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Unleash Prosperity Hotline
Issue #1199
02/10/2025
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1) Trump May Nudge the World To Freer Trade
Trump announced on Friday that the U.S. will enforce reciprocal trade tariffs with other nations - meaning Trump will lift American tariffs to the rates those other nations charge us.
For all the self-righteous indignation by the Chinese, Germans and the huffy European Union bureaucrats, the U.S. has virtually the lowest tariffs of any major trading partner in the world (and these numbers don't even include the VAT taxes that are rebated on exports and zing imports ([link removed]) ).
We are also (by far) the richest country in the world with half of the world's wealth, which contradicts the argument by some of our protectionist friends that our free trade policy hurts our economy.
But as the hub of the global economy, we are the one nation that every other country MUST trade with. Trump's strategy is to use this leverage to force other nations to lower their tariffs on our goods.
If Germany or China or Japan want to stop Trump from raising our tariff rates, all they will have to do is lower theirs.
Period.
Could this escalate into a trade war that nobody wins? Perhaps. Germany and China have threatened to counter Trump's 15% tariff with higher tariffs on us.
That's a tit for tat game they can't win. China MUST have access to America's vast consumer market or they risk a depression. So it's in their strong self-interest to lower their tariffs, not raise them.
If Trump's strategy works - EVERY nation we trade with will soon lower their tariffs. Trade will be freer and fairer and everyone wins. (Click on the chart to see full size version).
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2) Trump Can and Should Close the CFPB
Shortly after Russ Vought was confirmed as OMB director, President Trump designated him the acting director of the Consumer Financial Protection Bureau. Vought then promptly notified the Fed that the CFPB's funding request for next quarter is $0:
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This is not only good policy, but it is correct as a legal matter.
Unleash Prosperity senior fellow, EJ Antoni, has made a strong case that Trump has the authority to shut down the troublemaking federal regulatory agency.
He can pull the plug on the brainchild of Elizabeth Warren because this agency is funded, not by appropriations from Congress, but by Federal Reserve Board profits. For the last several years, the Fed has been losing hundreds of billions of dollars on the interest it pays to banks. So there are no profits to use to fund CFPB!
This upside-down financial situation could be resolved by stopping the interest the Fed pays on reserves. But as long as there are no Fed profits, there should be no CFPB funding.
This way, everyone is happy and a snooping agency goes out of business. What's not to like?
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3) Trade Deficit Is a Capital Investment Surplus
One of many reasons the U.S. is the alpha male of all the industrialized nations, is that we massively import capital from the rest of the world to these shores.
Just as Americans are disinvesting in blue states and plowing money into red states, so it is internationally. If we import more capital into the U.S. than Americans invest abroad, this means we must buy more from abroad than foreigners buy from us.
You can see the mirror image here:
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If we want to lower our trade deficit, tariffs won't do it. We have to go into a deep recession, or we need to raise tax rates through the roof to chase the foreign capital away.
Those are both bad options.
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4) How Joe Biden Killed the Penny
So much for the maxim: "a penny saved, a penny earned."
President Trump has announced the federal government will stop forthwith the printing of the penny. We view this news with nostalgic sadness. But, alas, the demise of the penny was inevitable, given the erosion in the value of the dollar and the penny.
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Biden probably put the final nail in the penny's coffin with his spending spree that cut the value of a penny by 21% in four years.
Today, the purchasing power of 10 pennies equals roughly what one penny was worth 50 years ago. In other words, the penny has lost 90% of its purchasing power. This devaluation is a failure of government.
Special thanks for this debacle goes to Richard Nixon for removing the last vestiges of the gold standard.
It now costs more than 3 cents each to mint the more than 3 billion new pennies every year. So it has become a losing proposition for Uncle Sam to produce them.
We are worried that the end of the copper penny (actually made of copper-plated zinc since 1982) is a surrender in the fight against inflation.
TheBrooking Institution ([link removed]) has endorsed eliminating the nickel too!
Where does this erosion of the dollar end?
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5) Is Illinois America's Next Bankrupt Blue State?
Illinois Governor J.D. Pritzker told reporters this week the big goal of his February 19 State of the State speech will be this message: speech
"If we balance the budget again this year, I believe people will finally see that Illinois can govern itself."
Wow. What a concept. Every red state balances its budget every year, This isn't putting a man on Jupiter.
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Pritzker is looking at a budget hole of more than $3 billion, with mandated hikes in education and pension spending exploding the budget every day. He faces yet another looming teacher strike in Chicago (the teacher union is relentless) within the next six weeks, and a Chicago transit system that has a $770 million deficit with a ridership just over half its pre-COVID levels.
Last year, Pritzker raised taxes by $750 million to balance the budget. That led to a further exodus of jobs and tax refugees.
Adding to the misery is that taxes aren't even going to pay for roads or bridges or public safety, but fat pensions for retired state workers. Illinois has four of the 10 worst public pension systems.
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Our prediction is that Pritzker will come knocking on Washington's door for a federal bailout. Trump should reply: drop dead.
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6) No Wonder They Are So Upset
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