Another Way Trump’s Trade War Could Hurt the US

Plus ... a Space Force!?! By Yuval Rosenberg and Michael Rainey Another Way Trump’s Trade War Could Hurt the US Peter Boockvar, chief investment officer at the Bleakley Advisory Group, adds another wrinkle to the dangers of an emerging trade war. In a Monday morning email, Boockvar notes that foreigners were net sellers of U.S. notes and bonds for the second straight month in April. China and Japan were net sellers, leaving Japan now holding the lowest total of U.S. Treasuries since 2011, Boockvar says. And Russia responded to the U.S. imposing sanctions on some oligarchs by liquidating more than $47 billion worth of Treasuries, or nearly half its holdings. Boockvar adds that foreigners have been net sellers of U.S. Treasuries since 2013. Their selling didn’t matter to the market a few years ago because the Federal Reserve was still buying voraciously, but that has now changed. The Fed is reducing its balance sheet and the pace of foreign selling increased in October. “What is left is mostly domestic demand for US Treasuries, via pension funds, insurance companies and other funds,” Boockvar says. His recommendation: “Start watching this data, even though it is somewhat dated when reported. We need all the help we can get in the search for buyers of US Treasuries due to the enormous supply coming our way in the next few years. Our stance on trade with our trading partners could very well play into this in coming months and quarters, especially with China, the largest owner of US Treasuries.” Trump Calls for the Military to Add a Space Force President Trump on Monday ordered the Defense Department to take steps to create a new branch of the military focused on space. "I am hereby directing the Department of Defense and Pentagon to immediately begin the process necessary to establish a space force as the sixth branch of the armed forces," Trump said during a meeting of the National Space Council. Lawmakers and the Pentagon have been discussing the creation of a new, space-oriented organization within the military for decades. There was a U.S. Space Command back in 1985, which was folded into U.S. Strategic Command by Secretary of Defense Donald Rumsfeld in 2002. In April of 2017, Rep. Mike Rogers (R-AL), chair of the House Armed Services strategic forces subcommittee, said that the Air Force should create a Space Corps, which could eventually stand on its own, much as the U.S. Army Air Corps was spun off as the U.S. Air Force in 1947. Trump mentioned the idea of a space force in March and again in May, saying he first used the name as joke but then realized it was a good idea. Not everyone agrees on that last point. The proposal has met serious resistance from the Pentagon in the past, largely on the grounds that it would create new, unwanted layers of bureaucracy and [expense](. The 2018 defense policy bill ordered the Defense Department to study how space should be treated within the military. That study is ongoing, with a final report due at the end of the year. Trump, who has asked Joint Chiefs Chairman Gen. Joseph Dunford to work on the space force plan, will need help from lawmakers to see it through. Colin Clark of Breaking Defense [pointed out]( that the president cannot unilaterally create a new branch of the military. Congress would have to pass a law creating the space force. A [tweet]( from Sen. Bill Nelson (D-FL) suggested that the president’s plan may be in for a rough ride on Capitol Hill: “The president told a US general to create a new Space Force as 6th branch of military today, which generals tell me they don’t want. Thankfully the president can’t do it without Congress because now is NOT the time to rip the Air Force apart. Too many important missions at stake.” Retired Air Force Lt. Gen. Dave Deptula also criticized the plan, [saying]( Monday that the space force plan was “another example of ready, fire, aim.” Map of the Day [Axios]( breaks down how monthly premiums on benchmark Affordable Care Act policies have risen state by state since 2014. The average increase: $481. House Committee to Mark Up Doomed 2019 Budget House Budget Committee Chairman Steve Womack (R-AR) announced Monday that his panel will hold a two-day markup of the fiscal 2019 budget resolution on Wednesday and Thursday. The resolution reportedly could get out of committee, but the chances of it going anywhere from there are likely slim at best. Roll Call’s [Paul Krawzak explains]( “There is no logistical reason for GOP leaders to make adopting a budget a priority this year; February’s budget deal set statutory discretionary spending caps, obviating the need for a budget blueprint’s enforcement tools. Many Republicans don’t necessarily want to use reconciliation procedures to jam through entitlement program cuts on a party-line vote that the GOP would own politically.” Womack will unveil the budget resolution [Tuesday at 2 p.m. EDT](. Column of the Day: The Politics Behind Permanent Trillion-Dollar Deficits Budget Guy Stan Collender [writes]( that budget deficits under the Trump administration are projected to hit $1 trillion in 2020 — and keep rising to $1.5 trillion in fiscal 2028. “But what’s most important,” Collender adds, “is that, no matter what Office of Management and Budget Director Mick Mulvaney or any elected official may tell you, there’s not much that Congress and the White House will be willing to do about this.” Tax increases, spending cuts or faster economic growth could all change the deficit outlook, but political realities mean those changes aren’t happening, Collender writes: - There’s no tax increase on the horizon. Period. - The trillion dollar deficits are already based on high economic growth. - In the current hyper-partisan environment, military spending is uncuttable. - That same hyper-partisan environment makes Social Security, Medicare and Medicaid almost as uncuttable. - The incontrovertible coming demographic changes mean that spending for Social Security, Medicare and Medicaid will increase under current law. The bottom line, according to Collender: “Trump’s trillion dollar budget deficits are permanent changes in the United States’s fiscal future.” Their Finest Hour: Since we could use some inspiration, here's a reminder that on this date in 1940, British Prime Minister Winston Churchill delivered a speech to the House of Commons just over a month after taking office: "Let us therefore brace ourselves to our duties, and so bear ourselves that, if the British Empire and its Commonwealth last for a thousand years, men will still say, 'This was their finest hour.'” Send your feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. 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Watson, Forbes - [Smoke, Mirrors and Social Security]( – Gene Epstein, Barron’s - [Trump's Tax Cut Leads to Doubling of Job Growth In Low-Tax States Vs. High-Tax]( – Chuck DeVore, Forbes - [Reform the Postal Service]( – Ross A. Marchand, E21 - [Here's Why We Should Put More Money into Alzheimer's Research]( – Andrew Tisch, The Hill - [The Tax Cut and the Pay Increase: Halfway There]( – Dean Baker, Truthout - [Why Employment Rates in the US Have Lagged Other Countries]( – Jason Furman, Wilson Powell, VoxEU - [Why Would the Fed Want to Raise the Unemployment Rate a Full Percentage Point?]( – Jared Bernstein, Washington Post Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com. 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