Category Economic Subjects

Aug 27 2019

What Percent of US Economy Involves trade from China?


Armstrong Economics Blog/China

Re-Posted Aug 26, 2019 by Martin Armstrong

QUESTION: Are you saying that the China trade is not that big of a deal to the US economy? It seems like the press makes it sound like this is the end of the world and we will go into a depression.

HS

ANSWER: The total amount of goods that China sells into the US economy is about $557.9 billion with US exports at about $179.3 billion. That is less than 3% of our annual GDP which China sells to the USA and the American sales to China is less than 1%.

The way the press portrays this you would indeed think that the next Great Depression is coming and it’s all Trump’s fault.

The world leaders at the G7 are blaming Trump and saying it is his trade war why their economies are declining. Our model showed they were declining long before there was a trade war. Besides that, Trump offered to eliminate ALL tariffs. France immediate said NO WAY!!! 

Macron wanted to make the Amazon fires in Brazil the G7 top priority. Exactly what does Macron think he can do about the Amazon? Put sanctions on Brazil and fine their farmers? Or perhaps he advocates invading Brazil and posting guards around the Amazon? Meanwhile, he refuses to step down in the face of 80% of the French opposed to him and he refuses to allow any renegotiation on BREXIT because he wants 100% tariffs at the Irish border. Then he blames Trump for the economic decline in France. Wait till he sees what their own trade barriers do to the rest of Europe.

Macron is an EXTREMELY arrogant person. His reputation behind the curtain is anything but respectful. He is notorious for trying to just bully people and lacks judgment in a global sense according to reliable sources. Macron also went over the top, as usual, and flew in Iran to the G7 to try to embarrass Trump. Macron is worried far more about every place other than his own period. Why he supports Iran yet objects to Putin joining the G7 and insists on punishing Britain calls into question his real objectives. He certainly wants to federalize Europe creating a European Army and policies that even Germany does not support.

Of course, if you look closely at the photos there are really eight people not seven. The EU has a seat while Germany, Italy, and France still have their independent seats which further demonstrates the whole problem with Europe. They want to act as independent sovereign countries, yet simultaneously, pretend Europe is one big happy family.

Aug 25 2019

China v US Trade War


Armstrong Economics Blog/China

Re-Posted Aug 24, 2019 by Martin Armstrong

China understands the difference between the German mercantilist model of manufacturing and sells to everyone else and the United States which became the largest economy in the world because it allowed its domestic consumer economy to develop. China will become the largest economy in the world and take the crown from the United States because America lacks the political stability to foster long-term economic growth like China.

That statement will be a political bombshell no doubt. The demise of the United States is easily seen by the polarization of American politics. The Democrats come in and want to raise taxes and hunt the rich sending jobs and capital overseas. The Republicans come in and want to lower taxes and bring jobs and capital back home. The problem is very clear. Tax rates should NOT be a political yoyo. Corporations must have a budget. They cannot plan long-term because it all depends upon the next election every time. Unless the Supreme Court outlaws Marxism, there is no hope for the United States to survive long-term. Our political system will self-destruct the economy. There is just no consistency which is vital to economic growth.

China, in contrast, has a long-term plan. Its politicians are a career employee, but they need not stand for election. That actually allows for actual long-term planning where the United States cannot compete because of the polarization in American politics dominated by free-market Adam Smith v Marxist Socialism. This political war keeps getting worse and it is tearing the economy apart.

Those who have been expecting a quiet solution to the China v USA Trade War were shocked by the statements on Friday. China’s trade war escalation increased tariffs on imports imposing $75 billion worth of duties on U.S. goods, beginning Sept. 1 and December 15. China’s foreign ministry said that it would resume tariffs on U.S. imports of automobiles and auto parts and place an additional 5% or 10% tariff on agricultural and food products like soybeans, coffee, whiskey, and seafood.

China has a major car manufacturing operation. China had no problem allowing investment in its financial sector because there is a serious problem which can use capital at this point in time. China’s banks are not intricately connected to US banks as was the case with European and American banks. Therefore, a debt problem in China is more likely to have an isolated Asian influence rather than create a contagion infecting the US economy directly.

Donald J. Trump

✔@realDonaldTrump

Trump responded in a series of 4 tweets where he said:

Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States. Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE, all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t. Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!

To put this all in perspective, $75 billion in tariffs to an American economy in excess of $20 trillion, amounts to .003%. You would not think all the wild swings and talk of trade would be a major factor in the US economy. However, China would very much like to see Trump lose the election so they can get back to negotiating trade deals by offering special treatments to the career politicians who look to get something out of everything for themselves.

The way the markets respond to every issue with trade is really over-kill. But the market is in a bearish mode as the Economic Confidence Model heads into its business cycle low come January 2020.

Aug 25 2019

Washington Post Praying for a Recession to Defeat Trump


Armstrong Economics Blog/Economics

Re-Posted Aug 24, 2019 by Martin Armstrong

It has become obvious that the mainstream press is FAKE NEWS. They are indeed out to get Trump and are using their position to desperately try to support the bureaucracy. The Washington Post has run a story stating Trump is wrong about the strength of the US economy. They claim his own advisors are warning that a recession is coming but he keeps saying the economy is strong. They’re accusing him of being a liar, which is no surprise.

What is really fascinating is that until Trump came to power, the press always talked up the economy because the belief has been if you tell the people there will be a recession, the people will contract their spending and create one. Larry Summers has explained that they cannot predict recessions, and if they could it would be a self-fulfillment of their forecast for if you tell the people there will be a recession, you will create one.

