In ancient days, to avoid the wrath of a Rome, the wealthy would often offer tribute in many forms as a sign of submission and obedience to the rule of the emperor.
Based on what happened in the past week, I’m beginning to believe that America has once again closed that circle.
Now why would the CEO of Apple offer a 24 karat gold base trophy to Trump along with more empty promises to move more manufacturing for Apple products with a further $500 billion investment into the United States?
Perhaps it had to do with granting exemptions for the iPhones produced in India:
The very same iPhones that Trump convinced Apple to move production from China to India in 2018 and when Apple resisted this idea Trump threatened to impose tariffs on Apple. At the same time all of this occurred, what did Apple’s Tim Cook do in 2018?
The exact same thing in January of 2018(via The Verge):
Apple commits to contribute over $350 billion into US economy over the next five years
Once President Trump got his “tribute” in 2018, the idea of imposing tariffs on Apple products produced exemptions and the same thing happened again this past week. The public spectacle of the offering was enough to satisfy Trump’s ego and once again stroke the illusion that public-private partnerships can work in the modern economy.
Sad as that sounds, we’ve just gone full circle from the Obama era labels of “crony capitalism” in an attempt to rename the label of broccoli-cauliflower ice cream and convince everyone it’s actually birthday cake flavored.
This is nothing new in American history as Presidents have been so apt to demonstrate.
Trump Populism or is it Teddy Roosevelt Republican Progressivism ?
After earning the reputation for trust busting after becoming President in 1901, Theodore Roosevelt, much like Donald Trump showed his progressive side by engaging in the age old act of crony capitalism cutting deals with his enemies.
The breaking up of J.P. Morgan’s Northern Securities Trust by Roosevelt’s administration was seen as a turning point in the monopolistic behavior of that era. However, Roosevelt, much like Trump was easy to sway when he needed to use that portion of his “Three C’s” strategy to control corporations to achieve his goals.
The major shift which occurred under Roosevelt with J.P. Morgan’s financial empire began when in 1902 during the Anthracite Coal Miner’s strike, JP Morgan helped mediate a deal between the coal mining companies and the workers. From the Smithsonian Magazine article on the resolution:
Morgan agreed to meet with Elihu Root, another former corporate lawyer and Roosevelt’s secretary of war. The financier and the president each trusted Root more than they trusted each other. Root joined Morgan on his yacht Corsair, anchored in the waters around Manhattan, on a Saturday in mid-October, and over five hours they drafted a plan that would end the strike and create an independent commission—appointed by Roosevelt—to hear the complaints of the mine owners and their employees. Morgan insisted the executives sign off on the compact, which they did. A few days later, the union leaders and the strikers did too. By the end of the month, the miners were back at work.
As Roosevelt realized that the hardening of positions against the nation’s financiers and industrial leaders was not always the wisest of strategies (sound familiar) in 1907 if it were not for JP Morgan organizing the rescue of the financial system, Theodore Roosevelt’s story in history might well have been as dark as that of Herbert Hoover’s.
If there is a reason to recognize these stories today, it is because while President Trump’s statements might seem reckless and arbitrary, the populist in Trump’s administration is often overridden by the pragmatic reality of America’s corporate power. Thus when Trump acts like Teddy Roosevelt threatening their domain within the US economic structure, most CEO’s would rather work or appear to work with the administration versus engaging in controversy and disdain.
This translates also into the global realm as the nations of Saudi Arabia, Qatar, and Taiwan have already demonstrated.
Why is this important to the future of the US economy and how does this translate into the risk that most people are failing to foresee in this author’s opinion?
Hubris, Ignorance, or Arrogance?
On August 11, 1932, in the heat of the Presidential election campaign, President Herbert Hoover said the following:
I am squarely for a protective 1tariff. The proposals of our opponents would place our farmers and workers in competition with peasant and sweated labor products…
–The Memoirs of Herbert Hoover, The Great Depression 1929-1941 p. 290
Sound familiar?
The one thing that people who review modern history versus what has happened twenty, fifty, or one hundred years ago is that the average economist or historian fails to take into account the hubris or arrogance of the leaders of that era being analyzed.
In 2006, if anyone dared to mention that there was a housing crisis due to misallocation of capital into the new subprime financing models, that individual was given the label of heretic, lunatic, and worse, anti-capitalist because everyone knows giving no income verification loans to non-citizens always ends well, right?
This translates into the modern era, unfortunately quite well.
Hoover’s hubris, the banker’s arrogance, and our Federal Government believing they are incapable of making any errors in the name of profit sounds like a formula for a repeat if not expanded disaster.
Yet here we are again, with the NASDAQ trading like it’s 1999, the Dow and S&P 500 skyrocketing like there’s no risk, and the consumer using every dollar available on their credit limits go participate in online sports gambling, online brokerages, and buying everything from cars with $1200 per month payments for 84 months or homes financed with modern day versions of ARMs.
The current President of the United States started his trade war proclaiming that their might be some turbulence on Wall Street but it was not big deal because his tariffs would ultimately lead to a repeat of late 1890’s America and the greatness of the Gilded Age.
Unfortunately, President Trump does not understand private and government global debt as well as he does private credit for casinos and hotels, supply chains, or how reshoring simplistic industries back to America’s shores could actually be extremely inflationary for the average US consumer.
This misunderstanding of reality has allowed him to believe that debt is great and that the US dollar’s superior position is at no point a threat to the American people or system. Unfortunately, unlike Trump’s first term, China and the rest of the world, okay, maybe not Europe, has learned how to deal with the snake oil salesman and his hubris.
So how bad is the situation from Trump’s first term to the current era and how could his hubris potentially lead to disaster?
Perhaps a further review of history and some statistics is once again in order.
How Did America Get Here?
