Realitybites said:
DallasBear9902 said:
Really tough choices coming in the near future for USA and all western economies. That said:
1. I think the real competition in this century is going to be for human capital and the USA is just simply light years ahead of the rest of the world in integrating immigrants. So the USA is setup to win the competition, just don't know if we'll actually do it.
As an immigrant myself, I take some issue with this. The immigrants who are flowing in to the country today are not the sorts of immigrants who arrived, say, pre-1980 to 1990. For the most part, even the non-white immigrants from that era were genuinely seeking to reboot their lives as Americans. However what you're seeing since then is a flood of *economic* migrants, not the best and brightest. Even the degreed H1-B immigrants from India are often displaying a poor level of competence paired with degrees from foreign diploma mills. The nature of immigration has substantially changed, and that flow-both legal and illegal- must be stopped. Also, with the rise of AI, the need for human capital will be substantially diminished.
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2. Seems obvious to me that European nations are going to make a play for wealthy and well off Americans to retire in Europe via citizenship/cheap housing as Europe's population and economy continue to shrink. You already see a little bit of this in rural Italy.
I know that Kaibear and I discussed these options extensively when it looked like Kamala Harris and her socialism might be elected in 2024. I know I made some substantive moves to put in place a plan B. At that time I looked at the various European options available and decided against them. This was for a couple of reasons. My parents fled socialism once, and Europe is at this point in time worse from a freedom perspective than the United States. Most all those states, with a couple of temporary tax carve outs in places like Portugal, Ireland, Switzerland and a few others and a permanent one in Malta, are high tax regimes as well. To me it looks like the well off American retirees who are going to Europe are those seeking more socialism, not less.
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3. Canada is absolutely screwed. They have used the annual C$100bn trade surplus with the US to buy their people a higher standard of living. With reshoring to the USA, I don't know how their manufacturing sector survives and it is looking very bleak for them. Their oil production is not enough to bail them out.
True. I actually wonder if Canada's government is going to apply for EU membership.
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4. If AI bubble pops, it will actually buy us a little bit of temporary relief as it will be deflationary and allow the fed a short period of small breathing room. Not enough to materially alter the course.
It will be deflationary and help the average American citizen from a cost of living perspective, but combined with that will be a rising unemployment rate and greater difficultly in paying down the debt.
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5. What is sort of crazy about this is that we have gladly run trade deficits in exchange for the Dollar being the reserve currency of the world (it was a very valuable trade in our favor, but came with costs, especially for the middle and working class). In other words, we are, for the most part, the balancing account as the rest of the world has tried to run trade surpluses. If the USA stops filling that historical role of the trade balancing account, I'm not sure who else in the world has the political will power or the currency strength to run trade deficits. See number 3 above; for the Canadian economy to work they need a trade partner that will run a deficit to Canada's surplus. Good luck finding that.
We have, but that strategy has come at the cost of a declining standard of living for American citizens over multiple decades.
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6. This is precisely what is driving things like DSA among the young educated classes. As the economy gets tighter, the young people are turning to any one who can offer an alternative. I suppose the real question from this crisis is going to be whether DSA gets real national power (or their fellow travelers). If that happens, then all bets are off and it gets really ugly.
It is...and this is a major blind spot in the GOP establishment's thinking. "Eat at Taco Bell" is suspiciously like "Let them eat cake" and we know how that turned out.
But more than an autopsy I'm looking for a discussion about how to protect ourselves from being dispossed by socialism or economic calamity.
One was already broached: Pull the rip cord and land in a greener pasture.
Another: From an investment perspective establishment institutions are starting to suggest instead of a traditional 60/40 portfolio, a 60/20/20 portfolio that introduces exposure to precious metals and commodities.
1. In my own way, I am an immigrant and a native-born son of this country. I was born to an American and raised abroad (outside of the military system) and didn't come to the US until later in my childhood. My other country went through real, honest insane inflation, and I remember it well. Central bankers understand there are two ways to grow an economy: 1) increase the population and 2) increase productivity through innovation. No. 2 is much harder to pull off, especially with low interest rates. Think of it this way: if interest rates are high, then the only investments you make have to return productivity gains greater than the cost of capital. So, in the early 1980s, you have a lot of pain with high interest rates in the USA, but it is no coincidence that at the same time capital is flowing to Silicone Valley because those innovations were the only ones capable of meeting the cost of capital hurdle by driving massive productivity gains. If interest rate = 15%, then productivity gain from investment must be at least 20%.
