Fed Ignores Data It Claims to Depend On (Uncut) 01-30-2025

Fed Ignores Data It Claims to Depend On – Ep 1006

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Well, earlier today, we got the highly anticipated pause from the Fed Reserve. They stopped cutting rates, at least for now. They announced that rates would remain the same.

Fed funds rate remains at four and a quarter to four and a half percent. I don’t think anybody expected the Fed to cut. And nobody, of course, expected the Fed to hike.

And the Fed rarely likes to disappoint the markets. And so we got nothing from the Fed. There was a bit of a reaction, but not much of a reaction.

I think initially the markets reacted to a couple of tweaks to the language of the official statement. I think the most significant tweak was what was left out, not what was added. They took out a few words that were, we are making progress on our inflation goal of 2% on our target.

Words to that effect. They removed those words that they were making progress, moving towards 2%, which of course they’re not. But they have to pretend that they are.

But the markets, I think, initially sold off. Because if the Fed took those words out, well, maybe that’s an acknowledgement that they’re not making progress. And if they’re not making progress, getting to 2%, well, then they can’t cut rates in March or any month thereafter.

Maybe it means they’d have to hike rates. So I think there was a little nervousness about that. But I think that Powell was able to calm the markets by walking it back.

Now, I don’t know if it was intentional or not. One of the questions he got during the press conference was about that. One of the reporters, I can’t remember which one, asked him what the Fed meant, what the FOMC meant by the removal of those words.

Did they mean that they no longer believe that the Fed is making progress at returning inflation to 2%? And Powell said, no, no, no, it doesn’t mean that at all. He said, don’t read anything into it. Powell said that we just wanted to make the sentence shorter.

So we took those words off, which doesn’t make any sense to me. Because I know that they are very careful in the selection of these words because they know that everybody is looking through these words. They just came down from Mount Sinai and they were written by the figure of God.

So they’re very careful about what they say. And I don’t believe that they were just trying to be more economical with their wording and they try to just get rid of some unnecessary words. So I think maybe there was some meaning there.

Maybe it is a bit of a acknowledgement, even maybe a Freudian one, that they’re really not making the progress that they claim. But I think Powell walked that back. I think he understood that.

Maybe he looked at the market’s reaction and said, oh, I got to do some damage control. So he said, pay no attention to what we wrote because we didn’t mean anything by it. But I think there is some meaning there that maybe the Fed knows that they’re not making as much progress as they claimed.

But that’s the last thing that they want to communicate to the market. So maybe they regret making that change. But in any event, I think the markets listen to what Powell said.

And, you know, we saw a rally in the market. And so very little impact today on the market from the Fed decision. I want to talk, though, about some of the questions and the or the answers that Powell made.

First of all, the very first question he got was from Steve Liesman of CNBC. And it related to something I talked about on the podcast, which was President Trump’s statement that he made in his speech at the Davos conference. And I talked about that, where he said that he would demand that the Fed cut rates right away.

And so Steve Liesman asked Powell, did Trump contact you? Did he make any demands? Did he demand that you cut interest rates immediately? And, you know, of course, that was really an unfair question to both Powell and actually Trump. Because to be honest, what Trump said was that he expects the price of oil to drop sharply. And as a result of that big drop in oil prices, he would demand that the Fed cut rates immediately.

So that hasn’t happened yet. I mean, oil prices have come down from the high they hit a week or two ago. But there’s still what? Seventy to seventy three dollars a barrel.

That’s not the type of price drop that Trump spoke about, which would result in demanding that Powell cut interest rates. So he didn’t say that he was going to demand that Powell cut rates right away. He predicated that on a big drop in oil prices.

So that the whole question was unfair. But also, did Liesman really expect Powell to answer that question? Because if I was Powell, if I had a private conversation with the president, I’m not going to tell everybody what he told me. I mean, that then he’s never going to confide in me again.

I mean, if you have a private conversation, you shouldn’t ask, hey, what did the president tell you in confidence in private? I mean, you’re not going to say. So even if, you know, there was a conversation, it makes sense that he’s not going to tell the whole world about a conversation that took place in private. But Liesman had like a three part question because he also asked him, you know, how would you respond or how would you react if the president demanded stuff? And of course, it’s a hypothetical, but he could have answered that.

He could have said, look, we don’t care what what what you know what he says. He can pound the table all he wants. Right.

I’m going to ignore it. But he basically just refused to answer the question and left it at that. But the whole idea is that, look, you know, we’re apolitical, which, of course, they’re not.

They’re not apolitical because he was asked. Another question he was asked was to comment on on the tariffs and, you know, the policy that is being considered. And, you know, what impact that might have on their mandate on inflation.

