Tariffs and sky high audio prices.

millercarbon ...

Here’s a little personal info: My mother worked for the Federal Reserve Bank in downtown L.A. for over 30 years. She was the first woman to make it into management.

Sometimes on Friday, I would take the bus or streetcar to the bank and she and I would go to lunch. I was only nine years old, or thereabouts. And yes, it was perfectly safe for a child to travel alone at the time. I did it all the time.

My Mom got paid on Fridays so she always had her pay envelope with cash in it. One time, we were sitting at the lunch table and she pulled out a twenty dollar bill. She pointed out the writing on the top and said, Frank, do you see what it says on the top? It says "Silver Certificate." She went on to say that she could take that twenty dollar bill into any Federal Reserve bank and demand twenty dollars in silver in exchange for the twenty dollar bill and the teller had to give it to her. She told me that, that was what made the country great. She said, that if that ever changed, the country would be in trouble. Of course, I didn’t understand what she meant at the time, but I sure do now.

The national debt is over 22 trillion now. Hey, we can even fund wars with counterfeit money and pay the piper down the road ... or at least our grandchildren and great-grandchildren can. This debt represents labor not yet expended and production not yet produced.

I actually took a tour of the inside of the Federal Reserve bank with my Mom and an escort. We went down into the vault, which as I remember, was several stories underground, and saw money stacked from the floor to the ceiling. One of the workers handed me a brown-wrapped package to hold, then told me that I was holding a million dollars. Wow! A thrill for a nine-year-old kid. Then, they showed me the blast furnace where they burned the old money. Geeze, they were shoveling cash into the furnace! Now, they just tax it away.

By the way, another thing people should ponder is the fact that when our money is borrowed into existence, they never loan the interest. Maybe as a point of interest, you could comment on that little tidbit. :-)

Frank

@millercarbon @nonoise 

Many thanks to both of you for posting salient points. @inna , salient means “really bitchin”. The real problem, of course, is that there is no way to know absolutely for certain because there are so many forces at play. Some food for thought...

As we all know, the old saying goes “those who ignore history are doomed to repeat it” and “its different this time”. Those two statements have cost alot of smart people alot of money over the centuries. I would also submit that to assume that past tariff actions and outcomes are applicable today is dangerous. The good news/bad news at least is the current tariff decision maker doesn’t read history so we will have a few random decisions and data points to analyze in the centuries to come.

I would submit that tariff policies prior to 1929 should be evaluated individually and there was typically a strong player being punitive with another strong player. In modern history, there was alot of back and forth between the USA and Great Britain. There are certainly other examples but that is the relationship most often examined. They/we were the only world powers at the time with momentum.

Now fast forward...there are plenty of choices of trading partners today that simply were not factors prior to the early twentieth century. The largest democracy on earth today (India) was enslaved at the time by Great Britain. Same goes (for all practical purposes) for China. Between the UK and Japan, China has been exploited for much of modern history and every european country seemed to have “claimed/colonized” every square inch of South America, Central America and let’s not forget the African continent and the middle east. Again, colonies all.

Prior to the second world war, oil was controlled by the US and the UK and it was traded in British pounds. Tariffs end up being either protectionist or punitive. In today’s integrated, global economy where information, shipping, fund flows, data flows and communication is virtually instantaneous its naive to believe a punitive tariff will change the behavior of countries with a choice. Mexico doesn’t have a choice...that’s like beating up the gentle little kid next door. Sure, you can win but what do you win?

Now let’s look at China. They are 20 years from not giving a darn what Washington does because they have wisely invested and diversified. They have almost reached economic parity with the USA in a little more than 1 generation. The present tariff policy in Washington amounts to kicking a lion cub....try that when they finish growing. And China is growing and is unstoppable. The EU, South America and Africa will buy their steel. Australia has become an economic colony of China. I don’t lament any of this as its the natural progression of things. Countries rise and fall throughout history. The silk road predated the USA and China isn’t just a flash in the pan, its real and has critical economic mass without the constraints of those pesky issues like an opposition to pay to play (read:bribery) cultures, etc.

So, since no one has a perfect crystal ball, all we can do is guess. My guess though is our present tariff strategy will hasten the development of a world economy dominated by the Chinese first, then the USA/Britain will be fighting it out to stay ahead of the EU but when the former Soviet block aligns (and I include Russia) with the EU they will lap the USA/Britain without the anglo influenced mitigator. So, there we have it...or not. I could be completely off base and China may run home at the idea they might see a mean tweet, get their feelings hurt and capitulate. What do you think they will do? They already build a better Tesla than Tesla AND have these really cool pods scattered everywhere that you can pull your electric car into and in 5 minutes you drive out with a freshly charged battery pack swap!!! For half price. They have another strategic advantage over the west that they haven’t had to use. I hate to say it but they can press their populace into instant austerity at the stroke of a pen. Its not morally something we believe palatable but they are not going to blink guys, they don’t have to have us. Oh, and if you don’t think the North Korea/US “conversations” aren’t a Chinese test marketing of how to negotiate with the USA well.....

Their final ace up their sleeve, they can begin to sell the huge cache of US treasuries they own to fund any trade issues for the near to medium term. What will that do to the yields the USA would have to provide to future purchasers of treasuries. In the past, someone would just start a war and take what wasn’t rightfully theirs. That’s impossible in the information age with a militarily powerful country in the nuclear age.

