Loading summary
Transcript30 lines
- [00:00]
A
Hello, everyone. I will introduce my esteemed guest in a moment. I'm jvl and my Receipts Live colleague, the great Catherine Rampel is out today. But even though she's out, she's been working and she has a piece that just dropped that I cannot urge you strongly enough to go read. What is going on is she's breaking some news here about some monkeying that the Trump administration is attempting to do with regulations and processes within the next census. And the short version of this story is that they're trying to make it so that immigrants, both authorized and legal, or, sorry, unauthorized and legal, will not be counted as actually living in the United States for the next census. There is a long version of this story. The implications of it are enormous. And she's got the long version. Please go give it a read. This is one of those things that the administration is trying to do under the COVID of night and the, the more light intention it gets, the better. So go read it, share it. Try to make sure other people see it as well. I am joined today by my, my friend, a guy, a real friend, but a guy who's been on the show before a couple times and who I am a great admirer of, the great Paul Krugman. He doesn't really need an introduction, but if you don't know that he's on Substack now, you should go to Paul krugman.substack.com and sign up for his newsletter. It's fantastic. And Paul, we were just talking in the green room about how prolific you are. You, you've got a motor in you and it's amazing. You're not doing like, you're not building model ships, you're not golfing.
- [01:40]
B
That's right.
- [01:41]
A
Creating great newsletters.
- [01:43]
B
Yeah, I mean, I'd probably be a happier person if I golfed. But anyway, here we go. And it's keeping me busy. But also, hopefully, you know, it's. Yeah, anyway, love to, you know, Bulwark is a great resource here. So here we are.
- [01:58]
A
Oh, it's great stuff. So today, just quick roadmap for people. We're going to talk about oil and the Iran war. We're going to talk about tariffs, the bond market and oligarchs. It's going to be great. Let's start with Iran and oil. Paul, you just wrote, I think it's today, or maybe it was last night, about how we are now up oil back over or just about over $100 a barrel for crude. And this is a result of the fact that we are back into the war that Trump can't seem to get out of, because, as you say, he lost this after about five days. And it was clear to everybody that we had lost after about five days. But what I, what I want to ask you to talk to people about here is something you call the crack spread. And your, your thesis is that, you know, the actual oil per barrel price is $100, but what people are paying for gas, especially diesel, is, is more than that. And that's because of this thing called the crack spread. Can you explain to people what's going on?
- [03:03]
B
Yeah. So, you know, nobody burns crude oil. It's, you know, fill your, your engine with crud very quickly, so it has to be refined. And Roughly speaking, every three barrels of oil gets turned into two barrels of gasoline, and then there's 42 gallons in a barrel, which is one of those weird things anyway. And one gallon of diesel. One barrel of diesel. And normally the price of the stuff that's refined out of a barrel of oil is something like $25 a barrel more than the crude itself. That has blown out to something like $65 now. So that's the crack spread, the difference between what a barrel of oil costs and what a barrel of stuff made from that barrel of oil costs. And from the point of view of end users, which is you and me, but also businesses, also logistics, all of that, what matters is what it costs to buy the stuff, the refined products, not the oil. And so if the crack spread blows out the way it has, that means that for all practical purposes, the price of oil is a lot higher than the number you're seeing, you know, in the corner of your TV screen. And we kind of know why that happened. It's, there's some, that's refinery capacity. It could be, you know, it could be market power by oil companies. And you don't want to ignore that. But really, this looks like a refining issue. And the reason is partly that some refining capacity was, is stranded inside the Persian Gulf behind the Strait of Hormuz. But a lot of it is that the Ukrainians are blowing up a lot of Russia's oil infrastructure, and oil has gone from a gasoline exporter to a gasoline importer. The important point for all that is that the economic impact of oil prices doesn't depend on what a barrel of crude costs, because nobody burns crude. It depends on what the stuff that's made from that barrel costs. And so for practical purposes, we're living right now in a world economy in which the price of Crude might as well be 140, not $100 a barrel. And that means that the economic impact, if you want to know what, you know, we had one month of quiescent inflation because prices came down, next month is going to be ugly. And that's because this, this price is really big. And you know, part of the reason crude is cheap is, you know, cheap, only $100 a barrel. But the reason it, it was, it's not even more, you know, with, with so much of the world's oil supply offline now is that. Well, yeah, but people are not going to bid high prices for crude if they can't refine it. And so this is kind of where the, in, in many ways where the action is. And of course, this is, you know, I don't think it's 1979 or 1973 ugly, but it's pretty ugly.
