Big Gubmint

Scuttlebutt around here is that the president has manifested some sort of excess meddling in business, markets and government.  I'm not suggesting what we've grown accustomed to witnessing in other more authoritarian regimes such as Russia and Communist Red China; but more meddlesome than what some may consider a classic laissez-faire, free market perspective. 

Consider that the president fired Erika McEntarfer, commissioner of the Bureau of Labor Statistics, earlier this month after big downward revisions to jobs data.  Similarly, he ordered Goldman Sachs to fire an economist, Intel to fire its CEO, demanded a government ownership interest in Nippon Steel's acquisition of US Steel, demanded a 15% cut of AI chip sales to China.  Invested a total of $11.1 billion in chip manufacturer Intel for a 9.9% stake.  And shook down most of our trade partners to pledge billions of dollars of investment in negotiating export taxes.  

Compounding this our tariff policy has become a tool wielded at the sole discretion of the executive branch and varies haphazardly by country, product and fit of pique.  It's manic.

By all outward appearances you'd think that we've become a hybrid of Soviet-style centralized state-run economics. 

I would argue no; not yet anyway.

Government has a long and storied history of embedding itself in business and all things economic; even in a capitalist economy such as ours.  Until Obama rolled-around we legislated restrictions on crude oil exports.  We've instituted wage and price controls and interfered with the regulation of banks and savings and loans at our own peril.  

Farm policy pays farmers to grow and not to grow.  We've subsidized ethanol production and green energy technologies. Congress legislated how many gallons per flush and never consulted a plumber.  They also instituted TARP to bail out banks, automakers and organized labor. 

Furthermore, agencies like Freddie Mac and Fannie Mae artificially impact mortgage rates distorting the housing market.  Similarly, Biden pushed to forgive student loans.  Once upon a time we took an ownership interest in a civilian passenger liner.

I could go on, but I think you get my drift.

On the happen chance you believe I support this; I do not.  I'm disinclined to political busybodies interfering in free markets.  Nevertheless, I expect the president is going to continue to pick winners and losers.  Every day is an opportunity to discover he got up on the wrong side of the bed and you, your business or country may join the ranks of losers.  

All of my previously self-identified libertarian acquaintances have suddenly gone deaf and dumb.  And I continue to have a tough time figuring-out how any of this advances your and my prosperity and general lot in life.  And is the world a safer place? Yet?

Conspicuous Consumption

The term "conspicuous consumption" was coined by sociologist Thorstein Veblen in his 1899 book, "The Theory of the Leisure Class".  Veblen used the concept to describe the practice of purchasing and displaying expensive goods and services primarily to signal one's wealth and social status; rather than for their practical utility.

Consumer spending accounts for roughly 68-70% of the U.S. Gross Domestic Product (GDP). This means that consumer spending is the largest component of the U.S. economy, and a major driver of economic growth.  This is known as personal consumption expenditures (PCE).  Specifically, services make up roughly two-thirds of PCE making them the primary contributor to consumer spending.  While the exact percentage changes from year-to-year - as the largest share of consumer spending this has not changed.  As for the rest of GDP, manufacturing, agriculture, government spending, net exports and investment account for the balance.

Consumption has begun to slow this year.  Adjusted for inflation in 2024 consumer spending grew almost 3%.  That fell to 1.4% in the second quarter of this year and is expected to remain tepid.  Time will tell. 

If you're wondering where I'm going with this, according to Moody's the top 10% of earners now account for about half of consumer spending.  That happens to be up from 36% three decades ago.  This is rather rarified atmosphere as these are consumers with household incomes north of $250,000 a year.  They're doing just fine.   

The bottom 80 percent of earners have maxed-out their consumption with their spending; now basically tracking with inflation. 

This may have implications for both the near and long-term domestic economy, social policy and a whole lot more.  Exactly how; we'll have to wait, see and ponder.  For all the chatter about import taxes (tariffs) and their outsized impact (positive and negative) on manufacturing, that sector of the economy is playing second fiddle.  I'm not saying it's unimportant; it is significant as it creates $2.69 of economic activity for every $1.00 spent within that sector.  But it's direct contribution to GDP is only 11%.

(Source: The Washington Post/Moody’s Analytics).

Looking at the graph, on the chance you are unfamiliar with the term; here's the definition of Revenge Spending.       

Fun Fact:  Import duties (the Trump tariffs) apply only to imported goods; not services. Outsourced services do not cross borders in a shipping container or face customs inspections.  So, whether you're tapping into global talent for customer experience or partnering with an expert team for end-to-end loan servicing; no import tax.

