The reason we are losing the economic war with China goes back to Democrats and the Clinton Administration back in the 90s. The 90s really set the “free trade” framework which was responsible for the loss of America’s manufacturing sector.
Republicans under President Bush continued the “free trade” policies of the 90s which culminated in the acceptance of China into the World Trade Organization. It was payoffs, bribes, and corruption at the highest levels of government that allowed a communist country like China into the WTO.
President Obama continued the corrupt policies of his predecessors because he was bought and paid for by special interest groups that supported offshoring and outsourcing.
China successfully paid off the mainstream media inside the U.S. which completely ignored and blocked stories about the destruction of the U.S. manufacturing sector. Both Republicans and Democrats gave China “most favored nation” trading status while enriching themselves through outsourcing and offshoring. The Establishment mainstream media inside the U.S. did not serve the interests of the average American. Instead, the mainstream media corporate oligopoly manufactured its own version of reality that completely hid the fact that both Republicans and Democrats sold off vast swaths of our economy to the Chinese and Mexico and hid it under the guise of “free trade”. I published an article explaining how Adam Smith’s and David Ricardo’s “free trade” has been perverted here.
Max and Stacy of the Keiser Report discuss how the U.S. is in an economic war with China and that we are losing badly.
America’s manufacturing capacity went over to China and so we had a Rust Belt that voted for President Trump.
But when did this actually become an issue in the U.S.? This become an issue in America when Hollywood found out that China was playing their movies over there and they weren’t getting their money so suddenly it’s a trade war because Warner Brothers didn’t get their check this month from China.
But the Rust Belt got eviscerated as millions of Americans lost good paying manufacturing jobs to China and little was reported in the media for over a decade.
The poor people produced as the result of outsourcing to China mattered little to the corporate controlled media. It wasn’t until their own corporate profits were impacted that they began running critical stories on China.
The most important movie to watch about the economic war with China is Death By China: How America Lost Its Manufacturing Base. The movie was produced by my economics teacher Peter Navarro. Peter Navarro is also President Trumps chief trade advisor. Every American needs to watch this movie because you can’t rely on the mainstream media to report this:
Scaramucci is one tough dude brought in as the axe to purge Obama leftovers from positions of power who are hell-bent on leaking information to the press in an attempt to discredit and derail the Trump agenda.
I called for a purging of Obama leftovers from deep-state positions months ago. President Trump acted really gullible IMO. I’m so tired of watching these amateur newbies like Trump who get elected to office and then are in some serotonin fantasy of everyone holding hands and singing kumbaya and just all getting along. It’s a stupid fantasy that I called out Trump on months ago.
Finally, President Trump seems to have learned the lesson through the school of hard knocks that he needs to purge the White House and all government offices of Obama leftovers that are trying their best to sabotage his agenda.
These Obama leftovers are some sick people with communist and socialist agendas. They have high levels of security clearance and can record telephone conversations and release those conversations to Democrat controlled mainstream media groups. They are waging a silent coup against the President using the full power of the deep-state.
The President brought in the axe Scaramucci who may even recommend the firing of Reince Priebus and any other Republican Establishment dude that’s not fully on-board with the President.
Scaramucci is carrying the full-anger of the President with him and that was put on display when he said he wanted to “kill” the leakers who are trying to sabotage the President’s America first agenda.
Scaramucci called in to CNN and really laid out what is going on with the leaks and how emotionally attached he is to solving the problem:
Sean Hannity of Fox News did this interview with Scaramucci a.k.a “the axe” and the purge that’s coming to the White House and government:
I don’t think traders and the stock market care too much about leaks. This is more of a national security issue than it is a stock market issue. We are seeing a delay of the President’s agenda as a result of saboteurs inside the deep-state which is likely resulting in the drop of the US dollar. However the market has mostly shrugged off Trump agenda delays believing that eventually the President will get control of the situation. I think that’s what Scaramucci represents for stock traders: President Trump regaining control of the situation.
Do you have any thoughts on Scaramucci? Leave your comments below.
