sometime in the next few years the markets have found a smokescreen via Tariffs to disguise bad Central Bank economic policies.
Because of greater exposure after the 2008 crash, central banks and their related institutions cannot rely merely on the mainstream media or government entities like the Bureau of Labor Statistics to cover for them. They need a smokescreen.
The trade war is so perfect in this regard, I believe that it could not be anything other than planned. Here are five reasons why:
1) The trade war provides cover for de-dollarization: With emerging markets previously addicted to easy money from the Fed, dollars were used to provide artificial support for their ailing economies. Now, with the Fed raising interest rates and cutting the balance sheet, that flow of dollars is drying up. Emerging markets are starting to look for alternatives as they have no other choice, and this means more bilateral trade agreements that circumvent the dollar.
Lucky for the Fed, the trade war can be used as a scapegoat for countries dumping the dollar in the name of striking an economic blow against the U.S. Nations like Turkey and Russia have already begun to threaten this outcome.
2) The trade war provides a rationale for dumping US Treasuries: Russia is already well ahead of this process, dumping at least half their US treasuries in a single month. It is only a matter of time before China uses the same method as retaliation for US tariffs. The mainstream media will argue that this is not a meaningful threat to the US economy, but consider the possibility that China'a trading partners will follow their lead causing a "contagion" of treasuries dumped onto the markets. If the US cannot maintain foreign investment in its considerable debts, it will implode economically. The Federal Reserve has ensured that there are no policy tools left to come to the rescue if this happens. Foreign holders of US debt have been openly discussing this option ever since the 2008 crash. Now, the trade war makes the US culpable (at least in terms of historical narrative) for whatever occurs next.
3) The trade war provides cover for inflation: With ever-increasing tariffs on goods and materials from around the world, retail prices are only going to spike higher, but the real inflation danger will come from the Fed. True inflation is already well above Fed targets. The money creation that the central bank used to stall the debt crisis created an even bigger bubble in the dollar itself. With new tightening policies will come a rush of dollars back into the U.S. as emerging markets de-dollarize. Without the Fed providing constant stimulus, using dollars as the world reserve will eventually become trade prohibitive. All of this will still be blamed on tariffs and trade disputes, and not the Fed.
4) The trade war provides cover for a renewed market crash: As the Fed launched its bailout measures and Quantitative Easing, it was emerging market stocks that first began to climb exponentially out of the deep pit caused by the debt crisis. U.S. and European stocks followed to the insane bull market highs witnessed recently. Now, as the Fed restricts stimulus and cuts its balance sheet, it is emerging markets that are crashing first. The question is, will western markets follow them down? I believe they absolutely will.
