Coming Around On The Tariffs

Well, since the tariffs have effectively crushed my dreams, I might as well try to come to grips with them. As things stand, I can't buy property in Alabama any more. Oh well. Sometimes you roll snake eyes.

Getting up off the floor after that particular punch, I spent some time listening to Scott Bessent, our Treasury Secretary, talk to Tucker. It was enlightening.

First, consider this: Bessent, Musk and JD Vance all come from very modest backgrounds. Musk came to Canada with just a little money. Vance's story of growing up in poverty and dysfunction is well-known. Bessent's family was wealthy until his father made some serious mistakes with their finances and the family, as I understand it, ended up on assistance. They aren't blue-bloods.

Bessent and Musk both left 10- or 11- figure salaries behind to work for the government. Yes, Musk is still getting wealthy from his companies, but he is an irreplaceable figure. He left his companies on autopilot while he focused on DOGE. When you listen to Musk and Bessent, you can't help but come to the conclusion that they were utterly terrified of our debt and deficits.

To say that they took these positions out of self-interest is only part of the story. Yes, they did, but not to make money. They took these positions to preserve what they had by helping the Trump Administration avoid a catastrophic currency crisis and runaway inflation.

40% inflation is not 10% inflation times 4. It is unrest, mass unemployment and violence. In a heavily-armed society, you don't know where that is going to go.

Then there is the problem of China. They are our biggest threat and a near-peer competitor. One of the reasons Trump wants to put an end to the UKR-RUS bum fight is so that the West can focus on dealing with China.

Finally, there is true concern for the working class from Trump, Musk, Vance and Bessent. In his interview with Tucker, Bessent mentioned that in 2022, we set a record for the most Americans taking vacations in Europe. We also set a record for the most Americans on food assistance. He talked about going and spending time with people on food stamps, just talking with them. Since his family had done that, too, he didn't see these folks as specimens in a lab, but as real people.

Vance's concern for the working poor is well-known.

Tariffs take care of all of these problems.

Debt

We have a staggering $9T of debt coming due in the next 10 months. By crashing the markets and driving money into bonds, Trump has lowered the yield on the bonds meaning we will pay less interest on that huge pile of debt when we refinance them this year.

China

China's economy is entirely debt- and export-driven. By jacking up tariffs on them, he is triggering a crisis for their leadership. Their national debt is 330% GDP, much higher even than ours. Their debt is held by their banks and insurance companies, so their entire economy is a house of cards. We have far more leverage over them than they have over us.

Today, they sold a lot of US Treasuries, perhaps in retaliation of the tariffs, perhaps to raise hard currency. That caused Treasury rates to go back up, but only temporarily. They hold less than $900B of our $36T debt. They're significant players, but not dominant ones in our debt market.

The Working Poor

Something has got to be done about the rot in Middle America. This is where the tariffs make the least sense for me, but perhaps the plan is to refinance the $9T and kick China in the head before we go back to our other trading partners and negotiate better terms from them and get everything back on track.

I saw that the EU is making negotiating noises with us now. Hmm.

All in all, I'm inclined to think that this tariff thing might not be such a bad idea after all.

10-year Notes peaked at about 4.8% this year, with a low of about 4%. Every .01 is a billion dollars of interest we don't have to pay. A 1% drop in rates is $100B of savings.