1: It not tariffs it's a cost on trade deficit.
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Trump tariffs are not traditional tariffs, because they are indexed on the US trade deficit. Historical, tariffs have usually been either as a way to protect internal markets, get revenue for the government by indirectly taxing the population or both. They have also been used as punitive measures.
A tariff is both a tax on outside goods, and a subsidy to the internal market. As such they are either seen as distorting the market, or a way to put a price on not been able to produce something internally.
However, this new form of tariffs tell a different story, they are blanket tariffs based on the general trade deficit that the US has with different countries. Which means they go up and down with the trade deficit, that alone makes them function differently. How they will impact the global market remains to be seen. From a strictly optimization (the mathematical discipline) perspective, the most likely outcome, after a period of instability, is a general lowering of US trade deficit, mirrored by a lowering of reciprocal tariffs leading to an increase in trade and GDP.
This of course does not take into account specific geopolitical sensitivities and the complexity of the potential readjusting in regulations, fiscal policies and otherwise that countries may have to do lower their trade deficit with us.
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It not tariffs it's a cost on trade deficit.
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2: Trump Tariffs & Retaliations: What could happen to Canada if it Lasts
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Even more inflation and a general depreciation of the Canadian market. If Canada increases tariffs on US imports, Canadian companies will have to borrow more to buy what they need to produce, therefore increasing the money supply and driving Canadian inflation higher. The vast majority of the borrowing will be directed to buying supplies not increasing salaries.
Tariffs on Canadian products in the US will likely lower the demand for them. Which means Canada will have a surplus of products that they might not be able to sell. The US is after all the number one market for Canadian products and for some companies the only one. This in terms will lead to a lowering of production which coupled with increased borrowing will likely increase inflation even higher.
So why not sell in Canada? Canada has a very high GDP / Capita but the size of it's market is not comparable to the US. Canada has also accumulated a high number of regulations that prevent economic growth and turn one of Canada's biggest advantage (its size) into one of it's biggest disadvantages. Canada is the second biggest country on earth, a fact that comes with a unique set of economic challenges, chief amongst them is the transport of goods. Canadian economy mostly relies on trucks to ship good from *A Mare Usque Ad Mare*. Canadian trucks are subjected to different laws in different Provinces. Some cannot event drive at night. In the second biggest country on earth it means a huge increase in shipping time and therefore cost needed to ship goods. Canadian energy costs are high, due to carbon taxes and various laws and regulations that prevent the growth of its oil industry. Canadian provinces also have specific taxation laws that effectively act as tariffs within the country, driving the competitiveness of the inner Canadian market lower. Canada taxes on employment and consumption are also general higher, driving cost of labor and therefore the cost of everything higher.
All this means that until now, it was cheaper to sell to the US than within Canada. For some, it was even cheaper to drive to the border and send a package with USPS than to send from Canada using Post Canada.
Why not Europe then? Europe is far, which means higher logistical and shipping costs. Europe is also extremely regulated, which means that Canadian companies would have to undergo massive restructurations to make their products fit the European market from a regulatory perspective. Canadian market is so intertwined with the US market that a lot of what it produces is in inches and feet. Not what Europeans are looking for. Europe is also suffering from a serious inflation meaning that their capacity to buy Canadian surplus is not that high. Europe is not an homogeneous market. Selling in Europe means dealing with many languages and tax regulations like VAT that are specific to each country. This drives the cost of compliance even higher.
In short, If the tariffs war lasts, Canadian economy will produce surplus that it will not be able to sell, leading to a downsizing of the economy, and Canadian companies will have to increase their borrowing to maintain production. These will lead to higher inflation in Canada that will be accelerated by existing consumption taxes. This in turn will lead to an increase in salaries, therefore of borrowing and an acceleration of inflation due to existing labor taxes, which will lead to an increase of unemployment. This is the road to a Canadian recession that could lead to a massive defaulting on debt in Canada (especially in the housing market) and a general divestment from the Canadian economy.
The only viable option for Canada to soften the blow is to increase the competitiveness of its inner market: lower taxes and lower government spending (to reduce inflation), remove regulations (starting with the ones hindering inter-provincial economy), lower energy costs.