The Math Doesn't Work

 We're going to make a lot of money and we're going to cut taxes for the people of this country.  It will take a little while before we do that, but we're going to be cutting taxes and it's possible we'll do a complete tax cut because I think the tariffs will be enough to cut all of the income tax. 

- President Trump, April 27, 2025  

The line from the White House Information Minister, various Cabinet Secretaries and the President himself is that we are awash in tariff revenue wealth.  Millions, billions and trillions of dollars; all willingly paid by other countries.  The president has even floated the notion about creating an External Revenue Service to collect the tariffs and replacing the Internal Revenue Service in collecting income taxes.

We were at our richest from 1870 to 1913.  That's when we were a tariff country.  Perhaps the president has drawn his inspiration from 19th century America immediately before the establishment of the federal income tax.

Of course if you know your American history when tariffs were the primary source of federal revenue government was much smaller; federal spending was barely two percent of Gross Domestic Product (GDP).   Nowadays, federal spending is north of 23% of GDP.  It would be impossible to rely on tariffs to meet current spending levels.  Heck, we're already running ginormous annual deficits that are slated to increase further with the passage of recent legislation. 

Tariffs (sometimes called a duty) are a tax imposed on imported goods and services.  The tariff is not paid by other countries; the US import company is required to pay the tax.  This makes imported goods more expensive to US companies and consumers. Consequently, domestic producers may benefit from reduced competition potentially protecting domestic jobs and industries.  Decreased competition may also result in domestic producers raising their prices as we have seen in the steel industry. 

In 2024 individual income taxes generated roughly $2.4 trillion in revenue to the government representing nearly half of all federal revenue.  Because tariffs apply to the narrow sector of imported goods they would likely generate only a fraction of that amount resulting in ballooning deficits.

Furthermore, because tariffs apply to imports (as opposed to broad-based income) this would result in a disproportionate economic impacts with industries relying on imported materials or components being hit the hardest.  

Tariffs also increase costs to domestic companies and consumers. 

Conversely, if tariffs replaced the income tax your wages/salary would theoretically become tax-free.  This shift would allow you to keep more of what you make.  Sound appealing?  As a trade policy tool tariffs are probably more effective than as a revenue generator.  

The economic reality is the challenge of replacing income tax revenues with tariffs would require import taxes on a scale of enormity so high as to become disruptive to consumers, business, supply chains, trade relationships and the US dollar.  They won't fix our country's  persistent problem with annual deficits or balance the budget.  The notion of issuing everyone a government check and calling it a tariff rebate is absurd.  Tax the citizenry with import duties and then return a small piece and call it a tariff dividend?  PT Barnum had a term for this so if you have a rational explanation I want to hear it.

Meanwhile, the best summation of this challenge can be found over here at the Tax Foundation.  It's a short read of only a few minutes and worth your while.  

Finally, revenues from import taxes have been growing for months, and the latest data shows that the U.S. has collected $130 billion from them as of August 15.  That is $73.8 billion, or 131.2% more, than the same time last year. But that’s still far short of the $2.4 trillion federal income taxes brought in last year.  The running totals are updated daily and can be found here at the Trump Tariff Income Tracker.  You might want to bookmark this web page so you can follow along.

Bottom line?  The math doesn't work.....

 

Tariff Impacts Auto Industry

Import duties subtracted $800 million from Ford’s profit in the second quarter, leading to a slight loss for the period. For the whole year, Ford estimated that tariffs would cost the company $2 billion.

General Motors, the largest U.S. carmaker, said last month that tariffs would cost the company as much as $5 billion for the full year, although it hoped to offset about a third of that amount by cutting costs and moving some manufacturing to the United States. Still, the company expects retail prices to rise 1 percent or less this year, Paul Jacobson, the chief financial officer of G.M., told investors last month.

Toyota, which makes many cars in the United States but also imports them from Japan, Mexico and Canada, said on Thursday that tariffs would cost it $9.5 billion. A day earlier, Honda pegged its tariff cost at $3 billion.

No one has adequately explained why the tariff tax policy is even minimally beneficial or necessary in replacing the proven track record of free trade of the last 75 years. 

Anyway, import taxes are causing billions of dollars of losses.  According to Cox Automotive, as of mid-July carmakers had 82 days of supply in the United States, roughly enough to last until the beginning of October. That gives you a rough idea of how long they can avoid raising prices. 

