MARTIN ARMSTRONG: The real solution lies in reducing trade barriers and not relying on tariffs to increase the demand for domestically made goods

Thank you to Martin Armstrong's "Why the FED Cannot Reduce Rates to Offset Tariffs," @ Armstrong Economics.

President Donald Trump is urging the Fed to cut interest rates to offset the inflation that will be caused by tariffs. “The Fed would be MUCH better off CUTTING RATES as U.S. tariffs start to transition (ease!) their way into the economy,” Trump wrote. “Do the right thing. April 2nd is Liberation Day in America!!!” Reducing interest rates will NOT offset inflation caused by tariffs because the two variables are not directly related.

Tariffs increase costs due to supply, while interest rates influence demand. When tariffs are imposed, the cost of imported goods rise, increasing prices for consumers and businesses. This cannot be offset by lowering interest rates, as rate cuts stimulate borrowing and investment rather than addressing price increases caused by trade barriers. In fact, lower interest rates can exacerbate the problem by weakening the currency, making imports even more expensive, further fueling inflation.

Historically, tariffs have led to stagflation—rising prices combined with economic stagnation—rather than the demand-driven inflation central banks typically target. The Smoot-Hawley Tariff of the 1930s, for example, severely disrupted global trade and worsened the Great Depression. Similarly, Trump’s trade war with China during his first term did not lead to any economic boom but instead forced businesses to adjust supply chains, raising costs for consumers.

Lowering interest rates in this environment offsets capital flows, decreasing confidence and weakening the purchasing power of the currency. The result is a cycle in which consumers face higher costs while the central bank loses the little control it has to manage inflation. The idea that the Fed could actually control inflation is based on outdated Keynesian economics concepts that were drafted when the US had a balanced budget. Now, most demand comes from the government itself, the largest borrower and creator of debt. This is why Jerome Powell spoke out against Joe Biden for creating the largest spending package in US history and multiplying the public sector. The government will never pay off its debts, and the interest payments on that debt alone have been astronomical.

Relying on rate cuts to counter tariff inflation ignores the root cause of the issue. The real solution lies in reducing trade barriers and not relying on tariffs to increase the demand for domestically made goods.

WALL STREET SILVER: Sales are crashing at McDonald’s, Coke, and Kraft as low-end consumers run out of money. Meanwhile, it’s record sales at the top, from Lambos to Balenciaga.

Sales are crashing at McDonald’s, Coke, and Kraft as low-end consumers run out of money. Meanwhile, it’s record sales at the top, from Lambos to Balenciaga.

This is what happens when the Fed prints $6 trillion: It goes straight into the pockets of the rich via asset markets.… https://t.co/NdpcPjtGxc

— Wall Street Silver (@WallStreetSilv) May 9, 2024

Recent earnings from McDonald's, Kraft, and Coke confirm that Bidenomics is turning into a two-speed affair with plenty of wealth at the top and plenty of pain for the rest.  Last week I joined Charles Payne, one of my favorite people at Fox, to talk about it.  So McDonald's, Coke, Nestle, Starbucks, and Pepsi have all now flagged that low-income consumers are no longer able to absorb inflation.  They are cutting back on visits and they are cutting back on spending, leading to a nationwide drop in traffic and sales across fast food and even basic groceries.  McDonald's reported same-store sales or down 3% and transactions dropped 7%, outpacing 4% price likes to keep up with inflation.  Pepsi reported a 5% drop in sales.  Nestle dropped 8% for Hot Pockets, frozen pizzas, and Stouffer's frozen dinners.  Kraft's Mac and Cheese, Pringles, and Pop-Tarts are all sagging.  Starbucks is losing the low end altogether with its stock plunging 14% after turning in lower revenue transactions and ticket sizes while losing fully 1.5 million Loyalty Reward users.  The CEO blamed "macro headwinds," meaning lower-end consumers squeezed by insulation and weak way growth.  Headwind is quite the understatement in fact Nestle's Chief Financial Officer estimates the loss and purchasing power among low-income people since Biden took office has come to roughly 50%.  It's a whole other reality on the high-end, where sales are doing fantastic.  Most reported strong growth in pricier beers as "more consumers treat themselves more."  More broadly, the luxury ETF LUXX which included brands like Hennessy, Hermes, and Ferrari is actually up 20% in the past 6 months as the wealthy gobble up their Balenciaga and let the poor eat TJ Maxx.  In fact, just a few months ago, Lamborghini announced they sold 10,000 cars for the first time in history, a third of them in the US and mostly the Urus SUV that goes for $237,000; that's $269,000 for the performance model with the carbon ceramic brakes with subtle off-white coloring in a watermark Bentley also reported record sales recently with Aston Martin and Rolls-Royce close behind one analyst sums it up as a "K-shaped economy with very different realities for those at the top and those at the bottom, reflected in strong credit card spending at the top paired with soaring delinquency rates for the rest."

2:47. The rich will keep getting richer and everybody else will keep getting inflation because that's how the Fed works and it's how crony government spending works the FED's $6 trillion money printing orgy paired with the $8 trillion in deficit spending. Since the pandemic has flooded money to anybody who either already owned assets, so rich people above all, or who was lucky enough to work at a politically connected company or government contractor.  As always, government money goes mostly to the powerful with an obligatory slab for vote buying at the bottom and nothing for the middle class.  The solution, of course, is very easy: a dollar-first monetary policy, ideally ending the FED along with ending the deficit, so Americans are not forced to run just to stay on the treadmill.  

Read the rest of the article with charts and all the Gory details at profstonge.com.

The Soviet Union you could do absolutely nothing. It was a permissioned economy. In theory you would be shot if you sold bootleg bread out of the back of your car

in the US when Joe Biden came into power, YouTube disabled their thumbs down, because every time Biden to open his mouth there were so many down votes [that it] was embarrassing to the regime. 

Excerpt from my talk at this year’s Bitcoin Amsterdam 🥳 https://t.co/prCvsVP2K8

— Peter St Onge, Ph.D. (@profstonge) October 22, 2023

And yet there was some point where governments collapsed.  They largely collapsed because of the money.  At that point, when you get hyperinflation, the government has to make a choice: will it pay the Praetorian Guard or will it pay the bureaucrat busybodies?  Lo and behold, the busy buddies get cut pretty darn fast.  That's what happened in the Soviet Union: the state begins to look after itself.  Day to day it can be pretty discouraging but the people are with us.  If you look . . . I know certainly in the US when Joe Biden came into power, YouTube disabled their thumbs down, because every time Biden opened his mouth there were so many downvotes.  It was embarrassing to the regime.  You see this persistently across the board where the regime has its pet media, they have its pet narratives nobody's believing that garbage anymore.  So I think that we do eventually get to a point where the entire thing looks impressive but you look behind it and there's nothing there.  It's a Potemkin village.  

JUDY SHELTON: Fix Congress, you really fix today's inflation

Judy knows that the Fed is a Keynesian institution that really only has demand side tools. The supply side comes from Congress spending more than it takes in. Fix Congress you really fix todays inflation https://t.co/oTrp9DEN6i

— Tom Luongo (Give Deflation a Chance!) (@TFL1728) January 9, 2023