A prolonged global trade war will add fuel to a nasty global recession.
But look at the bright side. It’s a surefire way to reduce imports more than exports.
The bigger the recession, the bigger Trump’s alleged “win”.
Mike “Mish” Shedlock
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Surefire Way to Reduce the Trade Deficit: Have a Recession
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Mish
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How much imported is bought on borrowed money, often impoverishing the borrow, putting the lender at risk and leading to nationwide systemic problems?
Increase interest rates to stem the building problems = recession.
To solve the problem choose your poison. Tariffs into Government tax coffers or raise rates, or both.
Parabolic government spending is holding many economic sectors up. It’s not a trump economy, it’s a consumer economy, very service based as we see more and more people going into business for themselves. Low interest rates allow easy borrowing, which leverages spending, same for equities, when you can borrow at lower price than you can earn in equities well then equities will continue to go up as the easy or should I say free money train ride continues (mostly for the rich of course). Trade war may serve to isolate America, possibly even damage it’s world reserve currency status.
Mish, you know better than almost anyone else that there will be a recession some day. We all know that the elapsed time since the last recession has been abnormally long. We all should know that excessive debt — especially governmental debt which was not used to build productive assets to generate the income to repay the debt — will eventually cause a day of reckoning.
And everyone with a brain knows that excessive trade deficits are ultimately unsustainable. If anyone other than President Trump has a credible plan for reducing the trade deficit, he surely has done a great job of keeping it secret.
“And everyone with a brain knows that excessive trade deficits are ultimately unsustainable.”
I have no brain. Please tell exactly at what point they are unsustainable and what happens to the economy when we get there.
There is no ability to create any sustainable wealth in the economy for majority of the people due to offshoring the good paying jobs and consumption and company profits are kept flowing at all levels with increases in debt until there is a moment when the market realizes that the debts can never be repaid and at that moment either the debt living has to be stopped crashing consumption and economy and property and stock values or the value of the currency crashes with the same end result. Before the crash the excessive deficits will cause malinvestment, maleducation and fake economy based on unsustainable debt.
If its funded by consumer debt……..
“Please tell exactly at what point they are unsustainable and what happens to the economy when we get there.”
Carlos — why don’t you take a look at what is happening in Venezuela. Or if you like historical precedents, why not take a look at what happened to China when it ran an unsustainable trade surplus with England in the 1840s.
Last news from Bloomberg is that China put spy and control chips in computer motherboards made in China that would have allowed them to take control of computers and servers. This could have enabled them to steal trade secrets, try to change election results or turn off large parts off servers in a war situation including possibly CIA, nsa, FBI, army , navy etc
Of course all claimed victims like Amazon, Apple, Supermicro deny this ever happened. Of course if they would admit it happened they would also admit the ceos and other leadership broke securities laws …
All vendors denied that this happened for two reasons:
It didn’t
If China wanted to do that there are ways more effective than planting HW on the motherboards of servers
BTW easy to prove one way or another. Get several servers from different DCs and find such device. It should be easy is the one with the tinfoil hat on top…
You are saying Bloomberg are bunch of tinfoil hats ?
Actually there is no way to stop or even find such a hardware hack other than auditing and inspecting all motherboards and if it is put into 25% motherboards inspecting part of motherboards would not most likely even detect it. Software hacks and internet hacks can be detected but if the motherboard is hardware hacked then only way to detect it is to check every motherboard.
For people like you the only fake news is when they go against your narrative (Trump) but when they slant your direction the MSN becomes great news outlets… An answering your questions no it isn’t easier to detect SW hacks than HW hacks and no you don’t need to inspect every single motherboard. And BTW spy agencies audit all HW they buy from vendors and BTW sometimes they require such HW to be manufacture in the US and I could continue with “and BTW” until the cows come home but you are never going to change your mind..
“You are saying Bloomberg are bunch of tinfoil hats ? “
You’re saying their not?????????
“If anyone other than President Trump has a credible plan for reducing the trade deficit, he surely has done a great job of keeping it secret.”
Every Economist worth not just his but any salt, for the past century at least, have a credible plan: Gold. And no backstopping lenders.
Dumb people falling en masse for privileged mediocrities’ self serving obfuscation of simple things, don’t make simple things themselves any less simple. It just makes dumb people’s dumbness more obvious.
Consumer goods are mostly produced overseas. It’s a fact that if the economy grows, the deficit will grow, and if the economy shrinks, the deficit will shrink. The trade deficit is also being hurt by misguided tariffs targeting manufacturing inputs, rather than manufactured goods. The result is to put domestic manufacturers who use steel, aluminum, or chips in their products at a disadvantage to foreign manufacturers.
Correct. Trump’s tariffs biggest problem was that the steel and aluminum tariffs did not target also products made from steel and aluminum and that caused for example US nail manufacturer to lose big chunk of business to cheaper imported nails since foreign nail producers could use cheap steel dumped by china but US nail manufacturer had to pay more for steel since steel prices in US rose due to tariffs.
The 4% GDP growth is just driving the Trump-haters insane.
Yeah come back next year and talk to me about 4% GDP growth.
I’ve been coming back for 9 years waiting for the next 50% market crash and gold-stock boom, so sure, I’ll see you next year.
In case you didn’t noticed the last 9 years there has been unlimited liquidity + now huge tax cuts (at the end of the cycle) just to get to that %4. Next year you will see a drop. However, Trump will blame it on the democrats capturing the house because as we all know the only buck that stops with him is the one he takes from the rest of the tax payers…
We are running trillion dollar deficits again to achieve 4%. Consider the 90s where Clinton averaged 3.5% over his eight years while the government ran surpluses.
Was that before 1-2Bn cheap labourers arrived on the scene fully connected and the deflation and intermediation of the web commenced?
The drive to optimise profit with the aid of deflationary increases in cheap labour and business process optimisation has give power to capital not labour. The pendulum is due to swing the other way. Trump is a symptom, not the cause.
The Clinton surplus was a mirage caused by tech bubble at the end of the tech bubble and the surplus was about 12 months . For the surplus to continue the tech bubble should have been sustainable and the tech bubble should have continued…
1 quarter of 4% growth is not actually 4% growth. Here are the growth rates since Trump took office: 1.8%,3.0%,2.8%,2.3%,2.2%,4.2% which equals an average of 2.7%.
Government debt rose over 6% since sept 2017 to sept 2018 and economy rose only about 3% on average during the same time. Trump is right to try to stop trade deficits but the debt expansion is unsustainable. Economic growth should be calculated by reducing the debt expansion of government, consumers and companies that is higher than economic growth and in that way economy contracted -3% during the last 12 months.