- [05:56]
A
So I mean, the, the, the consequence of this is that the, the, the supply is actually tighter than maybe people imagine. And that's right, because we have, and you talked about this in your piece, there are a couple other things going on, one of which is that China's demand, because they've electrified so much, has been much lower. Right. Than people expected.
- [06:19]
B
Yeah, there are a couple of things that happened. China somehow or other stopped buying 5 million barrels a day. I always find the scale of these things, the scale of everything out there is immense. But yeah, 5 million barrels a day less from China. And we don't know quite how, we don't know whether they're drawing down inventories, whether they've electrified even faster. But in any case, that was a burden off the world market. And then, well, a lot of oil. Turns out that the Saudis have a pipeline that bypasses the Strait of Hormuz and takes it over to the Red Sea, which did help alleviate the strain, except the Houthis are now firing at ships in the Red Sea. So all of a sudden that's kind of gone. And, and the world's a whole, we lived a lot during this whole period until the, the, the phony cease fire. The world lived a lot off stocks of oil. It was just drawing down inventories. And you know, the inventories are now very low, so we can't keep doing that. So you can certainly spin out a story where this is, it gets much uglier than it was. I mean, people were worried about inflation and all of that before now. And, you know, well, as always, I, you know, I open the, open up my various news sites and this morning and I see that the Wall Street Journal says that Trump is in, is, is in revenge mode and that we're rushing ships and, and troops to the Middle East. And you know, I could use the technical term, holy. I mean, a land are we going to try and invade? You know, that this is absolutely bonkers. But, and that, that just makes me, you know, it's, it's, it's really, it's really incredible that we're at this point,
- [08:03]
A
this is a maybe putting the cart before the horse. But if, if we ever get a stable situation. Yeah, eventually we will get a stable situation. Maybe it'll be in a week, maybe it'll be in four years.
- [08:15]
B
Yeah.
- [08:16]
A
But if we get a stable situation, are like, would the United States under Donald Trump restock our strategic reserve of petroleum? Because doing that would put upward pressure on gas prices, which they don't want to do. Right. So, yeah, I mean, once you've drawn these things down, it's not free. You do have to restock them at some point and when you do that, you increase demand. Right?
- [08:42]
B
Yeah. I mean, but if that's, you know, if, if basically the shooting stops and, and the shipping lanes are open, then you can do that gradually. You know, just a million barrels a day or something. Just a small amount. Again, the quantities always amaze me, but here, but hey, the, and so I don't think that's a huge concern. The question of whether, you know, that would be kind of preparing for the future and not something that this administration does, but presumably some point they will. And it's also true. I mean, I'm probably going too far afield here is that one long run positive effect of all of this is that the world is kind of weaning itself off oil in general and Persian Gulf oil in particular.
- [09:28]
A
Except America.
- [09:31]
B
Except America, that's right. No, you know, it's sort of in the corner of the headlines is that the Trump administration is eliminating all energy efficiency, not only energy efficiency standards, but even information so consumers can find out. And even the little things, they're, they're deleting all federal mention of bicycles and bike lanes, because that's dei. So, you know, yeah, we're heading back to the, to the, to the 19th century, but the rest of the world is really moving on from this stuff. And so the, the next time that we have an idiotic war in the Middle east, it will probably be less, less serious than this one was in terms of the, you know, global energy impact.
- [10:15]
A
I mean, the next idiotic war could be in 60 days for all we
- [10:18]
B
know, I think we're in the middle of. I don't know, we're in the second one. Are we. Is this two wars or one that we're in right now? But anyway, yeah, whatever.