In a low interest rate environment, you get investments in stuff like Tinder and Uber and Airbnb, because the cost of capital is so low that marginal investments can clear the lower hurdle. But that doesn't drive productivity gains. It is no coincidence that in response to the post-covid inflation (higher interest rates) we finally see investment in productivity movers like AI. The cost of capital hurdle is higher! Thus the investment must have higher productivity gains! But, nobody likes high interest rates.
So, that really leaves you option 1 to grow an economy. Yes, unskilled labor and H1Bs are a problem, but that doesn't change the fundamental calculus that the central bankers understand: population growth = GDP growth.
GDP growth is not the end-all-be-all, but it is when you have a debt financed social scheme. If your GDP doesn't grow, then debt service will crush you in the future, and thus, central bankers focus in on GDP growth and you only have two real options for it: population and productivity.
When I say that human capital is going to be the competition of this century, I'm referring to the fact that populations worldwide are stagnating. That means fewer and fewer younger (productive) workers have to carry a greater tax burden for social services. Those workers leave their home economies under crushing debt burdens for greener pastures. Whoever can offer the productive young the best deal is going to win this century economically. The USA has a first-mover advantage if it has the courage to use it, but you and I both know that in the short term that will not be the case.
2. Socialism is less impactful on retirees. Socialism crushes the productive young. You mentioned Ireland. The Irish countryside, especially on the west coast is beautiful with habitable weather. It is for sure a different pace of life than America, but an American retiree could live fine in a place like Westport, Galway, or Kilarney. Housing in those communities will get cheaper as their productive young continue to flee and it seems like a no brainer for a decently well off American. Remember, Ireland only has a population of 5.9 million, so they don't need full remigration. They just need 250,000 to 500,000 retiree households to take the deal and and it is extremely productive as a trade on both sides. Not saying it is for everybody, but it is such a no brainer that I'll be shocked if it doesn't happen.
3. Canada applying for EU membership would be insane, but they might do it anyway. Personally, I think after 40 years of looking down on America, their population has drunk the kool-aid and they may try for EU membership just to show the Americans what's what. Losing control of your currency makes it really hard to do economic stimulus. Logistics of trade will put them at a massive disadvantage. But they may be prideful enough to do it.
5. An asset bubble popping and deflationary environment should make it easier to temporarily pay off the debt as you get temporary breathing room on interest rates (rates go down). Now, whether our politicians could capitalize on that is an entirely different question. It is borderline criminal that we didn't rollover as much of our debt as possible into longer duration paper in the low interest environment of Covid, but that moment has passed.
6. I don't do wealth management so I can't help you there. My professional expertise is in macro-rate environment and credit markets (particularly on the lower risk end of the capital stack), with a dash of currency sprinkled in. I don't think there is a fool proof way to protect yourself from the coming changes. It is all downstream of the United States government and its power to tax. The best strategy is to not let the DSA get into power. Next best is to diversify your exposure to assets that are neutral to the currency (commodities). But all your economically-wise investment protection isn't going to mean squat when the tax rates rise. In many ways, the American economy keeps other taxing authorities honest. Take the tax toggle too high and capital flees to America. So America functions as a sort of cap on worldwide tax rates. Who knows what the worldwide tax environment looks like in a world where the USA approaches European tax levels. But Biden already tried to sign to minimum tax treaty with other nations so that inter-country tax competition could be reduced. If a treaty like that actually ever makes it across the finish line, then you can't really hide from the destructive power of socialism, at least in the first world. So then you are turning to highly questionable practices involving countries in Latin America (not legal or investment advice).
Governments are getting efficient at this. Look at EU bail-in rules and try to understand why the EU discontinued the 500 euro note if you really want to get an idea of where this is all going. Hint: they didn't get rid of the 500 euro note because drug traffickers loved it. That was just a useful excuse.