Folks as traders we know better than anyone else that President Trump’s election has been great for the stock market. The problem is that President Trump has cited how the stock market has gone up by $3 trillion in value since his election. This has put a great big target on the stock market.
Powerful elites and crony capitalist CEO’s like Elon Musk that control a lot of money, now have a blueprint for how to take-down President Trump: take down the stock market.
President Trump only has a handful of Trump appointed officials working in government agencies. Most of the people working in government positions in the FBI, NSA, Department of Justice, are President Obama leftovers. This has created a dangerous situation of people who are not loyal to President Trump attempting to discredit and overthrow his administration at every chance they get.
We’ve already have had Michael Flynn spied on by the government and then that information was leaked to the mainstream media to discredit Michael Flynn and force him to resign. We’ve had the Obama Administration using the government to wiretap and spy on its political enemies in an attempt to discredit them. Now it seems like Flynn was told by establishment implants inside the White House that President Trump wanted him to resign when it turns out that President Trump never asked Michael Flynn to resign and he didn’t even know about Flynn’s resignation until after it happened!
President Trump needs to get his people in and the Obama traitors that are trying to sabotage his government out.
Folks the election of President Trump is not the end. It’s only the beginning. We are in a war with the globalist elite who want open borders, illegal immigration, and NAFTA and TPP like agreements at the expense of US workers.
People inside of the government are attempting a soft-coup inside the US. At some point the globalists will be using their immense wealth to take down the stock market. Now that President Trump is touting stock market behavior as a success, they will target the stock market to snatch that success away from President Trump. I wouldn’t be surprised to see a company like Citadel “hacked” which results in a flash crash of the stock market to get the selling started.
President Trump has to get his people in government and Obama’s globalist folks out. This now should be Trump’s #1 priority. President Trump needs his people that he trusts in as many positions as possible.
Folks a coup against President Trump could be taking place. Rogue elements within the US government wire-tapped then candidate Trump’s phones inside the Trump Tower.
Rogue elements inside the US government are log jamming and taking actions to undermine President Trump at every turn. I think we have enough evidence now to show a trend of a criminal bureaucracy, backed by elites, attempting to basically stage a silent-coup against President Trump.
For example, did you know that President Trump eliminated the ObamaCare penalty of penalizing employers and individuals $5,000 per employee for not getting ObamaCare? The mainstream media won’t even be honest enough to report that. The news won’t even report that the ObamaCare penalty is gone. That’s how corrupt the media is folks.
Fox News is part of the corrupt mainstream media and don’t fool yourself and think otherwise. Chris Wallace did a hit piece on President Trump basically accusing the President of lying on Twitter about how his phones were tapped. Chris Wallace left out the fact that two separate sources with links to the counter-intelligence community confirmed to Heat Street that the FBI sought, and was granted, a FISA court warrant in October. Wham! It’s over. If a FISA court warrant was granted last October 2016 to tap then candidate Trump’s computer and phone lines inside Trump Tower, then President Trump is correct in his tweet that his phones were in fact tapped by the Obama Administration! Yet mainstream media talking heads like Chris Wallace ignore this solid proof of President Trump’s claims and instead run the story that there’s no proof of what he’s claiming in his tweet.
Folks, in the Alex Jones show below, Alex focuses on this issue and others and talks about the silent-coup people inside the US government are attempting against President Trump. If they are successful at ousting President Trump, I expect a major stock market crash to take place.
Ron Paul continues to forecast a collapse of the US economy even in light of the election of President Trump.
Ron Paul said that Federal Reserve policy has set the country up for economic collapse, and though the central bank has been very creative in making the impossible work, and putting off financial disaster, nothing can hold back the flood forever.
Ron Paul thinks that Donald Trump will be blamed for the next financial crisis that he didn’t cause. Just like everyone blamed Obama for the financial collapse in 2009, this time, Trump will unfairly get the blame.
