No MAGA For The Donald: The Problem Is Bad Money, Not Bad Trade Deals, Part 3

The Donald is at it again, pretending that he is America’s super-CEO and the Fed is his compliant Wall Street underwriter:

I’m doing deals, and I’m not being accommodated by the Fed,” Trump said. “They’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me…..

…..So far, I’m not even a little bit happy with my selection of Jay. Not even a little bit. And I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing.”

I disagree with the Fed. I’ve been open about that. I think the Fed is a much bigger problem than China. I think that China wants to make a deal very badly. I think we’ll either make a deal or we’ll be taking in billions and billions of dollars a month in tariffs and I’m okay with either one of those two situations.”

As we said in Part 2, Trump is about as incorrigible a statist as they come. He actually thinks that he is the very embodiment of the state, and that it is his job to orchestrate the comings and goings of trade, investments, factories, jobs and economic life generally within America’s $20 trillion economy; and, further, that it is the job of the Fed to insure his commands are executed by doing whatever it takes by way of cheap money and falsified interest rates.

The Donald’s latest kick is just more proof of the point. Apparently, someone explained to him that the current 25% tariff on light trucks originated in the so-called “chicken wars” with Europe way back in the 1960s. And since pick-up trucks have been the overwhelming success story of the American auto industry, the Donald did not hesitate to attribute it to the 25% tariff.

Not only that. He also reasoned that raising the tariff on passenger cars to 25% might be just the elixir to reverse the virtual collapse of Big Three passenger car production—as embarrassingly crystalized in GM’s decision to close down the Lordstown Ohio Assembly plant which the Donald claimed to have “saved” only one year ago.

So the 25% tariff on European cars is apparently back on the table. Just like that.

Of course, the reason there are no European pick-ups in US dealer showrooms is that they don’t make monsters like the Ram Truck and the F-150s in Europe: Their fuel taxes are way too high and their streets are way too narrow.

But never mind. As underscored in the quoted material above, the Donald actually loves tariffs because they keep foreign products out, provide a hammer for  trade negotiations and, in any event, generate some revenue if all else fails.

So we must say it once again: Wall Street’s complacent belief that the impending confrontation with China is all about the Donald playing an especially rough hand of the art-of-the-deal is flat-out delusional. He is not even close to compromising on his Trade Wars because as the Donald sees it his weapon of choice—-targeted tariffs—-is essentially a congenial tool and an acceptable end in itself if he doesn’t get sweeping, impossible to deliver concessions from the other side.

Meanwhile, his attack on the Fed for tepidly slouching toward interest rate normalization couldn’t be more counter-productive—-and not just because it will cause the institution to dig in its heels, notwithstanding Powell’s  “just below” verbal gaffe today.

Indeed, in complaining that the Fed is a bigger problem than China the Donald accidently told the truth. After eight years of negative real rates in the money markets, our monetary central planners have turned the C-suites of corporate America into destroyers of their own companies and workers.

That is, the two charts below are actually coupled at the hip. Nearly 100 straight months of negative cost carry trades in the trading pits have turned Wall Street into a raging gambling hall; and have incentivized the C-suites to plunder their balance sheets and cash flows in order to feed that  casino with an endless flow of cash from financial engineering maneuvers such as stock buybacks, special dividends, M&A deals, leveraged recaps etc.

That’s how you explain Lordstown. GM’s executives knew full well that the market for passenger cars has been shrinking drastically—-from about 50% of light vehicle sales as recently as 2012 to less than 33% today. So it needed to spend big time cash upgrading its vehicle fleet and revamping its production system to assemble products of the future.




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