US Tariffs to go up again as there is not enough capacity and time to negotiate

Yet it is a lot of fun - while it lasts.

Couldn’t total consumer spending remain the same, only with the same total going to buy fewer items?

DB2

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Even were it proposed to give the bulk of the tax break to the middle class, which it isn’t, reducing tax revenue as a response to hoped for tariff revenue is hardly the way to reduce the deficit …

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The “R” in METAR stands for “risks” so if I may, I’ll quantify the risks.

  1. The economic risk of foreigners holding US bonds is exactly 0.0%

  2. The economic risk of foreigners not buying US bonds in the future is exactly 0.0%

  3. There is a theoretical risk in that some economists believe that foreigners bidding up bond prices lowers our cost of lending. There is a certain logic to this, however this effect–if it exists–is so small it is not quantifiable. So we don’t have to worry about this one either.

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Why do they buy Treasuries in the first place? Because they have buckets of dollars. If they don’t want to hold Treasuries, why would they continue to accept dollars for their exports?

Steve

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They don’t have to buy US treasuries, they can buy whatever they want. There are lots of reasons why they want to, but they don’t have to.

We don’t need them to buy treasuries either. So our economic risk of them not buying exactly 0.0%.

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They can buy other things. Real estate, corporate bonds, municipal bonds, stocks…virtually any other dollar denominated asset.

In fact, that’s where the majority of the dollars go now. Of foreign holdings of U.S. securities, about $17 trillion is in U.S. equities and about $14 trillion in debt, of which only about $9 trillion is treasuries. Probably another $1.5 trillion in foreign real estate holdings. So figure only about a third of foreign dollars go to federal debt (not including the dollars that are used for imports, natch).

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And if they decide the US is being run like a banana republic? Why would they want any sort of dollar denominated asset? If they don’t want dollar denominated assets, why would they accept dollars for their exports?

Steve…predicted the US as a “big, heavily armed, aggressive, banana republic” over 20 years ago

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A banana republic can still offer compelling investment opportunities. I’m just pointing that Treasuries are not the only place that foreign nations can - or do - park their dollars. In fact, it’s not even the main place.

Even if they do sour on all US assets, they can always use the dollars to buy our exports. Goods and services rather than dollar-denominated assets.

The current account and capital account have to balance. If there’s an exogenous demand shock that makes capital account investments less attractive, then the exchange rate will adjust. The dollar will weaken, making U.S. exports more attractive (and making imports less attractive to U.S buyers). Which makes us poorer, of course, but seems to be compelling to some folks.

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Curious, because the time people are pining for is when the public debt increased by 500% in just 4 years: 1940-1944. It put people to work, built factories, propelled the country for the next 20 years.

Curious that companies like Microsoft, Amazon, and even Apple carry debt, eh?

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I believe you already know the answer.

How many times have we heard “higher taxes lowers economic growth” ?

Across the board tariffs are a very broad-based tax, like a national sales tax.

The average expected outcome (all else equal, of course) of a tariff tax is lower total economic growth, lower average income.

Also lower average consumer spending.

So, no, it’s not expected that total consumer spending would remain the same.

Side note: people are more flexible on ideology than I realized, especially free trade and taxes. Makes me wonder, what is the true ideology?

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From AI - “The name “Grok” originates from Robert A. Heinlein’s 1961 science fiction novel, Stranger in a Strange Land. In the book, Grok is a Martian term meaning to understand something profoundly, not just intellectually, but also with empathy and on a deeply personal level, almost to the point of merging with it.”

The level of hubristic irony put out there by Musk is ridonculous.

Racist AGI, what could possibly go wrong? God help us, they’re going to unleash an AGI that’s been trained using X content. I wonder what they’ll call it.

Ooh, de-dollarization! It could be bad, very bad. We’re probably a long way from that happening, there isn’t another contender that’s even close to becoming a new global reserve currency. That said, crazier things have happened. If anyone could do it, it’d be the guy leading our country.

https://money.usnews.com/investing/articles/de-dollarization-what-happens-if-the-dollar-loses-reserve-status

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Next up, intrepid Steve debunks:

Gravity: “Friedman hasn’t mentioned this one time.”

Messenger RNA: “I do pickup from Arby’s, not delivery.”

Coelacanth: “It’s just a weird looking walleye.”

@Steve203, you’re worrying me (not really).

In fairness, you’ve been on a posting tear.

Do we need you to (briefly) tag out and have @UpNorthJoe step in to represent The Great Mitten?

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Cmon. In a recession everyone spends less. That is just a fact.

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We are in bizarro world.

The free trade, low tax gang now defends mercantilism and national sales tax.

Heck, I even saw a WSJ editorial mention how tariffs could reduce inequality (I should have saved it).

Now that is some crazy shift.

Can we get them to bend on health care, or do they still think free market got that covered?

I say we go for it.

Re-brand Medicaid and Medicare to T****care or GoldenM**aCare (or whatever branding works) if that’s what it takes to get 21st century health outcomes everyone deserves at sane prices.

If Medicare is good enough for the old and unhealthy (they’re not offering to drop that horrible government coverage and go free market, are they?), it’s good enough for the younger and more healthy.

One other macro impact: Reduce the trade deficit by reducing people flying to India or wherever for healthcare.

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“Do we need you to (briefly) tag out and have @UpNorthJoe step in to represent The Great Mitten?”

lol, I’m a busy guy, and Steve is a prolific poster, no way I can carry his posting load :-). Don’t see eye to eye on everything, but I luv his take on the workplace,lol. And he is spot on in regards to former Gov Snyder.

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Not really. Just like an increase in income taxes would reduce the total spending, so will a tariff. If you remove liquidity from the system (taxes or tariffs), there will be less consumer spending by default.

I surmise that tariffs actually remove even more consumer spending since a progressive tax increase would/should take money out of the savings of the rich(er) and not actually reduce their spending much if any.

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Can you expand on this? If they don’t buy treasuries, who would buy up the excess? Would not the reduced demand increase the cost of our debt?

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If the federal deficit is small, there is limited need to sell treasuries. This also drops the interest rate → which reduces the deficit → which reduces the interest.

Berkshire will buy all the treasuries. No need for anyone else, especially foreign governments.

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