The US Tariffs

My knowledge of news comes to me as a second order effect.

You should be familiar with the fact that I don’t like the news as I see it is a direct conduit for Government and Elitist straight to you.

The other day I checked in on the S&P 500 perhaps around 2pm to see what the markets were up to. I was shocked to see that the S&P 500 was up roughly 8-10% in a day - the large green candle on the right in the chart below. I don’t think I have ever witnessed a jump that large in a single day.

My first thought was that we must have figured out Nuclear Fusion and now have abundant free energy. Cracking open the news to see what the movement was about - it looked to be to do with some tariffs, or more specifically the removal of some tariffs.

This surprised me. The markets saw the news as if it had fixed everything. Everything was going to be ok!

My initial reaction of adding tariffs or removing tariffs was that it is “irrelevant” - I believed that there are much bigger problems facing the US.

Problem #1 - Debt

To me, the first thing that should be in the minds of those running the U.S. would be how to maintain what they have. There are a few pressures creeping up on the United States that need to be resolved.

The first looming problem that stands out is the U.S’s debt of ~$37 Trillion. I’ve heard estimations for repayment sitting at around 1/5th of their total income. As this grows, it squeezes their ability to pay for Military, Health Care, keeping the Government running and so on. It is a threat to their continuation.

This first problem is that the US has a ton of debt and it is becoming harder and harder to service.

The Key ratio to look at is Debt to GDP.

The United States wants to get their Debt/GDP ratio down. This can be done by increasing the GDP or reducing their debt. Both are hard.

The only GDP boosts that I can think of come with the potential of leading the AI revolution, or potentially re-industrializing over a two decade period.

The way to reduce Debt would be to try to get a surplus of income to pay down the debt, increase immigration, default or debase the debt by inflating it away.

The danger of the Debt is that at some point you will find yourself in a position of not being able to repay your debt and defaulting on payments. This would kill demand of USD.

For the United States, they would want to drop interest rates so that their payments get smaller, as well as print more money as it would reduce their debt burden.

Problem #2 - World’s Reserve Currency

I have mentioned that BRICS is growing by member state applications. It’s resources, financial systems & integrations are becoming more robust and time tested. Not to mention their cumulative numbers amount to more than 50% of the population of earth.

These countries would rather not have the United States Dollar be used as the standard for international trade and would love to propose an alternative. Nothing has been pushed forward yet as a direct competitor to the US dollar, but it would likely be on the horizon.

With this coalescing, partner countries in the BRICS would most likely want to reduce their exposure to US Debt and assisting the US. It appears that China has been slowly offloading its Treasury Bills over the last few years. Now down to about half of what it once owned.

With a shrinking market of countries wanting to hold US Debt, the US would need to increase its yields to entice buyers. Increasing the rate would in turn drive up lending rates internally within the country.

However this would go against the goal of reducing the debt burden. If rates went up it would also increase the cost of Mortgages, Car Payments, Business loans and so on - potentially leading to recession.

If countries slowed down on buying Treasuries, the Federal Reserve might have to step in to buy the debt. I.e. money printing, which would lead to inflation.

You lending yourself money - It never makes any sense in any which way you visualize it.

This printing of money could also spook those outside of the United States with all this money diluting their debt being paid back.

Countries reducing their demand for US Treasuries would likely weaken the US dollar. Reduced demand for Treasuries would mean reduced demand in USD (Treasuries are sold in USD, so you would need to trade your currency for USD first).

Weakened US Dollars would mean importing products gets costlier - again leading to less velocity of money within the U.S. and a potential recession.

Potential Strategy - De-globalization

The U.S has had a cheat code for a very long time.

They got to print money from nothing and exchange it for real value such as food, oil, materials.

I imagine this like playing the board game of Monopoly and being the banker. Every turn I would just give myself a handful of cash and use it to buy all the hotels.

It makes sense that the U.S ran a Trade Deficit. Logically - import more than you export. It makes sense to leave your oil in the ground and swap some paper money with another country to get free oil.

A assume that the United States knows their current have their cake and eat it scenario is coming to an end. The World’s Reserve Currency and the Petro-Dollar are at risk.

Logically, their next options are to find another cheap China substitute or bring Industry back on-shore.

It might make sense right now that they may be looking to bring manufacturing back home. But in my mind they would need some China level overseeing from the government to really fast track the re-industrialization. It would have to be a matter of years instead of decades.

This would also be an almost unfathomable undertaking.

Next Steps

It might be a potential that that the US de-platformed China as their main manufacturing source and sought production elsewhere or maybe a mix of a new supplier and increased industrialization at home.

Either way - the current freeze on China and heavy tariffs on all countries, for the U.S is a short term win, long term loss, unless something radically changes.

Value isn’t created unless a transaction happens.

See this article below for rationale on transactions -