Probably a high percentage of American voters assumed that billionaire Trump was a genius in economics. However, astute economists, including Reagan budget director David Stockman, agree that the new budget bill that Trump signed – against his will so he says – coupled with his new war cabinet, may be the last straw on the way to US bankruptcy. Not only that, Trump’s bet on the fracking industry appears to be problematic to say the least. Every one of the major US oil companies, while able to develop strong sales turnovers, have not had much luck turning profits. So far, the balance sheets look a lot like those or the US government, with mostly loans on the assets side.
So how is it that a man who was able to earn billions for himself has such a penchant for accruing debt for his people?
Perhaps the simple answer is that business economics is not anything like macroeconomics, which is similar to chess, while business is more like checkers. America is becoming more and more predatory-capitalist, or as they call it in Britain, corporatist. There may be a few cracks to fall through as an honest business person, but it is much more likely to succeed if you are a fast talker and not bound by those outmoded handicaps called morals and principles. That free-wheeling sort of mentality can make you rich, but when applied to world trade, it can cause complications.
We had written before about the predatory aspect of US trade policies, namely the decision to slap sanctions on anything or anyone aiding Russia in the NordSteam II project, a pipeline intended to supply cheap Russian gas to Europe (the key to Germany's economy, for one thing). As part of this strategy, Trump took a sales trip to Poland to talk the gullible Polish government into setting up an extravagantly expensive receiving terminal for extravagantly expensive US LNG, which would be used to supply domestic needs as well as forward the gas to Europe, in an effort to wean the continent off cheap gas. Sure, he was president, all he had to do was snap his fingers. It was a lot like the scheme of super salesman Milo Minderbinder in Joseph Heller’s novel Catch-22. Bomber pilot Minderbinder got a deal on Egyptian cotton and another deal on chocolate and began marketing chocolate-coated cotton. Trump could have mentored Milo.
This lack of macroeconomics expertise could explain Donald’s success as a politician but his difficulty making ends meet in his Treasury Department.
Trump also fell into a trap that was not intended as a trap. That is, when Putin showed the world his video presentation of Russia’s hypersonic missiles that can zoom through all known air defence systems, he made it crystal clear that he was not inviting competition, ie, a renewed arms race with the country that spends ten times more than Russia on "defence," but au contraire, was trying to show the US that this is not the time for an arms race, but rather for the bargaining table. But not only did the pathologically competitive Trump see the new Russian arms as a challenge and immediately decide to buy more flying toys that can be bypassed or, as the case may be, hit by Putin’s hypersonic missiles, but the Pentagon and lawmakers all fell into the old rut of wanting to defend and protect not the public but America’s reputation as the Exceptional and Indispensable Nation, while feeding the defence contractor cronies who had funded their campaigns. We had shown that the US’ preference for feeding the defence industry over US security was the Achilles heel of the defence department, which is hopelessly inefficient and bound to break the bank.
Thus roughly another nearly $700 billion was earmarked for defence in the next budget, thanks mostly to Trump. Much of this will be spent on ships, all of which can be sunk in a matter of minutes by Putin’s hypersonic Kinzhal, and new air defences, which Putin showed are now also useless.
But beyond the killer budget, America’s efforts – headed by Trump – have been focused on using political, rather than economic, means to make America if not great at least prosperous again.
The contrast with China’s policies could not be more stark.
Whereas China resorts to the old standard free market principles, and has come up with an ingenious and potentially profitable project, OBOR (One Belt One Road – now more commonly known as BRI – Belt and Road Initiative), to unite its trading partners in Eurasia, Europe and Africa, the die-hard US seems only capable of using the same old boring threats and other forms of bullying to force its clients to “buy American.” And as if BRI were not enough, China just last month opened its new oil futures market in Shanghai, with the novel twist of denominating its shares in petroyuan convertible to gold, as we reported here. A translation we featured in July 2017 had already foreshadowed the Chinese oil futures market, which is now a reality and is a direct threat to the USD.
Trump’s trade war with China is also problematic. Firstly, most economists worth their salt will tell you that slapping tariffs on imports is a lousy idea that rarely works because the trading partner you are targeting can do likewise to you. And sure enough, China is eyeing all kinds of tariff targets, such as Harley-Davidsons, Apple, Intel, Boeing, foodstuffs such as soybeans, fruit, pork, and autos. China also has the option of scaling back treasury purchases or even selling off dollar reserves. Russia will do its part as well. Trump may be right in one respect: The US has a huge trade deficit with China, buying much more from them than it sells to them, and China is therefore more vulnerable than the US in terms of imports – but that is only if we forget that dollars are US exports. Considering the USD, China can theoretically win the trade war hands down.
Even so, the timing may not be so good for Trump. Even as the US dreams of becoming the world’s biggest oil exporter, precisely the fracking industry stands to lose the most as a result of Trump’s new tariffs. His 25% tariff on steel will make this commodity significantly more expensive, benefitting steel workers for now, but also threatening to drive up the price of US oil even more by raising the price of the steel pipes used in the oil fields.
Just the prospect of these tariffs has also had a dampening effect on world stock and oil prices, whereas the US needs high oil prices just to break even in the oil market, which so far is drowning in debt, as reported here, here, here and pretty much anywhere you look.
The good news is that if the US can lay down the stick and pick up the carrot, and if it can beat its swords into ploughshares, there is no limit to the prosperity that may await the country.
But to achieve this will require a cultural tectonic shift. The American people themselves will have to do an about-face, learning responsibility and a serious attitude toward life, putting aside petty differences and becoming a truly united nation. As such they will have to go to war against an irresponsible government that exploits their differences, their lack of will and self-sacrifice and their Pollyanna view of themselves and their country. So far, while they are not as eager to go to war as they have been in the past, they have a long way to go before they change their way of thinking, actively demand peace of Washington and make a real change.
Failing this, if the American people continue to show a severe lack of will power and seriousness, there is no use looking to their politicians for hope. The change will have to come from abroad.
But after all, who among the passengers of a sinking ship would refuse a rescue from a ship under any other flag? A healthy dose of reality may just be exactly what the doctor ordered.