And and he says, well, we’re not going to talk about it. We’re not going to comment on that. He said, you know, the people elected their representatives and they hope their representatives are going to pursue policies that will benefit the country.

And, you know, we’re just not going to comment. That’s not any of our business, which, of course, is nonsense. If the Fed chairman believes that a particular policy, regardless of its popular support, if a Fed chairman or the whole FOMC, for that matter, if they believe that a particular policy is harmful to the economy, if they believe it actually complicates their mandate, if they believe that it is inflationary, then absolutely the Fed has a duty to speak up.

They’re not there to remain silent. That’s not why they’re apolitical. Right.

Being apolitical. And I’ve said this many times on this podcast. It doesn’t mean not having an opinion.

It means being above the fray. It means being free to express your opinion without fear of political consequences. See, the government officials who are elected, they’re beholden to the voters.

So maybe they think something is bad, but the voters think it’s good. So they just do what the voters want because they want to get reelected. The point about having an independent Fed is that these guys don’t have to care what the voters want because they don’t need their votes.

They’re supposed to be able to do the right thing, even if the voters don’t know what that is. Even if the voters want to do the wrong thing, they’re supposed to be the adults in the room to say, no, no, no. What you want is wrong.

And here’s why. Right. If these guys really are so smart, right.

If they’re smarter than the public. Well, why can’t they educate the public? You know, if they’re smarter than the congressman, then educate them. Let them know, hey, you guys are considering something and it’s bad.

And here’s why it’s bad. Right. But no, they’re afraid to speak up there.

He’s pal is afraid to do his job. Right. So, you know, he just wants to pretend that his job is to remain silent because that’s how you remain apolitical.

No, your job is to criticize a bad policy. That’s how you remain apolitical, because you’re not beholden to the voters. You don’t care about popular opinion.

Right. You just do what’s right. But that’s not what they do.

They just do what’s politically expedient and they pretend that they’re doing what’s right. Let me see what else. So, yeah, he said he doesn’t want to criticize tariffs.

He doesn’t want to praise them. He just wants to stay neutral. Right.

Well, what the hell is that? Right. What do we need neutrality for? You know, we need we need we need advice. We need the people who we put in those positions to let us know if they think we’re doing something wrong.

Anyway, about the restrictive policy, he said that he did not think policy was significantly restrictive. He said it was meaningfully restrictive, whatever the distinction is between that difference. I’m not really sure, but I think it is an acknowledgment that policy is actually not as restrictive as as they’ve been claiming, because it’s only meaningfully and not significantly.

But I don’t think it’s restrictive at all. I think it’s still loose. Monetary policy has remained loose.

Interest rates are still too low. You can tell by the record amounts of debt and borrowing that have not been deterred at all by the increase in rates because it’s it’s been too little. Rates have not moved up enough to be restrictive.

And that’s why you still have all this borrowing, because it’s still cheap to borrow. In fact, the money supply growth continues. We got the most recent data on the money supply and money supply for the I guess the final week or December.

The month of December was up by eighty five billion. So money supply didn’t go down annualize it. It was a was a point four percent increase that annualizes to five percent money supply growth.

That’s five percent inflation because that’s what inflation is. It’s the expansion of the money supply. So we got five percent inflation rate.

I mean, that’s pretty easy. That’s a lot of inflation for all of last year, because this was a December number for all of twenty twenty four. The money supply grew M2 money supply by four percent.

So if you’re supposedly being restrictive and fighting inflation, why are you creating four percent inflation? Why are you inflating the money supply by four percent? If your goal is prices going up two percent, why do you have the money supply going up four percent? Unless you think that prices would have dropped two percent absent that inflation. And so you need to create four percent inflation to offset the two percent natural deflation. But to me, this is all proof that we have an easy money policy, even if it’s less easy than it was in prior years.

In aggregate, it’s still easy. And that’s why inflation hasn’t gone away. In fact, it didn’t even go into hibernation.

We still have pretty substantial price increases. But the increases that we’re about to see in twenty twenty five are going to be much greater than the ones that we’ve seen in twenty twenty four. And, you know, Trump is already getting ahead of the curve.

I read that Donald Trump is already criticizing this Fed decision and claiming that it’s going to cause inflation. So now he wants to blame the inflation on the Fed for not cutting rates enough. Now, of course, the Fed is responsible for inflation.

But for the opposite reason that Trump believes, or at least based on that, that most recent quote. Anyway, we got a quick commercial break. I got a lot more to discuss.

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Go to Shopify dot com slash gold to start selling with Shopify today. Shopify dot com slash gold. OK, getting back to Chair Powell’s responses to the questions that he was asked at the FOMC press conference.

