Crackpots #25: Liberation Day (Patreon)

Hey, it's Liz — some quick thoughts before the opening bell:

There's a whiff of sadomasochism in the air. Last week, Treasury Secretary Scott Bessent, a man who desperately needs another round of media training, went on Meet the Press to defend the incoherence of the administration's posture toward ... everything. "The American dream is not Let Them Eat Flat Screens," he said, regarding potential tariff induced price-hikes. "The American dream is not contingent on cheap baubles from China." Not sure about that one. Last time I checked, the American Dream was making enough to finance a three-bedroom, two-and-a-half-bath with a two-car garage and an F-150 filled to the brim with a prepper-coded amount of Costco goods every Sunday. Extra points if you can stream your way to affiliate marketing dollars as a way of offsetting the price of the trip and writing off part of your remodel. The only popular revolt the American government took seriously was when the masses rose up to fight the proposed Tik Tok ban, a great threat to the influencer rights movement. This is the end game of Populism in America and it shouldn't surprise that the most successful protest in recent memory involved Our Right to Buy and Sell Stanley Cups through our Personal Pocket TV.

This is part of the reason consumers, producers, financiers and everyone in between are on edge. The Trump admin is basically saying Americans have had it good for too long, we all need to be poorer and worse off. "Short term pain for long term gain" is just economic BDSM, a way to convince voters to feel good about everything being bad. No surprise inflation expectations have hit a high. J.P Morgan raised its recession proability to 40%, the Atlanta Fed is forecasting a GDP decline of 1.8% and consumer sentiment is at a two-year low. Everyone slow to the uptake is finally asking: does the Trump admin know what it's doing? Mr. Market says No. He's been in a sad for some weeks now. First volatility smacked him and now the liquidity is draining from his face. The S&P 500 is down 7% from its high and everyone is girding their loins for more to come. On average, the S&P has declined by 31% during past recessions. We peaked this year at 6144. If this is an average recession, we're looking at 4239 or about 26% from where we are now. For reference, the Covid Crash's sharpest decline was 34% but it's worth mentioning we saw a 57% drop in December 2007. How much would you bet on this moment in history being average?

Not even the last adult in the room knows what's going on. Jay Powell used the word "uncertainty" 22 times when speaking to reporters a few weeks ago. John Williams, the NY Fed president, tried to distract, actually titling his speech Certain Uncertainty: "It's hard to know with any precision how the economy will evolve .... Uncertainty is high, and there are many scenarios that could play out depending on fiscal and trade policies and geopolitical and other developments." Yeah, great, thanks. Perhaps the best course of action is just to listen to the Trump officials. Tearing down and remaking the world trade order doesn't happen in two years, or four years, or even a decade. Warren Buffet is in cash and Bezos dumped last year. Believe them when they spell it out: we are going to control burn the economy. But what happens if we can't put out the fire?

It doesn't matter. Liberation Day comes April 2nd, whether we like it or not. In fact, it comes whether we know what it is or not. As of writing this, the Washington Post is reporting that $600B in annual import tax revenue is on the table in reciprocal and punitive tariffs. A flat universal rate on all imports. The largest tax hike in history? On consumers? In this economy? Steve Bannon set the Post straight: "Instead of Trump's Birthday, make 'Liberation Day' a national holiday to honor the jobs, skills and trade that returned to America and her workers." The generous case for tariffs is that they are used to protect infant industries as they grow but are those American infant industries in the room with us now? Maybe once we revive the Ontonagan mining industry copper prices will come down. With the way things are moving, there's reason to expect capital controls next. But we may see elite consolidation around a business-friendly solution to the political problem before any of this gets off the ground. I still can't believe I can't get odds on Trump finishing the term over on polymarket.

There isn't a tariff that can save the American car industry, these are all just ways of stemming the tide. If we really wanted to bring back American car manufacturing jobs, we'd let BYD build some factories here, but we won't because that's not actually what all this is about. How do we square bringing back manufacturing for low value-add items when the only people who could move up the chain to work those jobs without being a drag on the economy are immigrants? Copper tariffs will raise the price of conduit and electrical equipment. It isn't just the abstract industry and large firms that will pay the cost but homebuilders and electricians on the ground, the tradesmen. Homeownership rates will continue to fall as rentals rise. Labor will have to be disciplined through cratering wages and capping consumption if we are to steel ourselves for this cosplay of the early 20th century boom. But in what competitive industries? To put this all another way, does the left hand know what the right hand is doing? Secretary Lutnik asked CNBC why we don't make iPhones here. The host replied because it's cheaper over there. Lutnik smiled: "And now there are robots who can do it. You're going to see robotic production of iPhones and the jobs are going to be created ... the mechanics who work on these robots. These are great high paying jobs and you don't need a college education to do it." Sorry, you don't need a college education to be a robotics engineer? What are we even doing here?