Who is betting against China?  That would be like betting on your local high school againt the New England Patriots. Its really sweet sentimentally.  We need them to need us but we can’t force that as in decades past.

Moderators ...

Please don't delete this thread. It is very informative and entertaining as well. Plus, there are no knife fights or gunfire, just an exchange of ideas between friends.

Thanks ...

Frank

I wouldn't bet against China. Back in the late '80s, early '90s, they were predicted to be eating our lunch by leading economists and the Pentagon.

Being at the top of the food chain, directing policy or just observing, they saw all the trends that would lead to our present situation and urged us to be prepared for it.

No one really listened. Now it's a great hobby horse to rail against. TPP was meant to reign in China on all sides to combat their aggression but someone who didn't like his legacy decided to dismantle every thing he did. Go figure.

All the best,
Nonoise

Its real easy, and simplistic, to look at China and see a juggernaut destined to overtake the US, if indeed it hasn't already done so. It really is a simplistic view. I'm not big on the logical fallacy of the appeal to authority (like quoting a Nobel laureate in lieu of actual argumentation) but I would recommend anyone interested pick up a book or watch a few videos with James Rickards or (if you think you have the financial chops) Kyle Bass.

First off neither China nor anyone else can just sell their Treasuries. The Treasury market is controlled by the Fed. (This fact like everything else I am saying is easily verifiable. DYODD.) Besides, even if they did, the way the bond market works is pretty much like everything else- you go to sell a lot, that sends the supply up and the price down. China can only sell so much without driving the price down. Would we take a hit? Sure. Compared to the hit China would take? Ha. They'd be screwed. And they know it, too.

I really cannot recommend enough - THINK don't just regurgitate!

Seriously. Most of what's out there is fake news. THINK! DYODD!

China has had a one child policy for decades. Combined with their preference for boys, China has a very VERY big demographic problem. Lots of single men. And that's just the tip of the demographic iceberg. As the massive legacy population grows older, One Child has left behind a huge drop-off, probably the worst in the world.

China is also a command and control economy. Very inefficient. Search the web for ghost cities. Entire cities- apartments, stores, - enough for millions of people, just sitting vacant. Go watch the videos on their construction quality. Built crazy fast, they crumble just as fast. There's tons of videos and stories. Check em out. DYODD!

Its one saving grace has been the lack of regulation that has allowed near unfettered private enterprise. This is why we see all these Chinese billionaires. Its not that they are so much better or smarter. Its that China allows them to do pretty much whatever they want (Permits? We don't need no stinking permits! Piracy? That's our business model!), and to keep pretty much whatever they can earn.

Is China hoarding gold? Hell yeah. Read your history. Unlike Americans who have never experienced hyperinflation the Chinese have a long history of paper money (possibly invented there) being hyper inflated to nothing. People who talk about the long history of China never seem to have learned this part of it. 

Opium war. Heard of it? British sent warships, forced Chinese to accept opium instead of silver for payment in trade. If China ever acts like its got a great big chip on it shoulder, brother, they do.

Soon as they get some money they buy some gold. Soon as they get a lot of money they get it OUT OF THE COUNTRY! Why, if China is so great, would they do that? Because they know China has no rule of law and a long history of monetary debasement. 

No rule of law. No faith in the currency. Not to mention a population so spied upon and controlled they already have millions who can't take a plane because the facial recognition software caught them stepping off the curb before the light changed. Not exactly ingredients for prosperity.

One more, as if the above aren't enough. Math. Sorry. But do the math. Yes China (and Russia, and Iran, and a bunch of other countries) are working diligently on establishing direct currency exchange outside the dollar. This is the REAL reason behind all the hoo haw about Russia, etc. But again, do the math. The USD market is beyond trillions. With derivatives it is into the quadrillions. Last I saw the derivatives market was 15 quadrillion, notional. Its truly astronomical. The Treasury bond market, just the T-bill part of it. is so vast as to be beyond their reach any time soon.

Almost forgot! Debt! Every country in the world is up to their eyeballs in it. And make no mistake- debt is not a problem. Problems have solutions! When you are in a plane and the pilot collapses you have a problem. When you are falling from the plane without a parachute then my friend you are in a predicament. Globally and locally, debt is a predicament! (Illinois, anyone? Anyone? Beuller?)

There is a range of debt to GDP that has been studied in many countries and shown that once debt reaches 105% of GDP its Game Over. Going by memory so could be 106, could be 110, but its in there somewhere. Like I said DYODD. Point is, from then on there's no coming back. No country of hundreds studied went anywhere from there but hyperinflation. Weimar Germany, Zimbabwe, Venezuela- those are just the ones you probably know about. There's a lot more. DYODD? Okay I will do this one for free: 28 countries just in the last 25 years!http://www.munknee.com/21-countries-have-experienced-hyperinflation-in-last-25-years-is-the-u-s-next...


So here's the thing. The US is right there. Depending on how you  measure we are right there or a just over the line. But guess what? China is a whole lot worse!

For sure China is a serious global competitor and not to be taken lightly. The way things were going until 16 we were on the road to being a wholly owned subsidiary of China, Inc. Not any more.

Just a little perspective. DYODD.