One reporter asked if the Fed needed to see two percent inflation to cut rates further. And Powell reiterated what he said in the past. And that answer was no, that he is not waiting for two percent before cutting rates, that he will cut rates before two percent as long as it looks like inflation is headed back down there.

So in other words, they could cut it two and a half or wherever. They’re not going to wait for two percent, which is in contrast to what the Fed did, what inflation was below two percent. And in fact, one of the reporters pointed this out that when inflation was below two percent, Powell said, look, we’re going to wait until we see the whites of inflation’s eyes before we start hiking rates.

We don’t want to be preemptive. And so they didn’t want to raise rates in advance of inflation hitting two percent. They wanted to make sure it got there before they pulled the trigger.

And then, in fact, when it did get there, they said, well, you know, we want to let it stay above it for a while. You know, we want to make sure it’s there. And so we want to see it stay there for a while before we raise rates.

And then, of course, they came up with averaging inflation, averaging. Look, we don’t just want two percent inflation. We want to average two percent.

So we got to make up for all the years that we were below two percent by being above two percent a little bit for a while. Right. So he had that attitude when we were below two percent.

But he’s not equally as vigilant when it’s above two percent. And someone pointed that out and he tried to, you know, excuse it by saying, well, you know, we just didn’t want to cause people to lose their jobs unnecessarily by raising rates. I mean, we had had low on inflation for so long, you know, we just wanted to assume it would stay low and we didn’t want to just, you know, jump to any conclusions prematurely and maybe cause some unnecessary harm by by hiking rates.

So we wanted to make extra sure, like all this nonsense about about that. That was all a pretense because they wanted to maintain the easy money and they still want to maintain the easy money. And that’s why they’re willing to cut even if the official rate is not down to two percent.

Also, he he mentioned or somebody asked him, you know, are you going to stick with two percent? You know, are you are you thinking about raising your your target rate? You know, maybe two and a half or something or maybe three. Right. And Powell said, absolutely.

We’re never going to do that. He said two percent has served us well. He said it’s the global standard and they have no desire to move the goalposts.

First of all, I mean, it’s the global standard. It’s not really a standard. Everybody was hiding behind two percent when when it was below.

Like nobody talked about two percent inflation until they got below it. Right. When inflation was two and a half, three, four.

I never heard all these central banks saying we got to get it down to two. We got to get it down to two. Right.

New Zealand did have a two percent ceiling initially when they reformed their reserve back in New Zealand. They put a ceiling on inflation, not a target, a ceiling. It wasn’t try to get it to two percent.

It was just make sure it stays below. Didn’t mean one percent was bad. Just meant, you know, don’t go above two.

Now, they eventually raised that ceiling with political pressure to two to three. Right. So New Zealand already raised it.

The guys that came up with two percent already raised it to two to three. Right. So it’s already been done.

Right. But what happened was conveniently during the period when you had inflation below two percent, all of a sudden. Oh, no.

We got two percent as our mandate. It’s too low. We need to raise it that it was never a issue.

It was never a desire when inflation was three or four. Oh, we really got to get it down. We got to jack up rates.

We know we’re above two percent. No, they completely concocted this phony target only because they needed the justification for easy money. And so it hasn’t served anybody well.

Right. It hasn’t served the world well because now they’re awash in inflation. Right.

Because everybody was saying we need to get inflation up to two percent. That’s why it’s so much higher than two percent now. And so everybody is suffering.

And in fact, Powell admitted. Right. When he talked about the economy, he said, look, overall, the economy is good.

But, you know, for the lower end, they’re having a hard time. Right. He said that they’re struggling and he said they’re struggling because of inflation.

OK, well, why is there inflation? Who caused that? The Fed. The Fed caused that inflation. They printed all the money.

Right. They’re the ones that inflate the money supply. Nobody else.

And so if Powell admits that the lower income people and it’s not just lower income, a lot of middle income people are suffering from inflation. That’s why they voted for Trump. But if he admits that they’re struggling and they’re suffering.

Well, he ought to accept responsibility for their plight because he is the architect of of what’s of what’s been built here. But if inflation is still a problem, do something about it. You know, don’t keep throwing gasoline on the fire by keeping interest rates too low, which is what he’s done.

And by continuing to expand the money supply, even though they’re still doing quantitative tightening. And they did announce that there was no change to the QT program. So they are continuing to slowly shrink the balance sheet.

Now, at some point they are going to give that up. I mean, I’ve been saying that I thought the Fed was going to return to quantitative easing and I still think that that’s going to happen. But it just hasn’t happened yet.

Now, also, he talked about that overshoot. Right. He mentioned that.

Yes, we were targeting inflation of two point one or two point two. That was our goal. You know, we wanted to be a little above it.

But there was an unexpected overshoot that was due to an exogenous event, meaning the pandemic. So like, hey, it’s not our fault. Right.

