Big Man Politics – Fat Tail Daily | Australian Markets

‘All government spending is taxation.’

Elon Musk

Elon is correct about that. Each penny spent by the feds should come from ‘The People’ by way of some kind of taxation. One of them is within the news immediately. Tariffs. Yesterday, the Trump group put in place new tariffs in opposition to China, Mexico and Canada.

And final night time, Trump promised an even more aggressive barrage: reciprocal tariffs. Different nations punish their own residents by denying them high quality imports at aggressive costs; now, we’ll do it too!

Warren Buffett, as interpreted by Funding Insider:

‘Tariffs are “an act of war, to some degree,” Warren Buffett said. The Berkshire Hathaway chairman and CEO told CBS, “Over time, they are a tax on goods.”’

And now, the trade conflict has begun. Newsweek:

‘Ontario Premier Doug Ford said on Monday that he would block energy exports to the United States “with a smile” if U.S. President Donald Trump moved ahead with plans for a 25 percent tariff on Canadian goods.

‘The U.S. imposed tariffs of 25 percent of Canadian goods—except for energy products, which face a 10 percent tariff. It also put a 25 percent tariff on imports from Mexico and an additional 10 percent on Chinese goods.

‘According to figures from the U.S. Energy Information Administration, Canada is by some margin the largest source of American energy imports, with 59 percent of all crude oil imported into the U.S. in 2019 coming from the country.’

Related Press:

‘Mexico President Claudia Sheinbaum said Tuesday that Mexico will respond to 25% tariffs imposed by the United States with its own retaliatory tariffs on U.S. goods. Sheinbaum said she will announce the products Mexico will target on Sunday in a public event in Mexico City’s central plaza, maybe indicating Mexico nonetheless hopes to de-escalate the trade conflict set off by U.S. President Donald Trump.’

And the primary casualties are limping back into camp:

‘On Monday, the Federal Reserve Bank of Atlanta released an estimate for GDP performance in the first quarter of 2025, which showed an economic contraction of 2.8%… the same model-based projection estimated growth of almost 3% in early February.’

Whoa. A 5.8% drop in GDP growth estimates. We haven’t seen that because the Nice Melancholy…or Donald Trump’s first time period, with the Covid Panic.

If that sort of contraction occurs, and continues, the feds must spend more money on unemployment comp, and so forth. And the Nice Helmsman might be tempted to steer in direction of more stimmy measures. However the place will he get the money?

The feds maintain no bake gross sales. They promote no cookies, door to door, nor have interaction in charitable fundraising. They produce few items and offer few companies that people would willingly pay for. When they need money…they only take it.

So it was that final 12 months they took $4.9 trillion in tax income. However they spent $6.7 trillion. Whence cometh the distinction? From different types of taxation — inflation, primarily…and tariffs.

For this reason Donald Trump’s 2017 tax cut… and the proposal to increase it… are such frauds. They don’t really cut taxes; they merely shift it from direct taxes on income to oblique taxes from inflation or tariffs.

Inflation has been known as the ‘cruellest tax’. It falls disproportionately on poor people. In the event you earn a million and solely spend $100,000 per 12 months, inflation is simply taking a chew out of 1/tenth of your income. In the event you earn $40,000…and spend all of it…it eats into the entire thing.

Charlie Bilello:

‘Highest earners also tend to be the biggest owners of assets such as stocks (the top 10% own 87% of stocks) and houses, which have outpaced inflation by a wide margin over the past five years…The result: the top 10% of income earners in the US (households making $250,000 or more) now account for half of all consumer spending, a record high. Three decades ago, they accounted for roughly 36% of all spending.’

In case you are wealthy, and also you need money, you dig into financial savings. However what do you do should you’re residing hand to mouth? You employ a credit card. Bilello continues:

‘US Credit Card debt hit a record $1.2 trillion in the 4th quarter, rising 7% over the last year. The interest rate on that debt remains near record highs, at 21.5%. The combination of high debt levels and much higher interest rates is leading to an uptick in delinquencies. Over 11% of credit card balances in the US are now 90+ days delinquent, the highest since 2011.’

Inflation is just a tax on items. As Buffett explains, so is a tariff. And like inflation, the poorest people will shoulder the heaviest portion.

However not like inflation, tariffs are particularly suited to Huge Man politics. They can be utilized as carrots or sticks. Trump can punish opponents or reward crony associates. An industry with good lobbyists is prone to get safety from international rivals. One that’s on the incorrect aspect politically could not.

Tariffs make great political theatre, however unhealthy economics.

Regards,

Invoice Bonner,
For Fats Tail Each day

All advice is normal advice and has not taken under consideration your personal circumstances.

Please search impartial financial advice relating to your own state of affairs, or if unsure in regards to the suitability of an investment.