The dollar is worth 14% less than a year ago against the Chinese yuan (CNY) with it dropping to a three year low, down to 6.37 CNY per dollar from 7.2 in June 2020.
That’s not far off from the all time low of 6 CNY to the dollar reached in 2014 as China tightens its monetary policy while the federal deficit for the United States reached $2.8 trillion this fiscal year, running from September 2020 to October.
That’s close to the entire tax intake at the federal level, and translates to a de facto tax rate of 50% for US citizens as the US government spending nears 50% of the GDP. This extraordinary spending and encroachment on the private sector is leading to inflation, with it reaching 6.2% in October for the United States.
In China, the Producer Price Index jumped 13.5% in October, an all time high since data began in the 90s. That coincides with a 14% drop in the dollar’s value, suggesting goods are not becoming more expensive in themselves, it’s ‘just’ the dollar is losing value.
It may continue doing so if tax hikes are implemented as that will choke the economy, continuing the decade long stagnation or worse, tipping it into recession.
That’s especially after an effective tax hike through money printing for the past two years, with an increase in direct taxation turning it into a double whammy that reduces competitiveness against freer economies by this measure, like China which has government spending at 37%, and thus a lower defacto tax rate.
Private Sector Chocked?
On the surface looking at the data it appears an economy enters a relative decline when government spending crosses 20% of the GDP. That 80/20 Pareto principle strikes again as the United Kingdom crossed it in the 1930s, after which it never recovered its dominance over the seas.
The United States crossed it after the 60s, with the country in some ways looking like frozen in that time, especially its buildings. It’s around then, in the 70s, when wages stopped growing in real time. And it’s shortly after in the 80s when growth dropped from 5%-10% to barely 2%.
China just passed that 20% threshold last decade, with its economy now slowing down as the public sector burden becomes too heavy for the private sector.
However there is currently no discussion of reducing such spending. This suggestion is currently seen as heresy in a bubble of sorts where the solution to all things is less private market and more government bureaucracy.
That’s even as that bureaucracy becomes sclerotic, to the point it turns around and tells the public they won’t innovate for you. As if these are capos rather than we the paying bosses.
Hence incompetence and mismanagement is to be expected with the only way out of this being growth through liberalization. Less protectioning and risk aversion to the point of entropic regression, and more capitalism, more free markets, more public participation in value production.
This won’t come from the top however. The top is in cuckoo land, stuck in the 60s and the Vietnam War, as well as race and gender politics like women and blacks just won voting rights. This will have to come from the bottom, through the Great Disruption and innovation, based on the principle that the law operates on general consent and so the investment prohibitions do not apply.
All other industries have their equivalent. Laws written decades or a century ago to maintain monopolistic privileges of incumbents through resource intensive restrictive regulations. Laws that have not been reviewed in our time by our dysfunctional Congress where one senator can object for reasons completely unrelated to the matter in discussion, and so makes law that affects trillions of dollars.
Not least because the United States has never been great due to its government, but because of its freedom loving people, because of its demanding Karens, and because of the doers.
Time they stand up to the challenge and overturn the 60s economic revolution to replace it with millennials’ liberalism. Free markets. Free participation in capital formation. Rules by consent. And a chained government that is once again our servant instead of stealthily taking half our produce.