Economic nationalism, like mercantilism, is a system of statism that employs economic fallacies to build up a structure of imperial state power and special subsidies for favored groups, sacrificing consumer interests to producers.
The American Revolution was largely an economic revolt against British mercantilism, with complaints about the Navigation Acts, Stamp Act, and taxation without representation.
Alexander Hamilton’s plan to nationalize the Revolutionary War debt was a massive insider trading scheme, where insiders bought bonds at 2-10% of face value, knowing the government would later buy them back at 100% face value.
Protectionist tariffs, a key component of Hamilton’s “American system“, led to the South Carolina nullification crisis in 1828, with an average tariff rate of 48%.
The Smoot-Hawley Tariff Act of 1930 sparked a trade war that shrunk global trade by two-thirds over three years, exacerbating the Great Depression.
Lincoln’s Pacific Railway Act of 1861 led to massive corruption, with politicians and contractors profiting from subsidies while taxpayers were left with debt.
The National Bank of the United States, modeled after the Bank of England, was intended as a political tool to subsidize favored corporations and create boom and bust cycles through cheap credit.
The Republican Party had a monopoly on national politics from 1861 to 1913, with protectionist tariffs enacted during the Civil War lasting for 50 years.
In 2017, President Trump announced his economic nationalism agenda, citing Henry Clay’s American system and tariffs to protect American industry, aligning with the Hamiltonian British mercantilist system.
The only unsubsidized transcontinental railroad was built by James J. Hill, who paid off Native American tribes directly and avoided government subsidies.
Franklin Roosevelt understood the disaster of the Smoot-Hawley Tariff and started the General Agreement on Tariffs and Trade (GATT) to reduce tariffs over the next 50 years.
Bond yields and short-term rates are spiking while long-term rates rise, indicating a negative economy overextended in debt, with total non-financial debt as a percentage of GDP at a record high.
Financial expert Michael Pento predicts Treasury yields will rise until the economy falters in 2025, potentially reaching 5% on the benchmark due to inflation, insolvency, and illiquidity in the treasury complex.
If interest rates reach 5% on the benchmark, there’s a high likelihood of a 10-30% stock market correction in 2025, potentially triggered by a liquidity crisis in the treasury market.
The Fed can’t cut interest rates significantly when inflation has been above their 2% target for 44 months, currently 40-50% higher than a few years ago, with the rate of change accelerating further from their target.
Pento believes the Fed’s policies are unsuitable for the current economic environment, with inflation expectations rising to 3.3% and the ISM Services Index at 64.3, representing the largest part of the economy.
Pento’s investment strategy includes a cautious approach with 60% stocks and 40% bonds, which are down 50% since 2022, and concerns about the 30-year bond market potentially facing a disastrous collapse if GDP growth falters.
The extremely expensive stock market, with equity risk premiums indicating it’s at least 50% overvalued, is vulnerable to a sharp drop in GDP if interest rates spike, affecting housing and private credit.
The private credit market, a $3 trillion industry spawned from nothing, is illiquid and priced incorrectly, with the top 1% of investors at risk of sharp losses if their investments in equities and housing portfolios reverse.
In the next 3-4 years, $15 trillion of debt will mature, requiring refinancing and potentially causing foreign countries to sell bonds, creating downward pressure on prices.
Inflation is expected to rise to normal levels of 3-5% over the next 5-10 years, driven by factors including a 120% debt-to-GDP ratio, foreign bond sales, and Federal Reserve policy.
Investors should keep maturities short and focus on short-term investments to protect against rising rates, as long-term interest rates are projected to reach 5-10% over the next decade.
Warren Buffett’s all-time high cash level of 30% and bet against the stock market, coupled with increased investment in oil stocks, indicates a focus on energy demand and market caution.
The S&P 500 is considered expensive at 24-25 times earnings, above the historical norm of 16-17 times earnings, suggesting limited upside and potential for correction.
A “Great Reset” is anticipated, ending ultra-low interest rates and easy monetary policies, forcing companies to run normal businesses and challenging investors accustomed to the 2009-2024 period.
The commodity sector, including natural gas, oil, and metals, is expected to gain traction in the next 10 years due to supply shortages.
In the next 3-6 months, gold miners and energy companies may outperform, while healthcare is likely to recover from its expected decline.
The US faces a debt trap with 120% of GDP in government debt, and tax receipts alone can’t cover interest and debt payments.
A 20-30% market correction could occur at any time, which would not be unusual given historical patterns and current market conditions.
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