Ron Paul focuses on the Federal Reserve as the ultimate demon but what about his own actions and those of his fellow congressmen who passed horrible trade deals which ultimately lost millions of jobs to China. An argument could be made that the reason the Federal Reserve had to do what it did was because in 2001, China was accepted into the WTO.
Ron Paul thinks that an economic crisis is unavoidable, and even Donald Trump can’t stop it.
I think Ron Paul has gotten way too bearish in his old age, which is common with a lot of people. Try to resist getting more negative as you age folks. I’ve seen many good traders crash and lose everything because they became too negative with age. Nevertheless, I think it’s important that we hear the best arguments that perma-bears can put forth because eventually, at some point when the yield curve flattens and goes inverted, we will have the next Bear market.
The Committee on Foreign Investment in the United States (CFIUS) just did the unthinkable last week by deciding there are “no unresolved national security concerns” over the deal to sell the 134-year-old Chicago Stock Exchange to the Chinese.
Every common red-blooded American knows that selling the Chicago Stock Exchange to the Chinese represents the largest national security threat to the US in the last decade. It’s unthinkable that a communist country who is ideologically opposed to freedom and Democracy and who just last week seized an American underwater drone in neutral international waters would be approved by the US government to purchase the Chicago Stock Exchange.
China’s military has repeatedly harassed US ships in international waters over the last year.
How Deep Does the Corruption of the US Government By the Chinese Go?
The US government has apparently been infiltrated by Chinese interests. The fact that the Chinese bought influence and power inside the US government was made evident during both Democrat and Republican administrations who sold out US workers by closing some 60,000 manufacturing plants and moving more than 5 million manufacturing jobs to China since 2001.
Since 2001, China has invested more than $70 billion in the US, including more than $15 billion last year alone according to the China General Chamber of Commerce which operates inside the US. ChicagoBusiness writes…
Its Chicago chapter, led by Wanxiang America President Pin Ni, attracted some 400 local politicians and executives to its annual Aug. 3 gala to build business ties between the city and China. Chicago power brokers were there in full force with Mayor Rahm Emanuel, his investment banker deputy, Steve Koch, World Business Chicago CEO Jeff Malehorn and former Mayor Richard M. Daley, who consults on Chinese business through Tur Partners, as well as his brother, former U.S. Commerce Secretary Bill Daley.
The Chinese have demonstrated time and time again that they are not America’s friend. How then could the sale of the Chicago Exchange to a communist government that is hostile towards the US not be a national security threat?
What has been clear during both Republican and Democrat administrations is that people inside the US government are for sale and that’s the textbook definition of corruption.
The Committee on Foreign Investment in the United States (CFIUS) should be investigated for corruption by foreign powers. The people that sit on the Committee need to be examined to see if they received large bank deposits or other “favors” from the Chinese.
Who Sits On the Foreign Investment in the United States Committee
Chaired by the United States Secretary of the Treasury, the Foreign Investment in the United States Committee (CFIUS) includes representatives from 16 U.S. departments and agencies, including the Defense, State and Commerce departments, as well as (most recently) the Department of Homeland Security.
As Secretary of State, Clinton was one of nine voting members of CFIUS in 2010 that approved the sale of uranium to the Russians, which was then approved by President Obama. Money then flowed from the Russian-controlled company Uranium One to the Clinton Foundation. The New York Times wrote about the scheme here.
Let The Chicago Exchange Fail
The Chicago Stock Exchange should be allowed to fail if it can not stay competitive in a free market. Selling every struggling American company to the Chinese is how America slowly gets taken over by a foreign power.
Folks whenever you see a US government agency like CFIUS make an irrational decision that sells America out, chances are you will find a money trail that shows influence and corruption amongst that US government agency. Everybody elected or appointed to a government office is trying to get rich, just like we are, and they are willing to make wrong decisions for America, to achieve that end.
ObamaCare has created massive shortages within the healthcare sector. In cities, it is common to wait many hours before being seen as hospitals have a shortage of beds. Doctors have stopped taking new patients as they are overwhelmed by the numbers of people coming to see them. Let’s examine what happened from a macroeconomics perspective.
