Trillion Dollar Trade Deficit for 2021
"Inflation is a great asset. What a stupid son of a B****."
Another month another record setting trade deficit with another FOMC meeting that brags about a strong economy. I'm still not sure where the Fed is getting its economic data from but I assure you it is the same numbers I've been going over for months…
Time to highlight the record setting trade deficit of over $100 Billion! The forecast was for a slight decrease from -98.08B to -96.10B. Those estimates were shattered by the record setting number of -100.96 Billon! I called for this increase when discussing last months record setting number. The U.S. has been significantly underreporting incoming goods numbers for several months. When you compare those numbers to China's export numbers, you shouldn't be surprised by the raging deficit. Not to mention the fact our economy has been dependent on foreign goods to subsidize our spending needs. When your number one export product is dollars, importing real goods has a drastic impact on economic data.
I wanted to include this entire chart again to stress just how deep our trade imbalances have become. These imbalances not only point to the true weakness in our economy but the structural changes that will need to occur in the coming decades. The changes will be met with a lot of pain due to the current lack of real investment in American manufacturing and production.
Unfortunately this conclusion is not one shared by the PhD's at the Fed. I'm not sure what data they are seeing which is pointing to a strong economy but this sure ain't it. The job market may appear to be strong now but what happens as the economy continues to roll over into recession and business move to laying off people vs hiring them. Demand for services and imported goods only last as long as the Fed accommodates loose monetary policy. Loose policy which allows tons of extra liquidity into the markets. Propping up asset prices and artificially stimulating demand. That artificial demand mostly shows up in retail sales, imported goods. While ignoring the demand for essential goods, food and energy.
Yes, our GDP is up 7% year over year but that is with 120 billon dollars a month in QE for monetary support. With also another 5 trillion dollars of government spending for 2021. Looks like the only 7% growth out there is in asset bubbles. The financialization of our economy has been nothing but a drag on the real economy. A drag that is slowly becoming to heavy to keep around. Structural change will ultimately be forced once the U.S. loses it's monopoly on currency, "fiat money". I argue it will begin much sooner due to the loss in purchasing power of the dollar. Along with the middle-class becoming more aware of the reason their standard of living is decreasing.
Moving over to the Fed and Powell's remarks from this weeks meeting. It is becoming increasingly obvious that the Fed's number one "data dependent" point they are watching is the S&P 500 price, along with the entire market. The steep decline in equities over the last week has changed their definition of when it is "appropriate" to take action on inflation. Either the Fed truly believes that there is no inflation and it is not a problem, "#transitory". Orrr they know they cannot do anything about it without simultaneously destroying everything..
The only way out of the corner they have boxed themselves into is in the form of a brutal beating..
If inflation was truly a problem the Fed could do something about. They would have started raising intertest rate last year when it was apparent inflation was becoming a problem. If the concerns Powell mentions for American families that are struggling financially were genuine he would have announced the first rate hike at this meeting. Even if it was only the .25% hike, that is planned to be announced in March. At least it is something to back up his remarks.
I believe the Fed knows they are attempting to tighten monetary policy going into an economic slowdown. Politics has forced them to act on inflation regardless of the outcomes. Meaning after we have lift off with the first rate hike, QT is up on the table. Both of those things will only happen though if conditions are "appropriate". Meaning the markets cannot be tanking downward.
The very dovish tone Powell is giving shows he's attempting to bring everything down in a orderly fashion. Markets react sensitively on his every word. One wrong step and they could trigger a decline of 10% or 20% all at once. Vs the more desirable outcome of the 20% drop happening over the span of a year.
If anyone can remember back to 2018 when the markets took a steep plunge down. That was due to the Fed dually tightening monetary policy. In the process of raising interest rates they also were doing QT. Reducing the size of their balance sheet at this point is laughable at best. Due to the simple fact it has over doubled in size. They can hope that they could just "roll" treasuries off as they mature but adding a component of selling them at the same time will make the reduction bumpy. Adding interest rate hikes to the mix with all the leverage throughout the economy, an orderly decline is laughable at best! Remember 2018? The wire being walked is extremely thin…
Regardless of politics I believe it is extremely important to remember Debt to GDP. No country has ever survived that number running above 80% for an extended period of time. We've been over 100% since 2012, with that number shooting up in 2020 to 136%. With roaring inflation this past year, we have gone from 135% to 122%. Remind me again why with us having this significant amount of inflation to deal with the debt problems would we want to fight it?
I completely agree with Luke Gromen on this. The dollar will ultimately be sacrificed for whatever the desired outcome becomes.
Something is going to have to give in order to get our economy back on track. All of these things happening at once need to be considered when looking at both the Fed and the governments approach to the current inflation problem. The government knows the power of inflation and the pressure it can create…
Someone always has to pay the price for someone else's mistakes. Reckless government spending and deficits are not free. Despite what all the Keynesian College Professors would have us believe. As central banks around the world expand their balance sheets the standard of living for average people goes down. The only true way to limit the governments overreach is to remove their monopoly over the currency supply.
#EndtheFed !
Whether the sound money comes in the form gold and silver as it has in the past. As the framers wrote in the Constitution as the only legitimate form of money. Bitcoin maybe or another form of cryptocurrency that may not have been created yet but combines all of the great properties of these things together.
Bringing back sound money starts us back on the path to prosperity.