China May Decide When the Next U.S. Financial Crisis Comes

by Bill Bonner

“Here’s another nice mess you’ve gotten us into.”

– Oliver Hardy

YOUGHAL, IRELAND – Wall Street is on the edge of its chair… holding its breath.

Yahoo Finance explains why:

High-level trade talks between U.S. and Chinese negotiators are slated to resume in Washington, D.C., on Thursday, providing an opportunity for both sides to make progress on a deal before the next tranches of tariffs on Chinese imports take effect. […]

The months since negotiations fell apart in May have been replete with new tariff announcements and other policy-based retaliation. Each new update – be it by tweet, rumor or report – has sent markets reeling, as investors scrambled to recalibrate shifting odds of a near-term deal.

The stock market is supposed to calmly weigh and assess each company, discounting the expected stream of earnings to present value. Then, every day, in open bid and ask, it discovers what that company is worth.

At least, that’s the idea… Instead, it is like a panicky mob… listening for rumors and ready to run helter-skelter at any moment.

Will trade negotiators strike a deal? Will Jay Powell lower rates? Brexit? Iran? Syria? Impeachment? What’s the latest news?

Degenerate Capitalism

None of these things are likely to have much of an effect on the earnings American businesses can expect. But at this stage, America’s late, degenerate capitalism has been queered by the feds.

Politics rules.

In the U.S.-China trade war, for example, we doubted that The Donald would ever go all the way. He’s got an election to win. And the trade war costs each family as much as $1,000 a year, according to some estimates.

He needs to claim victory against the Chinese and end the war. But the Chinese may have him over a barrel; they could force him to go Full Retard.

They’re no strangers to politics either. They could spike the negotiations and cause a crash in the U.S. stock market. They know as well as we do that a stock market crash could send Mr. Trump back to daytime TV.

In other words, thanks to the trade war, the Chinese president – not the U.S. president – may be in a position to decide when the next crisis comes… and who wins the next U.S. election.

Fine Mess

What a twist! What a turn! What another fine mess we’ve gotten into!

It would be a risky gambit by the Chinese; we doubt they would do it. But who knows what’s ahead?

Over the last few days, we’ve been guessing about it. Herewith, a brief resume of what we have found:

Our guess is that America peaked out at the end of the last century. Since then, with Dubya’s $5 trillion war against Iraq… Obamacare… quantitative easing and a negative real fed funds rate for 10 years… transgenderism, the Kardashians, Lee Greenwood, trillion-dollar deficits, $22 trillion in federal debt, fake money, fake interest rates, and fake wars – it has been all downhill.

The Dow – the flower of American capitalism – has lost more than half its value (measured by gold)… and the U.S. has slipped by nearly every measure in international rankings.

The latest slip came this week. This CNBC headline says it all:

“Singapore overtakes the US to become world’s most competitive country, WEF says”

Burn Down the House

Twice so far this century, the markets have rebelled – in 2000 and again in 2008. And twice, the Federal Reserve has put down the insurrection with more fake money and fakier interest rates. And each time, it merely added to the underlying grievance – too much debt.

So it is inevitable that Mr. Market will rise up again.

If it comes before the 2020 election, it will probably knock Mr. Trump out of the White House. Those swing states that went for him in 2016 will swing the other way when hard times return.

This will leave the strident, know-it-all senator from Massachusetts as president. And what another fine mess!

Ms. Warren would be the worst possible president at the worst possible time.

Self-confident, sanctimonious… with a plan for everything… she will respond to the coming financial crisis in a predictable, but catastrophic, way, with huge increases in federal spending… and much more debt.

Mr. Trump would do about the same thing… but he has no ideological bearings to misguide him.

His advisors would point him in different directions. Left, right… north and south… He would zigzag and countermarch… depending on instincts honed over many years as a leveraged real estate speculator.

He will not hold back from borrowing and spending, but he knows that too much debt can get you into a peck of trouble.

In either case, after the first crisis – a deflationary stock market crash/recession – will come the second, caused by the quacks who pretended to cure the first one.

It will be an inflationary crisis. Consumer prices will rise. But they will not be the docile, well-behaved price increases wont by today’s policymakers.

They will be like uninvited guests at a teenage rave. They will soon be breaking the furniture and setting the house on fire.

Then what? Call the police!

More to come…

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