Global markets are in turmoil in the wake of President Trump's announcement of steep new tariffs against most of the world. Combined with massive debt and rising geopolitical tensions, the tariff wars have left more than a few observers drawing worrying historical parallels.
“We are at the top of a huge, great debt and credit bubble. And that's very, very similar to the situation in the late 1920s,” independent economist Alasdair Macleod told Sputnik.
“In 1930, the Smoot-Hawley Tariff Act was signed into law by President Hoover. It was the combination of the credit bubble bursting, plus the effect of the tariffs, which imposed a minimum tariff of 20% on all US imports that led to the collapse of the stock market and the Depression,” Macleod warned.
In some ways, the situation now is “even worse,” according to the observer, “because the bubble is far bigger than we saw in 1929. And not only that, but Trump’s tariffs are far worse than Smoot-Hawley because it’s on top of earlier tariffs.”
High-Stakes Game of Chicken
“Every rally, however sharp (and bear market rallies tend to be very aggressive) gets met with another wave of selling, telling us that the leverage community and indeed others, the more long-term players, are still looking to exit positions,” ADM Investor Services chief economist Marc Ostwald said, commenting on the roller coaster in the markets in the wake of the tariff announcement.
The situation is characterized by hopes that one of three power players: big banks, the Fed or the administration will intervene to return stability, Ostwald says, with an infusion of mobilized bank capital, an emergency rate cut by the Fed, or a decision to relent by Trump needed to arrest the volatility.
The problem, Ostwald says, is there are no signs by Trump of readiness to back down, while the Fed is “not sure where the greatest threat lies…inflation or that businesses basically shut up shops, stop hiring people, start laying people off, stop making orders or something else?”
Driving Dedollarization Into High Gear?
“We can expect turmoil to continue even while the markets get used to that turmoil and it becomes the new normal,” veteran financial analyst Paul Goncharoff says, commenting on the Trump tariff salvo.
“We will still have inflation, recession will visit us all, hard assets will replace soft money, dedollarization may in fact quicken, and the heightened military tension we see around us will not fully disappear until some understanding between the China and America contingents are reached,” the Goncharoff LCC director says.
“There are two players at the high table – China and the United States. The surrounding noisy gaggle of countries are important yet in fact secondary players. We are watching the geopolitical and economic world as we knew it being re-routed in very short order – in days and not decades,” Goncharoff explained.
"When the EU finally realizes or accepts its new relevancy or irrelevancy in the scheme of things, a lot of uncertainty dust will have settled, again leaving the two key players who hold the cards - China and America, each with their own supporting global extras and cast to come to an understanding and start sharing again."
As for the tariffs, Goncharoff believes Trump’s
characterization of them as “medicine” is probably the most apt.
Whether it actually helps the “disease” is “still an open question,” the observer sums up.
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