Mention integrity, honesty or intelligence in the company of ‘politician’ and it invariably brings a laugh.
And as far as we know, no government program ever merited anything other than mockery. Nor did any empire — no matter how great — ever survive a final send-off sneer.
Since the turn of the century, in 2001, the trajectory of the US government has been uninterrupted. Deficits (trade and federal budget) have increased year after year. So has federal debt…along with the cost of maintaining the empire.
America’s ‘national’ debt rose from less than $6 trillion in 2000 to over $37 trillion now. The US trade deficit, too, just hit a new record, rising to $1.1 trillion over the last 12 months — 10 times more than it was in 2000.
And now, all over the world, people prepare their contemptuous chuckles. The end of the mighty US empire is coming into view.
Many people criticize Donald Trump for being too ‘disruptive.’ But the trends that lead inevitably to chaos and crisis continue…to the point that they are probably irreversible.
“Any great power that spends more on debt service (interest payments on the national debt) than on defense,” writes historian Niall Ferguson, “will not stay great for very long.” “True of Habsburg Spain, true of ancient regime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the US beginning this very year.”
Yes, here’s the latest from Charlie Bilello:
The US Government now spends more money on interest payments on the National Debt ($1.11 Trillion) than it does on National Defense ($1.10 Trillion).
Still, most people are willing to believe that the lessons of the past no longer apply… or that latest policy moves might stay the hand of history. It is on that basis that a whole nation of 330 million people goes along with Mr. Trump’s trade war, when all the evidence — both theoretical and empirical — suggests that it will be a complete fiasco.
And so far, it is.
The UK trade war armistice produced the most remarkable outcome. Last year, $80 billion worth of US goods were sold in the UK, compared to just $68 billion in exports to the US. What sense did it make to target a country with whom you have a $12 billion surplus?
But now, in the quest for fairness, American consumers will pay an extra $6 billion per year (according to Howard Lutnick…based on the new 10% tariff) for the opportunity to enjoy UK-made products…while the tax (tariff) on US goods going into the UK will be only 1.8%.
Next up was China. Byron King:
Despite hoopla, tough talk and bluster, Team Trump walked into a policy minefield. Tariffs on China highlighted how many of America’s problems are rooted in toxic domestic politics, and unforgiving industrial-scientific reality…label it whatever else you wish, but the U.S. has suffered a self-inflicted strategic defeat.
After his ‘Liberation Day’ trade war, Trump wisely decided that negotiated settlements were the only way to keep the stock market from collapsing. In each case, he would come to terms on a more reasonable basis…and announce a Big Win.
But so far, they are not ‘wins’ at all… except in the sense that a person is better off after he stops beating his head against the wall.
China can still sell its gadgets and geegaws into the US — subject to a 30% tariff. Which means, grosso modo, that US consumers will now pay 30% more for their China-made products…and the geegaw and gadget makers will stay where they are — in China.
Even with US consumers paying a 30% penalty, most imports from China will keep coming. Chinese industries are larger and more competitive than those of the US… and Chinese labor is still much cheaper than US labor.
Based on the minimum wage, an unskilled laborer in Shanghai can expect to make less than $4 per hour…whereas one in Washington DC will make $17. (This is largely because the Fed has inflated wages along with everything else in the U.S. while enabling a huge increase in debt, much of which was used to buy foreign-made goods.)
Labor may average only about 24% of the Cost of Goods Sold. But China also has much more extensive, and cheaper, supply chains for almost all raw materials and wholesale inputs.
Of course, we get tomorrow’s news no sooner than anyone else. All we are doing is trying to project the patterns of the past onto the future. Empires always come to an end, for example. So, they must find a way to make an exit — either with a roar or a whimper.
In the present case, ‘The Donald’ howls at the moon and disrupts almost everything… except for those things that most need disrupting.
Regards,
 |
Bill Bonner,
For The Daily Reckoning Australia