For thirty years the Federal Reserve neglected it’s fiduciary responsibilities and enabled an era of easy money, easy credit, and neglected the oversight of America’s financial institutions as it was chartered to do so in 1913. To make matters worse, the political leadership of the United States demonstrated that it was nothing more than a bunch of Nevada brothel floozies, willing to sell their souls for personal financial gain and turning a blind eye while corporate America did the same.
Where did in fact, the politician’s whorehouse open and the Greenspan Fed intersect?
In 1999 the Financial Modernization Act, primarily known as the Gramm-Leach-Bliley Act, essentially marked the repeal of the Great Depression Era Glass-Steagall Act which segregated investment banking from retail banking. Since that repeal however, one thing has happened which is somewhat alarming: The financialization and securitization of everything be it viable or not.
While many blame this law for the carnage of the Great Financial Crisis, the reality is that it was not the Act itself, but the failure of the Federal Reserve and US government to actively engage in the regulatory oversight of malfeasance by institutions using existing laws already on the books. As the CATO institute’s Mark A. Clabria wrote about in July of 2009 the problems during the GFC in his review of the GLBA and mortgage backed securities (from: Did Deregulation Cause the Financial Crisis?) :
Normally one would expect the ultimate investors in mortgage-related securities to impose market discipline on lenders, ensuring that losses stayed within expectations. Market discipline began to breakdown in 2005 as Fannie Mae and Freddie Mac became the largest single purchasers of subprime mortgage-backed securities. At the height of the market, Fannie and Freddie purchased over 40 percent of subprime mortgage-backed securities.
Emphasis is my own of course.
In other words, the very institutions, the financial institutions, America’s government, and the Federal Reserve turned a blind eye as the money kept rolling in versus taking a serious, long look at the dangers and risk profiles for securities being issued by America’s financial and now even more so, non-financial banking institutions (NFBI).
Thus why is there any incentive to take profits and plow them back into capital investment into America’s future as President Trump insists?
Since the end of the GFC, it would appear that realization has spread across corporate America with over $1 trillion in projected stock buybacks in 2025 per Goldman Sachs estimates (From the Investor’s Business Daily article):
To reflect on how massive these numbers are, let us review the beginning of the entire post and just observe how many stock buybacks Apple has initiated since the GFC.
The data from Finance Charts when totaled as share buybacks began in December of 2012 is an astonishing $796.179 billion dollars in share buybacks. That’s $796 billion again folks, cash which was much more than has been re-invested into the reshoring efforts that President Trump demanded starting with his first term in office.
Many other companies have done the same thing to support their own stock prices to keep investors hooked on the value of the equities regardless of actual new products or expansion of existing manufacturing inside of the US.
The Populist-Progressive Risk America Faces
The dangers facing America’s long running expansion since the GFC, minus the pandemic scare, faces new dangers from an obvious slow down for the non-asset holders or lower part of the “K” in America’s k-shaped economy. Economist Mark Zandi at Moody’s warned about this as highlighted in this story from Fortune Magazine:
Also telling is that employment is declining in many industries. In the past, if more than half the ≈400 industries in the payroll survey were shedding jobs, we were in a recession. In July, over 53% of industries were cutting jobs, and only healthcare was adding meaningfully to payrolls.
Meanwhile, as our industrial base is cutting jobs, service industries starting to feel the pinch, and the consumer squeezed by permanently higher levels of embedded inflation, the trade war continues. The risk to smaller American companies and the consumer has never been clearer with the tariffs now about to be imposed on America’s largest trading partners.
From the Washington Post article on August 8th:
IF, and in these insane modern monetary theory times, that’s a big “if” for now, sanity and normal calculus returns to reality, odds are the US economy slowing down will not only experience an increase in layoffs and economic strife, but a bout of deflationary demand destruction as the tariffs are much higher on net on a year over year basis than the increases experienced under the Smoot-Hawley legislation.
Considering the dependency on imports for many American retailers, intermediate manufacturers, and of course, the US housing industry, the magnified results could cripple any economic growth prospects for at least the next 9 to 18 months.
Unfortunately, America does not have true capitalists as representatives in Washington, DC now so the purest form of laissez-faire will not be allowed to correct either the excesses nor results of the post-GFC policies and a progressive solution cloaked in the aura of populism will be used to “save” our nation once again.
Trump’s Last Populist Resort
If the economy slows or recognition of such a slow down occurs in the next 90 days, look for President Trump to base his course of action on asset valuations and nothing else. He tied his horse to the equity markets with this statement via Truth Social on August 4th:
Thus if we see a “normal” correction back below the 5600 level on the S&P 500 look for Trump to blame everyone but himself and claim his policies will fix everything.
Unfortunately, if equities break to the secondary level highlighted above, look for President Trump to intervene at every level. A correction, which was not completed during the April Liberation Day swoon back to the gap around 4400 would create massive panic on Wall Street and within the economy.
It would probably mark a long term top has happened and worse, the risk of a Fibonacci retracement of 50% or 61.8% from the recent market highs could be in progress with no signs of slowing. The deflationary impacts of asset prices collapsing would put extreme pressure on Trump and his new friends at the Federal Reserve and in Congress to act immediately.
Unlike the 1930’s, the US government will act this time. It is not that President Hoover did not act, but he attempted to engage in a 1921 depression style recovery which he endured, hence his lack of immediate recognition and reaction to the deflationary impacts of the stock market crash.
President Trump will never allow the “Hoover” tag to be applied to his administration and will unleash the largest monetary expansion in US history, greater perhaps than the printing and praying the old Confederacy engaged in during its dying days late in the Civil War.
Weimerica, something these pages wrote about some 18 years ago, could well indeed become a reality that very few citizens are prepared to endure.