Back To The Monetary And Trade War Front

While we’re all hoping that a catastrophic war has been sidestepped—at least for the time being—I want to highlight two items that caught my attention today. They both have to do with my oft repeated contention that the linchpin of Anglo-Zionist hegemony is the global rule of King Dollar. That’s what’s being threatened, and the threat is so serious that Trump has repeatedly resorted to military force or the threat of military force. He’s working all the levers, but nothing seems to be responding.

We’ll start with a transcript of Sean Foo today. Perhaps commenters who are more financially savvy than I am (not saying much, there) can weigh in. My guess is that Foo is exposing the reason why Trump—counterintuitively, according to the conventional wisdom—keeps pushing for ever lower interest rates. It’s to keep the stock market bubble inflated, but what many are missing is that that means attracting foreign capital. Lots of it. Trump and Bessent are desperately trying to stem the flight from the dollar. That can’t be done by fiscal sanity, because the US debt is just too extreme. So the resort is to smoke and mirrors. That’s more or less what the tariff shock and awe—the Great Shakedown—was supposed to accomplish. Trillions would flow in and Trump would use the capital to, well, he never said exactly what he’d do with it, except that he’d be the one doing it. See what you think:

Bessent TRIGGERED As US Allies Prepare To DUMP USD, Canada Ditches Washington For China

The ugly effects of the tariff war are finally starting to surface. While Trump is busy collecting his tariff revenue from US consumers, economies are starting to break down. And that almost always results in a weaker currency. The biggest losers in this trade war [aren’t China and] Russia. The [biggest losers] are US allies themselves. But there’s a big problem with this. Ultimately, if the currencies [of US allies] crash enough, it will affect the US dollar, which is already on live support.

The greenback fell by almost 10% last year, and this fall is far from over now because of threats on the Federal Reserve. The dollar’s collapse is back on schedule. It fell by 0.3% in a single day, the biggest drop since December last year. Now, a weaker dollar is not good for the US economy. The argument [that a weaker dollar means] cheaper US exports doesn’t hold. The tariffs are making it more expensive for domestic industries. Supply chains are also far from fleshed out. Trump is still 5 to 10 years behind the curve in raw materials at least. Just look at the rare earths situation with China. A lot of discussions have been had, but zero solutions. The weaker dollar just reminds the world that US assets are hot potatoes.

This is especially bad for speculators and investors, especially those who are overseas. Investment money is a big source of demand for the dollar, and everything we have seen indicates that it is breaking down. Despite the AI hype and Trump’s promise of 18 trillion in investments, US stocks just broke down yesterday. We had a flash crash that came out of nowhere. Not only did the tech heavy NASDAQ crash, industrial companies also suffered a drop of over 1%. The tariffs are making production expensive and the falling dollar is making it doubly so. The stock bubble is incredibly unstable and the tariffs are still working their way into the economy. The last thing Trump needs is for a further dollar collapse. However, it is already underway.

When you have a currency crisis where the dollar itself is toxic, where else can you go? We have seen this multiple times throughout history from the 2020 money printing, from 2008 as well, to Weimar Germany in the 1920s. People will start using their paper currency--especially dollars--to start buying up real assets in the world, and this time metals across the board are catching this exodus [from the dollar]. They are catching the bit [?]--it’s undeniable at this point. In just 12 months major metals have literally flown to the moon. Industrial metals like copper are up by 43%. But look at the monetary metals, gold and silver. Gold has flown up by 73% in just a year. Silver has smashed all records. It has returned over 200% to investors and speculators.

We have the perfect stop [?] at setting metal prices higher. The world is destabilized and the supply chain war is ramping up. But a huge factor is also the fate of the US dollar. The further it continues to fall, the more investors will exit dollar assets for gold and silver. And that’s why we have Scott Bessent butting into the affairs of foreign currencies. His first concern is the currency of South Korea, the Korean won. The won has weakened to its lowest level since 2009. Since the rate hikes in 2022, the currency has lost nearly 25% of its value, which is staggering. Now, what did Korean investors do? They dumped their local assets to buy US stocks. They bought an incredible $43 billion in US assets last year. So now, the American stock market is dependent on Korean money to stay afloat.

The Korean won is crashing for a variety of reasons. The Federal Reserve is not cutting rates fast enough, and that differential between Korean interest rates and US interest rates is just sucking money away. The gap there is still too big. Another reason is the $350 billion investment pledge the Koreans made to Trump. There’s always the threat of the money coming in the form of cash or direct investments. The Koreans just don’t have $350 billion lying around to make this happen. Investors see this and they want to get out. So, they start dumping Korean assets and, as a result, the won continues to fall lower.

