Chaos is Creating its Own Costs

The market fell again, plunging over 600 points on the Dow, with the S&P 500 posting its largest loss since December. And the reason is the culprit I’ve been saying we’d get a lot of trouble from since making my 2025 economic predictions—tariffs. Trump made clear that there is no chance now of Mexico and Canada avoiding tariffs. The market immediately nosedived.

Of course, I would not be the least bit surprised to hear him say as the tariffs come into play, “Canada and Mexico just surprised me by giving me everything we were asking for; so, of course, we’ll not impose the tariffs.” Whatever he might get, if they give him anything to avoid tariffs, will be a fraction of what he asked for, but he would bill it as a major victory, whether it were or not. However, just his erratic past statements about major economic changes are, themselves, a cause of major negative economic changes.

As an economist at Moody’s points out, Trump’s chaos, by itself, is damaging the economy. While he deploys what his supporters say are his advanced negotiating tactics, he’s also head-banging the US economy from the floor to the ceiling with each gyration because no one in business in America knows what to expect and no one doing business with America from outside of America knows what to expect so they start gearing for the worst, whether it happens or not, just in case.

Moody’s Chief Economist Warns Trump Chaos Will Choke Economy

An economist warned Monday that the U.S. is “gagging” on uncertainty around the Trump administration’s economic policymaking, and that the situation could get worse….

Chaos comes with its own costs. Markets don’t like it, and business leaders have a rough time trying to make wise choices for the future when major changes are flying everywhere and then suddenly reversed … as we’ve seen with the tariffs but also with some of the DOGE firings. Credit-rating agencies for the US government debt also don’t like it. Foreign businesses and national governments don’t like it. There is no getting around the fact that they will all find you to be a less reliable or dependable trading partner because you are spasmodic and reactionary—not a nation they can depend on or trust because the rules change daily based on one man’s personal whims.

While the new Treasury Secretary, Scott Bessent, reassured the public on Face the Nation that the new Trump tariffs will not cause inflation because the old ones didn’t, I’ve already laid out exactly why that is not the case this time around, especially in my Deeper Dives:

Last time, they happened when the Fed couldn’t create inflation to save its demonic soul. This time, they happen when the Fed can’t stop inflation, which is back to actually rising again.

Last time, the nation’s businesses had not already absorbed all the cost increases due to producer inflation they possibly could, so they had the margins to absorb some of those higher costs caused by the tariffs in order to avoid passing them on and risking loss of market share. This time, they are way past the point of having all that resiliency. They’ve already used it up.

“We have the experience of President Trump’s first term, where the tariffs did not affect prices,” Bessent said. “And it’s a holistic approach, that there will be tariffs, there will be cuts in regulation, there will be cheaper energy. So I would expect that very quickly we will be down to the Fed’s 2 percent [inflation] target. So I’m expecting inflation to continue dropping over the year.”

Last time, the tariffs were also far less broad, placed on a limited number of products among a smaller number of nations, but this time, they are being placed all over the world and on far more products and at higher rates. Also, you can definitely not count on the counterforces Bessent talks about kicking in anywhere nearly as quickly as the tariffs do. They won’t have time out together. So, the tariffs will wreck their damage long before the other benefits come in.

The Moody’s economist shares my views on all of that:

Zandi also highlighted that the U.S. economy’s problem with high inflation now is different to the relatively low inflation challenges under Trump’s first term, adding that he did not think the Fed’s 2 percent target would be hit “if these tariffs go through.”

“At some point the tariffs will do economic damage because they’ll cost American jobs” Zandi said. “Especially if other countries respond and retaliate and raise their own tariffs and impose their own trade restrictions—which is what they did, certainly what China did, back in President Trump’s first term.”

And this time, Trump has already promised that if the nations he imposes his tariffs on do retaliate, he will retaliate back against their retaliation with even higher tariffs. That assures we get into a tariff cyclone—a negative loop that really expands the damage. China has already hit back with retaliatory tariffs. So far, Trump has not stood by his word on the counter-retaliation.

