Welcome to the 1890s, America!

You are going to be really, really sorry.

Take a look at prices in Trump’s Good Old Days (1890s): Annual income was $500 to $1000. 41% of that went to food, 15% to rent, 15% to clothing, 14% to fuels and light. A pound of butter was 25 cents. Skilled trades like machinists and blacksmiths made $2-3 per day, brick layers $3-4 per day, carpenters $1.50-3 per day. Not per hour, PER DAY.

The world is going to re-assemble new trading relationships, leaving the new pariah-state, America, to suffer alone, in its self-induced deprivation.

Your decades of living beyond your means are finished, and included in that are America’s supposed poor who are rich in the eyes of the world.

And the most devastating world-wide legacy of this rampant consumerism has been proclaiming this utopian dream to the rest of the “under-developed” world, enticing desire in them to aspire to this madness which is stripping the planet bare. That is shame upon shame.

The imaginary that the US is the world’s wealthiest nation is built on the exportation of debt. The Treasury sells bonds (T-bills) and the received (borrowed) money flows out across the world to pay for America’s consumerism: the imports, in other words. America lives in a debt bubble as well as being in a savings void. Most other nations are better savers, thus THEY have money available for investment, and fortunately for you, up to now, they have invested in America due to the imaginary that you had such a solid economy. And, being devoid of savers, you needed that investment! That gives you a capital surplus¹, which matches the trade deficit! Americans always buy on credit, which derives from foreign investment which is the flip-side of offshoring debt. Now, with the Trump regime poisoning the investment waters, Americas debt becomes an even bigger problem, so much so that, according to the Mirin paper, they will convert Treasury bills into permanent term, in other words, the debt that is owed is never paid off. This is a very sneaky way to perform a sovereign default! Pull a trick that moves the debt outside of reality. This will have the glorious effect of further decreasing America’s borrowing power.

The US Treasury’s borrowed money pays for your imports and imports exceed exports since you buy so many toys! You do NOT need this extravagant level of imports! When imports exceed exports, that’s called a trade deficit, because, in balance, you have to pay out more for imports than you earn for your exports. But Trump calls this bad, oblivious to the fact that this vast amount of US dollars put out into the world allows it to be used as the world-reserve currency, the US$ is used as the currency of settlement and stockpiled in foreign central banks as a currency reserve - savings in time of need. And the final financial back-stop to the world banking system was the U.S. Federal Reserve.

In a recent post, Paul Krugman states: “Any way I cut it, the dollar’s reserve currency status is only part of the explanation of U.S. trade deficits.” Sorry, Paul, if you want to check the horse’s teeth, start at the right end of the horse, this statement is bass ackwards. Having a trade deficit is essential for the US$ to operate as the world reserve currency. The explanation for the trade deficit is that the consumers buy too many toys, price themselves out of manufacturing jobs and are in a competitive world for services exports. On the export side, among America’s biggest exports (other than debt) are armaments, which have no good social value, they are instruments of destruction.

On the world-reserve currency, John Rapley² writes: “If this imposed a responsibility on the US to act as the world’s policeman and financial backstop, it also granted it the exorbitant privilege to print as much money as it wanted. The US was one country on the planet whose people could endlessly live beyond their means.”

But Trump’s imaginary of a long-ago time when Americans made their own things has led to this insane attack on the entire financial system. What could go wrong? Everything, and then some.

Charles Hugh Smith in an article “The Financial Kessler Effect“ writes:

“Like orbiting space debris, every loan that has been collateralized by an illiquid asset is a high-speed projectile with the potential to disable any other part of the system it impacts.”

“The problem with markets that [Nassim] Taleb described so succinctly is that the risk of apparently liquid markets freezing up and becoming illiquid is not visible until it's too late to sell. Conventional market theory holds that there will always be a buyer to take an asset off a seller's hands. But buyers disappear in crashes, as nobody wants to catch the falling knife.”

“Assets that were presumed to be liquid become illiquid, and their valuation plummets. This collapse of collateral then triggers margin calls (loans being called in, demands for cash) which then trigger more liquidations into an illiquid market.”

As well, desiring a country producing all its own stuff, ignores beneficial trading which leaves production of a good in the hands of the best producers.

As Ian McGugan³ writes, “Scott Sumner, a US economist, argues that Trump has launched his trade war to stoke nationalism. The President appears to crave a world without multinational organizations, one in which bigger countries can prey on smaller ones and might makes right. ‘Overall, the goal seems to be to recreate the conditions of the 1930s,’ Mr. Sumner writes.”

And there’s no FDR in sight to bring in a new New Deal!

Enjoy! (and no extra charge for the included schadenfreude)

But what could have been done instead of trashing the world economy?

Yes, the US has massive debt owed to international capital markets. Is the remedy bringing in the worst form of corporate restructuring and taking a chainsaw to everything? The better approach would have been dropping the unipolar hegemony theme, end the desire for forever-wars, find a way for the US to be included among normal nations rather than as an Empire in its death-throes. Abandon the hundreds of military bases, disband the world-wide military Commands system and make the entire Pentagon into a museum, complete with the original “snowflakes” (Rumsfeld).

Although it’s probably too late given the aging population, you could give it a try anyway - make the Social Security System actually independent to operate as an actual investment company, with published annual reports. If it operated that way, as the Canada Pension Plan Investment Fund operates, it would be the world’s largest fund, rather than several binders full of I.O.U.s.

And, if you are going into bankruptcy, you don’t antagonize your creditors!

The best procedure for other nations is not retaliatory tariffs, but instead, do not accept US$ for your exports and do not acquire US investments - invest your funds elsewhere.

1)- “Trump’s tariffs are wrong-headed protectionism,” Andrew Coyne, Globe and MAIL, April 6, p. O2

2) “Trump brings the Western economic era to its end” John Rapley, Globe and Mail, April 5, 2025, p. B1

3) “Worst is yet to come with Trump pulling strings” Ian McGugan, Globe and Mail, April 5, 2025, p. B12

Paul Krugman: “A note on trade deficits and manufacturing”