After Stephen Mnuchin failed to arrest the dollar's freefall this morning, it appears to have been left to President Trump to 'fix' it. In a brief clip from a longer CNBC interview, Trump explained "ultimately he wants to see a strong dollar" and the dollar spiked...As Scott Adams says, facts are meaningless; persuasion is everything. Trump gets that in spades.
Zero Hedge
Dollar Surges After Trump Says "Mnuchin Was Misinterpreted, Dollar Will Get Stronger"
Tyler Durden
19 comments:
Trump probably thinks with the coming collapse in the trade deficit it will decrease the "supply!" of USDs and it would go up in price... iow he is applying the concept of "supply and demand!" to foreign exchange rates...
Meanwhile Mercedes-Benz is going down-market in the USA from PGA Golf market down to NFL Football market.... bearish EUR....
What the hell is a "strong dollar" anyway? If the dollar is strong against the Yen then things priced in Yen are easier to get for people with dollars. If the things priced in Yen are equal in quality to the things priced in dollars then smart business people with dollars will buy them.
Trump is trying to manipulate the system and make our economy look stronger than it really is while China is actually moving towards higher quality manufacturing, of which much will be used domestically with no need to export, after years of copying (which is part of how we learn) and making knockoffs.
Trump is the final distillation of the type of guy that passes for a smart businessman here. He thinks only in terms of stock market values, currency market values etc and works only to manipulate those indexes. If he sees the numbers of something he likes getting bigger he thinks "See, Im winning!!". Mean while Chinas 10 year plan has nothing to do with market indexes or anything else, its about a vision for how they want Chinese people to live. Agree or disagree with their vision, its the better perspective to take in my view. Trump is all that is wrong with American business the last 30 years Ignorant and myopic.
Trump is the final distillation of the type of guy that passes for a smart businessman here. He thinks only in terms of stock market values, currency market values etc and works only to manipulate those indexes. If he sees the numbers of something he likes getting bigger he thinks "See, Im winning!!". Mean while Chinas 10 year plan has nothing to do with market indexes or anything else, its about a vision for how they want Chinese people to live. Agree or disagree with their vision, its the better perspective to take in my view.
What's happening now is a test of whether central planning or spontaneous natural organization is superior. Central planning is winning bigly as the international liberal order crumbles and China is rising.
Not just economic either, as Umair Haque observes
Why We’re Underestimating American Collapse
Trump is a poor libertarian... idk what you guys are looking at...
“What the hell is a "strong dollar" anyway?”
It’s Mercedes Benz offering a $3500 rebate on C-Class.... that’s a strong dollar... BP lowering their price for a barrel of Brent to $40... etc...
Or you could see this as a trade war.
Tom this trump tax reform is going to prevent a trade war because it acts to equalize the terms of trade... nobody really understands what this tax reform is going to do in this regard ...
It’s going to act to collapse the US trade deficit with the fiscal deficit as the US tax rate has been reduced from 35 to 20 making it financially viable for multinationals to produce the United States where that resulted in a financial penalty previous
Is there evidence that offshore corporate despotic are being repatriated in volume. Are corporate tax receipts increasing as a result?
Ha ha. obviously, "despotic" should be "deposits." But you figured that out. I need to have a word with the auto-correction department.
So far I an not aware of any evidence of this happening but it is early in the game.
DJT is correct that if events work out as he expects and the twin deficits shrink, it will indeed lead to a stronger dollar since the result in the same as imposing austerity to bring about the result of improving the nation's balance sheet.
But that involves assuming that all other assumptions remain the same. And assuming ceteris paribus is abstracting from "the devil is in the details" in an uncertain world.
We'll see.
Twin deficits are going to come down... thing is I may be FOS on my “USD zombie” metaphor it may turn out that the trade deficit is largely being driven by US multinationals tax avoidance schemes ... via this change were going to get to see how much trade deficit is REALLY being caused by foreigners vs how much is being caused by US tax avoiders... the foreign USD zombie effect may not be the majority of the deficit...
“Is there evidence that offshore corporate despotic are being repatriated in volume.”
Not yet.... it should show up in Table 4 of the DTS as tax receipt increases if/when it does...
Just got passed for Jan 1 firms are going to have board meetings to figure out the specifics... ie buybacks/dividends/capex distributions... bonuses to employees that you hear about are a no brainer they are a penny (at best!) on a dollar cheap political cover for the inequality on steroids that is coming up...
