Of Trade Wars and Hot Mess

As I listen to U.S. Senator Mike Rounds, Republican of South Dakota, discuss with Bloomberg Television U.S. trade action against Canada and Mexico as inappropriate because of their statuses as allies to the United States, I have to ask myself, if they are allies and given the increase in costs consumers face because of tariffs, why not remove tariffs from all items imported?

The reality is that trade is war, no matter a country’s cultural or political affinity with its neighbor. Tariffs are barriers to markets. Canada and Mexico, just like China, are telling the U.S. to stay out of their markets unless invited to deliver a particular set of services or products. There are no allies in trade.

So why is the term “ally” used during these discussions? Ally is a term used to keep the “pawns” i.e. the electorate on board with destructive policies; to make voters feel like they are a part of something bigger than themselves; that they are somehow a part of the decision making process.

In reality, the only “skin in the game” the electorate has is the skin, limbs, and lives they lose when a trade war becomes a live fire war

Understanding your country as a payment system

A macroeconomy is a payment system. Historically, the first payment system was the one where an individual paid himself. His effort i.e. getting up in the morning, finding something to eat, killing it and cooking it, was exchanged for survival i.e. eating, housing, and sex. As he sought comfort, convenience, or security, man decided to enter into an extended payment system called trade with people outside of himself. The results of his efforts represented by a portion exceeding the amount necessary for his survival could now be exchanged for additional comfort, convenience, or security.

The payment system has expanded with trade, becoming local, then regional, now global. The value of the trader’s effort is now represented by hard and digital currency.  But the system is also imbalanced.  It is bloated having been converted into an extraction conveyor belt excavating more out of natural and human resources.  The bankers depicted in Pieter van der Heyden’s The Battle about Money have programmed the conveyor belt to extract more from one’s effort in exchange for access to units of survival that have been increasingly expensive.

This imbalance has led to a widening of the income and wealth gap. The imbalance has also led to a macro payment system that intrudes on the privacy and civil liberties of the individual in order to extract more of his effort and more of his financial resources. It surveils him in order to market items to him that will persuade him to spend more of his coin.

The imbalance has spawned political, social, and economic factions based not on familial ties or lineage but on artificial classes of haves and have nots. Why do I say artificial? Because the reasons usually presented by the political elite for the existence of these classes never takes into account the hoarding of capital, an activity political elites take a heavy hand in.  For if the political elites were truly concerned about reducing these gaps, they would promote initiatives that promote getting into the hands of current consumers the technology that would make them self-sufficient.

Such promotion may result in getting the individual off of the payment system plantation, an end result the elite is not interested in.

Should the Caribbean brace for a Federal Reserve rate hike? #Caribbean #trade

The Federal Reserve is expected to raise rates on its federal funds rate, the rate at which its member banks lend each other money overnight, at least three times during 2018. I see this move as having a potential negative impact on Caribbean immigrants here in the U.S. given their lower incomes relative to other immigrants and the U.S. overall, and the level of poverty among Caribbean immigrants. I see the Federal Reserve’s expected rate hikes having an impact on remittances as well because rate hikes, designed to control inflation could very well discourage employing Caribbean born labor.

The Federal Reserve has an overall positive outlook on the American economy. While growth is expected to continue, the central bank views the growth as fragile.

The Trump tax cuts are expected to provide the economy with an additional boost. The pay increases Americans are receiving as a result of the temporary cuts are expected to re-enter the economy in some form. Unemployment is at 4.1%, the textbook case for full employment, a point at which additional hiring and the resulting spending may create increases in prices for goods and services.

There is a 78% chance the central bank will raise intra-bank lending rates and in theory when this happens, the rates you pay for revolving loans and mortgages are expected to follow suit. On the other hand, the even with low unemployment, wage increases are expected to be sluggish.

Caribbean immigrants may bear a higher burden stemming from price increases versus other immigrants and the overall U.S. population. According to data from the Migration Policy Institute, twenty percent of Caribbean immigrants live in poverty compared to 19% of overall foreign born U.S. residents and 15% of the overall U.S. economy. Caribbean immigrant median income ($41,000) falls well below the overall U.S. median income ($55,000) as well as the median income of all immigrants ($49,000). Assuming Caribbean immigrants, like the overall U.S. population, has the bulk of its wealth in a house, poorer Caribbean immigrants will have less of a buffer protecting them from a credit-shortage induced recession.

As prices increase and access to credit is reduced due to rate increases, there may be a negative impact on the ability of Caribbean immigrants to send money back home as household budgets are reduced. Take for example remittances sent to St.Kitts-Nevis. According to data from The World Bank, remittances increased to $36 million in 2007 from $29 million in 2002.  Remittances climbed to $51 million in 2012, but have remained flat into 2017 where the amount of remittances was $53 million. All things being equal, interest rate increases could start sending these numbers in the opposite direction.

Rate increases could make importing products such as food and machinery more expensive for residents of St Kitts-Nevis or other Eastern Caribbean islands. In theory, a rate increase should depreciate the value of the U.S. dollar, making American imports cheaper. Some analysts would argue, however, that higher interest rates would make the American currency more valuable as foreign nationals seek higher yields on their capital and drive up demand for American currency. If the dollar becomes more expensive, the cost of purchasing could go up as well.

According to the U.S. Central Intelligence Agency’s World Factbook, 56.8% of St Kitts-Nevis’ imports come from the United States. As American goods become more expensive, St Kitts and other Caribbean countries that are heavily tourist dependent, may have to look for alternative and less expensive sources of food, a search that involves increased transactions costs or bite the bullet of increasing costs of American goods.