We couldn’t control this. It’s just the pandemic happened. And and that’s why we had inflation.

No, the pandemic didn’t cause inflation. It was the way the Fed reacted to the pandemic. That’s what caused the inflation.

In fact, the Fed encouraged it. If you remember, and I talked about this, Powell actually told the U.S. government early in the pandemic, run big deficits, spend a bunch of money. I will monetize it.

Whatever you need, we’ll print it. That’s why we had inflation. The pandemic didn’t do that.

We did that to ourselves. I sort of say, well, we had no control. It was just this pandemic.

We had complete control. We decided to trade inflation for the recession that we would have had, had we taken a more responsible response to the pandemic. So instead of pain, then we chose pain later in the form of more, more inflation.

So what Powell should say is, hey, look, yes, I know the lower class is suffering. But, you know, that was the deal we made. That was the trade off.

We sacrificed the lower and middle income class in order to bail out all these people with PPP loans. And, you know, all this other stuff that we did during the pandemic. But no, he just wants to blame the pandemic itself and not their own actions.

Anyway, the final question he got of the Q&A had to do with crypto and Bitcoin. And the reporter actually asked him to opine on whether or not he thought it was a good idea for people to own Bitcoin. Like, you know, should it be part of people’s investment portfolios? And I’m sure the Bitcoin community is going to try to spin his response into another endorsement of Bitcoin by Powell because he didn’t condemn it.

He didn’t he didn’t say, well, it’s a ridiculous idea. I mean, you’d be completely stupid to buy this worthless token. No, I mean, he basically copped out and only after there was a follow up.

He initially ignored the question completely. And he talked about just the banks and, you know, and their regulation of the banks that might own crypto. He talked about or more banking crypto customers.

And I know the problem that most banks had because I had the same problem when I had a bank. Right. The problem that we had with crypto and I you know, when I had my bank before the government corrupt government officials stole it.

Right. And unfortunately, all of the customers still have their money spent over 30 months. And no one’s gotten a dime out of the bank now that the government controls it.

When I controlled it, anybody who wanted their money could get it. And in fact, you know, in the 10 months before the bank was seized by the government, 75 percent of my deposits, 200 million were withdrawn. People were scared.

You know, we were all this bad press. We were losing our correspondence. We couldn’t do services.

So people asked for their money and I sent it out. But now that the government owns the bank, nobody can get anything. Nobody gets their money now that the government’s in charge, except the receiver who’s getting rich.

Right. Who who takes money out every month? Right. To do what? I don’t know.

Right. But in any event, the reason that I didn’t bank crypto and I wanted to bank crypto. I had a lot of friends, you know, that are in the crypto industry that had businesses that I would have loved to have banked.

I mean, even though I don’t believe in it, I can bank the companies that are involved in it. I mean, why not? I mean, I could provide them with banking services and make money. Right.

You know, so, you know, I mean, there are a lot of companies, you know, I didn’t bank gambling companies. I didn’t bank online porn. I didn’t bank.

What else? Yeah. Catabas. I need a cannabis companies.

I didn’t I didn’t bank anybody who is politically connected. I didn’t bank charities. There are all sorts of types of accounts that we refuse to open.

And the reason was the regulatory compliance was tougher. And with crypto. Right.

The the risk was that there was money laundering going on. There was tax evasion. Not everybody who utilized crypto was evading taxes or laundering money.

But the incidence of people who were laundering money or raising taxes was higher in crypto than in other industries. And so the banks would have to have more scrutiny. And the question was, was it worth it? Was the extra anal compliance work that they would have to do to bank a crypto company? Was it worth the income that they would make from banking? And if it wasn’t, they do a cost benefit analysis and they make a decision.

But that was because of government regulations. Now, so if the government lightens up on the regulations, yes. You know, and I was very critical of those regulations, which I think is one reason that the government targeted me to take out my bank, because I criticized all these regulations.

Of course, I abided by them. That’s you know, that’s what they found out when they audited our bank. The chief shift shift abides by every one of these regulations that he criticizes.

Right. So then they had to find another pretense to shut down the bank because we didn’t break any laws. Even though I thought the laws violated the Constitution on, you know, for multiple reasons.

But then. After Powell talked about just the regulatory environment and the banks and how they’re operating with FDIC insurance and everything, then then that’s when the reporter followed up and said, well, but, you know, but what about, you know, do you think there’s any risk here? You know, and even about whether there’s a problem with asset bubbles. He was asked about asset bubbles in general, and he acknowledged that stock prices remain elevated.

But he didn’t mention that he was in any way concerned about bubbles or falling asset prices or any way, tailoring his monetary policy to asset price, which I think is just not true. Of course, the Fed is very much concerned about asset prices. The last thing they want is asset prices to crash.

