The Wealth of a Nation
The Wealth of a Nation
Thanks to Fed interest rate policy, stocks and bonds both hit epic highs — and the rich got richer than ever...GDP growth actually slowed, inflation increased, and we are left with $34.6 in debt.
Monday, April 22nd, 2024
Bill Bonner, reckoning today from Dublin, Ireland...
Last week we looked at the Primary Trend... and wondered how Joe Biden or Donald Trump would make it worse.
That is, after all, what the feds do. Markets don’t necessarily deliver what people want; but they always give them what they deserve. Left alone, markets provide products, services, timewasters... drugs, alcohol... whatever people willingly pay for. When the feds interfere — subsidizing, penalizing, prohibiting — people get less of what they want... more of what the feds want. They also usually get a lot of what nobody wants. Federal programs almost always come with fleas... they fail to provide the benefits promised... and almost always result in unwelcome consequences.
As we have seen, the Fed’s ultra-low interest rates drove the Primary Trend of 1980-2020 to extreme levels. One of the frequent promises of politicians, for example, is to lessen ‘inequality.’ Barack Obama said it was his top priority. But thanks to Fed interest rate policy, stocks and bonds both hit epic highs — and the rich got richer than ever. Meanwhile, GDP growth actually slowed... inflation increased... and we are left with $34.6 trillion worth of debt that can’t be paid.
And now, constrained by inflation, the feds cannot resuscitate the 1980-2021 boom. Instead, everything has turned around. Stocks and bonds go down... and the feds reinforce the new Primary Trend with higher interest rates and outsized deficits. And just as their policies resulted in extreme wealth (at least for some) during the last boom, their new policies are now likely to bring extreme poverty (perhaps for many) as the new Primary Trend runs its course.
Crazy Janet
But federal interference doesn’t stop with just wrongheaded monetary and fiscal policies. In today’s episode of Bonner Private Research we look at trade policies. Check this out from the Irish Independent:
Biden calls for tariffs on Chinese steel
The US president has called for a tripling of American tariffs on steel imported from China... in order to protect producers from a flood of cheap imports. His announcement was made in an address to steelworkers in the battleground state of Pennsylvania..likely to play a pivotal role in deciding November’s election.
And this from CNN:
House lawmakers have once again passed legislation that could lead to a nationwide TikTok ban, renewing a massive threat to the company’s US operations. The move could fast-track a proposal TikTok has been fighting against for weeks. If the House’s gambit succeeds, TikTok could be forced to find a new owner or be banned from the United States entirely.
Hey foreigners... got a new product? Lower prices? Better technology? Well... keep it to yourselves!
Mr. Biden’s announcement comes on the heels of his Treasury Secretary’s visit to China the week before. Ms. Yellen complained about ‘overcapacity’ in China. The point was almost immediately echoed by Lael Brainard, formerly with the Fed, now with the White House. She said the administration was protecting the nation from “unfair exports” coming from “China’s industrial overcapacity.”
We have no idea what an ‘unfair export’ is. It hardly matters, since consumers can decide for themselves whose products to boycott and whose to purchase. But Biden’s opponent, Donald Trump, is fully onboard with tariffs too. CNN:
When former President Donald Trump was in the White House, he proudly referred to himself as a “TariffMan” — and he has no intention of retiring that self-proclaimed title if reelected. Trump has repeatedly floated the idea of imposing a 10% tariff on every good coming into the US, as well as a tariff upward of 60% all Chinese imports if he regains the presidency…During a campaign rally, he promised a “100% tariff” on cars made outside the US and warned of a “bloodbath” for the American auto industry if he doesn’t get reelected.
Mr. Biden (81 years old) panders to voters in Pennsylvania. Mr. Trump (soon to be 78) actually seems to believe that restraining trade would make Americans better off. There’s a life cycle pattern that makes sense of it.
When a nation is young and vigorous, it is eager to compete. When it is old and tired, it grows fearful. Every sidewalk is covered in ice. Some nations are military threats. Others challenge its commercial success. Many have strange new ideas, innovative new weapons and new ways of doing things. Everyday brings something new; if only we could stop tomorrow!
Pineapples in Maine
Since the days of Adam Smith it has been obvious that trade is the key to economic success. What would happen if Alabama put a 100% tariff on cars imported from Michigan? Suppose you live in Maine and decide not to eat pineapples grown out-of-state? What if competition in surgery were banned... so that rather than seek out the best surgeon for your brain operation... from, say, the Mayo Clinic or Johns Hopkins... you had to rely on the local vet?
Material progress comes from technology and the division of labor. The bricklayer can lay bricks better than the baker. The baker, on the other hand, knows how to make a pain au raisin. They exchange output. Both are better off.
In primitive societies, people have to do everything for themselves. They hunt their own food. They build their own shelters and stitch their own clothes. In a rich society, they specialize. The typical person today sits in front of a computer... calls a physiotherapist to help straighten his back and orders food via DoorDash. He neither plants nor hunts. But he eats anyway. He uses a computer, but has no idea how it works. He takes a hot shower and drives a car — God forbid that they don’t work. His whole standard of living relies on a vast network of specialized knowledge, from all over the world.
Anything the feds do to interfere with these voluntary exchanges will make people poorer. But isn’t that the point?
Adam Smith popularized the idea that, looking out for themselves, people actually made things better for others. It was as if they were guided by a ‘hidden hand.’
Is it possible that the feds are also guided by a ‘hidden hand?’ In trying to make things better for themselves, they invariably make them worse for everyone else. And by trying to force the markets to do their bidding, they inevitably exaggerate the trends they were trying to stop.
Tomorrow, we’ll look at America’s biggest competitor... China.
Stay tuned.
Regards,
Bill Bonner
Research Note, by Dan Denning
On April 20th, 1933, Franklin Delano Roosevelt signed Executive Order 6111. It banned the export of gold from the United States. It followed Executive Order 6102, which banned private gold ownership. The chart below shows the dramatic upturn in gross federal debt in 2009. In the second quarter of 2018, the debt exceeded nominal GDP, perhaps for good. 10-year Treasury yields are currently 4.62%.
