Is there a Hidden Agenda Behind Tariffs?

“The truth is rarely pure and never simple.” —Oscar Wilde

Last week, I made a call that one of Trump’s Executive Orders was the turning point. A mandate for the production of minerals, uranium, copper, potash, gold, and any other elements, compounds and materials determined by the Chair of the NEDC. I wrote, “There will be lots of volatility, and probably a crash.” It got 13 likes! A miracle for me. Monday and Tuesday arrived with no real changes. After 4pm on Wednesday, the stock market started crashing. I should have been ready for this, but I wasn’t…lost a month’s worth of gains in two days. 🙁

Tariffs are confusing to a world that runs on debt. I thought President Trump was being honest when he mandated production of minerals and other important resources. I thought he was exposing our vulnerability as a nation and making a good-faith effort to fix it. But it occurred to me, we are not in danger for lack of resources as much as we are in danger of threat to our debt. The USA has approximately 750 military bases around the world, and it can take whatever it wants. It has done so countless times before. So why not now?

The Treasury market had some serious trouble selling its debt last year, and savvy financial professionals were getting worried. They know if the government cannot finance and issue more debt, then America’s reign as a world power is over, done. No President wants this to happen under his or her watch, and will do anything to stop it. But unless the system is completely overhauled, with a financial reset, it’s going to fall upon some American president in the future. Make no mistake, we are not totally vulnerable for lack of resources—we are in much greater danger of sudden death in Treasuries.

In a post last year, I pointed out that Japan is the largest foreign holder of U.S. Treasury securities, and China is the second. This means the U.S. has to somehow keep Japan and China from liquidating their Treasuries into cash. The government has to appease them, until another plan can be implemented to offload. You see, the Treasury market has already suffered great losses, while the NASDAQ, DOW, and S&P500 have soared to the clouds. When faced with an either/or scenario, the government will abandon the stock market in order to protect the bond market from its largest single holders (Japan and China).

The iShares 20+ Year Treasury Bond ETF (TLT) peaked around July 2020, and bottomed in October 2023, from 170 to 82. This means if you had bought 20-year Treasury Bonds in July 2020, then you’d be down 51% from where you started. Guess who owns a ridiculous amount of Treasuries, waiting for better days to sell? Japan, China, and banks! And guess who got into a big mess as a result of rising interest rates and the loss of their principle. Japan, China, and the banks. And guess who is probably insolvent, from a technical standpoint. You got it!

This world of nations, trying to stay balanced on mountains of debt, has gotten itself into quite a mess. The USA-Japan-China enmeshment is particularly noteworthy over the last century, as it seems like they’ve been taking turns in a game of Go Round the Mountain. It started with hard-working Americans who needed to recover from a stock market collapse after the Great Depression. As a result, the U.S. emerged as the top exporter of machinery, agricultural goods, and consumer products, while Japan collapsed from World War II debts and destruction.

It took a long time for Japan to emerge from the rubble. It did this by (1) giving up its expensive military and relying on the U.S. for protection, (2) becoming a primary producer of equipment and supplies for the U.S. during The Korean War (1950-53), (3) becoming a member of the General Agreement on Trade and Tariffs (GATT), and (4) cutting taxes and boosting production. In the 1960s and 70s, Japan became a global leader in exports (electronics, automobiles, and machinery), and by the 1980s, it was the world’s second-largest economy. Amazing, huh?

By discouraging imports and promoting exports through tariffs, Japanese corporations were able to grow rapidly while Japanese people made due with low living standards. Their focus was market share, competition over profitability. In the late 1960s and 70s, these corporations dominated global markets, using a sharply undervalued currency and low interest rates to propel them forward. Having a weak currency made exports more competitive in global markets, but imports very expensive. This was critical in motivating people to work hard and produce.

When Japan became overly reliant on exports to generate growth, the U.S. started limiting imports of Japanese goods through tariffs. From 1980 to 1985, the dollar appreciated about 50% against the Japanese yen and other European currencies. This caused problems for American industry and its exports, pricing the United States out of global trade and leading to the Plaza Accord to rebalance the dollar. Consequently, the Bank of Japan allowed the yen to soar in value against the US dollar, and this made the Japanese people rich.