The reason that they pumped up the money supply so much specifically was to get asset prices to go up. They were trying to create a wealth effect and they don’t want to see a reverse wealth effect when all that wealth vanishes, when prices come down. But, you know, they asked him again about Bitcoin.

And that’s when he said, look, I’m not going to comment on that. You know, people make their own decisions. But he didn’t come out and specifically criticize people who want to own Bitcoin and make it a part of their portfolio.

So I’m sure some people in the Bitcoin community are going to try to figure out a way to spin what he didn’t say into some kind of official endorsement to try to pump the price up even more. Anyway, we got another commercial. I got a lot more to talk about.

So stick around. I will be right back. As a business owner, I know the challenge of navigating unpredictable markets, interest rates and inflation.

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All right. I want to talk about some other economic data that came out earlier this morning, which, of course, was completely overlooked by all the reporters who were talking to the Fed chairman. The big number, which, of course, is big in my book and nobody else pays any attention to it.

But given all the talk about tariffs, this should be a number that everybody should be paying attention to. And that is the merchandise trade deficit or the goods trade deficit, because these are the goods that are going to be the subject of tariffs. So we got the December merchandise trade deficit.

And the expectation was for a one hundred and five point five billion dollar deficit, which would have been one of the worst monthly trade deficits in U.S. history. And that would have followed the one hundred and two point nine billion dollar deficit, which was also one of the very worst deficits in history from the prior month in November. Now, that number was revised up.

Or down, right, because it’s always down, it’s a negative number, but a bigger number, which is worse. And that was revised to one hundred and three point five billion dollar deficit. But the deficit for December came out at a shocking one hundred and twenty two point one billion dollars in one month.

This shatters the record from March of twenty twenty two. And that followed the covid reopening. See, prior to that, all the goods were just piling up on the docks because we couldn’t operate the boats to ship them over and unload them because everybody was quarantined because of covid.

But we finally reopened the economy and that backlog of goods came in. And that resulted in one hundred and twenty billion dollar deficit, which up until December of last year was the worst monthly deficit ever. And of course, it was an outlier because of the exogenous events.

But now, without any of those events, we took it out. So it’s not like a one off thing. This is a disaster of a number which should have sent shockwaves through the foreign exchange markets, but no one cares.

You know, when I used to trade foreign currencies, you know, in the 1980s and early 1990s, this was the most important number that would come out, which would be the trade deficit. And if it was worse than expected, the dollar would get killed. You know, I remember the Japanese yen sometimes could be up to three hundred ticks.

The Swiss franc could be up one hundred, one hundred and fifty ticks on a bad trade deficit. Conversely, if it was a good trade deficit, the dollar would spike. Now, no one cares.

In fact, I’ve never seen a trade deficit this much worse than expected. I mean, it’s like 15 percent bigger than expected. It’s crazy how bad it was.

Now, some people might think, look, Peter, this is probably an aberration because, you know, companies are trying to load up on stuff before the tariffs hit. And there may be some truth to that. Maybe companies are trying to get these goods in before they’re subject to tariffs so they either can make more money selling them or not have to raise the prices right away.

But then if you look at the numbers, that’s not it, because imports were up by three point nine percent. I mean, that’s a big number, but it’s not crazy big. It’s the exports.

Exports went down by four and a half percent. So there’s an even bigger drop in exports than there was an increase in imports. You can’t explain that in any way by trying to front run the tariffs because the tariffs aren’t going in the other direction.

Unless you think that are in fact, if our trading partners were worried about retaliatory tariffs, they would try to import more of our stuff before their government slapped tariffs on us. But that didn’t happen that way. Our exports went down.

And I think, again, that’s evidence of a very weak U.S. economy, manufacturing economy that is in recession, that is incapable of producing these goods. Also, if you look at the December inventory numbers that came out also this morning. Inventory on a wholesale level for December was expected to rise point three percent.

Instead, it went down by point five percent. That’s a big drop in wholesale inventories. By the way, retail inventories also went down point three.

They were expected to stay unchanged. But if companies are trying to front run the tariffs by importing a lot of stuff, wouldn’t their inventory go up? But their inventory went down. So it doesn’t necessarily make sense that these companies are loading up on inventory when their inventory went down.

And as a result, by the way, of these two numbers, the big trade deficit and the drop in inventories, the Atlanta Fed GDP now, which has its estimate for Q4 GDP, slashed their number from three point two down to two point three. That is a big move for one adjustment. They normally don’t move that much.

So that is a big decline in what the growth rate is. And of course, again, I think we’re in a recession. I think these numbers don’t really mean anything.