You can read more about this here - no paywall either.  You're welcome..... 

 

Picking Winners and Losers - Part 2

Who’s winning?

Domestic US automobile manufacturers are subject to a 50% tariff on steel - resulting in the highest steel prices on the planet, a 25% tariff on parts imported from Mexico and Canada along with a 65%+ tariff on Chinese LCDs and electronics. 

The European Union can manufacture cars with zero steel tariffs, 4% Chinese tariffs, and zero tariffs on imports from Mexico and Canada. 

EU auto exports to the US are subject to a 15% tariff.

The Art of the Deal.......

Picking Winners and Losers

I'm feeling pretty good about front-running the most serious impact of tariffs on our household economics.   New appliances, vehicles, water heater, laptop, tablet, iPhone, including locking-down the pricing of a steel roof on the house eighteen months ago.  

I know I sound like a broken record but contrary to what White House Press Secretary Karoline Leavitt or Commerce Secretary Howard Lutnick will tell you about other countries paying the tariffs they're not playing it straight.  Tariffs (sometimes called a duty) are a tax on imports.  Tariffs are not paid by the other countries.  They are paid by the US importer.  The importer might "eat" some of the tax but because they have to turn a profit they generally pass it on to the purchaser of the imported goods.  

Tariffs are a tax (just like a sales tax) paid by US companies and consumers. 

Which leads me to this tidbit.

American-made steel is now the most expensive steel on the planet.

Only about twenty percent of the steel sold domestically is imported.  The steel tariffs, previously at 25%, were raised last month to 50%.  Consequently, steel imports became more expensive.  Naturally, imported steel has declined in volume allowing American companies to increase their market share and raise prices to match that of imported steel.

Domestic trade policy has created an opportunistic landscape that allows domestic producers to simply charge more.  Why, you ask?  

Because they can.  

Scott Lincicome, vice president for trade policy at the Cato Institute said it well - It's just pure protectionism and cronyism. 

Heretofore, president Trump has not imposed tariffs on imports of raw materials such as iron ore, pig iron and other products that are precursors to steel production.  Nevertheless, that could change if he imposes a threatened fifty percent tariff on all imports from Brazil.

In a fit of pique Trump has accused Brazilian leadership of conducting a witch hunt against his pal former far-right President Jair Bolsonaro; menacing the South American country with a retaliatory tariff over internal politics.  This personal retribution against Brazil means American consumers would pay more for coffee, orange juice, paper and pulp and steel precursors sold to American mills. 

White House trade policy is bananas.  Does any of this come as a surprise to you?

This is called picking winners and losers.  And it seems like all of my previously, self-identified libertarian friends have gone silent.

Meanwhile, I'm having a tough time figuring-out how any of this improves your and my prosperity and general lot in life.  And maybe make the world a safer place.

Fed Fight

Last Tuesday President Trump showed off a draft of a letter firing the chair of Federal Reserve, Jerome H. Powell, during a meeting with roughly a dozen House Republicans, polling them as to whether he should do it and implying that he likely would. 

  

Jerome Powell was appointed to the Federal Reserve (the Fed) by President Donald Trump, not by President Biden as Trump recently claimed. Trump nominated Powell in November 2017 to replace Janet Yellen, and the Senate confirmed his nomination in January 2018. Powell's term as chair was extended by President Biden in 2022.  Trump's clashes with Powell stem from differences in economic policy priorities and personal style, during and between both of Trump's presidencies. 

 

Powell's Nomination By Trump - Getty Images

Trump has repeatedly criticized Powell for not lowering interest rates fast or far enough during his presidency. He believes low interest rates would boost the economy and stock market, helping his administration politically.  

Powell has prioritized long-term economic stability and inflation control. Before the COVID shitshow the Fed raised rates several times from 2017–2019 to avoid overheating the economy, which angered Trump.  Conversely, the Fed significantly eased monetary policy during the pandemic in response to the dire economic uncertainties. 

Evidence of the degree of animus Trump has called for Powell's resignation and referred to him as "clueless" while comparing him mockingly to the leaders of China’s central bank.

Unsurprisingly, Trump has repeatedly broken with precedent by publicly pressuring the Fed - an independent institution - to follow his preferred monetary policies.  Powell has resisted this pressure, defending the Fed's need to make decisions untethered by political meddling.

The bottom line is Trump favors looser monetary policy to stimulate growth; while Powell emphasizes inflation control and Fed independence.  We can argue all day long about who is the brighter bulb; fundamentally, will the president find a means to force the chairman out before his term ends in May of 2026?