From there, Zandi pointed out the same additional signs of recession I pointed out last week and in my weekend Deeper Dive, particularly in the part for my paying subscribers:

“Consumer confidence is down,” Bolduan said. “Consumer spending dropping. Layoffs ticking up. GDP forecast turning negative. Do you see this as a momentary blip, or could this really be the beginning of something bigger?”

All the exact same points, and he added in all the other major factors that make this time different that I’ve been harping on:

“We talked about tariffs, but you know, there’s the DOGE cuts,” he said, referring to Elon Musk’s so-called Department of Government Efficiency which is currently slashing the federal workforce. “There’s what’s going on with immigration and deportation. There’s what’s going on in Congress around tax and spending. You know, there’s a looming government shutdown a couple weeks away. We’ve got the Treasury debt. I can go on and on and on.”

It would be one thing to take on a single issue like trade and tariffs and plough your way for four years through the damage that comes with taking that on. It’s folly to start those wars with all nations at the same time. Much smarter to take on one and wrestle them to the ground, if you’re going to do this, so all the others see, and then turn to the next one.

You cannot control what others do

When you radically change so many things where each transition comes with innate economic costs, you bury yourself in troubles. And, while you hold the cards in terms of how you decide to bully or bludgeon others, you have no ability to control how they respond:

Zandi said that businesses and consumers will respond to uncertainty by becoming more “cautious” with spending.

As I stated in a podcast interview with Collapse Life (a wonderful couple doing insightful, non-partisan work on the same topics I am), which I’ll post a link to this weekend, you can tell Canada that you’re going to annex it into the United States, but you cannot stop Canadian citizens from their widespread choice to boycott all American products. Nor can you be sure they will ever return if you back off. They may just say, “We’re sick of you! Good riddance.” Even if it hurts them to make that choice, just because they’re so ticked off at the thought that you actually intended to end their self-government and become their new government in order to acquire their land and resources for your much larger population.

Likewise, you cannot control how your chaos will cause credit-rating agencies to look at your national debt as they evaluate your next rating.

Canadian citizens are already canceling travel to the US in great numbers and boycotting US products. Even our own consumers will tighten their belts in a stormy world of whirling chaos. You cannot stop them from doing that if that is what they choose in order to batten the hatches for the storm they fear is coming. Trying to stop them would likely make them tighten even harder.

“It feels like the economy’s gagging on the uncertainty and, you know, the longer the uncertainty hangs around, the more likely the economy’s going to start choking,” he said. “And yeah, I think it’s going to do a lot of damage.”

I agree. There is no way the chaos cannot make the problems of mass transformation even worse. That is just the nature of chaos versus controlled demolition.

Watch your hedges

The stock market's recent plunge was directly connected to Trump’s statement that tariffs would now certainly proceed forward. Cryptos followed the same path, as they typically have. As the stock market goes, so will Bitcoin and all other cryptocurrencies. If you look at Bitcoin over the long term, you will see that when the S&P rises, Bitcoin rises (although often more); when the S&P falls, Bitcoin falls. Now that cryptos are trading as ETFs on the stock market, the correlation is even tighter, and the leverage used to make those trades may make cryptos plunges a lot more painful for some.

So, beware thinking of them as a hedge against the stock market’s bumpy crash, which is likely to be as erratic as the president's daily policy announcements. They have not functioned well as a hedge against stock destruction in the past, and I see no reason to believe they will start to. They are highly speculative and can make you a lot of money, but so far, they have never had what it takes to head in the opposite direction of the stock market during big moves, nor even to seriously hold their ground.

And, as currency, speculation is not what you want. The chief job of money is to be boring—as boring in its moves as possible—because anything that can soar 20% one day can fall 20% the next, and while you USE currency to buy investments, you don’t want the currency you use as THE measuring stick for those investments to be constantly changing its own value in large swings. You want to know that once you’ve banked the monthly rent money, it will still pay the rent at the end of the month.

So, just a word to the wise: be cautious as we enter this time of economic collapse, particularly of the stock market crash I’ve predicted. Cryptos may crash just as hard or even worse, being as volatile as they are and as unsupported by things like profit streams from production or services.

Below, you’ll find several articles on the present perils of the stock market and economic recession that match my own projections for this year and some articles on cryptos at a time like this.

Do well ….