To prevent Japan’s trade surplus and massive growth from falling sharply, the Bank of Japan cut interest rates and began to significantly increase lending. It pushed banks to lend so much that the only way they could fulfill their quotas were to make non-productive loans to whomever they could. Banks went from carefully limiting borrowers to selling loans aggressively like snake-oil salesmen. Foreign goods flipped from being expensive to cheap, for the Japanese. And with their incomes no longer suppressed, people flipped from being low-volume to high-volume global consumers.

Between 1985 and 1989, Japanese land prices rose 245% and its stocks rose 240 percent. Sound familiar? The speculative frenzy became so great that Japanese businesses started investing in stocks and real estate, until nearly half of the profits from large corporations were from stock market investments. Asset and stock market prices skyrocketed, until companies started making more money from speculating than from manufacturing. Are you seeing the big picture yet? Is the world about to flip again? The U.S. seems to have followed a similar path.

Wealthy Japanese people started buying up precious art all over the world. Sony Corporation bought Columbia Pictures. Mitsubishi bought Rockefeller Centre. A Japanese billionaire bought the Empire State Building as a gift for his daughter. While it seemed like a miracle at the time, the Japanese bubble of the 1980s was merely a hack. It subtracted more growth from the future than it generated in the present. And when the value of central Tokyo’s Imperial Palace was worth more than the entire state of California, the bubble finally popped.

After their collapse, Japan went back to deflation again, and China’s rise accelerated dramatically from 2000 to 2003. It overtook the United States as the world’s largest merchandise trading economy in 2012 and has since maintained its position as the top global exporter. What followed was the Chinese real estate bubble, a prolonged period of rapid artificial growth, overinvestment, and speculative excess in China’s property market. This started to unravel in 2020-21, leading to a crisis that continues today (another post for another time).

Last year, the Japanese stock market surpassed its high for the first time since 1989, but something started happening to the yen and there was a tremor in global markets. For a long time, Japan has had the lowest interest rates in the world. This turned the Japanese into big foreign investors. With their $1.1 trillion in U.S. treasuries, half trillion in Euro bonds, and international real estate, it is estimated they have about $4 trillion total in foreign assets. Also, low interest rates and stability in the yen made it the world’s currency of choice for carry trades.

A carry trade is a form of gaming, used in financialization, where an investor borrows in yen for virtually nothing and puts it into bonds or saving’s accounts in another currency which yields a higher interest rate. It can be risky, if currencies move against each other, but it’s generally been a highly profitable trade with the yen. Over the past few years, however, things have been changing. Last year, the Bank of Japan raised interest rates for the first time in seventeen years ranging from 0 to 0.1 percent. Finally, after a long deflationary period, the nation started seeing inflation.

It’s likely that Japan needs to sell its U.S. Treasury holdings to save the yen. China, too, needs to sell. And they are doing this; buying gold and selling Treasuries. Over the last five years, Japan has added approximately 80.77 tonnes of gold to its reserves, while it sold $190 billion in Treasuries. Nobody talks about it, but U.S. national and economic security are threatened by foreigners owning a large percentage of our Treasuries. During difficult economic periods, these countries could liquidate all of their holdings, and buy gold for example, leaving us in a big mess. To avoid conflicts of interest, we should have limits on how much of our debt that foreigners can own, and fund most of it from within. How would you make that shift if you were the President? Think step by step.

Japan and China rose by keeping their currencies weak, suppressing consumption of its people, and using its trade surpluses to buy up Treasury bonds. Treasury bonds are their piggy bank, so to speak, their only liquid savings other than gold. They can’t just sell all their Treasuries, though; their holdings are too great, and it would crash the system. Think of the system as a seesaw…while the Japanese and Chinese were trapped in a low standard of living for a long time, Americans were able to enjoy a high standard of living by financing excess consumption through cheap imported goods. The savings-debt trap is tricky though.

In a credit-driven economy, malinvestment fueled by cheap credit masquerades as growth, for a while. While an economy can appear to grow during a credit bubble, it eventually pays the bill with real productivity (real hard labor) that generates real profits. Japan rebalanced in the only way it could, with a sharp contraction. This is what caused the lost decades that followed. In 1989, 32 of the world’s top 50 companies were Japanese, and now it’s only Toyota. In 1997-98, Japan’s banking crisis started, and seven major financial institutions failed. The 2008 credit crunch and the 2020 pandemic added pain.