 

Time will tell.  

 

Whenever Trump gets to pick a new Fed chair it is far from guaranteed that will lead to lower interest rates.  First, Trump would have to win a messy fight over the legality of removing Powell.  And how would the financial markets react?  Ooh Boy Howdy.  Then there is Senate approval of a nominee.  Finally, a rate change requires a majority of all twelve members of the Federal Open Market Committee (FOMC) to agree.  Presently, only two (both Trump appointees) have publicly hinted that lower interest rates may be justified.  Moreover, regional Federal Reserve Bank Presidents report to their own separate independent regional boards, not the President.   

 

Scenarios that would easily support the president's incessant demands to lower interest rates would be a drop in inflation or a softening of employment levels; or both.  Considering the current economic landscape that is unlikely. 

 

Tuesday we learned that inflation accelerated in June as President Trump’s tariffs started to leave a bigger imprint on the economy, keeping the Federal Reserve on track to hold interest rates steady when policymakers next meet this month.  Most economists still expect inflation to rise over the course of the summer.  And with a barrage of new, so-called reciprocal levies including an eye-popping 50 percent tariff on copper set to take effect on August 1, any hint of tariff-related inflation could portend additional price surges later this year.  The Yale Budget Lab on Monday estimated that consumers face an overall effective tariff rate of 20.6 percent — the highest since 1910.  

 

On the jobs front competition for skilled workers is expected to remain strong.  Analysts project continued resilience for 2025 and greater opportunities in 2026 potentially leading to another wave of job switching.

 

In the unlikely event that the Fed does lower rates that doesn't mean yields on government bonds are guaranteed to fall.  Why, you ask?  Markets, not presidents, set interest rates.    Investor demand drive's the process.  If the markets get a whiff of inflation or political risk interest rates will reflect that.  We've seen this previously in 10-year Treasury yields all the while the Fed was cutting rates.  Rates for mortgages and car loans didn't budge because they're more closely-tied to longer term treasury yields which are influenced by a variety of factors beyond just the Fed's short-term rate decisions.  That is how efficient markets work. 

 

In closing it is useful to know that foreigners own $19 trillion in US equities, $7 trillion in Treasuries and $5 trillion miscellaneous US credit; investors are beginning to realize they might be over-exposed to US assets and their trust is beginning to erode. 

If the president is successful in politicizing our central bank or, as with tariffs, wield it as a cudgel against the central banks of other nations; global investors would view the US with distrust and a less attractive place to invest.  In the absence of the predictability and stability of an independent central bank, they would continue to trim their positions and the dollar's value could come under sustained pressure placing US economic outlook at some degree of peril.

Complicated stuff. 

My guess?  I assign a high probability to President Trump ousting the Fed Chairman.  The near daily theatrics we are witness-to are simply softening-up the beachhead and getting the markets used to the idea.

It is shaping-up to be an interesting summer.  

Of course we've all been to this rodeo before....

Chart Of The Day

Inflation accelerated in June as President Trump’s tariffs started to leave a bigger imprint on the economy, keeping the Federal Reserve on track to hold interest rates steady when policymakers next meet this month.

The Consumer Price Index rose 2.7 percent from a year ago, the swiftest pace since February, data released by the Bureau of Labor Statistics today. That is slightly higher than expected and is up from an annual pace of 2.4 percent in May.

“Core” inflation, which strips out volatile food and energy prices and is seen as a reliable gauge for underlying price pressures, also shifted higher. Those prices were up 2.9 percent from the same time last year.

Over the course of the month, prices rose 0.3 percent, a notable pickup from a 0.1 percent increase in May. Core prices rose 0.2 percent.

The absence of tariff-related inflation has been a point of pride for the White House and has provided cover for Trump’s critique of Fed Chairman Powell’s approach to monetary policy. If June’s CPI contains evidence that prices are in fact climbing due to import duties, it would weaken the case Trump and his allies have been building against Powell and his wait-and-see approach.

Most economists still expect inflation to rise over the course of the summer.  And with a barrage of new, so-called reciprocal levies and an eye-popping 50 percent tariff on copper set to take effect on August 1, any hint of tariff-related inflation could portend additional price surges later this year. The Yale Budget Lab on Monday estimated that consumers face an overall effective tariff rate of 20.6 percent — the highest since 1910.  In dollar terms this is the equivalent of an average per household income loss of $2,800.