ObamaCare caused more than 35 million people to demand health services. The idea was that when demand for medical services increased, it would shift the demand curve to the right (D1). As more people demanded healthcare services, supply would increase to meet that demand.
The problem is that policymakers thought they could prevent price increases through non-free market price controls. That action of price controls prevented efficient movement of the demand curve along the supply curve. Instead, demand increased, but supply stayed the same.
Supply not increasing because of price controls is an absolutely logical market reaction and what many economists warned could happen. Health care providers do not have a profit incentive to increase supply because of price controls. If prices are going to be held lower at P1, then there are only enough profits in the industry for suppliers to produce at a quantity equal to demand at D2. ObamaCare increased consumer demand to D3, and so a health care services shortage has formed as indicated by the red shaded area.
Obama and Democrats focused too much on demand-side economics and not enough on supply-side economics. The failure of ObamaCare is that the supply curve did not shift downward (increase) to meet the new level of demand, at the lower price control level of P1 that the government established.
ObamaCare proponents claimed that top-down government operation was going to reap all kinds of cost savings for healthcare providers and thus would shift the supply curve down. That was wrong.
In an attempt to shift the supply curve down (to the right), the Obama Administration and Senate recently passed a medical reform bill to make it easier for someone to become a doctor.
The idea is to make it easier for people to become a doctor. I think this might be a case of too little, too late. Lowering requirements for doctors should have been done years ago.
All the recent talk of an OPEC deal to push up the price of oil is nonsense. Here is a hypothetical supply and demand chart of oil.
In this hypothetical example, equilibrium is set where the supply and demand curves cross at a price of $40 a barrel at 75 MMbpd.
Shifting the Supply Curve
Saudi Arabia controls 25% of the global supply of oil. What Saudi Arabia wants to do is to shift the supply curve up (raise the price of oil) by reducing the global oil supply.
After pushing the supply curve down by flooding US markets with cheap oil to put shale producers out of business, Saudi Arabia now wants to push the supply curve back up by reducing the global supply of oil.
US Shale Oil Production
Saudi Arabia wants to push the supply curve up just enough to keep most US and Canada shale oil production offline. Think about it. Why would Saudi Arabia push the supply curve up so that US shale oil production could surge again? Saudi Arabia would only lose market share again to the US.
Below is the global oil cost curve from Goldman.
Around $55 to $60 a barrel is the price that the Gulf of Mexico (GOM) output begins surging again, so it’s a pretty sure bet that Saudi Arabia wants oil to stay below $55 a barrel.
The purpose of the OPEC cartel is to create a monopoly and to control the price of oil at will, but history has shown that OPEC has only had limited success at doing that because cartel members cheat.
Game Theory and OPEC
Game theory and the famous Prisoner’s Dilemma model explains why, throughout history, OPEC has had only limited success at controlling the supply curve.
In the Prisoner’s Dilemma example, let’s assume there are just two parties, both cannot communicate, and they are separated in two individual rooms. The normal game is shown below:
Here, regardless of what the other decides, each prisoner gets a higher reward by betraying the other (“defecting”). Jack will either cooperate or defect. If Jack cooperates, Jose should defect, because going free is better than serving one year. If Jack defects, Jose should also defect, because serving two years is better than serving three years. So either way, Jose should defect. Parallel reasoning will show that Jack should defect. Game theory shows that the outcome is that Jose will betray Jack. The game is symmetric, so Jack should act the same way. Since both “rationally” decide to defect, each receives a lower reward than if both were to stay quiet. Traditional game theory results in both players being worse off than if each chose to lessen the sentence of his accomplice at the cost of spending more time in jail himself.
Jack and Jose both swore to each other several days before that they’d never rat on each other, but what happens when push comes to shove? It’s every man for himself.