February 25th, 2009

Back in 2009, the Washington Post always talked optimistically about the economy and how Obama would save the day. Now we have the Post talking up a recession in the USA into the 2020 election when NEVER IN HISTORY has any major newspaper preached the economy will crumble just to influence a presidential election. This is really amazing and a complete turning around for the media demonstrating they no longer report the news, they are trying to create it. Even the photos they showed of Epstein with Trump and his ex-wife were always used rather than those of Epstein with Bill or Hillary.

Every time there is a crash, the president ALWAYS comes out and says the economy is fundamentally sound. Hoover did that in 1929 and they have done that every time ever since — both parties. The theory is if the president ever came out and said we are doomed, the people would panic even more. It is just NEVER done until now when the press calls for a recession to defeat a president.

 

Aug 20 2019

Assets v Currency


Armstrong Economics Blog/Economics

Re-Posted Aug 20, 2019 by Martin Armstrong

QUESTION: Hello Mr Armstrong. I read your blog daily, and i can t say thank you enough.
on interest rate, you say market rallied when they got the rumors of roosevelt devaluating the dollar creating a currency inflation. am i wrong when i understand they feared losing money so they bought tangible assets?
best regards from France

M

ANSWER: Correct. Tangible assets are always the hedge against a decline in the currency. This is why gold has been rising more so in other currencies than US dollars.

M

Aug 20 2019

The Fed’s Real Crisis – To Cut or Not to Cut


Armstrong Economics Blog/Interest Rates

Re-Posted Aug 20, 2019 by Martin Armstrong

 

QUESTION: Mr. Armstrong; You seem to be the only person who distinguishes private interest rates v public. Has the marketplace gone insane along with Trump demanding 100 basis point cut by the Fed? I find it curious how they only quote the same people in the press who seem to preach the government position all the time. They constantly try to ignore you in the press and even Wikipedia distorts everything and fails to mention the banks pled guilty and had to repay your clients. Just so biased. Now they say deep negative rates are no problem. They only say what the government wants them to say. Will this all end very badly?

KN

ANSWER: There is ABSOLUTELY no historical evidence that negative interest rates will ever stimulate the economy no less are they even viable. This wipes out pension funds where many around the world are obligated by law to buy government paper. Social Security in the USA is 100% in government bonds. It is beyond comprehension where all these people cheer negative rates as if this is a good thing. The US share market declined with the rate cut, it did not rally.

People are convinced that an INVERTED YIELD CURVE foretells of a recession. They have no idea about capital inflows. Even in Thailand, which has benefited greatly from the China-US Trade War shows that its currency has been the RARE exception rallying against the dollar. That may change now if the dollar closes above the July high here at the end of August.

I am in Asia right now. The greatest fear is that China will send in troops to squash the protests in Hong Kong. Many fear this will be another Tiananmen Square. I would not go that far. The solution would be a political one and to repeal the extradition order. People do not fear that a wanted Chinese will flee to Hong Kong and be protected, but that they could be extradited to Beijing and put on trial for things they did or said in Hong Kong.

This is sending capital to the USA and the same capital flows from Europe and doing the same thing. That capital is now incentified to buy US debt looking for more rate cuts and their bonds will appreciate. It takes a sublime idiot not to see this trade. They are punting – not actually buying negative yields for the long-term. This seems to be coming to an end in 2020.

As I have stated many times, DO NOT EXPECT the official rates to rise outside the USA. All other central banks are trapped. They cannot afford to allow rates to rise and blow up government budgets. This will widen the gap between public and private debt. Back in the ’30s, as governments defaulted, smart money fled to private AAA corporate bonds. We will see the same trend here again, but at the same time, banks will look to the future with tremendous uncertainty and will NOT be lending so easily. Expect rates to rise on credit cards where they make their money and long-term mortgages. If the banks cannot resell the long-term debt mortgages, rates will rise widening the gap with the government.

Chairman Powell is not is a nice place. He cut rates NOT for the USA, but because the rest of the world is imploding and Europe shows no signs of reversing their policy. If Powell lowers the rates 50 or 100 bp, domestically people will be taking this as confirmation a recession is coming and the stock market will continue its decline.

Powell is in a no-win situation. This is the FIRST time in history the Fed cut rates at the top of a market and instigated a decline rather than cutting rates in response to a decline. This only proves the Fed’s actions are concerned NOT for the domestic economy, but primarily for Europe and Asia second.

This going to make for a HIGHLY unusual WEC this year. We are breaking historical ground. There no way for this to end but VERY badly. They do not want people to read this blog. They want to keep people accepting the government narrative.

 

Aug 20 2019

ECB Will Lend to Banks Long-Term in Hopes They Will in Turn Lend Again


Armstrong Economics Blog/Central Banks

Re-Posted Aug 20, 2019 by Martin Armstrong

Come September, Draghi at the ECB will make loans to Eurozone banks on a long-term basis at rates less than the short-term lending window. The objective is to encourage banks to lend money to businesses. Nobody thinks about letting businesses bypass the banks mainly because the banks are in such a vulnerable state because Europe never took the toxic assets out of the banks as did the USA. To do that would have meant that some countries would have been bailed out more than others so they cut rates and hoped for the best which never happened.

The world economy is crashing BECAUSE of negative interest rates. These insane people have REFUSED to consider that this entire idea of lowering interest rates to stimulate the economy will NEVER work. You are wiping out pension funds and the elderly who are a vital part of the economic base. They keep using the same theories that are decades old and have ALWAYS failed each and every time.

Just look at the Great Depression. Lowering interest rates FAILED to reverse the decline. The market rallied when the rumors proved correct that Roosevelt would devalue the dollar creating currency inflation. Lowering interest rates has NEVER worked even once, yet they keep trying the same theory over and over again because they cannot think of anything else to try.

Categories: Central Banks