Collapse Of The Global Financial System, Part 1

 

International Man: What do you make of the ballyhooed potential trade deal with China?

David Stockman: First of all, the deal is all ballyhoo. You know what they say in Texas, “All hat and no cattle.” That’s what we got here.

There’s not going to be a deal, because the problem that Trump is focused on and obsessed with is that we bought $543 billion worth of stuff from China last year, and we sold $120 billion.

It’s not because of bad trade deals The Donald thinks that his predecessor made. Or because the Chinese are the worst kind of trade cheats in world history.

The reason is the economic differential—the economic cost and wage gap between the two countries is so great, that we have this huge imbalance. The Fed is the partial cause of that economic and cost differential.

If you look at manufacturing, our average wage is over $30, which includes the cash wage plus the health benefits, retirement, and Social Security taxes, and all the rest of it.

And in China, it’s about $5. When you have $30 versus $5, it tells you all you need to know.

So, we have this huge gap overall, which is $423 billion, in other words, exports minus imports. But almost 55% of that is accounted for by two trade code categories that really focus on smartphones, laptops, desktops, other computer equipment, electronics, and so forth.

Apple iPhones and the whole rest of it—the supply chain has been entirely transplanted to China. That’s because of a wage arbitrage. Last year, in those categories, we imported $275 billion worth of stuff, including about $90 billion worth of cell phones—and we exported to them only $27 billion worth of stuff.

So, there’s a massive 10-to-1 ratio of imports to exports, and it’s due to wage and cost differences, not because the Chinese cheat. The point is you’re not going to negotiate that away.

Trump has identified the problem of $423 billion merchandise trade deficit of one country. He’s only going to blow up the global trading system and supply chains with these idiotic tariffs. They’re really getting pretty serious.

There’s no doubt that this isn’t going to stop anytime soon.

I think it’s important to recognize that by the end of this year we’ll be looking at $550 billion Chinese imports in the US economy. At all stages of the supply chain—some finished goods, some intermediate goods, some parts—that will be subject to tax of $120 billion by a unilateral action of the president of the United States, who thinks he’s the trade czar of the world.

If we tax one country as opposed to all imports, you cause massive repercussions and ricochet effects in the supply chain.

It’s the greatest foreign aid program the United States ever conceived. We’re driving business, jobs, and work to Vietnam, India, Indonesia, Mexico, and a lot of other places, as we rip up these supply chains in China.

China is a red Ponzi…


Today's Contrarian Reads

Bagehot’s Baleful Bitter End—$17 Trillion Of Subzero Yields

One hundred and fifty years later we have transitioned from a world of institutionalized discipline. “Today’s world — one of paper currencies, floating exchange rates, enormous budget deficits, and governmental policies to protect both investors and depositors against the consequences of a bank’s mismanagement — is largely one of institutionalized indiscipline” (p. 294).     […]


Wall Street Loses Its “Mind”. Indexed Funds Now Exceed Actively Managed

Funds that track broad U.S. equity indexes hit $4.27 trillion in assets as of Aug. 31, according to research firm Morningstar Inc., giving them more money than stock-picking rivals for the first-ever monthly reporting period. Funds that try to beat the market had $4.25 trillion as of that date.             […]


Money Market Crisis: Rolling TOMOs Are Really POMOs—Or QE In Drag

With the US Treasury set to crush the market with supply as far as the eye can see, if the Fed wants to even keep rates at current levels, it will need to fund these Treasury offerings. That means that it must do either outright QE, direct purchases of  Treasuries, or stealth QE in the […]


Why The Fed Is Losing It–Control Of Fed Funds Market, That Is

Losing control of fed funds simply wasn’t in the plan. It’s hard to argue there’s no need for “accommodation” when it’s on every front page. So, Powell addressed these burdens by embracing yet another easily disproven canard. That way, he still gives out the planned second rate cut while maintaining how it wasn’t really necessary. […]


Growing EU Trade Deficit With China Signals Deepening Competitive Decline

Eurostat, the EU statistics office, reported the European Union’s surplus with the United States grew to 100.8 billion dollars in Jan-July 2019 from 88.6 billion in the same period of 2018. During that time the EU’s trade deficit with China expanded to 120.9 billion dollars from 109.2. This comes at a time that trade figures […]


Why Did The Repo Market Violently Upchuck? The Fed Has No Clue

US money markets are in a state of visible disarray. When repo is front page news that can’t be good. Most people including those in the financial media have no idea what a repurchase agreement even is or why there are so many of them.                 https://davidstockmanscontracorner.com/?p=349505&preview_id=349505&preview_nonce=8dff817af9&preview=true


Coincidence? Questions, Not Answers Surround U.S. Push to War with Iran

Why do they always seem to occur right after moments of de-escalation and there’s the threat of peace breaking out somewhere? Why is it that every time President Trump tries to push the U.S. and the world away from war within a few days there’s an incident which pushes us right back to the brink […]


So Much For Con Man Bill Browder: The Magnitskiy Myth Exploded

The conscientious judges of the European Court of Human Rights published a judgement a fortnight ago which utterly exploded the version of events promulgated by Western governments and media in the case of the late Mr Magnitskiy. Yet I can find no truthful report of the judgement in the mainstream media at all.     […]


Trumper’s Abandon Their Winnebago’s—No MAGA In RV Land

Last summer something strange started happening in the recreational-vehicle business. Even as President Donald Trump proclaimed “an economic turnaround of historic proportions” and his top economic adviser, Larry Kudlow, asserted that “this is a boom that will be sustainable frankly as far as the eye can see,” RV manufacturers shipped out 11.4% fewer vehicles and trailers in […]


Red Ponzi Faltering: August Economic Stats Got Still More Punk

Softness was visible last month in nearly every aspect of the Chinese economy, with industrial output and retail sales data pointing to sluggish demand and low confidence among businesses and consumers. Economists had been expecting economic activity to have recovered a little from July, when it fell to its lowest level in more than a […]