“This tariff policy is going to result in higher prices and fewer goods available for people to buy,” said Norbert Michel, the vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives.  “That's a supply shock. It’s not a win. And it's not something that monetary policy is any good at dealing with.”
 

Pants On Fire

In an email I received last Thursday from the Social Security Administration (SSA) I was told - Nearly 90 percent of beneficiaries will no longer pay federal taxes on their benefits.  

True or false?

That claim is false and misleading.

It does not repeal federal income taxes on Social Security benefits.  Instead, it introduces a temporary enhanced standard deduction—up to $6,000 for individuals (or $12,000 for married couples) - for taxpayers aged 65 and older.  This deduction begins phasing out at incomes above $75,000 (individuals) or $150,000 (couples) and expires after 2028.

The White House Council of Economic Advisors cited estimates that roughly 88% of seniors would, thanks to the larger deduction, fall below the taxable threshold on their benefits.  But that is not the same as eliminating the tax - it simply means my total income (post deduction) might result in a reduced tax owed this time around.

The SSA email implied a permanent repeal, rather than a temporary, income-based deduction.

While it may be true that a significant number of seniors (up to ~90%) might not pay federal tax on their social security benefits that tax will not be eliminated.  It is just temporarily offset by a higher deduction, subject to caps, that expires in 2028.

Call it what it is; a one-off deduction; not a repeal.

The taxation of Social Security benefits adds revenue to the program’s trust funds. The taxation of benefits began in 1983, in an effort to stabilize Social Security’s finances.  According to the Committee For A Responsible Federal Budget this deduction hastens the projected insolvency of the trust fund by another year.

Faith

 

The dollar is off to its worst start since 1973.  And it has continued its slide even though President Trump has backed down from some of his tariff threats and the stock market has bounced back from earlier losses.

 

What gives? 

It can be a mixed bag.  A weakening dollar, while potentially beneficial for some sectors, generally leads to increased import costs, higher inflation, and potentially higher interest rates.  This can impact consumers through increased prices on imported goods and potentially higher borrowing costs.  However, it can also make American goods more attractive to foreign buyers, boosting exports and potentially stimulating economic growth.

On the negative side of the ledger a weak dollar can lead to increased import costs.  As the US dollar buys less foreign currency it costs more to import goods from other countries.  Consequently this can lead to higher consumer prices in a wide range of imported products potentially fueling inflation.  

If a weaker dollar does lead to higher inflation the Federal Reserve might raise interest rates in an attempt to curb rising prices.  This would make borrowing more expensive for consumers and business impacting everything from mortgages, car and small business loans. 

Is overseas travel on your agenda?  A weaker dollar means your money doesn't stretch as far as it used to and travel becomes costlier. 

On the positive side of the ledger a weaker dollar makes exported goods and services cheaper for foreign buyers.  Potentially this can increase export demand and boost the competitive edge for American businesses.  If there is an increased demand for US exports the can lead to higher production, job creation and overall economic growth.

And just like foreign travel is costlier for Americans the opposite is true for foreign tourists.  A weaker dollar means that overseas currencies are stronger relative to the dollar making travel here more affordable.

Bottom line?  US debt already exceeds $36 trillion. The passage of the Big Beautiful Bill, at a minimum, is going to increase Federal debt by $3.3 trillion; raising the debt-to-GDP (gross domestic product) ratio from 124 percent today, raising concerns about long-term debt sustainability.  The mounting annual deficits would rise to 6.9 percent of GDP from about 6.4 percent in 2024.  Confidence in the US continues to erode.

Owing to our dominance in trade and global finance the dollar has been the world's reserve currency.  More than half of the world's exports are denominated in dollars, 60 percent of all bank deposits are denominated in dollars and 70 percent of all international bonds are priced in US currency.  And 57 percent of the world's currency reserves - assets held by central banks - are held in dollars.  All of this is supported by confidence in the US economy, our financial markets and our legal system.

President Trump is changing all of this; further spreading uncertainty. 

Presently, foreigners own $19 trillion in US equities, $7 trillion in Treasuries and $5 trillion miscellaneous US credit; and investors are beginning to realize they might be over-exposed to US assets and their trust is beginning to erode. 

If global investors continue to trim their positions the dollar's value could come under sustained pressure as the US becomes a less attractive place to invest these days.

Trust is like the air we breathe – when it’s present, nobody really notices; when it’s absent, everybody notices. 

- Warren Buffett

 

 

 

New Eyes

You're probably wondering why this guy is  smiling.

