"Public Fraud"
by Bill Bonner
Poitou, France - "The Trump Team seems to have the courage of its misconceptions. The missteps keep coming. On to Moscow! CNBC: "The Trump administration has quietly expanded its 50% steel and aluminum tariffs to include more than 400 additional product categories, vastly increasing the reach and impact of this arm of its trade agenda. The new tariffs, which took effect Monday, expand the scope of the levies that President Donald Trump previously announced on the valuable commodities. The tariff list now covers products such as fire extinguishers, machinery, construction materials and specialty chemicals that either contain, or are contained in, aluminum or steel."
The biggest misconception yet may be the ‘monetary reset’ signaled by the nomination of Stephen Miran to the Fed. Mr. Miran is the author of "A User's Guide to Restructuring the Global Trading System", the plan popularly known as the "Mar-a-Lago Accord."
So far, Trump’s attempts to pimp up the economy have seemed incoherent, even contradictory. For example, we were told that the foreigners were ‘ripping us off.’ Their tariffs and non-tariff barriers...were said to be too high, keeping American industries from being able to compete fairly.. The problem was that after coming down since WWII, actual tariffs were low - with a trade weighted average of only about 2-4%. And as the Trump team threatened and negotiated…with a combination of bluff, bluster, and bullying, we ended up with higher tariffs almost everywhere. It didn’t seem to make sense.
Then, there was the geopolitical component. China was supposed to be our arch-rival. But our ‘trade war’ attacks caused other countries to turn to China for stability. They made common cause — China, Russia, India, Japan and Southeast Asia -- creating the biggest trading bloc in the world...which we weren’t part of.
Nikkei.com: "India and Japan can go from quiet partners to Asia's power couple."
TIME: "India and China’s relationship is thawing as the U.S.’s ties with India chills under President Donald Trump."
France 24: "China's Xi heads to Moscow to beef up 'no limits' Putin partnership."
Bloomberg: "Trump Tariffs Seen Fostering New China-Global South Trade Order." China’s goods exports over the past decade have doubled to nations mostly across Southeast Asia, Latin America and the Middle East.
But then, last week, the method of the madness was spelled out...and it was madder than ever. POTUS didn’t want lower tariffs, he wanted higher ones. And he didn’t want to zero-out America’s trade deficits. He apparently believes that these large trade deficits - topping $1 trillion per year - can be converted into a kind of Sovereign Wealth Fund...that - in exchange for the privilege of doing business with us - the foreigners would reinvest in the US, in investments ‘directed’ by POTUS himself. This would make the Big Man, not only the soon-to-be-winner of the Nobel Peace Prize...and not only the most powerful human being who ever lived...but also the manager of the world’s biggest hedge fund. Bessent says the ‘fund’ will go over $10 trillion!
If that weren’t enough, US trade negotiators will also insist that the profits from these investments be divvied up - 90% to us...10% to the folks whose money is invested. No ‘2 and 20’ for this fund! When we first heard of this plan, we regarded it as not worth thinking about. Unworkable. Based on a fallacy. Foreign nations will never go along with it. Forget it. But a lot of people are taking it seriously...and preparing to make money by front-running it (Anticipating where the money will go...and getting there first.) And when the architect of this monstrosity was nominated to the Fed, it was time to look more closely.
Behind the plan is the kind of econo-babble that makes people sound like they know what they are talking about. Miran: "The root of the economic imbalances lies in persistent dollar overvaluation that prevents the balancing of international trade, and this overvaluation is driven by inelastic demand for reserve assets. As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella, as the manufacturing and tradeable sectors bear the brunt of the cost..."
Miran and his ilk argue that the US is doing the world a favor by running trade deficits. It is financing “the provision of reserve assets.” That is, it ‘prints’ the money used by the rest of the world like oil in a crankcase, to grease the financial system. It does so by spending more on goods and services from abroad than it earns from its exports - thus producing trade deficits. Miran sees these deficits as a kind of public service. They provide the world with ‘reserve assets.’
But this kind of monetary altruism (buying real goods and services with pieces of paper money) comes at a cost back in the homeland. It results in high debt, over-priced assets, and an impoverished manufacturing sector. The least the foreigners can do is a little ‘burden sharing’...by giving us back some of our money...says Bessent.
With Trump as the fund manager, it will be invested in the most promising, most critical industries. It will rebuild America’s industry...create good-paying jobs....and keep us from being an industrial backwater. We are told that the ‘agreements are in place.’ Supposedly the foreigners are willing to go along…perhaps even while the US feds take 90% of their profits. But the whole thing is based on a misunderstanding. Milton Friedman and Richard Nixon did the US no favor when they created the paper dollar in use since 1971. And the US did the world no favor by using it as the world’s reserve currency.
This was not a ‘public good,’ the US was providing. It was a fraud. And the wages of this monetary sin include today’s trade deficits.’ Had the US stuck with gold-backed currency, trade deficits would have had to be settled in gold. And since the US can’t ‘print’ gold, the imbalances would have been rectified a long time ago. So too, had we stuck with real money, we wouldn’t be saddled with a $37 trillion national debt. Nor with trillion-dollar interest payments…trillion-dollar deficits…inflation…and a looming bankruptcy.
There were no seriously lopsided trade deficits before 1971. It was the fake dollar that created them - not the Triffin Paradox nor other nations’ dastardly tariffs. The fake dollar - the ‘exorbitant privilege,’ as Giscard d’Estaing put it, of being able to ‘print’ money - twisted and corrupted the entire world financial system. And now, Miran et al, with more tomfoolery, will only make it worse."
