GUALFIN, ARGENTINA – The big news last week was Trump’s hasty decision to impose tariffs on aluminum and steel.
We were happy to see it.
We were looking for an example – undeniable, indisputable, and in-your-face, jackass – to illustrate how government actually works.
“The Donald” has just provided it.
It can be hard work digging in the rocky, ungrateful soil of public policy… scraping off the honey-dirt of wishful thinking, delusion, and fraud… to uncover the corruption and stupidity of what lies beneath them.
So we would like to thank Secretary of Commerce Wilbur Ross and the president’s trade advisor, Peter Navarro, for their contributions.
They have put the claptrap right on the surface. Rarely do we get to see public officials who are such undisguised dumbkins with so little guile… and such unvarnished crackpot theories.
They have made it easy for us. Thanks again.
Here in Argentina, trade barriers have been a fact of life for a long time. A couple of years ago, we were unable to get tires for our tractor.
Argentina’s tire-making cronies were protected by tariffs. If you wanted to buy a tire, you had to pay for the locally made, inferior tire.
Unless, of course, they didn’t make the model you needed. Then, you were just out of luck.
Same thing for electronics.
Apparently, ex-president Cristina Fernández de Kirchner had some business buddies down in the south who made electronic components.
So imports of laptops, computers, smartphones, and other paraphernalia were restricted, ostensibly to give the nascent native manufacturers a chance to grow up and compete with Apple, Samsung, and Panasonic.
When you came into the country, you had to show exactly what iPhones, iPads, and portable computers you were carrying. Woe to you if you didn’t still have them when you left.
But that’s the sort of thing you expect in a “sh*thole” country – the naked use of government to transfer money from the ordinary person to the well-connected elite.
A modern, civilized country is usually more sophisticated about it.
Its economists realize that trade barriers lower output, ultimately diminishing the wealth available to a predatory elite.
Better to allow free trade to fatten the pig, they reason, before carving the ham.
In the event before us, Mr. Ross brought a group of steel and aluminum industry executives to the White House at 11 a.m. on Thursday.
These cronies bitched and moaned, no doubt, about how the Canadians were playing unfair… or how the Mexicans had lower costs… or how the Europeans made better metals.
Donald J. Trump, a fighter, grabbed a microphone. The sun had scarcely reached its zenith before he had set off a trade war, claiming it was easy to win one. Then he added, comically, on Twitter:
We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!
Never addressed was the real issue: How come Americans buy more things from overseas than they sell?
If he had bothered to look more carefully, Trump would have noticed that it has nothing to do with trade deals or the lack of trade barriers.
EZ Credit Paradise
Until the 1970s, America was the world’s leading exporter. Then, in a few years, it became the world’s leading importer. From having the biggest trade surplus, it soon had the biggest deficit.
Why? Did Americans suddenly forget how to make things? Did our businessmen and entrepreneurs lose interest in making money? Were they incapable of making a good deal?
What really happened was that the money system changed. In 1971, the Nixon administration created a new dollar by removing the last vestiges of gold backing.
Instead of making stuff at home, the U.S. began taking it from abroad, and paying for it with its new credit money.
Instead of being a manufacturing powerhouse, it became a consumer’s EZ credit paradise. And instead of favoring real jobs with good wages on Main Street, the economy was distorted by over-empowered PhDs at the Fed, overpaid scalawags on Wall Street, and hoggish scoundrels in both parties wallowing in an overblown, overreaching, and over-indebted swamp in Washington.
But the president won’t bother to think about it. And the Deep State wouldn’t permit him to do anything about it even if he did.
The real purpose of government is, always and everywhere, to enable the few to exploit the many. The money system is a clever way of doing so; Mr. Trump’s trade barriers, like the man himself, are much less subtle.
The modern world of industry, commerce, and investment works on win-win software. Only government – with its battles, wars, taxes, tariffs, do-this commands, and don’t-do-that prohibitions – continues to operate on pre-civilized programming. It is a throwback, an institution with a prehensile tail.
A trade war is just as phony as a war on drugs, a war on crime, or a war on terror. None are worth fighting. And none are winnable. It is meant to reward the elite at others’ expense. Nothing more.
There are about 200,000 jobs in the U.S. aluminum and steel industries. Add to that a few thousand significant owners. And most important, a few hundred serious cronies. As Reuters reports, there you have your winners:
Stock prices of U.S. steel and aluminum makers rose on Thursday after President Donald Trump announced hefty tariffs on metal imports to protect them from foreign competition, but many other companies saw stock price falls as they may face higher prices for raw materials which will force them to raise prices for consumers.
A proposed tariff of 25% on steel imports and 10% on aluminum boosted the stock prices of steel makers, but industrial companies, aircraft manufacturers, auto makers saw their stocks fall.
Among steel makers, AK Steel Holding Corp shares jumped 9.5%, U.S. Steel Corp rose 5.7%, while Nucor Corp and Steel Dynamics Inc. each gained more than 4%.
High Price to Pay
But this is a win-lose deal. And a lot more people use steel and aluminum than make them.
There are the obvious first-effect losers. U.S. automakers, for example, use an average of 3,000 pounds of steel in every car. The extra cost will force Detroit to raise prices. And here we encounter the second-effect losers: the residual, high-paid autoworker jobs.
The result would be roughly the same if The Donald had imposed a tax on oil.
Almost all industrial activity in the U.S. relies on energy and primary metals. Raise the costs of steel, aluminum, or energy and you make it harder to compete.
Needless to say, inflicting further damage on American manufacturing will not make America great again.