I mean, I think the polls were a lot more meaningful. That’s why Donald Trump was elected president, because we were in a recession that the statistics didn’t actually validate or acknowledge. But getting back to this trade deficit, not only does it evidence a very weak economy, but it shows you how dependent we are now on the largesse of the rest of the world and how the U.S. dollars reserve status has never provided a bigger crutch to the U.S. economy.

Because the only reason we’re able to run these huge trade deficits is because the world will take our dollars in exchange for all these goods. And without all these goods, our economy would implode because we have no ability to produce these goods on our own. And it also shows you how painful the tariffs would be if they are, in fact, enacted, because we depend more on these foreign goods.

We import more goods than ever before. And now Trump is talking about adding to the price of those goods by imposing tariffs. So if we’ve never been more dependent on foreign goods, then tariffs will never be more painful for Americans than they would be right now.

Now, again, that doesn’t mean I’m against tariffs. I’d rather have tariffs than income taxes. But that’s not the point.

The point is that Donald Trump is saying these are a panacea because the Chinese are going to pay up. No, they’re not. The Americans are going to pay up.

Now, again, you know, Howard Ludnick, who is the Cantor Fitzgerald CEO, who’s also a big Bitcoin pumper. So I don’t trust anything that Ludnick says. But he was, you know, in Congress testifying because, you know, he’s been nominated to be commerce secretary.

And he was asked about the tariffs and if they’re inflationary. And his response was, that’s nonsense. He said it’s nonsense to believe that tariffs are going to cause inflation or contribute to inflation.

Now, he’s right, but for the wrong reasons. I mean, he’s trying to dismiss it by saying it’s not going to cost Americans anything. Right, because it’s not going to make prices go up.

It is going to make prices go up, but it’s not going to cause inflation because inflation is not rising prices. Of course, it’s the expansion of the money supply. But inflation is not some prices rising.

Inflation is all prices rising. It’s an increase in the general level of prices, or at least that’s how they they misdefine it. What tariffs will do is cause the price of all the goods that are subject to tariff to go up.

Everything that is tariffed is going to be more expensive. Everything that competes with the tariff goods is also going to become more expensive. Right.

So if the government says if you import foreign widgets, there’s going to be a 20 percent tax on those widgets. Then the price of the imported widgets is going to go up. But if there’s a domestic producer of widgets who now has less competition, he’s able to raise his prices.

They might not go up as much as the imports, but they’re still going to go up somewhat. So everything that gets tariffed will be more expensive. But that doesn’t mean that everything is going to get more expensive, because to the extent that consumers buy the tariff goods, which they will.

Right now, it’s it’s possible that the consumers respond to a tariff and they say, well, look, we’re not going to buy that item at all. Right. It’s now too expensive.

And not a single person wants to buy that item because it’s now because the tariffs made it so expensive. Well, then they’re not going to raise any revenue so that you defeat the whole purpose. You know, Donald Trump is saying, on the one hand, they’re not going to cost the taxpayers any money.

But on the other hand, they’re going to raise a bunch of revenue. Well, it can’t be both. If it raises a bunch of revenue, it costs the taxpayer money because that’s where the revenue came from.

Right. But so if the price of tariff goods goes up and now Americans spend more money to buy those goods. Right.

They have less money left over to buy other goods that are not subject to the tariff. Well, now the demand for those other goods and services probably predominantly goes down. And so now what has to happen to other prices, other prices have to go down.

Right, because I don’t have people don’t have as much money to buy the other stuff because they spent more money buying this stuff subject to tariffs. So the overall price level stays the same. So he’s right.

Right. The Republicans who claim that tariffs won’t cause inflation are right. The Democrats are wrong when they say they’re going to cause inflation.

But the Democrats are right to say that Americans are going to pay the tariffs. It’s the Republicans who are wrong, claiming that the Chinese and the Canadians and the Mexicans and everybody else, the Europeans are going to pay the tariffs. In fact, you know, Trump again was given another talk.

And he said that, you know, it’s about time that we started making the foreigners pay their fair share. Right. They’ve been getting off the hook.

You know, we need to tax them with our external revenue instead of taxing Americans for the benefit of foreigners. We need to tax foreigners for the benefit of Americans. But it doesn’t work that way.

You know, he he talked again about eliminating the income tax, which, of course, is music to my ears. I would love to see the income tax eliminated and not just the the the normal income tax. Right.

That we all consider an income tax. But the Social Security tax, that’s an income tax, too. You’re paying a tax on your wages.

Right. That’s your income. Right.

So it’s a flat income tax. That’s what that’s what the Social Security tax is. It’s just an income tax disguise.

Right. As some kind of contribution to a retirement system. But if you actually read the law, it’s a tax on on wages.

That’s what it is. In fact, it’s actually an income tax. But if you pay it, you get a credit against your other income tax.