Typically, both men go with their dominant strategy and betray the other. But because both separately decide to confess, they each end up getting two years in prison — a worse outcome than if they had both kept their promise to each other to remain silent. If they had both kept their promise, they each would’ve gone to jail for only one year. The logic of the dominant strategy is so compelling, though, that they each break the agreement and end up going to prison for two years rather than one.
This example of the Prisoner’s Dilemma is set up for just two people, but mathematicians have developed far more advanced models that can analyze the behavior of many participants. These models are invaluable for understanding cartels.
The basic conclusion of these multi-player models is that the dominant strategy is usually to cheat on cartel agreements. This result goes a long way toward explaining why the OPEC oil cartel has a hard time raising oil prices and then holding them there for a lengthy period. Quite simply, cheating on OPEC cartel agreements is a dominant strategy for OPEC member countries. The cheater is better off producing more than its quota because it can sell lots of oil at a higher price if the other countries are obeying their quotas. Overproducing is a dominant strategy and is simply too tempting to resist given the rewards.
OPEC could more effectively manipulate the supply curve up or down if it had some way of threatening its members if they violated their quotas. Because the member countries are sovereign nations, it’s hard to threaten members. Saudi Arabia controls 25% of the world’s oil and so they sometimes threaten to flood the market with oil and create very low oil prices as they did recently against the U.S. I have little doubt that Saudi Arabia threatened the Obama Administration to curtail shale oil production or face the consequences of super low oil. I think it’s clear that the Obama Administration allowed Saudi Arabia to flood US markets with cheap oil to drive shale oil producers into bankruptcy. I think the Obama Administration was more than happy to go along with Saudi Arabia’s attack against shale producers because of its own environmental concerns regarding fracking.
The US national debt just broke above $19.5 trillion. Both Democrats and Republicans are to blame, but it is important to note that President Obama and Democrats increased the national debt more than all President’s before combined.
George Bush exploded the national debt by $3 trillion in response to an imploding economy and 911. Obama exploded the national debt by $10 trillion in response to an imploding economy.
Debt increases are a function of the government not being able to pay its bills because it has too little revenue (taxes) compared to costs (spending). When spending exceeds revenue you have a deficit. Since 2002, this is what quarterly deficits (or surpluses) have looked like.
The last time we have a surplus was back in 2001, some 16 years ago. That’s sad.
The interest on the $19.5 trillion dollar debt is about $482 billion a year or more than $60,000 per US citizen.
How does the US government finance the deficit?
The Crowding Out Effect
The U.S. Treasury sells IOUs in the form of bonds or treasury bills directly to the private capital markets and uses the proceeds of the sales to finance the deficit.
The US Treasury is competing directly in the capital markets with private corporations, which may also be seeking to sell bonds and stocks to raise money to invest in new plant equipment. To compete for these scarce investment dollars, the Treasury typically must increase the interest rate it is offering to attract enough funds. Running a huge deficit is largely a zero sum game because funds to finance the deficit would otherwise be spent on private sector investment (the I variable in the GDP formula).
Money used to finance the deficit is money that would otherwise have been borrowed and spent by corporations and businesses on private investment. Deficit spending by the government is said to crowd out private investment. Crowding out is the offsetting effect on private expenditures caused by the government’s sale of bonds to finance the deficit. The larger the deficit and the more government needs to spend on financing that deficit, the more crowding out occurs.
The crowding out effect, which is one of the most important concepts in macroeconomics, is illustrated below.
The initial equilibrium is at Y, where the aggregate expenditure curve AE, crosses the aggregate production curve AP. However, expansionary fiscal policy shifts the aggregated expenditure curve up to AE1. This leads to a new equilibrium of Y1. However, because the government has had to borrow money from the private capital markets to finance these expenditures, interest rates rise. This reduces investment and a resulting contractionary effect shifts the aggregate expenditure curve back down from AE1 to AE2.
The final equilibrium is now at Y2 as the net economic expansion equals Y2 minus Y. At the same time, the partial crowding out of private investment may be measured by Y1 minus Y2. The level of partial crowding out rises the more government borrows from the private sector.