It's worth remembering that the 2018 trade war during Trump's first administration cost red districts a few hundred thousand jobs. Every recession causes us to lose manufacturing jobs that we don't get back, in part because cheap debt fuels capital expansion, especially as it propels automation and tech adoption forward. There's reason to think that those salivating at disciplining Americans aren't thinking about the glory of industrial mercantilism so much as they envision a deep recession, presumably with the low interest rates that follow, partnering with AI-driven automation gains as a way to finally liberate their firms from pesky constraints, those annoying things that get in the way of abundance, things like labor, or states. Part of creating the fiscal pressure for lower rates is slashing the federal budget, DOGE-style. That means massive cuts to R&D, education, social security and health care. Imagine: woke humanities graduates, scientists and engineers sent down to the countryside, replete with freshly updated pocket-casinos that dangle the carrot of social mobility on screen only to provide exit liquidity for the bored upper classes, satiated on slop and gambling. Welcome to America's Lost Decade. Let a thousand Trumpcoins bloom.

To pull something like this off you'd need to have a strong desire to inflict pain on a massive amount of people. I think they do. You can hear it every time JD Vance speaks, the disdain that drips from his mouth, the absolute loathing that seeps through his tweets. Our most unabashedly resentful politician delivers lines  like "we cannot just ignore our President's desires." This is not a serious person. Lutnik for his part used the word 'detox' to describe what he says needs to happen to our economy, though I wish someone would ask him for a bit more context. What kind of detox is this? Are we detoxing like how Gwyneth detoxes, some green juice and a bit of hot yoga? Or are we detoxing against our will, out in state-mandated rehab, writhing in pain strapped to our sweat soaked bed. In other words, do they want to make us scream?

Beware the man whose handwriting sways like a reed in the wind, Anne Carson LRB

The more I know about Parkinson’s disease, the more I see it as holding oneself upright against a current that never ceases to pull. The books tell me to pay conscious, continual attention to actions like walking, writing, brushing my teeth if I want to inhibit or delay the failure of neurons in the brain. It is hard to live within constant striving. It is hard to live within the word ‘degenerative’, which means that, however I strive, I do not win.

Of course everyone is striving all their life. And none of us will win against mortality. But there is a difference between striving to (say) learn ancient Greek or do the vacuuming and striving to pay microscopic attention to every instant of a physical act.

Now listening: Schumann Violin Sonata no. 2 in D minor op. 121

Gidon Kremer and Martha Argerich, November 1994

Does Trump Want America to Look More like Saudi Arabia? Quinn Slobodian, NYT

Mr. Trump's plans increasingly mirror this model. Some fear he could sell off federally owned lands to create a sovereign wealth fund....like Saudi Arabia, the United States is an indispensable nation — for defense, energy or investment. The Trumpist project is not about Making America Great Again in any traditional sense; rather, it is about reshaping America at least in pat in the image of a modern petro-state — one that leverages energy, wealth, luxury development and financial capital to exert influence on the global stage.

Straight forward from here:

disincentivize investment in Bills and push trade surplus dollars in 10Y+

hard push investment into preferred options of UST Bonds and get people into SWF equity via tokens

sell off federal land to convert to private sector assets

bribe officials into buying $TRUMP which will be used to buy Bills

and finally: spend surplus on MAGA-style NEOM at home and BRI, with MAGA characteristics abroad

meanwhile: adoption rate of $TRUMP soars, world vacates UST and uses $TRUMP to collateralize

switch to bitcoin as collateral/reserve and devalue while dispatching with Triffin's Dilemma and pay off UST with now worthless USD

this is a joke (I think)

Constitutional Collapse, Aziz Rana, New Left Review

To understand what is unfolding, it is necessary to grasp the content of the US constitutional order. This includes a series of ideological and institutional components, in line with what Swedish sociologist Gunnar Myrdal in 1944 famously labelled the ‘American creed’ – the idea that the United States stood for the promise of equal liberty for all. At a time of global rivalry with the Soviet Union over a decolonizing world, national elites explicitly rallied to this creedal constitutional frame. Its constitutive elements encompassed a reading of the Constitution as committed to the steady amelioration of racial inequality grounded in principles of anti-discrimination; an anti-totalitarian account of civil liberty and speech rights; a defence of market capitalism, partially hedged by a constitutionally entrenched regulatory and social welfare state; an embrace of institutional checks and balances, with the federal courts, particularly the Supreme Court, as the ultimate arbiter of the law; and a commitment to US global primacy organized through robust presidential power.

China built hundreds of AI data centers to catch the AI boom. Now many stand unused. Caiwei Chen, MIT Technology Review

Some Large Cloud Customers Slow Down AI Spending as Prices Drop, Aaron Holmes, The Information

Both these pieces paint the same picture: firms in both the US and China are slashing spend because of DeepSeek. Here's the rub: in China, the excess capacity is coming from efficiency gains, not misallocation or overspend.

Deepseek's success has become a moment of reckoning, casting doubt on the assumption that an endless expansion of AI infrastructure guarantees progress..."What stands between now and a future where AI is actually everywhere, he says, "is not infrastructure anymore, but solid plans to deploy the technology."

Speaking of China, here is a video of Chinese robots making robots. What if robots who direct robots who make robots replace the market as efficient allocators of production and investment? Something to think about. Hayek's aufhebung. Liberation Day.

👊 🇺🇸 🔥

Until next time,

Liz.