I tell you? What the HELL did I tell you?

This is part 3 in my discussion about our acceptance of extra-constitutional bullshit and how we think it’s okay when our guy does it. The Imperial Trump is not a good thing, no more than the Imperial BHO.

In part 2 I said that by not weathering another shutdown and declaring an “emergency” over the border wall dispute, Trump would set in motion a wave of silly, dangerous nonsense by the opposition.

Well, now we have Elizabeth Warren and others talking about what their emergencies are going to be. Healthcare will be declared and emergency. College education will be declared an emergency. ( I have to agree with this one. College education, thanks to governmental interference, is now pathetic. There is too much of it!) And of course, the high holy of stupid issues, Climate Change will be declared an emergency.


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Thanks, Donald. Because you can’t see past THIS one issue, because your ego was being battered (I know, they are too hard on you.), and because you play checkers while you opponents play chess, you have created the perfect atmosphere for the complete undoing of the American experiment.

But MJ, Everybody else did it!

Do you remember your mom irritating you with logic when you were 7 years old? “Just because Johnny Snotnose jumps off trees into the creek doesn’t mean you have to do it.”

But mommy! He did it! So I wanna do it too!!!

Adult much?!?!?

I have TOO MANY of my friends, ADULTS, from both sides of the political nuthouse, saying the emergency declaration is okay because the others did it. When BHO changed immigration law, after acknowledging he had no right whatsoever to do it (a rare moment of honesty), his cult said it was okay because W did it. Now the Trump cult is saying it is okay that he makes up law because BHO did it. And on and on it goes.

Well, kids, just because you can doesn’t mean you should.

But MJ, Obama did it with big things!

No shit. And do you remember our opposition to it? Do you remember what we said then? We said he was acting like a king. We said what he did was unconstitutional. And we were right. The only correct executive actions Trump has taken so far were the elimination of some of Obama’s moronic actions. What can be created with the stroke of a pen can be eliminated with one.


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BUT…that which is created by Congress, even though we don’t like it, cannot be undone with the stroke of a pen. At least this is was true when there was a United States of America. That was the country that used to be governed by an organizing document called a Constitution. That country no longer exists. You can still see a land mass labeled as such on a map, but the country no longer exists. It is now New Post-Republic Rome.

Back when there was a USA, the only CORRECT action that would have been left to the president was the veto. In this case he had already exercised that option. But impatient to just get on with it, he backed down and set up a scenario where he would take the NPRR vs the USA approach.

Ruins as allegory, subtle, right?

People who correctly criticized his predecessor for such actions are now cheering Trump’s imperial presidency. IDIOTS!

Would another pretend shutdown have sucked? Yeah, a little. But by doing the right thing and making the correct, if more difficult, adult argument, Trump would have eventually prevailed.

(And no, my gullible friends, putting 800,000 people on extended furlough would not have crippled the economy, not matter what Joe Scarborough told you. And please, do remember they are non-essential government workers in an economy with 7 million unfilled job openings. If shutdowns are so hard on these poor souls, they could have nifty, new jobs tomorrow.)

And then there is the Tariff thing…

As of this morning, 22 Feb 19, I am now hearing rumblings, even from Trump cheerleaders like Stuart Varney saying we are looking at Obama era growth numbers for this quarter. The stock market is as volatile now as it was throughout the BHO nightmare. And we are creating an atmosphere where people think Bernie Sanders and Faux-cahontas are actually seen as more than emotionalist morons!

Why? Tariffs, my boy, Tariffs.

By instigating this uncertainty, markets hate uncertainty for sound reason, and by doing so with a phony national security argument; Trump has effectively killed the benefits of tax cuts and the general optimism created in his first year as president.

As I predicted in part one of this series and in other places, when all this tariff nonsense settles out, the president will have accomplished exactly nothing. We will end up almost exactly where we were with respect to the world economy as we were when we started.

Any concessions he squeezes out of China WILL NOT be honored. They will continue to behave exactly as they always have. These token purchases you see Trump’s cheerleaders talking about, like soy and rice are just one-offs to give the appearance of cooperation. These are consumables of the first order. Don’t look for China to buy tons and tons of either in the future.

Conclusion

If you really care about where all this is taking us you should read part 1 and part 2 of this series.

But about trade, I will say this: We are SUPPOSED to have to have trade deficits with everyone. We consume far more than any other country; more than entire continents. And our goods, because of demand and self-destructive labor practices, are more expensive than those in competing countries. This is a GOOD THING except for the union bullshit.

We need to strive for free trade, not even or equal trade. (And what the hell is fair trade?) But to do that, you would need to shame the 535 moral cowards on Capital Hill into striking all subsidies and tax breaks from the federal code. You would then have to insist our trading partners do the same. If you want to trade here, you trade in clean, unsubsidized goods. If you breach that, you’ve just sold you last widget in the US.  Trust me, Europe and Asia would cry us a river. Then they would do exactly as we say. And they will be better off for it.

 That would be a trade policy in which everyone would win, and the US especially would thrive. Oh, how the corrupt cronies would howl during the transition, but they would know that when and if such a trade environment did exist, they would be just fine. Hell, that’d be on fire.

But alas, because we have corrupt politicians who opt for fragmentary “free trade deals” (an oxymoron) and trade through executive overreach, and because we have children/citizens who cheer their stupidity, we are likely doomed to remain NPRR. The USA will likely never exist again.

And know this, when you cheer your guy doing stupid things because their guy did the same stupid things, you are as responsible for our slide toward NPRR than anyone you criticize.

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Mathew Schwartz
Stephen Mayes