It's because after wearing vision-correcting eyeglasses since the fifth grade he's driving his Mustang while wearing a pair of uncorrected sunglasses that set him back a $1.50. 

Since I retired my annual visit to the eye doc has included monitoring the progression of cataracts that have conspired to degrade my vision.  Cataracts are a clouding of the natural lens of the eye, leading to blurred vision, glare, and eventual vision loss. This spring's routine visit resulted in sufficient advancement of the condition to do something about it.

I finally got my chance to get my eyes fixed.  Two visits, one week apart, to the Eye Clinic in Green Bay.   

Cataract surgery removes the cloudy lens and replaces it with a clear artificial intraocular lens (IOL).  And for me it opened up a world where everything is clearer, brighter and more colorful.  I didn't know what I was missing.

This is an outpatient procedure performed under local anesthesia with sedation (you’re awake but relaxed).  Most commonly it is performed with phacoemulsification (ultrasound to break up the lens), followed by IOL insertion.  Truthfully, the prep and recovery took up most of the time.  The procedure itself took all of ten minutes and required no eye drops in the follow-up care. 

By all outward appearances things were busy at the clinic.  Inquiring of the surgical staff I learned that there were four operating rooms and two surgeons performing, respectively, approximately 20 procedures each day of my visits.

Cataract surgery is the most commonly-performed procedure on the planet with over 3.7 million surgeries performed annually in the United States.  Over 20 million are performed globally each year and the number continues to rise due to aging populations.

Over 98% of surgeries result in improved vision and complications are rare and usually treatable. 95% of patients achieve 20/40 vision or better (good enough to drive without corrective lenses) and many achieve 20/20 with or without glasses depending on lens choice.

Best of all the procedure is covered by Medicare and my supplemental insurance policy.  Between you and me this is good government policy; trust me, you don't want millions of vision-impaired baby boomers on the road. 

At the present time both my eyes have been corrected to 20/20 vision so I went to the Dollar Store and splurged less than ten bucks for four pair of +1.75 reading glasses and a couple of plain sunglasses - one for each automobile.   My doc sez that I need to allow a month (give or take) before a final correction in vision can be confirmed. 

We are blessed to live in a Golden Age of replacement parts.

Break Even

Oil markets are once again gripped by volatility as OPEC+ proceeds with its third production hike in as many months—adding 411,000 barrels per day in July—while prices linger near $65 per barrel.

Here’s an examination of the economics of U.S. shale.

It’s not as simple as Drill Baby Drill.

First-off, government doesn’t drill for oil and gas; energy companies do.

Secondly, government doesn’t set the price of a barrel of oil; world markets do.

And because business has to turn a profit it is important to focus on the price levels needed to keep existing wells running and justify new drilling. 

Ticking Time Bomb

The President's Big Beautiful Bill could possibly be beautiful and is certainly is big; but not simultaneously.  Setting a record for an all time high in deficit spending is the big part and that is hardly beautiful.  It is an economic time bomb that could eventually bring down our rather decent credit rating and our children's economic prospects along with it.

That is hardly a beautiful prospect.

This is spending on the scale of a wartime economy.  Last time I looked, we're not at war; a real one anyway.

There is momentum in the Senate to stop the process, at least "until the president gets serious about spending reduction and reducing the deficit," said Sen. Ron Johnson (R-WI). Johnson's concerns come as a number of GOP lawmakers, including Sens. Rand Paul (R-KY) and Josh Hawley (R-MO), have indicated they will not back the bill in its current form.  

The administration and the house are whistling past the graveyard; the Senate has an opportunity to take a whack at the House Pinata and perhaps bring some sanity to this debauchery of spending.  

I hate to sound like a broken record and say I told you so; but the solution to our budget deficit is the 800 pound gorilla sitting with us in the room.  Namely, Social Security, Medicare and Medicaid.  They need to be reformed.

Of course, that is a heavy lift and hard work.  The administration seems loathe to roll-up their sleeves and work hard.  And if Trump's party loses some or all of its power in the mid-terms the opportunity to take it on later will have passed.

Meanwhile we have reality television cage-match politics.  We are living in interesting times. 

You Say Potato, I Say Potatoh

L to R: Yukon Gold, Superior and German Butterball

I've grown a lot of  potatoes in my life, but not likely as many species that you will find at the Midwest Area Vegetable Crops Research Unit where you will find the Potato Germplasm Station; AKA the United States Potato Genebank (USPG).  Yup, the Fort Knox of potatoes is found right here on the peninsula  just north of Sturgeon Bay.  