This is a big concern for Scott Bessent and his treasury market. Now, he made a rather curious statement on Twitter. He said this:

Bessent: the recent depreciation of the Korean won is not in line with Korea’s strong economic fundamentals.

This is the US Treasury Secretary trying to bolster confidence in the Korean currency, a foreign currency. And because of that statement, the won gained 1%. This is classic ‘jaw boning,’ when you try to support the markets by talking big. It’s the equivalent of trash talk during all the WWE wrestling matches. There’s more or less no difference. At the end of the day, fundamentals will always win. If Trump insists on getting his money and US rates don’t come down fast enough, the won will continue to collapse.

Now, Korea already has a reserves crisis. They don’t have enough money versus what Trump wants. Their $420 billion in reserves also includes $145 billion in US treasuries.

Should the Korean won drop further, this will spell doom for Trump and Bessent. Korea could be forced to dump their bond holdings to prop up the currency, sell bonds to get dollars, and then sell the dollars to buy back the Korean won again. To put it simply, Bessent doesn’t really care about the Korean currency. What he cares about is that Korea doesn’t go dumping US bonds and dollars. That is the real agenda here. If it happens, borrowing costs will fly up. Should the dollar continue to fall, the stock market itself will get hammered. And we know Trump loves himself a good market rally that never ends.

Trump: They raise rates. So everyone says, “Oh, they announced great numbers. It’s great, great, great, and the market goes down because they immediately raise rates.” No. When the market goes up, they should lower rates. You want to see 20% and 25%. You want to see what we can do? We’ve got to go back to an old standard. When there’s good news, the market should go up, not go down. Does that make sense to everybody? And that’s the way it used to be for most of the time. That’s the way you make a country great.

It’s not just the Fed that can destroy a rally. It’s the strength of the dollar as well. If the S&P flies up by 10%, but the US dollar collapses again by 10%, what is the point? You are still net zero, especially for foreign investors.

And the headaches keep piling up for Scott Bessent. It’s not just Korea that’s in trouble. Japan’s currency is also in crisis mode. Now, the Japanese prime minister calling for an early election just started the ball rolling. Why does she want to consolidate power so early on? Is it because the economy is in trouble? You don’t call a snap election for nothing in Japan--there’s a deeper agenda behind it. And whatever the case, this is freaking Scott Bessent out again.

The yen has fallen to 159 against the dollar, which is testing intervention levels. The Bank of Japan [BOJ] could be forced to sell dollars to save the collapsing yen. The Bank of Japan could be forced to sell dollars to save the collapsing yen. And if they allow it to break below 160 to the dollar, then all hell could break loose. Japanese people themselves could lose confidence fast. It’s not the first time this was done. They have done interventions at least four separate times in the last three years--all of which failed long-term because Japan’s economy is struggling from within. Japan’s own finance minister is trying to jawbone the markets herself. The yen managed to strengthen by a few basis points, but that is nothing in the grand scheme of things. The only tool left is to tap onto Japan’s huge holdings of dollars.

Now, Tokyo still holds over $1.2 trillion in US debt, ready to be deployed. It’s the only playbook left because everything else simply isn’t working today. The BOJ has been hiking rates. As a result, the difference between the US yield and Japan’s 10-year yield has been narrowing. Normally, this would help strengthen the yen. However, it’s not happening. Investors are still shunning the currency, and this is pushing Tokyo to the breaking point. Rate hikes [in Japan] are not working. If the yen continues to collapse, imports will become even more expensive. The inflation crisis could get even worse.

So, the only option left is a currency intervention to buy Japan another few months--maybe half a year, if Japan is lucky. There’s a reason why Japan’s finance minister flew to Washington. It’s probably to give Bessent a heads up that the dollar dump is coming soon.

Unless the yen miraculously reverses, it’s time to brace for impact. The US dollar could be heading down much further than we think. And the catalyst, ironically, will be US allies dumping dollars. Nothing to do with China, nothing to do with Russia.

And while all this black buff [?] is going on, another traditional US ally is breaking ranks. We are truly witnessing a change in a global order. This will definitely accelerate de-dollarization and bring more economic pain for the Trump administration. Canada is moving closer to China. Our joke last year about Carney drinking tea in Beijing has come true. When Carney arrived in China, there was pomp and pageantry. He was literally given the red carpet treatment, with an honor guard, which is one of the higher respects that can be given. Optics are very important to the Chinese. It shows a big shift, and China rolling out all the stops to swing Canada towards Asia is very significant.

