King Kong versus Godzilla: US and Chinese Central Banks Go to War over Trade

Tariffs are a mistaken policy---unless you find a trading partner who's even dumber than you are and is willing to foot the bill for you. President Trump may have done that. The strengthening dollar suggests a deflationary effect of the tariffs arising from Chinese dollar purchases. The dollar gets stronger, Americans can buy more; the yuan renminbi gets weaker, the Chinese can buy less but sell more. American goods will be harder to sell, but Americans will be richer and have more money to spend. If this pattern continues, some of the effects of Fed monetary policy--reduced interest rates--will be counteracted. The stock market may be in for a roller coaster as Chinese and Fed manipulation--King Kong versus Godzilla--battle it out. Americans may at least temporarily benefit. In the long term, we would have been much better off without the manipulation, without the Fed, and with a market-based system free of central bankers and Wall Street subsidization.

I have temporarily reduced my gold holdings on the chance that dollar strengthening continues and gold continues to fall. A few days ago $1240 was a technical resistance point. Gold is now down to $1217, and it looks like the drop will continue.  I suspect that the collapse in the commodity sector will continue down to the point where the Chinese stop subsidizing the dollar, probably when the dollar rises another five to ten percent. 

WalkAway Feminist Rejects the Democrats

Glenda R. McGee sent me this video of a former left-wing academic who has left the Democratic Party because of the political correctness and anti-Trump movements. She says that her former friends have stopped talking to her simply because she now questions identity politics.

She has noticed that Democrats are not nice, moral people; hence, she has reached a familiar conservative conclusion: If you expand government power, you might find out that you don't like the Democrats who have assumed  that power.

One point I have to add: For an academic, she's not bad looking, and this seems to be a trend. The good-looking people are leaving the Democratic Party, which is increasingly becoming a party of ugly people.

Trade War May Pressure New Bottom in Gold

President Trump's escalating trade war appears to be affecting gold prices, which respond to a stronger dollar.  The tariffs will make Chinese goods more expensive, but the Chinese can make their goods cheaper by making their currency cheaper to offset the effects of the tariffs.  There are many ways the Chinese can do this:  The yuan is pegged to the dollar, so they can lower the peg.  This is easy to do because the Chinese owe at least a trillion dollars in loans to the US, and they hold trillions in dollars and dollar-denominated loans that they’ve made to the US government. If they purchase dollars, the dollar will strengthen, and Chinese goods will become cheaper, offsetting the tariffs.  

In turn, the price of gold is affected by the dollar. A stronger dollar means cheaper gold. That correlation has held this week. 

In light of today’s White House threats of an additional $200 billion in tariffs,  the S&P 500 fell almost one percent and gold fell back to $1244, a fall of about $10.  The yuan renminbi-to-dollar exchange rate has fallen over the past couple of days to $0.1497, the lowest level this year.   

 It will be seen whether gold can hold a technical $1240 inflection point.  If not, there may be a good way down as the Sino-American trade-and-currency war escalates. That might provide a good entry point for gold, perhaps below the $1,000 mark.

Hope is not prediction, though.

Rising Suicide Rates Are Due to Collectivism, Not Individualism

          Jason Bellini of the Wall Street Journal interviews Princeton economists Anne Case and Angus Deaton, who observe that white American suicide rates have increased since 1999. During the same time period, suicide rates have not increased in Europe, and they have not increased among African Americans.  However, suicide rates have long been higher in many countries, including Finland and Japan.

The two biggest demographic segments affected by increasing suicide rates are the Southwest-and-Rocky Mountain region, which is among the more individualistic regions, and Americans without a college degree, who are twice as likely to commit suicide than Americans with a degree.  

Case and Deaton’s explanations don’t much extend the 125-year-old work of Emile Durkheim in his book Suicide.   For instance, they observe that increased individuality, especially in religion, may be associated with suicide, although they find no hard statisical evidence of a relationship.  Durkheim found that education raises suicide rates; perhaps increased education rates, short of college graduation, are having the reverse effect of what Case and Deaton claim. 

Durkheim, offered an explanation of suicide in addition to individualism and education: Increased social control.  According to Business Insider, the countries with the highest suicide rates in 2014 were Lithuania, South Korea, Belarus, Kazakhstan, Russia, China, India, Sri Lanka, Japan, Hungary Latvia, Ukraine, Moldova, Slovenia Finland, and Belgium. France has a higher suicide rate than the US.  These high-suicide rate countries are not characterized by individualism but rather by informal or authoritarian collectivism. Hence, Case and Deaton’s claim that the rise in suicide rates is due to the US’s lack of Finnish or French dirigisme appears ideologically motivated. 

Case and Deaton emphasize the lack of economic opportunity that has evolved since 1971, when the Federal Reserve Bank’s pure paper money system facilitated enhanced subsidization of the financial and computer technology industries.  Access to credit has been diverted from rural America to select, elite industries, and rural areas have been starved of credit. As well, American banks have subsidized plant relocations to China, and the Chinese provinces currently owe one trillion dollars to them.  

These government policies have reflected elite interests. It is not American free market capitalism that has been hard on workers, as Case and Deaton seem to claim, but American progressivism and government intervention, which have  amounted to a nonstop welfare-and-bailout program for billionaire donors to Princeton University.

 Rather than emphasize declining opportunity for self-actualizing entrepreneurship due to the increased involvement of government in the economy since the 1960s and relentless Fed subsidization of Wall Street, Case and Deaton emphasize the lack of a European-style welfare state even though socialist countries dominate the list of high-suicide-rate countries.

  Rather, it may be that Americans, who prefer individualism and self-actualization, have been increasingly stifled by the Great Society policies beloved by the Princeton elite.

 Case and Deaton note that life expectancy has been declining for the past two years, and that this may reflect underlying trends that may result in a Constitutional crisis. Maybe so, but the reaction of the rural, white population to declining opportunity has been different from what Case and Deaton advocate. Rural Americans voted for Donald Trump, who has deregulated industry and taken other steps to increase economic opportunity. Belorussian policies don't seem high on the priority list of rural Americans.