My concern is that when the USDs are repatriated the ROW is left with no other choice but to go with cryptos .., for settlement and not for capital gains... scary!!!!!
"It’s Mercedes Benz offering a $3500 rebate on C-Class.... that’s a strong dollar... BP lowering their price for a barrel of Brent to $40... etc..."
Right, I get that. So its lower prices on things made else where (mercedes) or things traded with the world (oil). More buying power IOW
The thing about strong or weak is its only a relative term not an absolute term. Its onl.y strong or weak when compared to other currencies. If you are dealing with a single currency scenario there is no strong or weak only enough or not enough income. Most MAGAs seem to desire a world that is much more US centric... going it alone in more/most areas. Dollar strength is inconsequential then, dollar income is all that matters in that world
"thing is I may be FOS on my “USD zombie” metaphor it may turn out that the trade deficit is largely being driven by US multinationals tax avoidance schemes ... via this change were going to get to see how much trade deficit is REALLY being caused by foreigners vs how much is being caused by US tax avoiders... the foreign USD zombie effect may not be the majority of the deficit..."
Very interesting comment, insightful.
Id bet that tax avoidance is a much larger force. Have no numbers to look at to back up my claim just a couple things Ive found to be true...... The people pointing at foreigners have a history of over playing the foreigner boogie man in virtually all econo/political issues, they also have a history of being over focused on taxation and generally make all financial, decisions in regards to how it will affect their tax bill. Knowing a persons base motivation is usually all you need.
Greg,
"only a relative term not an absolute term. "
Yes, derived from the prices for what is being 'traded' between the nations...
Also I would point out that Trump has gone after BOTH types you are talking about..
iow he has dropped the corporate tax rate from 35 to 21 which may be closer to what the other jurisdictions are taxing at.. so US multinationals have no financial incentive to produce offshore anymore... and even the foreign firms will be better off financially to produce in their US Divisions too now at the 21% rate... see the Siemens guys comments in my post downthread... he is coming here to Charlotte with his new gas turbine program because the US tax rate went down to 21% its a pretty good deal...
And Then Trump is jawboning tariffs and now putting some on in order to get the attention of the perennial trade surplus nations to start to balance the trade...
iow all the foreign govts have to do is start to buy some things from the US and balance the trade and Trump will mostly get out of their face... once we strip out the part comprised of the former tax avoidance schemes it may not be that much for foreigners to buy in order to balance with the US...
But again if we pull the USD out of the external sector then what is going to fill the vacuum?
It might go to crypto outside the US rather than the ROW figuring out how to properly operate a FFNC type system a la MMT... People remain ignorant of MMT and crypto moves in to take over... as MMT is failing to break thru and the ROW will need something else besides glomming onto the USD system once the USDs are removed...
But why does trade have to be balanced? Thats barter. I get your mandarin oranges you take my computer chips. The whole worry about balance of trade is stupid. The money is supposed to BE the balance for the thing, and if people didn't become so obsessed with staying in whatever place on the money list they think they are supposed to be we would be much better off.
I think you are totally overplaying the corporate tax rate card too. It was about wages in ROW vs here. Many studies have shown that the actual corporate tax rate payed was far different than the nominal rate and far closer to ROW.
The tax rate comparisons conflate accounting methodologies... iow they take earnings and figure out the tax rate when they should use the tax accounting for taxes... if a firm has taxable earnings they paid 35% on that... if earnings were not taxable then they dont pay tax on those earnings... you have to do separate accounting for earnings and taxes... they are not the same accounting...
And Yes wages are relevant too and that is going to be up to the nations even with he tax cut... ie "trapeze nets at the slave factory dormitories or not?"... the nations can still suppress the real terms of production for their domestic workforces... China can go down to 2 rations of dog brain soup per day from the present 3 per day e.g. ...
The tax cut just takes away a pretty substantial but purely financial incentive to produce outside the US...
there is going to be a one time financial adjustment pretty quick here .... you already see it in the US equity indexes imo Warren Buffet has implied a SP500 3300 level this year as a one time adjustment to the tax cut going from 35% down to 21%... imo he implied a 20% increase in share prices from the SP500 2750 level... should be about 3300 pretty soon here... as usual "else equal" ...
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