- [10:25]
A
This is why they. Yeah, so this is why they took the soldiers names off of the casualty list the other day. I don't know if you saw that, because they insist, well, that was the first conflict and then there was a ceasefire. And so that's, you know, these deaths aren't part of that conflict. All right, so I want to talk about the two parts of tariffs. When Trump did Liberation Day, those tariffs were done under the aegis of a 1977 law. IPA is what everybody just refers to it by. That stands for International Emergency Economic Powers Act. After a great many months, the Supreme Court struck down these tariffs of being unconstitutional. Trump then did two things. First, he publicly threatened firms for trying to get rebates and said that he would remember any companies that asked to get their money back as they were entitled to following court ruling. The second thing he did was say that he was going to impose substantially similar tariffs using Section 122 of the 1974 Trade Act. However, that had a ticking clock on it. You could only do that for X number of days. I forget what it was, but the answer is the expiration date is today.
- [11:36]
B
Yeah.
- [11:37]
A
And Trump has been making noise about maybe they would try again using another section of the Trade act of 74. 301. I guess I have a couple of questions for you, the first of which is, what is Trump going to do with this? Is he going to continue pushing on this tariff thing or.
- [11:57]
B
He done it. They were all announced going into effect this morning.
- [12:00]
A
Oh, great, I missed that.
- [12:01]
B
Yeah, no, and we've, We've. I think it's. 60 countries are now facing a new set of tariffs, again under something that is clearly illegal. And then, you know, given the Supreme Court may or may not be ruled illegal, but probably will be in the end this time, there's a clause in there which is that, that we do get to impose tariffs on countries that use forced labor, or on a dubious interpretation, who don't do enough to stop the use of forced labor by other countries. And so, so that even, even the Trumpies are not going to say that the European Union uses a lot of slave labor, but they've imposed another, I think, 12.5% tariff on a lot of European countries on the grounds that they're not doing enough to stop use of slave labor, you know, which is there's a kind of almost sneering, yeah, what are you going to do about it? To all, everything they do, you know, nobody believes that that's the actual reason for any of these terrorists. In fact, they themselves have made it clear that this is all just, you know, we. Our first legal bait and switch didn't work, and so now there's another one. But it'll take again, it'll take months and months to grind through the process. So here we have another set of tariffs, and they're. Yeah, I mean it this, in some ways, even the level of the terrorists matters less than the fact that we, everybody in the world now knows that do business with the United States and you never know when they're going to pull out the rug from under you. You know, they, There are no rules, except. Except the latest tantrum from the guy in the White House. So there we are.
- [13:44]
A
There's something particularly disgusting about having the guy who told Xi Jinping that he could do whatever he needed to do with the weakers, that it was fine to then say, well, you know, I really care about forced labor and human rights. So. Yep. So I, I guess my, my question here is, I mean, so in the legal world, they have talked a lot over the last couple years about the end of regular order, and regular order is for people. Matt. I see that. I'll get to it a minute. Regulatory order is the presumption by the courts that if the government says something, you can take the government's word for it. You don't need the government to recreate the wheel every single time it comes before the magistrate. And so if the government says to the judge, we've complied with that, the judge doesn't say, great, now show me all the proofs that you've complied with it. You can just take government's word for it. There's something like the breakdown of regular order, even with this trade stuff where the administration, as you say, is sneering. You know, it isn't like, well, we'll find a way that we think we can sneak it in. They know it's not going to withstand scrutiny, and they don't care because they know that it'll take months to get, get it tossed and that they'll figure out another one, another bogus reason to do it afterwards. They just run the clock out indefinitely.