And so it’s an income tax. That’s what it is. And when you pay that tax, it doesn’t entitle you to anything.

Right. That’s why when people say we paid into Social Security, they paid into nothing. Nobody is is owed Social Security benefits.

There is nothing in the law that ties the payment of Social Security tax to the receipt of benefits. Right. The benefits are like a welfare program.

That’s not means tested that everybody gets. But no one is entitled to welfare. Right.

Congress can cut welfare, eliminate welfare whenever they want. They can cut Social Security. They can eliminate it whenever they want.

Just because you paid that income tax doesn’t entitle you to anything. So if we’re going to eliminate income taxes, let’s eliminate all the income taxes, including the Social Security income tax, which is a highly regressive tax that just taxes wages. Although now it taxes capital, too, because you have the Obamacare tax, you know, three point nine percent tax, the Medicare tax.

So that’s that’s a, you know, income hits all your income, not just, you know, cutting off at, you know, one hundred and fifty grand. I forget the cutoff for Social Security taxes, but, you know, it cuts off. So if you’re in a million dollars of income, you only pay Social Security tax on the first hundred fifty thousand of the income.

Right. And only if it’s wages. If it’s non-wage income, then it’s just, you know, you’re paying less.

But that’s an income tax. So we should get rid of it. But when Trump said, hey, we had no income tax in the good old days, we had just tariffs, no income tax, just tariffs.

And it wasn’t just tariffs. I mean, tariffs provided a lot of the revenue, but some of it was on domestic goods. We had taxes on liquor.

You know, that’s why people have stills to make their own liquor. Right. To avoid the tax rate.

You don’t want to pay the tax. You just made it yourself. Right.

And they had taxes on tobacco. You know, so there are a few excise taxes that ran the government, including tariffs, which are another excise tax. So Trump said that back in the good old days or old days, he said we had no income tax, just tariffs.

He said it worked great. And he acknowledged something that I’ve been talking about. He said that from 1870 to 1913, he said, that’s where we have the strongest economic growth in our history, which is true.

So that’s why he should stop claiming that we had the strongest economy when he was president. When we didn’t, we had a much stronger economy back in the late 19th century. And he admitted that he said it was the strongest period of economic growth.

And that would include the four years that he was president. But he said we had all this economic growth and we didn’t have an income tax. We just had tariffs.

And so he said, so we can do it again. He said it worked then. It could work now again.

The reason it worked then was because we had a tiny government. We would have to get rid of about 90 percent of federal spending, 90 percent of current spending to get the government back down to where it spends the same percent of GDP as it did before we had the income tax. Now, I’m all in favor of that.

Right. But we got to get rid of Social Security, got to get rid of Medicare, Obamacare. We got to get rid of a lot of stuff in order to get back to the good old days.

Right. We’re not going there, unfortunately. So we can’t run just on tariffs because the government is too expensive.

The tariffs would have to be so high that they would backfire and the government wouldn’t collect the revenue because people just wouldn’t buy the stuff. And so it’s just not possible for the government to collect the amount of money it needs just on on on tariffs. Now, could could there be a a national sales tax, a value added tax, some other type of consumption based tax system that was just not tariffs that could raise a significant amount of money? Yes.

Not as much, I think, as the income tax, because remember, the income tax, they just take that money right out of your paycheck, including the Social Security tax. Right. You don’t even get to see that money.

Right. It just goes right to the government before you get your hands on it. But if they didn’t tax us that way, you know, they couldn’t collect that much money.

It would be easier for people to avoid it. It’s very difficult to avoid a tax when you never even get the money. And in fact, the whole concept of withholding didn’t begin with the income tax.

I’ve talked about this on the podcast. It started in 1943 to win the Second World War. It was part of the victory tax.

That’s when the withholding tax was first introduced and the government never got rid of it. But that’s what really gave the government a direct line into the worker’s pocket because the worker never even sees the money. It goes right to the government from his employer.

And so you don’t have that with indirect taxes. And so they couldn’t do it. So the only way we could go back to the type of tax system we had during the economic period that Trump describes is if we go back to the type of government that we had.

And he’s already taken all the, you know, the big ticket items off the table. You know, so we’re not going to be able to do it. We’re not going to be able to survive.

But the other thing that Trump gets wrong, see, nobody back in the good old days, in the 1870s or 1880s or 1890s, nobody operated under the delusion that the Europeans were paying our tariffs. Everybody knew and accepted the fact that the middle class and the poor paid the tariffs. I mean, because that was just the price for government.

I mean, you can’t have government for free. So if we want to have government and we want government to do stuff, then we got to pay for it. And how did we pay for it? We paid for it with tariffs.