Edit: Canada just cut interest rates to 2.75% increasing money supply (link bellow).
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3: The US creates a Strategic Reserve of Digital Assets, and a Wake up Call for Morocco
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Finally, the world realizes that Bitcoin is not a currency but an asset. Those who understand the technology knew it from the beginning, isn't Bitcoin "digital gold", and isn't gold an asset. In 2017 Morocco decided to ban the use of digital assets, back then a Bitcoin was worth 8K dollars. This decision stemmed from a misunderstanding of the technology and a fear propagated that Bitcoin was only good for criminal activities. Interesting how things changed, and so quickly.
To understand Bitcoin, you need some background in Economy and Energy, but you absolutely need a very strong understanding of Maths, and Computer Science. Without it you cannot understand what Bitcoin is, how it works, and why it is such a strong ledger of value. Bitcoin works Mathematically not on opinions or regulations.
Arguably, the decision to ban digital assets cost Morocco billions of dollars. In the long run it will perhaps cost more than any other in the history of the country. The very hard anti digital stance (that was reinforced in 2022) dissuaded legitimate business from using the technology. Something that would have modernized the banking and financial system, facilitated payments and potentially captured billions worth of digital assets in Morocco. The country could have owned a significant amount of those assets that would have boosted its economy.
Yes Bitcoin fluctuates, it does so because it is an asset. However, it is also a very liquid asset, it is so valuable that it is easy to exchange for Dollars or Euros. A reserve of digital assets would have guaranteed the country's access to other currencies, and would have paved the way towards the only viable long term monetary strategy for Morocco (if it wants to keep it's currency): a strong Dirham.
It is of course not too late to change course, and for Morocco to become a digital assets friendly country. It was not the only country to adopt a timid approach to a misunderstood technology: this means that the market for digital assets friendly territories remains largely untapped. However, the solution to enjoy a digital assets boom, is not CBDCs (Central Banks Digital Currencies) and not Stable-coins (Digital currencies indexed on FIAT currencies). The solution is a freer digital assets market and currencies that may be, in due time indexed (in-part) on those assets.
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The US creates a Strategic Reserve of Digital Assets, and a Wake up Call for Morocco
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4: The Historic NIH Decision that will change the Landscape of Research
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The NIH is the single major granting institution for research in the world and it has decided to cap the administrative overhead to 15%. This decision might forever change the organisation of major universities.
To understand how university funding works in the US, when a researcher gets a grant, a significant part of that money (think 50% to 100%) usually goes to the administration of the university and not directly to research. For example if the administrative overhead is 60% on a grant of 1M$, either the research gets 40% (400k$) of the money and the university administration 60% (600k$), or the organism has to pay 1.6M dollars. This is what the NIH has been doing so far, creating a huge competition of for NIH grants. The NIH was the only organism that gladly paid the administrative overhead, while other institutions would cap it or completely refuse to pay it. Now the NIH will no be so accommodating.
The huge administrative overhead is explained by the fact that over the year, administrative personnel in major universities has grown to far outnumber faculty, researchers and clinicians. Administrations at universities tend to follow extremely rigid and complex processes for almost anything. Most decisions and actions are regulated through a slow, rigid and scrutinizing process, either through a deep chain of command or through commissions that are slow to gather and have to debate every decision. This has been ongoing for a while at major universities because of virtually no negative feedback loop. The university could always raise the administrative overhead to pay for any new administrative processes it decides to implement.
Major universities also do other things than research, and teaching. They are gigantic institutions with gigantic ramifications.
Now more than ever, universities cannot afford to lower the standards on research. Because if they do, their faculty will not be less eligible for grants, and they might even loose the 15% that the NIH has promised to pay. The most likely outcome is swift lay offs of administrative personnel and the termination of many programs that are not conducive to outstanding research. Then, they will start doing more fundraising towards private donors, some of which already refuse to pay administrative overheads, requiring their money to go directly towards research. Institutions will also get closer to the industry, and will try to promote more startups, and spin-offs. But that will require major changes in administrative processes, money allocation and a lot more flexibility on intellectual propriety.
