OT: How Trump Could Sink The Stock Market (Investor's Business Daily)
BurlingtonHoFactory
New Jersey, near the Shore
https://www.investors.com/how-to-invest/…
This article appeared in my newsfeed today and I immediately thought of some of the debates we've had here on TUSCL. It's an editorial about how tariffs caused the Crash of 1929 and the Great Depression, and it's a warning that Trump is slowly taking us down the same path. The article helpfully provides a bar chart of the Dow Jones Industrial average from 1928 to 1935, with highs and lows marked, along with corresponding political events that the author believes impacted the market. It reads like a word-for-word recap of the debate I once had here with mark94, twentyfive, and others.
Like most IBD articles, it's extremely brief but worth a read. I'm not predicting the future - maybe we're out of the woods now and the market can once again ignore the anti-trade rhetoric - but surely even the most rabid Trump partisans must notice the difference between the market's performance last year vs. this year. Last year, Trump concentrated more on traditional GOP/Chamber of Commerce stuff, like lowering taxes, cutting regulations, repealing and replacing ObamaCare, etc. But this year, he's been concentrating more on trade, specifically renegotiating Nafta and raising tariffs. And the difference in the market is like night and day: there's much more volatility and sideways movement now.
Anyway, read it and decide for yourself. And for those who aren't familiar with IBD, it's widely thought of as a very conservative publication. Check their political editorials and you'll see lots of anti-Obama and pro-Trump commentary, so you can't accuse them of writing a "hit piece" against Trump.
I've also seen plenty of articles criticizing Trump's trade stance in various left-leaning outlets, but they have no credibility as far as I'm concerned. The Democrats and liberals in general began turning decisively against trade in the 1970s, so it's pretty pathetic for them to criticize Trump on trade now for doing all the things that Elizabeth Warren, Bernie Sanders, Dick Gephardt, John Edwards, and Michael Moore have always wanted.
This article appeared in my newsfeed today and I immediately thought of some of the debates we've had here on TUSCL. It's an editorial about how tariffs caused the Crash of 1929 and the Great Depression, and it's a warning that Trump is slowly taking us down the same path. The article helpfully provides a bar chart of the Dow Jones Industrial average from 1928 to 1935, with highs and lows marked, along with corresponding political events that the author believes impacted the market. It reads like a word-for-word recap of the debate I once had here with mark94, twentyfive, and others.
Like most IBD articles, it's extremely brief but worth a read. I'm not predicting the future - maybe we're out of the woods now and the market can once again ignore the anti-trade rhetoric - but surely even the most rabid Trump partisans must notice the difference between the market's performance last year vs. this year. Last year, Trump concentrated more on traditional GOP/Chamber of Commerce stuff, like lowering taxes, cutting regulations, repealing and replacing ObamaCare, etc. But this year, he's been concentrating more on trade, specifically renegotiating Nafta and raising tariffs. And the difference in the market is like night and day: there's much more volatility and sideways movement now.
Anyway, read it and decide for yourself. And for those who aren't familiar with IBD, it's widely thought of as a very conservative publication. Check their political editorials and you'll see lots of anti-Obama and pro-Trump commentary, so you can't accuse them of writing a "hit piece" against Trump.
I've also seen plenty of articles criticizing Trump's trade stance in various left-leaning outlets, but they have no credibility as far as I'm concerned. The Democrats and liberals in general began turning decisively against trade in the 1970s, so it's pretty pathetic for them to criticize Trump on trade now for doing all the things that Elizabeth Warren, Bernie Sanders, Dick Gephardt, John Edwards, and Michael Moore have always wanted.
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23 comments
The only way to win in the markets are to be in it for life.
Well, to be fair, I don't plan long-term trades, period. I just rebalance haphazardly based on what the market has been doing. And I seem to be doing fine. Since I'm roughly 50% cash and 50% equity at this point, I really don't care what the market does from an investment perspective - I think I'll be fine either way. But that's not the point of the article or this thread.
Lots of people here really like Trump and voted for him. To put it another way, lots of white guys over the age of 50 really like Trump and voted for him. But I am curious how they would feel about Trump if his trade policies did, in fact, cause a major market crash one day. Or what if his gambit simply doesn't work and we don't "win" the trade war? My guess is that his supporters would blame someone or something else, but not Trump.
By the way, anecdotally speaking, I'm starting to see retail prices go up. First time in a long time. A case of bottled water, a package of imported feta cheese, a bag of hamburger buns, etc. All now have slightly higher prices. Maybe this is due to the improving economy. Maybe this is because of higher fuel costs. Maybe it's because of the tariffs. I have no idea. But at least in my part of New Jersey, I'm seeing this happen. (Also, slightly off-topic, my local car wash seems to have raised its prices for the first time since I moved here in 2004. And I also notice that there are fewer Mexicans and Guatemalans working there, but more Americans. Is this due to lower illegal immigration? It's probably a coincidence, but who knows? What I do know is that I'm paying higher prices. And I don't think the seniors on fixed incomes who voted for Trump will like this.)
When our buddies to the north have a 300% tariff on dairy, you need some leverage to get them to lower it. “ please, please, pretty please” won’t get things done. You need to threaten to raise your tariffs to the same outrageous levels they impose on you, then negotiate both levels down.
Raising our tariffs is not an end game, it’s a negotiating tactic.
I don't believe that. For one thing, Trump complains a lot about trade deficits. And we would still run a very large trade deficit with virtually every developing nation on earth (and many developed nations, too) even if they all eliminated their tariffs and barriers. He doesn't seem to realize this.
As for this being a negotiating tactic, yes, I'm sure you're right. But so far it isn't working. Our trading partners have been raising their tariffs in response to our moves, not lowering them.