And there are the third-effect losers, too: practically the entire population of the U.S., who will pay more for everything from aluminum beer cans to steel garden tools.
A high price to pay just to make a few cronies richer… but worth every penny if it helps us understand government better.
MARKET INSIGHT: U.S. Stocks Lose Pace
By Chris Lowe, Editor at Large, Bonner & Partners
U.S. stocks are laggards on the international stage…
Today’s chart tracks the performance of three country stock market funds over the past 12 months.
They are the FTSE Emerging Markets ETF (VWO), which tracks stocks in the emerging markets… the FTSE Developed Markets ETF (VEA), which tracks stocks in developed overseas markets… and the Total Stock Market ETF (VTI), which tracks the U.S. stock market.
As you can see, U.S. stocks are up 14% over the past 12 months.
That compares with gains of 16% for developed overseas markets and 22% for emerging markets.
– Chris Lowe
Even Silicon Valley Is Sick of Silicon Valley
As Dan Denning showed recently, America’s tech giants are headed for a day of reckoning. Already, there are signs that Silicon Valley is losing favor. Tech venture capital firms are leaving in droves.
How to Spot a Crypto Scam
Unfortunately, there are plenty of scammers in the cryptocurrency market. Jeff Brown, Bill’s top technology analyst, shows what to look for before you buy any crypto asset.
The Real Winner From Trump’s Tax Cuts
The recent tax cuts were sold as a “miracle for the middle class.” The idea was that corporations would use their tax savings to invest in new American jobs. But two months after the tax cuts becoming law, a new winner has emerged…
In the mailbag, Friday’s Diary, “The Four Mistakes That Will Sink the Economy,” has gotten readers thinking…
Aren’t you just a little blasé about the Fed? It cheats and manipulates, under the table. Believe me, phony capital will appear when things get tight – long before they admit to more QE. Comment?
– Richard L.
Thank you for the emails and letters. I do appreciate it. But like the title says, what the hell did “The Four Mistakes That Will Sink the Economy” mean? To a dumbass, regular-working technician guy like me, it meant nothing. You just sound like another mumbo jumbo, Ivy League-educated guy that has worked at Goldman Sachs as a CEO. Hence how Trump got elected. I have no idea what any of the words in your letter actually mean. Thank you, sir.
– Rick G.
Meanwhile, a few suggestions for Dan Denning’s “bug-out bag”:
Add a few BIC lighters. They are great lifesavers in many imaginative ways. They are a critical barter item. Matches are second choice because they are hard to light and have water problems. You can get great deals on this type of lighter at Dollar Tree. A guy that can’t light a fire or cigarette will give a lot for a BIC.
Also a bottle of 95% grain alcohol. Some states don’t allow the sale of any alcohol stronger than 75%. Alcoholics get desperate for a nip and will give a lot for some.
Research iodine. The right kind in a tiny bottle can purify water and disinfect wounds, as well as protect your thyroid from radiation poisoning.
I think pocket-sized CB radios could be critical to communicate with loved ones. Cell phones will become dead weight.
– Kurt M.
Your suggestion of having a bug-out bag handy for an emergency is spot on. However, my bug-out bag has one indispensable item that you failed to list: a handgun. Assuming the need to use the bug-out bag arises, odds are the environment predicating the need to “bug out” will warrant a need for personal protection as well as the standard essentials of travel.
– Doug L.
What you missed is a gun, in my case, a .22 pistol and rifle. Several flashlights – small, but powerful. Boy Scout fluid – Coleman camp stove fuel (very useful). An inverter (portable, powered by 12VDC) for charging devices. And a 10–20 foot parachute cord. Don’t let the bag become a drag. Not too big. Should be a backpack. Maybe one for each family member.
– Louis M.
Did I miss something? Yes, a gun and ammo (especially if you live in a state allowing you to “carry” or if you have a concealed carry license), and possibly some silver coins.
– Richard K.
A couple of things that immediately came to mind: medications and a firearm.
– Tim L.
A personal centerfire handgun for each adult appropriately trained. If not trained, immediately become trained. Include a box of 50 rounds of matching self-defense ammunition and a good holster. In smaller towns, you can add a breakdown rifle, even if it is only a .22 long rifle.
– Carl B.
Some things you may have missed for your “bug-out bag”: a means of self-defense (I prefer a handgun with three or four loaded magazines and a box or two of ammunition); a fire source (matches, lighters, flint/steel fire starter); water purification method (iodine tabs, water filter – eventually, your stored water will run out); a compass to go with the map you listed (and train beforehand on how to use both); a good fixed-blade knife, pack axe, and folding shovel; a 550 paracord or bungee cord; a tarp or poncho (used with the cord to make an improvised shelter).
Something to barter with (silver coins, fractional gold, the aforementioned ammunition – in a serious emergency, cash may not be king); a flashlight/headlamp; spare batteries for anything electrical in your bag; notarized copies (or originals) of important documents (birth certificate, marriage certificate, deeds, wills, passports, etc.); GPS (kind of optional, especially if you can read the map); handheld radios for family members (also optional). Also, learn to tailor your bag for the seasons: cold weather clothes versus summer clothes; wet weather gear versus dry season gear.
– Leonard J.
IN CASE YOU MISSED IT…
Bitcoin is on the rebound…
But while crypto traders are fixated on the cryptocurrency, some of the world’s largest technology insiders couldn’t care less. That’s because they know something the rest of the world doesn’t.
It’s the technology behind bitcoin, not the coin itself, that will change the world. Details here.