Before 1950 and the US national plant germplasm system was started, potato breeding was basically  ad hoc by various scientists and breeders.  Consequently they were not available to the whole grower community, and got infected with viruses or otherwise lost. Potato scientists (yes, there is such a thing) organized to lobby for a centralized program to import, classify, preserve, evaluate, and distribute potato germplasm. 

Because we grow a lot of potatoes in our fine state Wisconsin lobbied extensively for a genebank, and we got what we asked-for.  It seemed a good idea to have all of this genetic treasure situated a bit removed from the production area of the state, and the because the UW research farm - Peninsular Agricultural Research Station (PARS) has been located on the peninsula since 1922  Sturgeon Bay was chosen as the USPG home in 1948. 

Unbeknownst to just about everyone it is here that research is performed to facilitate improvements in the potato of the future by promoting the use of valuable exotic genes found in wild potato species.  Wild potato species contain a veritable treasure chest of genetic diversity for potentially useful traits that may be bred into new varieties. These new varieties must be able to overcome the challenges of pests and stresses with less dependence on chemical fertilizers, insecticides and fungicides. The USPG is doing this through a 5-fold approach: acquisition, classification, preservation, evaluation and distribution of potato genetics.  This collection is part of the U.S. National Plant Germplasm System (NPGS) - all 5927 potato specimens in the collection!

Check-out the Champion Spud to the left.

 

Potato scientists have a complete tissue culture lab and growth chamber facility to support a clonal collection of about 1000 tubers. In addition, there are 10 greenhouse compartments in which plants are grown to generate seeds and tubers for distribution to customers, as well as for cooperative and in-house research. Most of this work is performed in the winter.  Additionally, there are four large screenhouses for similar work in the summer. A seed lab is used to extract, dry and package the seeds. Freezers hold the seed collection, and a walk-in refrigerated storage holds research tubers.  

The purpose of USPG, like any genebank is to acquire, classify, preserve, evaluate and distribute germplasm, information and technology pursuant to improving the crop. Right under your nose this is the  only facility in the US with that mission specifically for the potato.  Researchers here also support potato improvement around the world. 

The potato has about 100 species and more wild relatives which are accessible to breeding than
any other crop. At least 70% of new cultivar releases have exotic germplasm from USPG in their family tree.  Indeed, it is here that you will find the grandparent of  the Yukon Gold. 

It all begins here so researchers think about consumers a lot, since potato needs to expand demand to stay profitable.  Here you will find researchers working on evaluating and developing unusual forms like the Colombian orange-fleshed egg-yolk specialty type.  Scientists keep abreast of nutritional news and trends, since any kind of nutritional improvement in potato could make it a more attractive choice to consumers. Since there is no expectation that people will eat more, attention is paid to how the potato could compete better with grains.  And they're on the lookout for totally new outlets for potato.

Finally, substantial attention is given to how Wisconsin germplasm can address the needs of growers in Latin America, since this is a way to say “thank you” to the people who originally donated it to the world.

Fast Fact:  The Honeycrisp Apple (Malus pumila) was developed by the University of Minnesota at their Horticultural Research Center.  Designated as MN1711 in 1974, patented in 1988, and released in 1991, the Honeycrisp, once slated to be discarded, has rapidly become a prized commercial apple.  So, when someone wants to defund government-paid research at major universities it might just have consequences.

Practical Considerations Of Trade Taxes - Updated With New Developments

I've been casting-about for someone; anyone, who can explain to me how the taxation of imported goods will improve your and my prosperity and general lot in life.  If the world becomes a safer place, bonus.  So, if you're reading this and have a simple elucidation that connects the economic dots you know where to find me.  Meanwhile, while the president has promised trillions of dollars of foreign investment in the US I haven't seen anything in particular happening in Wisconsin.  

February of this year Apple announced a $500 billion effort to build a new factory in Texas and expand manufacturing in several other states.  But according to the Wall Street Journal that plan has been in the works since the Biden era.

Pharmaceutical giant - Roche - pledged $50 billion in domestic expansion; then walked-back the pledge following the president's executive order limiting drug prices.  

BMW announced that it was considering additional shifts for US factories.  Honda announced they were considering shifting Ontario production of their popular CRV to Indiana.  Last month, Stellantis commenced a planned retooling of a previously mothballed plant in Illinois; the earliest opening date is the end of 2027.  It takes awhile people.