Now, we also got the benefit of protecting our nascent industries from competition, you know, gave them a leg up, like, well, we’ll put tariffs on the products coming in from Britain or France so that the products that are being manufactured here can have a bit of an advantage. After all, you know, we’re a new young country. These are older, more established countries.

And so we need to catch up. And so the tariffs can help us catch up because, you know, we’re so far behind. Right.

So it was it was a little bit of both. It was we could protect our nascent industries and allow them to grow and we could raise money to support the government. But the money to support the government was going to come from the consumers who were going to pay higher prices as a result.

Right. And everybody accepted that. That is why in the populist movement, right, of the 1900, 1910, 1890, when it started, that was the agitation for the income tax.

The whole reason that the income tax got on the books was because the government promised to get rid of the tariffs. That was it. That was the trade off.

And why did the average guy, why did the middle class and the lower class, why did they want to get rid of the tariffs? Because they paid them. Right. They didn’t think the British paid them.

Why did they want the income tax? Because they were told they wouldn’t pay that. See, the income tax was going to go on the rich, the super rich, right, the 1 percent, actually the 1 percent of the 1 percent. Right.

It was Vanderbilt. It was Carnegie. It was Rockefeller.

Those were the guys who were going to pay the income tax. Yes, they paid the tariffs, too, but only a small percentage of their money. Right.

Because they didn’t consume 100 percent of their income. Right. They they they they they consumed a tiny portion of their income.

So as a percentage of their total income, the tariffs on the rich were tiny, whereas the poor who may have spent 90 percent of their income, right, paid a lot of the tariffs. So the tariffs disproportionately fell on the poor and the middle class. And the poor, the middle class made a deal with the devil to get rid of the tariffs so that the government could tax the rich with the income tax.

Well, of course, as soon as the cowbells nose was under the tent. Right. They jacked the weight rate way up and then they applied the income tax to the middle class.

Right. The middle class is now paying much more in income taxes than they ever paid in tariffs back then. Right.

The government screwed everybody, which is why you don’t want to trust the government. But the point I’m trying to make is so now Donald Trump wants to bring the tariffs back, claiming that they’re not going to hurt the middle class, the poor. He’s saying, let’s lower the income taxes, which are the taxes on the predominantly on the rich, because he does.

He’s not talking about getting rid of the Social Security payroll tax. Right. That’s the income tax that really hits the middle class.

That’s the one we should get rid of first. But if we just get rid of the federal income tax, the primary beneficiaries will be the wealthier who pay most of the taxes. Right.

That’s who pays most of the income tax right now. The high income earners. There’s about half the country right now doesn’t pay any income tax at all, but they pay tariffs and they’re going to pay through the nose if we raise tariffs high enough to replace the income tax.

Now, if Donald Trump is saying that, you know, the middle class and the poor don’t don’t pay the tariffs, then he’s saying that the politicians in the 1880s and the 1890s who imposed the tariffs didn’t understand how they worked. And the people who were paying the tariffs didn’t understand who paid them. Right.

What what’s more likely if the country ran on tariffs for 50 years? What’s more likely that the government and the people who are alive at the time who imposed and paid the tariffs? Is it more likely that they had a better understanding of what they were and who bore the cost? Or Americans today who have very little experience with tariffs because we hardly have them. Right. And so I would say that Americans in the 1880s and 1890s were far more knowledgeable on the subject than Americans today.

And that our politicians, our leaders were far more knowledgeable about tariffs back then when they were actually used than they are today. So the bottom line is both sides are wrong. The people who support tariffs are wrong.

The people who are against tariffs are wrong because nobody understands them. I understand them. And I hope that you understand them because you’ve been watching my podcast and you could tell your friends about it.

You could spread the word because there’s so much fake news and disinformation out there about about tariffs. And I am doing my best to set the record straight. Anyway, that’s it for now.

Hopefully everybody enjoyed today’s podcast. If you did, make sure and give me the thumbs up or the like. Leave a comment.

I do read and reply to them. Make sure and comment or sign up for the free newsletter at Schiff Sovereign. I didn’t mention gold.

Gold was down about 10 bucks today. Still trading about 2750. Silver peaked about thirty one dollars briefly.

Had a strong day, but it closed around 3080. Buy buy and they are on sale. I mean, I think we’re going to get a big move up in in these metals soon.

I didn’t get a chance to talk about the markets. Unfortunately, I talked about the big drop that we had on Monday with the bombshell dropped by China and deep seek on the A.I. companies, Nvidia, stuff like that. I’m going to do another podcast later in the week, maybe Sunday night, because there’s no football.

So I will try to get to that topic, talking more about the markets. I didn’t get a chance to do it today because I guess I had too much on my plate. Anyway, that’s it.

Bye for now.