Global Debt, Trade Deficits and the Psychology of Politicians

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A couple of years ago, I shared with you an observation made by Ben Bernanke. This was at a SkyBridge Alternatives (SALT) hedge fund conference in Las Vegas. The former Federal Reserve chairman said that, in many unexpected ways, President Donald Trump’s presidency so far resembles that of Jimmy Carter’s.

At first blush, Trump and Carter couldn’t be more different from one another. But Bernanke raised some interesting parallels. Among them: Both men were Washington outsiders, having run family businesses. Both arrived in the capital hoping to disrupt the status quo, take on the “beltway party” and “drain the swamp.” Both men tended to pick fights with members of their own parties and had difficulties getting key components of their agendas passed.

Of course, this is just one man’s opinion, and this week I came across another opinion at the Cornerstone Macro Conference in New York City. Before moving on, I want to thank Cornerstone CEO Nancy Lazar for another successful, thought-provoking conference. Like U.S. Global Investors, the analysts at Cornerstone believe that government policy is a precursor to change, and they closely track the purchasing manager’s index (PMI).

One of the speakers I was privileged to hear was Paul Gigot, the Pulitzer Prize-winning editor of the Wall Street Journal’s editorials page. Gigot spoke specifically of Trump’s leadership style, comparing it to Ronald Reagan’s.

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Reagan was more strategic than Trump, whereas Trump is more tactical than Reagan. But neither president, according to Gigot, is fond of sitting down and diving into pages’ worth of briefing notes. Instead, they prefer to invite around three of their top Cabinet members and advisors to provide a rundown of the news and debate certain topics. Trump then makes a decision with his gut, Gigot says.

Involving trade, Trump’s three “wise men” are Larry Kudlow, director of the National Economic Council (NEC); Peter Navarro, director of the two-year-old Office of Trade and Manufacturing Policy (OTMP); and Treasury Secretary Steven Mnuchin.

Gigot pointed out how Mnuchin prepares for his meetings with Trump. No other secretary, he says, comes in with a “cheat sheet” of trade deficits for nearly every country the U.S. does business with. Mnuchin can then fire off the data when Trump asks for it.

Take a look at the chart below. It shows the U.S. trade balance with its top 10 trading partners, comparing July 2019 to the same month year earlier. In all but one case (China), trade has fallen further into deficit from 12 months ago.

U.S. Trade Deficits With Top 10 Trading Partners, July 2018 vs. July 2019
click to enlarge