Thursday, March 2, 2017

Observations From the Back Row: International Trade Agreements Need Dumping

By Rich Kozlovich

There's been a lot of talk about Trump's economic concepts being ridiculous, especially when it comes to international trade.  Philosophically I'm an open trade free market guy but it seems to me many of these agreements are nothing more than vehicles for crony capitalism, and as in all agreements, we have the concept - and then we have reality!  In a perfect world they might have been good....but we don't live in that world.   We need to understand the philosophical foundation and framework for these agreements and how they came into being in the first place. 

After 1944 the U.S. imposed a world trade hegemony on our allies and opened our markets to them in order to rebuild a destroyed world - at our expense - and even agreed to defend them and patrol the worlds oceans to keep commerce safe under an international agreement called the Bretton Woods.  Well, the Bretton Woods era is over!  We're not helping them to rebuild, we're helping them to rape our economy. 

Furthermore, we don't need the rest of the world economically, and in the near future when the world's economy collapses - that will become obvious - and rebuilding our industrial base will be what will save us from the coming disorder.  The rest of the world is going to have to fend for itself economically and militarily. 

Here's the new international economic policy for the United States.  Any agreement that's not directly beneficial for rebuilding the American economy and rebuilding America's industrial base is out.

We will abandon any WTO agreement that's not harmonious with that concept - and we should - along with any other Bretton Woods era agreements that no longer fit our needs.  Furthermore - we're not living in a Smoot-Hawley world.  That tariff was foundational to the Great Depression.  The stock market crash started it, but the economic problems caused by the crash were not that bad.  Unemployment before the crash was at under or around 2%.  After the crash it only went to 8%,  and that "recession" would have, based on all historical precedent, most likely ended in two years or less if Hoover hadn't signed the Smoot Hawley tariff bill, and sent the unemployment rate up to 15%. 

That tariff bill really was the foundation for the Great Depression, and FDR's unending government meddling with taxes, regulations and the expansion of government into every aspect of American life afterward made it worse extending it from 1929 until 1942, when WWII started.  All during that time the unemployment rate averaged 15%, peaking at 25%, but never getting lower than 9%.

But the world's economic imperatives are now entirely different.

Those countries like Saudi Arabia with major sources of energy are industrially incompetent due to geography, demography or in this case - both.   Any trade war with the U.S. now is a death sentence to that nation - or block of nations - that attempt it.  Forget the Smoot-Hawley lesson, it doesn't apply. 

We're now energy self sufficient - the rest of the world is not.  Their debt is out of control, their demographic pyramids are a mess, their banking systems are stunningly fragile, and they're not natural capital generators. The difference between them and the U.S. is we can fix that problem if we choose to by reducing spending, regulations and taxes and America is a natural capital generator. 

And that's how we're going to have to do it because the baby boomer generation isn't putting all that massive investment money into the system now - they're retiring and taking it out of the system - and our demographic pyramid is out of whack.  The next generations aren't big enough to support everything with current spending, regulatory and taxing policies.  It's estimated federal regulations alone cost the nation two trillion dollars a year.  That's going to have to end.   

And the rest of the world is going to have to start patrolling the oceans to protect tankers and ships from pirates, and build defence systems to protect their own countries.  The U.S. will not be doing that any longer and will get involved only if there's a direct benefit.  It won't be non-involvement - it will be judicious involvement.  When that financial burden finally hits them - they'll come begging.  China especially, since their economy exists only on paper and only exists at all because we brought them under Bretton Woods economic umbrella. 

Russia and China are on the verge of a collapse, and we need to stop caring.   Dump the WTO and any other agreement that's not directly beneficial, and let them scream while they try to find a way to pay their bills, much like Venezuela.

Watch Venezuela! By the end of 2017 I believe the current government will be toppled and whomever takes over will come begging to Trump for help. They're the pattern for the future, not the exception.

I would like to recommend reading two books by Peter Zeihan I found enlightening.  His analysis will give you insights to all of this that are foundational to understanding what's going on. 

1. The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder

2. The Absent Superpower: The Shale Revolution and a World Without America

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