It is my opinion that government deficits are a weak fiscal policy tool at best, and I think the last eight years of President Obama increasing the national debt and running the largest deficits in US history has proven that point.
A few readers have asked me if crowding out can be reduced by printing money. The idea is to avoid crowding out by printing money and here is how that scheme works. The Federal Reserve accommodates the Treasury’s expansionary fiscal policy by buying Treasury’s securities itself rather than letting the securities be sold in the open capital markets. In essence, the Federal Reserve simply prints new money.
The problem with this option is that the increase in the money supply can cause inflation. Moreover, if such inflation drives interest rates up and private investment down, as it is likely to do, the result of the print money option will be a crowding out effect as well. In other words, there is no escaping the crowding out effect when it comes to financing the deficit. Again, look at the last eight years of President Obama and look out how much he has put this country in debt and ask yourself has it really benefited the U.S. economy that much? Perhaps some, but ultimately crowding out took away much of the initial gains from Democrat’s expansionary fiscal policy.
Deficits Impact On International Trade
Deficits and a rising government debt is a serious threat to the US. Chronic budget deficits have not only been responsible for crowding out private investment, but also for America’s huge trade deficits over the last several decades. The macroeconomic relationship between deficits and international trade is illustrated below.
As government deficits drive interest rates up in boxes 1 and 2, we observe crowding out in box 3. Now look at box 4. Higher US interest rates attract foreign investors but, for these investors to invest, they must exchange their foreign currencies for dollars. This not only leads to an increase of US external debt in box 5, but it also drives up the value of the dollar in box 6. A stronger U.S. dollar makes U.S. exports less competitive, and exports decrease in box 7 even as imports increase in box 8. The result is a larger trade deficit in box 9, and that’s why economists refer to budget and trade deficits as the “twin deficits.”
A trade deficit means a country is not exporting enough to pay for its imports. The difference can be paid by either borrowing from abroad or by selling US assets.
To finance its trade deficit, the US has had to sell off assets such as factories, shopping centers, hotels, golf courses, and farms to foreign investors. This mortgaging of America has reduced both the rate of economic growth and the level of real income of Americans.
Deficit Doves Say Don’t Worry
Deficit dove economists that work for Democrats and the Obama Administration say don’t worry about the national debt because most of that debt is internal debt owned by the country to its citizens. Obviously, that argument by Democrat economists is not so good as evidenced by the broken US economy some eight years after Democrats and Obama took office. I list four reasons below why this “don’t worry be happy” argument is wrong and how it has hurt the US economy.
#1: Internal Debt Leads to Higher Taxes
Internal debt requires payments of interest to bondholders. This, in turn, means higher taxes which distort the allocation of national resources and lead to an efficiency loss.
#2: Internal Debt Redistributes Income From Poor To Rich
Paying interest on the internal debt unfairly redistributes income from the poor and middle class to the rich. This happens because government bondholders as a group tend to be wealthier than taxpayers as a group.
#3: Servicing The Debt Cuts Government Services
Paying interest on the debt uses $482 billion each year, and this money could otherwise be spent on providing taxpayers with more education, health care, and other government services. The size of the interest payments to service the debt, relative to total tax revenues, has been rising every year. If nothing is done, we will eventually wind up using all available tax revenues simply to service the debt.
#4: A Burden On Future Generations
The accumulation of such a large debt places an unreasonable burden on future generations, which must pay this debt off. I don’t know what to even tell my daughters about the $19.5 trillion national debt, so I choose to say nothing. I could say I voted for Obama because I wanted to vote for the first African-American President and I thought he would save our household money on medical care. Then say, oops, my bad, now here’s the $9 trillion he added to the national debt during his Presidency that you have to pay off when you’re old enough to work. Thank you and have a nice day.
Niall Ferguson thinks that the “age of debt” is coming to an end. Apologies for the sub-titles but this Hard Talk interview has an important message.
With a growing crowding out effect, it may be impossible to increase GDP in a meaningful way until the national debt and deficit spending is reduced.