Now, truth be told, Carney already made his mind up long before he got onto that plane. The US has been hammering down on the Canadian economy and, when you launch a tariff war on your neighbor, you better be prepared for the blowback effect. Canada is getting less reliant on US trade today. The numbers are out and it shows us how trade with the US is becoming less profitable. Canada has to find alternative markets and they have to do it fast. Canada’s trade surplus with the US fell from 8.4 billion in September to just 4.8 billion in October. That’s a 40 to 50% wipeout in a single month. Meanwhile, Canadian exports to non-US countries rose by 15.6%, thanks to more oil sold to China.

Obviously, this is the future for the Canadian economy. The US has been telegraphing the punch for months. Trump wants to make everything in the United States. From cars to chips, he wants to cut away dependence on the world. And his move to take over Venezuelan crude is also a big threat to Canada’s oil producers. Should Trump manage to pull that one off, Canada better have new buyers soon or else there’s going to be a big glut of over-supply in the country--then the oil sector could really turn disastrous.

Now, from Carney’s message to Beijing, one can tell that the shift is here, and it’s in direct response to Trump’s trade war. There’s no going back at this point.

Carney: We are ready to build a new partnership, one that builds on the best of our past and responds to the challenges of today.

And this makes things even clearer going forward. We can expect quite a few changes between Canada and China. China will start buying a lot more oil from the Canadians. At this point, it really isn’t so much about the price. It’s about cutting away any last vestiges of dependence on the US economy. Canada needs the revenue while China needs a big alternative supplier. The enemy of my enemy is now my friend. Biden managed to drive Russia closer to China, but Trump did the impossible--he drove Canada closer to Beijing.

Back in December, Carney already gave the US a warning shot. The tariffs have pushed the country to the edge. And there’s a Chinese saying, you don’t push a tiger to the corner.

Carney: Look, we know the world’s changing. We know that this decades long process of our ever closer economic relationship between Canada and the United States has ended. And, as a consequence of that, many of our strengths have become our vulnerabilities, particularly in those industries that are most tightly integrated with the United States. Headline last year, 75% of our exports went to the US. 90% 90% of our lumber exports went to the US. 90% 90% of our aluminum exports went to United States. 90% of our steel exports went there--all bound for a single market that has changed.

So, many things will be changing. China would also want some Canadian concessions as well. Very soon we will start to see more BYD cars rolling around Canada. And before you know it, here’s a prediction. Huawei’s 5G network could also make an appearance up north. It’s just a matter of time.

Trump really overplayed his hand this time. He has sped up the timeline for countries to break away.

Moving on to the tariff war. Is it working? PP did a seven part thread on that today:

Philip Pilkington @philippilk

1/ The current account data released in the US shows not just an improvement in the trade balance in goods, but a DRAMATIC improvement. In a new paper with @hiia_budapest I explore whether this is evidence that the Trump tariffs are working.

2/ When we break the trade balance in goods down by component and look at those categories that have declined by more than $1bn in the past year we get these categories. Pharmaceutical preparations really stand out but the rest are important too.

3/ These are easily stored goods and are medically important raising the possibility of inventory buildup pre-tariffs. This aligns with the pre-April surge in the trade deficit in goods.

4/ So, we look at how the categories highlighted behaved during March. Pharmaceutical preparations did surge. So did metal shapes - that is, construction material like pipes, rods, wiring etc. But the rest of the categories did not surge.

5/ So, two of these categories are likely falling because of pre-tariff stockpiles. But the others appear to be falling for different reasons, suggesting some tariff effectiveness. Tariffs appear to be restricting goods imports but not as dramatically as headline data suggests.

6/ The geographic picture is interesting too. Chinese imports falling dramatically. Some of this is likely due to “re-export” via Vietnam, but this only explains part of the Chinese decline. The increase in Taiwanese exports is more likely related to the AI boom than re-export.

7/ The increase in EU exports is due to LNG exports and an increase in energy intensive goods like chemicals that the EU can no longer produce due to high energy prices. So, this increase in exports is due to EU deindustrialisation and is not tariff related.

8/ Overall some tariff effects detectable but not as much as the headline numbers would suggest.

The bottom line here is that tariffs aren’t magical restorers of manufacturing might. And, in fairness, I very much doubt that Trump ever thought tariffs would accomplish what he sold them to Americans as accomplishing. The clue in that regard has to do with the way the tariffs were implemented—not targeted, just meat cleaver style shock and awe. It was supposed to trigger the Great Shakedown and keep the stock market bubble inflated for AI—not to provide factory jobs for the little people in America.

Put it all together, and you can see why Trump is entering the midterm year with trepidation.