This brings me to three very interesting interviews, as you think through President Trump’s tariff strategy. The first is with Scott Bessent, U.S. Secretary of the Treasury, who is a gold guy. He says some things that make good sense…Trump is reordering trade, as well as removing excess labor from government and returning it to the private sector. But he also says some weird stuff, like countries with a trade surplus are in the weakest position. When speaking about China, for example, he says that he thinks their business model is broken with Trump tariffs. He also said that last year he saw record European vacations and record food banks for Americans. Crikey!

Easy solution, Bessent remarked, just bring your factories over to America! He didn’t mention there’s a reason why Apple and Tesla have factories in countries like China. Labor is too expensive in the U.S. because the dollar is too strong. Bessent confirms the plan is to have a strong dollar and bring factories to America, at the same time. This makes no sense, though. If you want factories here, then the dollar has to be weakened substantially and Americans have to be desperate for work at low wages. Just look at the previous playbooks of Japan and China. Could that be why the Deep State brought in all the immigrants over the border? Hmmmmm. Are they planning a crash, a collapse of the stock market? It sure looks that way!

The Trump Administration is in lockstep with the Biden Administration. Chaos (Biden) followed by clean-up (Trump), and the government grabs more power. I have no judgement; it’s just an observation. All I can say from where I sit is if I were the President of the United States of America, and I were charged with saving the Treasury market from a world that was moving towards gold, I’d start in the same way that Trump is starting. First, I’d stop the flow of trade, similar to how covid stopped the economy, change the flow of money from the stock market to the Treasury market. I’d figure out how to get a lot more natural resources and revalue gold before China, Russia, or the BRICS do it.

Tucker Carlson made a subtle but powerful point in the interview above. In addition to telling Scott Bessent that he’s a very good diplomat (perhaps because he saw the same contradictions that I do), he said something like, “If you take a loan from a bank, and you don’t pay it back, the bank will repossess your home or seize your assets. But if you take ‘a big enough’ loan, then you’re in charge of the bank.” I’ll add to Tucker’s point, if you take a big enough loan and the bank’s collateral is the loan, then things get more complicated. Japan and China are the U.S. bank. But the U.S. depends on their continued cooperation.

When I dug into the whole tariff narrative unveiled on Liberation Day, I got confirmation that indeed the real threat the U.S. is facing is not lack of production, but lack of interest in Treasury bonds. In this second interview below, Patrick Boyle sets the record straight. While he doesn’t come out and say it, I figured out from the facts he presents that this whole tariff initiative was not designed with careful strategy. This means it’s probably meant to “scare” more than it’s meant to be effective and produce results. After all, government is never direct about what it wants you to do…it makes you do what it wants you to do with psychology.

First, the formula is weird. It’s the deficit for the U.S. with a particular country divided by the total imports from that country. Second, the list included tiny islands and overseas territories like Heard Island and the McDonald Islands, inhabited by penguins, and covered with glaciers. When Patrick Boyle said, “The penguins were hit with a 10% tariff for looting, pillaging, and plundering the United States,” I broke out laughing. Of course, I thought, this is all theatre to invoke a reaction of some kind. That’s when I put my thinking cap on, and saw the flow dynamics from stocks to Treasuries.

Lesotho, a tiny African kingdom with a GDP per capita of $1000 per year got hit with a 50% tariff. The Falkland Islands (population of 3700 people) exported about $27 million worth of goods to the U.S. with their biggest export being the Patagonian toothfish, and they were hit with a 41% tariff. Madagascar got hit with a 47% tariff for importing vanilla beans. “If the goal was to bring factories back to the United States, most economists argue that a more gradual approach to applying tariffs would be better,” said Patrick Boyle. I agree, there’s something else on the agenda.

Jan Skoyles has some different points, but we’re both on the same page, in the interview below. No matter how you spin it, the U.S. needs a weaker dollar to become an exporter and it needs a financial crisis to get people working again! In this video, she makes an excellent point…”Why would you hold all your wealth in the very instruments that prop up that crown? Why anchor your future to fiat currencies, the same ones that are printed, that are weaponized, inflated, and sacrificed on the altar of political ambition? Don’t fund the throne. Don’t get caught in a collapse. Hold something that doesn’t take sides, something that can’t be printed, can’t be sanctioned, can’t be defaulted on. Hold money without a king, a currency without a country. Hold gold.” I agree!

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