We can expect even longer when our trading partners have had 70 years of one-sided arrangements in their favor. It’s like ending an entitlement program.
We are in for a bumpy ride. I believe it’s necessary.
"What Caused It
According to Ben Bernanke, the past chairman of the Federal Reserve, the central bank helped create the Depression. It used tight monetary policies when it should have done the opposite. Bernanke highlighted the Fed's five critical mistakes.
The Fed began raising the fed funds rate in the spring of 1928. It kept increasing it through a recession that started in August 1929.
When the stock market crashed, investors turned to the currency markets. At that time, the gold standard supported the value of the dollars held by the U.S. government. Speculators began trading in their dollars for gold September 1931. That created a run on the dollar.
The Fed raised interest rates again to preserve the dollar's value. That further restricted the availability of money for businesses. More bankruptcies followed.
The Fed did not increase the supply of money to combat deflation.
Investors withdrew all their deposits from banks. The failure of the banks created more panic. The Fed ignored the banks' plight. This situation destroyed any of consumers’ remaining confidence in financial institutions. Most people withdrew their cash and put it under their mattresses. That further decreased the money supply.
The Fed did not put enough money in circulation to get the economy going again. Instead, the Fed allowed the total supply of U.S. dollars to fall 30 percent.
https://www.thebalance.com/the-great-dep…
above has been one of the current theories that has been gaining support for the past 20 years.. the IDB article does nothing to explain deflation when tariffs are to be inflationary. New theories see those tariffs as coincidental and of less of causation than once thought.
all that being mentioned -- like the old french economist once said, " the only reason to study economics is know when someone is bullshitting you."
So they were a little late to the party then, eh? Amongst free-market economists, there has always been a long-running debate about whether the Smoot-Hawley Tariff caused the Crash and the Federal Reserve simply made it much worse; or whether the Federal Reserve caused the Crash and the Tariff simply made it much worse. We basically agree that both contributed to the misery but it's a chicken-and-egg question.
Yes, tariffs are generally thought to be inflationary, but by the time the economy enters a death-spiral, if interest rates aren't allowed to fall to their natural level, then deflation is a definite possibility (and that's exactly what we eventually got during the Depression). I agree that the gold standard did hamstring the Fed, as they were forced to fight the outflow of precious metals to maintain their reserve. But you know what else hamstrung the Federal Reserve? The limits of human knowledge and capability. I would prefer that the central bank simply didn't exist at all.
In public policy and economics debates, there are no right answers. Sure, Hoover agreed to the Smoot-Hawley Tariff on October 28 and the market crashed on October 29. But that doesn't really *prove* causation. And besides, economists disagree about almost everything anyway. There are only a few basic rules of economics, and then after that it all comes down to personal policy preferences. But interestingly, one of the very few things that economists actually do agree on, regardless of their political stance, is that free trade is good, and that tariffs are bad. Given a choice between mutual tariffs or unilateral free trade, virtually all economists will choose the latter. By comparison, they do not agree on the effectiveness or usefulness of a central bank. (Still, I will admit, far more of them would vote to keep the Federal Reserve rather than to abandon it.)
We can't run a counterfactual experiment in economics. The closest thing we have is the financial crisis of 2008-2009, which left us slowly recovering with a shitty economy for the next 7 to 8 years, and with a below-average labor force participation rate. If that's the best that the Wise Men of Washington can do, even after having "learned their lessons from the Great Depression," well I would personally be willing to abandon central banking entirely. What we replace it with is an open question.
Lastly, you're totally right: if you define winning a debate solely in terms of whose policies are ultimately enacted, then yes, Hamilton absolutely won the debate.
SJG
SJG
If he manages to accomplish this feat, I would be very happy and I would vote for him. Hopefully, while he's at it, subsidies and quotas can disappear from the world, too. But I don't believe this is what he really wants. His main goal is just to look tough and shrewd. And besides, as I said, for one thing, even if there were no such thing as a tariff anywhere on planet earth, America would still run a large trade deficit with most poor countries, and with some rich countries, too. Trump wouldn't like this. And neither would his supporters. And since it's always easier to blame foreigners for all of our problems, it wouldn't be long before Trump (or some other demagogue) proposes new trade barriers to protect American jobs.
Also, few developing countries would just meekly accept zero tariffs. They would call us hypocrites, because at several points in America's early development we did have fairly high tariffs. Alexander Hamilton, and later Henry Clay, both advocated for them. Developing nations usually impose much higher tariffs than fully-developed economies do. This is mostly due to fear, ignorance, and lack of experience.
I'm sure that's part of it, too. Since the government controls the ports, imposing tariffs is one of the easiest and cheapest ways for them to raise money.
But also the general view of economics that prevails at the time and place matters, too. When Hamilton and Jefferson were debating economic policy for our young nation, the mercantilists were still a dominant force in economics. Adam Smith had only just published The Wealth of Nations and it was still controversial. And Frederic Bastiat hadn't even been born yet. Mercantilism was still practiced on into the 19th century, with the British Corn Laws and Henry Clay's so-called American System. But by the late 19th Century, the tide was clearly turning. Hell, I think even Karl Marx accepted free trade as a "necessary evil" which I think he believed would hasten the demise of capitalism for some reason (but I'll let SJG discuss that). So to me, anyone who really accepts the "logic" of trade wars and high tariffs is simply living in the past. Hundreds of years in the past.
His views are ideology, not deriving from workable governance. And this is also true of Libertarianism.
SJG
FILM: Rise of the Nazi Cult (Pt. 1 of 2) - A conversation with Peter Levenda
https://www.youtube.com/watch?v=IvTJIWTz…