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The wonderful thing about numbers is that when they are not jockeyed, jerked around, and falsified they tend to tell the truth. Continuing on this thought looking down the road the numbers do not work. This is where the late, Allen Meltzer, recognized for his wisdom and achievements in economics, enters the story. Meltzer was a professor of political economy at Carnegie Mellon University and a visiting fellow at the Hoover Institution. He authored the three-volume “A History of the Federal Reserve” and for over 25 years he chaired the Shadow Open Market Committee, a group that meets regularly to discuss the policy of the Federal Reserve.
To say Meltzer was not a fan of the economic policies that have unfolded since 2008 is an understatement. “We’re in the biggest mess we’ve been in since the 1930s,” he has been quoted as saying, before he went on to claim that, “We’ve never had a more problematic future.” This is about a person born in 1928 that while viewed by many economists as America’s foremost expert in monetary policy is little known by the masses. Meltzer was not been a fan of recent economic policy.
In a Wall Street Journal opinion piece on June 30, 2010, titled “Why Obamanomics Has Failed” Meltzer wrote about how uncertainty about future taxes and regulations was the biggest enemy facing future economic growth. He goes on to say that the administration’s stimulus program failed. Two overreaching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions. Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future.
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End Game Analysis
The end-game retaliation comes via a global boycott of the Treasury auctions. Foreign entities fund half the US fiscal deficit, which is set to double. Imagine the locals funding their own budget gap!
This forces the savings rate up at the expense of spending. Recession follows.
Treasury Boycott Thesis
I am surprised that Rosenberg brings this up because in my mind, this hash has been settled long ago.
What exactly would China, Japan, and Germany do with their reserves and ongoing trade surplus? Mathematically they have to do something.
Historically, that something has been to buy treasuries. But I suppose China could buy could be gold or US equities. The latter would be smack in the middle of an obvious bubble.
And if China were to dump US treasuries, the alleged nuclear option, it would serve to strengthen the Yuan. Recall that China sold US treasuries to support the Yuan and stop capital flight. In a trade war, China would not want an appreciating currency!
I think Rosenberg proposes nonsense, but given the nonsensical actions of Trump, I cannot rule out nonsensical or illogical responses.
This leads us to the most logical real threat.
Yuan Devaluation Thesis
China cannot retaliate with enough tariffs on its own to combat tariffs imposed by the US. Hower, the yuan does not float. China could devalue the yuan enough to counteract the value of US tariffs.
Of course, Trump could ban Chinese imports in response, but prices at Walmart, Costco, Target, everywhere, would skyrocket.
This scenario is nearly the opposite of what Rosenberg suggests. It is also far more credible.
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