- [15:13]
B
Yeah. And it's a special thing. Even more than other aspects of how we run the government trade policy for what, historically, what looked like good reasons, There's a lot of discretion granted to the executive branch. The idea was that if there's a sudden rush of imports that's threatening disruption or national security, whatever, that you need to be able to respond fast. And you don't want to have to go to Congress and spend 18 months and log rolling to get the deals. And so you have these procedures, all of these numbered clauses which are actually, they're, by the way, they're, they're sections from different trade acts so that you can ask. But anyway, but you know, there's a 301 and a 232 and a 201 and 122. But all of these things are designed, but they're all based upon the presumption that the President has the national interest at heart and is sort of standing above the petty political considerations and is able to take quick action under some ground rules. Now you have a situation where I wouldn't say that there's zero information value in the White House making an assertion because if they say something clearly, then it's probably a lie, it's sort of negative information value. But there's no presumption at all that they're acting in good faith on any of this. And it means that this, that this more than almost anything else, it turns out, I think tariff setting is, is an area of abuse. It's an area where the particularly, you know, if you have a, a president who has a thing about tariffs anyway, but I think he probably has a thing about tariffs. He's also, this is someplace where he can go and say to countries, I'm going to punish you because you won't give me Greenland or something like that. And, and so, yeah, it's, it's a complete collapse. The, the whole, you know, we, we had a process. You know, this goes back way back. I mean, FDR created the Reciprocal Trade Agreements act in 1934. And so we had 90 years of this pretty surprisingly effective process of international trade negotiations, but with the kind of pressure release valve that if something is really happening to trade and you, there's a urgent political demand that you do something that the White House can, can do something in short order. But all of that based upon, as you say, a regular order, based upon the belief that the White House would not just sneeringly, I, I just keep, you know, would not just raise a, based off on a patently dishonest and, and ridiculous premise like, you know, that the European Union is, is softer than we are on slave labor. And so. Wow, it's amazing.
- [18:03]
A
So the other, the other tariff news from this week is Canada. We have new tariffs aimed at Canada. And so you wrote this is such a great bit that they are, whatever the real motivation for these new tariffs is, they are almost certainly illegal. Yeah, that seems to be kind of important.
- [18:24]
B
Yeah, I mean, the alleged, I can't even remember now what the, what the alleged justification for the latest Canadian terrorists are, but, I mean, they, they've been throwing out all kinds of, of stuff for, you know, Canada. My God. I mean, it's, you know, the Canadians aren't all nice, but the, as individuals. But if there was ever a nicer neighbor ally than Canada, I don't know what it is. And so we had, it was about drugs or no. And now it, you know, the, as far as we can tell, the latest thing is really about. Trump thinks that it's Canada's fault that there are forest fires.
- [19:03]
A
Wildfires.
- [19:04]
B
Yeah, wildfires. And, you know, the Canadians should be raking their forests. All 2 million square miles of forest, by the way, in Canada, most of it, you know, close to the Arctic Circle and completely unreachable. But, but that's. Everything is, and I think maybe underlying all that is he, he doesn't like the Canadians because they, you know, the world likes them and the world doesn't like him. And, and this, and the, the Spanish team shook hands with Mark Carney and, and tried to pretend he wasn't there. So, you know, this is, I, I just, you know, just boggled. How did, how did we descend so quickly into being this simultaneously menacing and ludicrous country?
- [19:49]
A
Yeah, that's a bigger question than we can tackle today. Matt, can you give us the Trump tweet? I want to read this for people. Canada disinvited the United States of America to the opening of the Gordie Howe Bridge, which is fine considering they are paying substantial tariffs to the United States. But the original deal on the bridge, which was terribly negotiated by a previous administration, no longer stands. We changed the terms of the deal so that the United States of America now gets 50% of the profit. Thank you for your attention to this matter, President Donald J. Trump. I mean, what I, I don't, I don't even know what to say except that I, I can't believe that this is the world we live in.
- [20:29]
B
Yeah. You know, just to say, in terms of the disruptions, the Gordie Howe Bridge is, it's at Detroit. And, you know, we, we are economic and natural partners to the Canadians to such an extent that the standard metropolitan statistics called Detroit Windsor a single metropolitan area. You know, the Canadian part of that city is, you know, across the border, but that's ridiculous. But now we have and we have this bridge complete. It has been sitting idle for a long time, partly because Trump has this thing now about Canada and partly because a friend of Trump's owns the the competitor breach. That was already again. And what does this do, aside from the immediate disruption? You're an auto company and you're trying to plan your production for North America because there is no US or there hasn't been a US Auto industry or Canadian industry, North America.