Dynamic Duos (Fed Trump), Debt Deflation, Laughable Steel Ideas
The Trump administration and EU officials complain about the "overproduction" of steel.
A 2016 Economist article goes one step further. The Economist attempts to explain Why the world has too much steel.
Think about the silliness of that idea. It should take about one second.
If we truly had too much steel, people would pay to get rid of the stuff!
By definition, no one would want it. You could not give it away. You would have to pay to get rid of it.
What Should We Do?
Since US manufacturers that use steel outnumber producers by a vast margin, we should be happy for the cheap supply until there is a genuine national security risk, assuming that is even possible, which I highly doubt.
Similarly, if China wants to give us free solar panels or free cars we should take them.
China won't. It can't. It would soon go bankrupt if it tried.
Meanwhile, if China is indeed giving the us solar panels, steel, or anything else below cost, it is to the benefit of US and the detriment of China.
Amazon vs Mom and Pop
The debate about China is similar to the debate about Amazon.
Big box retail stores struggle to compete against Amazon.
That's called progress. More goods, faster deliveries, and cheaper prices is progress.
Standards of livings rise, by definition, when more goods are available at cheaper prices.
- The Fed seeks inflation in a technologically-deflationary world.
- Team Trump tariffs are a loaded gun fired not at China but at the US.
Never have we seen so much howling over things that are actually beneficial.
Meanwhile, the Fed's foolish attempt to produce price inflation in a deflationary world has done nothing but create another bubble that will bring on deflation when it pops.
Debt Deflation Setup
Those who understand debt dynamics and what inflation really is also understand that Inflation is in the Rear-View Mirror.
Here's my definition of inflation: An increase in money supply and credit, with credit marked to market.
Deflation is the opposite: A decrease in money supply and credit, with credit marked to market.
When credit expands there is inflation.
When credit contracts (think defaults, bankruptcies, mortgage walk-away events), debt deflation occurs.
In debt deflation, zombie corporations that cannot get financing go out of business. Banks become capital impaired because they have made loans based on assets (businesses, malls, etc), that are no longer worth the loan amount.
Such events are far more important than small or even modest-sized price movements. But accompanying debt deflation, one should expect a falloff in demand.
Consumers prices are likely to go into reverse, but that is not a necessity by my definition.
Another round of debt deflation is a given when we have absurdities like this: NY Fed President Proposes "Paying" Bankers With Long-Term Debt.
Mike "Mish" Shedlock