The Economist on China's success in emerging markets

Since the end of the cold war the rich world’s corporate giants have been the dominant force in global commerce.  Today consumers and workers in almost every country are touched in some way by the world-spanning operations of multinational firms from America, Europe and, to a lesser extent, Japan.  These leviathans are now under threat, as Chinese firms in industries from cars to clothing expand abroad with startling speed.  A new commercial contest has begun.  Its battleground is neither China nor the rich world, but the fast-growing economies of the global south.

~ The Economist, "Chinese companies are winning the global south," August 3, 2024

August 3, 2024

Scott Bessent: "If anything, defense spending needs to rise"

In the history of the world, there have been six reserve currencies.  Tell me what all the former reserve currencies have in common: Portugal, Spain, Holland, France, UK.  They were also security zones.  How did they lose currency reserve status?  Especially Spain, they got highly leveraged and could no longer support their military...  If anything, defense spending [in the U.S.] needs to rise.  You can't keep your reserve currency status if you lose the defense umbrella.

~ Scott Bessent, "The Fallacy of Bidenomics: A Return to Central Planning," Manhattan Institute, 30:30 mark, June 13, 2024

Scott Bessent compares Donald Trump to Ronald Reagan

Both immediately went for tax cuts.  They both focused on the biggest external threat.  Reagan spent the Soviet Union into oblivion.  I think Trump had a different idea for how to deal with China and make up for a lot of bad historical trade agreements...  Even "Make America Great Again" was a Reaganesque saying.  It's an optimistic vision of America instead of managed decline which I think Biden 2.0 would be.

~ Scott Bessent, "The Fallacy of Bidenomics: A Return to Central Planning," Manhattan Institute, 22:10 mark, June 13, 2024

Robert Murphy on free trade and the fallacy of reciprocating trade

In general, the case for free trade does not assume the other trading partners are reciprocating...  Just like, you're the coach of a basketball team who says, "Hey guys, I want to pass a lot.  That's how we're going to improve our competitiveness.  And we're going to be more successful on the court if we pass a lot rather than always just giving the ball to our star player and him trying to drive all by himself and just go shoot."  And you wouldn't say, "I don't know, coach, what if we're playing against some other team and they just always give it to their star players?  Does that mean we should reciprocate?"...  No, there are lots of situations where, if something makes sense to do, it doesn't matter if the other team's being stupid.  The smart thing for you to do is still the smart thing for you to do.  That's what the standard case for free trade is.  You're not making your people richer by imposing an extra tax in between them and potential sources of supply.

~ Robert Murphy, "Correcting Vivek Ramaswamy & Charlie Kirk on Tariffs," infineo, November 8, 2024

Wall Street Journal: "Do Republicans want to rein in the regulatory state or unleash it?"

Do Republicans want to rein in the regulatory state or unleash it?  It’s hard to tell these days, and the contradiction comes into sharp focus in J.D. Vance’s embrace of Lina Khan, Elizabeth Warren’s favorite regulator who runs the Federal Trade Commission.  At a Bloomberg technology forum in February, Mr. Vance called Ms. Khan “one of the few people in the Biden administration that I think is doing a pretty good job.”

~ WSJ editorial board, "J.D. Vance, Lina Khan and the GOP’s Economic Contradictions," The Wall Street Journal, July 18, 2024

Michael Lewitt on this week's expected Fed rate cut

The Fed is almost certain to commit another policy error this week by cutting interest rates by another 25 basis points with stock, housing & other financial asset prices at or near all-time highs.  Financial conditions are already loose so lowering rates will only further loosen them & feed the speculation pushing stock & other financial asset prices beyond reasonable valuations.  Gold & Bitcoin are also flashing warning signs that inflation is not contained (confirmed by recent data).  Nonetheless the Fed seems hellbent on its current easing path. 

As I’ve written all year, there is one compelling reason to cut rates - the cost of servicing the rising federal deficit.  If that is the reason the Fed is cutting, however, the plan is backfiring. Treasury yields have risen by roughly the same amount that the Fed has cut the Federal Funds rate since cutting began a few months ago.  As such, the market is telling the Fed it will demand higher compensation to fund the government under a lower rate regime.  This is entirely logical because lower rates enable higher spending & higher, not lower, deficits (as well as unproductive government spending & speculative private sector activity).  In short, the market thinks interest rate cuts are unnecessary.  The only market players seeking lower rates are private equity & private credit players who have little interest in what’s best for the economy.

~ Michael Lewitt, The Credit Strategist, December 16, 2024

Marc Faber on tariffs and onshoring

Now they have this brilliant idea to impose tariffs.  It's an absurd idea because the tariffs will increase the prices of just about everything.  And the employment gains will be very minimal because companies will pay the tariffs rather than move production into the U.S. where there is not sufficient technological skills, nor are there enough people to do the jobs that the Chinese or the Indians or the Vietnamese do.

~ Marc Faber, "High Risk of Market Crash as Smart Investors Sell with Marc Faber," WTFinance, 5:45 mark, December 11, 2024