The performance of US financial markets during this year has been strongly correlated to the view of whether Trump would or would not go ahead with the tariffs. First, speculators, based on the first Presidency thought their impact would be small, because, as the saying goes, “Trump had to be taken seriously, but not literally.” When Trump announced his tariffs, US stock markets and bond markets fell, money flowed out of the country, and the Dollar fell. When, within 24 hours, he rowed back on the announcement, they rose.
US bond yields, like those across the globe, are rising, for the reasons set out earlier. The demand for money-capital is rising relative to its supply from profits, both as a result of the demand from corporations, and from states to finance spending on infrastructure etc. But, there is, also, a secondary movement, as money moves out of shares, in response to the uncertainty, and prospect of diminished trade and profits, caused by Trump's policies, and moves into the safer haven of bonds, causing bond prices to rise, and so bond yields to fall.
At the same time, rising interest rates, cause bond yields to rise, and so bond prices to fall, itself causing money to flow from shares and other assets, such as property, into bonds, and so causing those other asset prices to fall – not a prospect beneficial to Trump, given his ownership of property assets. The immediate effect of Trump's "Reciprocal" (there is nothing reciprocal about them) Tariffs, has been to crater the US stock market. He once said that any President who presided over a 1,000 point drop in the DOW Jones Index should be impeached. In the first hours of trading the DOW fell be more than 1,500 points! The money flooded out of shares into US bonds, as a safe haven, and because of the view that Trump is sending the US economy into recession.
As with everything out of Trump's regime, the claim that the tariffs are reciprocal, charging others half of what they charge the US, is a lie. Challenged to provide their workings out of how they made this calculation, they could not, but it didn't take long for others to work out the crude basis of what they had done. Rather than calculating the tariffs that other countries were charging them, they simply took the US trade deficit with each country and divided it by the total exports from that country to the US. They then levied a tariff equal to half that percentage. Even then, a country like Britain that runs a trade deficit with the US has still faced a 10% tariff, of which thee is little it can do outside the greater umbrella of the EU, which it has lost as a result of Brexit. The idiocy of Trump's approach is seen in the fact that, on this basis it has levied tariffs on islands only inhabited by penguins!
There is an obvious flaw in the logic presented by Jack Conrad. He wrote, quoting Varoufakis,
“European and Asian central banks accumulate the dollars that flow in when Americans import European and Asian commodities. By “not swapping their dollars for their own currencies”, the European Central Bank, the Bank of Japan, the People’s Bank of China and the Bank of England suppress the demand for (and thus the value of) their own currencies. This helps their export companies to boost sales to America and earn even more dollars. In a “never-ending circle”, these fresh dollars accumulate in the coffers of the foreign central bankers who, “to gain interest safely, use them to buy US government debt”.”
For some globally traded commodities, such as oil, for example, they are priced in Dollars, as the world reserve currency. To buy them, countries must exchange their own currency for Dollars, to pay for their import. Oil exporting countries, thus accumulate Dollars. But, then, these “Petrodollars”, are circulated, via global financial markets, back to the US, to buy US financial assets. But, take the sale of VW cars from Germany to the US. The cars are priced in €'s, not $'s. Let us say that a VW is priced at €50,000. To import this car, a US importer must acquire €50,000, which, if the exchange rate is €1 = $1.10, means that the US importer must exchange $55,000, to obtain €50,000, which they then hand over to VW, with the $55,000 now sitting in the vault of the Bundesbank. But, this transaction has, itself, already created a demand for €50,000, to buy the car, a demand satisfied by the Bundesbank, which, ultimately exchanges them for Dollars. This demand for €'s, to buy VW's, raises the value of the €, contrary to Conrad's argument.
Similarly, the Bundesbank, and other European banks, may, then, use those Dollars to buy US government bonds, because, whilst the Dollars provide no interest, the bonds do. But, if those Dollars flow back into US financial markets in that way, they also, inflate the US currency supply, just as much as if they returned to purchase US commodities. Dollars coming in to buy US bonds (or indeed any other asset) go into the bank account of the seller of those assets. As the US currency supply is inflated in that way, so the effect is to devalue the currency unless it corresponds to an increase in the value of US output. If, as in the last 30 years, the majority of that currency, instead, goes not to productive investment/capital accumulation, but simply to a continual paper chase from one asset to another, the currency is devalued, and those asset prices continue in an upward inflationary spiral, also, continually, pushing down the yields on those assets. As Marx described it,
“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”
In fact, that is precisely what has been seen over the last 40 years, as, globally, money-capital was accumulated, and used for speculation, for the purchase of bonds, shares, property and other such assets and derivatives, rather than being used for productive purposes. Asset prices were continually inflated, and consequently, yields/interest rates fell. But, the owners of those assets/fictitious capital, did not care because, as the asset prices soared, what they lost in revenues (interest/dividends) they more than gained in capital gains. When, Conrad says,
“the world is awash with surplus capital - capital that cannot be profitably invested in the production of surplus value”,
“But all the newly erected factory buildings, steam-engines, and spinning and weaving machines did not suffice to absorb the surplus-value pouring in from Lancashire. With the same zeal as was shown in expanding production, people engaged in building railways. The thirst for speculation of manufacturers and merchants at first found gratification in this field, and as early as in the summer of 1844, stock was fully underwritten, i.e., so far as there was money to cover the initial payments...
The enticingly high profits had
led to far more extensive operations than justified by the available
liquid resources. Yet there was credit-easy to obtain and cheap. The
bank discount rate stood low: 1¾ to 2¾% in 1844, less than 3% until
October 1845, rising to 5% for a while (February 1846), then dropping
again to 3¼% in December 1846. The Bank of England had an unheard-of
supply of gold in its vaults. All inland quotations were higher than
ever before.”
But, for the ruling class, which owns those assets/fictitious-capital, it has benefited from an astronomical rise in its paper wealth, as well as being able to compensate for any reduction in interest/dividends, by simply converting a portion of those capital gains into money. As Marx describes above, that, of course, is not something you can do if you are merely a small saver. But, that, in turn, had its consequence, as those small savers looked to utilise those savings, to also, purchase speculative assets, be it shares, or by becoming a buy-to-let landlord, which, also, then, led to a further upward twist in the inflationary spiral of asset prices.
As that process has reached its limits, even with central banks printing more and more currency/money tokens to buy up fictitious-capital, when those prices crash, and with governments imposing austerity to hold back economic growth and the demand for capital, its no wonder that, in Britain, we now see Blue Labour, seeking to goose those asset prices once more, by seeking to utilise public sector pensions to engage in more speculation, and, now, we see Reeves, reportedly planning to reduce the amount that savers can keep safe in Cash ISA's, so as to have them, instead, put that money into stocks and shares ISA's.
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