Fed watchers await rate forecast with a hike all but certain – June 11, 2018
What an interesting world we live in, I have to be honest a few years when I wrote about Donald Trump I never anticipated he would get this much done in such a short amount of time, I thought by now the talk would be revolving around building Trump’s wall on the Mexican border, little did I know at the time that we’d be talking tariffs. Well what people reading this may want to consider doing is click the following link and reading that article:
If the Fed raises interest rates around the same time Trump implements tariffs the U.S is going to get a temporary stimulus package, as foreign companies find it harder to penetrate the U.S market. The U.S is a very self-sufficient nation, don’t confuse self-sufficient with efficient, however. There are efficient companies and individuals in the U.S but there are still a lot of crony capitalists in the U.S that will exploit any loophole, so this is why I say this will be a temporary economic stimulus for the U.S and more entities will seek to purchase U.S asset.
What’s crazy about this is that Trumps I guess somewhat protectionist measures are actually going to shield U.S consumers during this trade war. Being that most of the debt America has belonged to the financial sectors, the truth is the average U.S citizen that can’t get into debt won’t feel a thing. Also being that Trump is in the white house the thought of a bailout seems less likely for the too big to fail companies in the United States. Now, on the other hand, countries in the EU and Canada have a lot to lose with a U.S rate hike because well, those countries collectively have a huge social safety net that requires U.S consumers to fill the void for.
If other countries don’t raise their interest rates with the United States, things could get interesting as U.S dollars become more expensive, furthermore and you all know I don’t say this often, the price of Gold and Silver in other currencies my shoot up. It’s weird, that I’m saying this but if other nations of the world don’t work a trade deal with the United States soon their currencies might end up in free fall very quickly and in this regard, the U.S and the federal reserve holds all the cards.
Let me explain what I mean by free fall, free fall meaning that their currencies may not move very much relative to the U.S dollar, however, in regards to other goods commonly priced in U.S dollars the numbers might look very weird, to say the least. This is not a problem other countries can solve either because their markets are reliant on U.S pricing data and like I’ve state above social safety nets deal with real money for governments to pay for via the private sector.
The U.S industries in trouble if interest rates rise
There are only two sectors in the U.S that’s in trouble if interest rates rise and that’s the public sector and the banking sector. Unfunded liabilities could be in threat if there’s a spike in interest rates and of course, the financial sector will be under threat, the working and middle-class sectors, however, may experience their best times in recent memory as outside entities reliant on the U.S market try to find creative ways to get back in.
This sounds weird but if Canada, the EU, China and others don’t come to the negotiation table there’s a very good chance that this could be a period in history where the U.S plays catch up. What I mean by that is the U.S standard of living might increase just because of the higher lending rates and tariffs. Prices for goods and services may actually temporarily come down. This might also lead to other companies reliant on the U.S market returning to the U.S. Sure it might not unfold like this, but wow, I don’t think the rest of the world knows what’s about to happen.
Canada as an example shouldn’t be playing a tit for tat tariff deal with the United States, Canada is one of the most indebted nations per capita on the planet, plus Canada is heavily reliant on imports because so many of their industries are so heavily regulated. If the Canadian dollar depreciates and there are trade barriers put up with the U.S everything in Canada will get more expensive.
When it comes to the EU, oddly enough Germany would be fine but it’s the Frances, Italy’s, Spain’s, the Greece’s that are going to suffer if the EU implements tariffs. The EU is a collection of European nations, by cutting off the U.S their reliance on China will grow, which well, we’ll see how that goes.
I advise world leaders not to react emotionally to Trump because Trump has been in high-stress environments before. It’s embedded into his DNA, he understands the world of business and he’s even been able to negotiate himself out of billion-dollar deals where he was about to go bankrupt. If we were in a tariff-free world, where social safety nets didn’t exist I would say Trump has no chance of winning, however, this world we’re living in is different and quite frankly as far as social safety nets are concerned America in relation to other G7 nations is lagging far behind in that department, so again this is where I say that this could be a temporary stimulus package for the United States. What will happen after this, I don’t know but for now it appears that Trump is playing chess while the other nations appear to be playing checkers.
Interesting times ahead.