Sure, the Trump Administration is rather loosey-goosey in claiming credit for stuff that has been in the pipeline for years, conflated or planned changes regardless of tariff policy.  I don't have a problem with that.  Politicians predictably claim credit for unearned stuff all day long.  The reality is that reshoring of manufacturing and assembly operations along with their complex supply lines takes 3 to 6 years to bring to fruition; about the time Trump is preparing to leave office in his Qatari airplane and long after the mid-term elections.  I wish I could be a fly on the wall of America's corporate boardrooms.  Do you suppose I'd be witness to talk about waiting this guy out?  I wonder.

The practical effect of the on-again, off-again, inconsistent tariff and trade policy along with a global trade war has been a freezing of business investment activity.  Last Tuesday I listened to Wisconsin Senator Ron Johnson on the Julie Mason Sirius XM POTUS channel as he shared his misgivings over trade taxes and impacts on Wisconsin business.  Coming from a private-sector guy his musings over business investment grinding to a halt carry some weight.  Business wants and needs predictability and certainty before making outsized investment commitments.  Complicating this are recent retailer announcements of price increases as Trump's taxes erode already slim profit margins.

Some have speculated that a case that heard oral arguments just last week in the US Court of International Trade could end all of this nonsense if this obscure federal court grants small business plaintiffs' request for an emergency injunction upending Trump's policy ambitions.  Who knows where this shall go.  Time will tell. 

So, we'll have to wait this out and see what develops.  We're already half-way into a 90 day pause with many trade taxes already in place and in full force and effect.  What happens after the 90 day pause expires?  

Your guess is as good as mine. 

What I know for sure is that corporate America is taking a long pause to assess the matter and during this period of wait and see not much is happening.  And who can blame them.  Last week the president got up on the wrong side of the bed and in a fit of pique threatened the European Union with a 50% tax on their exports to the US.  And In a new first; he petulantly singled-out  specific companies (Apple and Samsung) with an import tax of 25% if they didn't begin moving their assembly operations to the US before the end of June. This is absolute bananas.  

I predict a summer of interesting economic outcomes.  And maybe a surprise or two*.

Meanwhile, unlike deep pocket Apple and Samsung, small business owners are taking it on the chin.  Beth Benike, an Army vet and owner of the Minnesota based company Busy Baby is just one of the millions of small business owners being impacted by President Trump’s up-and-down, back-and-forth, red light-green light and increasingly petty and impulsive import and curiously personal tax policies. Like I said - bananas.

Small businesses must now contend with the weight of burdensome new costs. “I don’t know how to operate in this new world,” Benike says. Even Trump’s lowered China tariff of “30% is still a lot.” What’s more, she says, “we don’t know what happens after 90 days” when Trump’s pause expires. In this uncertain landscape, Benike asks, “how do you plan anything as a business?”

 

 

*Kentucky Senator Rand Paul had an interesting take on all of this.  In a recent radio interview he scornfully suggested that Trump will ultimately cave and allow an automobile to be classified as "assembled in America" when it's brought here to have the wheels bolted-on.  

 

True Story.

 

Stay-tuned....... 

Edit to add:  Yesterday the US Court of International Trade ruled that Trump does not have the authority to impose sweeping tariffs under 1970s-era emergency legislation.  In fact, the judges said an injunction wasn't enough they issued a summary judgement invalidating and blocking almost all of Trump's trade levies to date.  Of course, the White House announced today they will appeal the judgement so we're back to more chaos.

 

Initial thoughts include the following:  Heretofore, Trump has only cut one deal so far - with the United Kingdom.  How does this complicate ongoing negotiations with anyone else going forward?  Does this offer Trump an off ramp for what many consider an ill-advised and poorly executed trade policy?  If things go sideways on appeal for Trump will SCOTUS agree to hear the case?  What if  SCOTUS does not and allows an adverse Trump ruling stand?

 

Stay-tuned.....  

Trade Tax Increases In The News

Following the announcement of price increases from Walmart over the weekend tariffs are, at least for the moment, back in the news.

President Trump says cars made in the U.S. will face “absolutely no tariff,” but it’s not so simple. No car is built from 100% U.S. parts—not even the U.S.-built Ford F-150 pickup truck. Major components of the car are from Mexico, Canada and South Korea, which could all be a part of the auto tariffs.

Wall Street Journal takes a look inside a Ford F-150 to better understand Trump’s slew of new tariffs and why automakers are warning it could backfire.