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The Historic NIH Decision that will change the Landscape of Research
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5: GenZ: The Fiscally Aware Generation
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I am sitting at Paul's cafe at the airport en route to Nairobi via Cairo for Applied Machine Learning Days (AMLD) Africa (a wonderful conference, more on that later). **In front of me 4 young males, early 20s, they speak loudly in french as they eat the burgers and fries they bought at another restaurant.**
They talk about money.
"You have no idea how much money I lose to taxes", says one of them. "40 to 50%! It's a lot of money, I would make so much more without it". He sees taxes not as a net necessary good, as most have been trained to see it, but as any other cost.
Interesting, that's not the type of conversations you would expect from someone that young. It's not the first time I hear this type of conversation from GenZs. Why are GenZs becoming more fiscally aware than previous generations? I think it comes down to two factors:
- Inflation
- The entrepreneurial culture
Inflation has hit everybody, for obvious reasons. However one constant with inflation is that it hits the poorest hardest. Young people tend to have less money. But that's not enough to raise awareness about a subject that most consider beyond boring. This brings us to the next point: *The entrepreneurial culture*.
As a millennial I witnessed it's burgeoning and blossoming. It started timidly with a few books and blogs, then massive blogs, then best sellers, then YouTube videos and finally podcasts. Not so long ago being an entrepreneur was considered an unwise life choice. Successful people go to work for established companies. Such was common wisdom. However, as the 2008 recession hit and people started to look for more revenue streams, they also discovered the concept that having one's business can also mean more freedom and better financial security.
There is however a big difference between the Millennial Entrepreneur and the GenZ Entrepreneur. The Millennial was still uneasy with the idea of making money and as such would speak about *"making a positive impact in the world"*, the GenZ is not burden in this way. You can see the shift in YouTube ads, today it's all bout how much you will make if you buy this or that business course.
So whatever online business they start, being it drop shipping or whatever, they tend do it in a money aware way. Starting an online business is a hard, the competition is fierce. Naturally, they try to invest their hard earned money wisely. When the tax bill comes, they see it as it is: an unexpected cost that does not necessarily translate to a better life quality. Nothing is free in this incarnation. Some are not even shy about relocating to fiscally advantageous locations like Dubai and making videos about it.
This could be the end of the blissful fiscally unaware generations.
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GenZ: The Fiscally Aware Generation
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6: The near future of AI Economics
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The near absolute domination of Nvidia in AI hardware is not going away anytime soon. Despite efforts by major hardware companies and startups alike, supplanting Nvidia is just too costly. Even if a company is able to create better hardware and supply chains, it would still need to tackle the software compatibility challenge. Major AI frameworks like pyTorch and Tensorflow are all compatible with Nvidia, and little else. These are all open source, and although supported by major companies, like all open-source software their foundation is their communities. And communities can be notoriously hard shake. All this suggest that the price of Nvidia GPUs will keep increasing, fuelled by the rise of ever bigger LLMs.
So where does that leave us for the future of AI economics. Like anything valuable, if the current trend continues, GPU computation time will see the apparition of derivatives. More specifically, *futures* and *options* on GPU computing hours could be bought and sold.
The other coming trends are in energy trading, modern AI is extremely hungry for electricity, to the point of needing dedicated power-plants. If the current trends continue in AI, with major companies and countries building and investing into bigger and more power hungry datacenters, this could lead to a trend of significant disruptions in some parts of the energy sector. Again the markets for energy derivatives (*futures* and *options*) could be significantly affected. Finally, *bounds* markets and inflation are also poised for some disruption, as the building of the extremely expensive facilities necessary for AI is likely to result in more borrowing.
When it comes to AI: Nvidia GPUs and Electricity are king.
Link Below: google is buying nuclear power.
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The near future of AI Economics
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7: El Salvador: The most important country you barely hear about
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El Salvador has a significant diaspora, so much that money coming from the US is a major source of income. **Not so long ago you would have been pressed to find a Salvadorian who wanted to go back to El Salvador. Now things seems to be changing.**
El Salavador, used to have one of the highest homicide rates in the Americas, now it looks relatively safe. El Salvador showed an interesting strategy. First boost the economy before handling the crime situation. Crime is indeed a part of GDP, albeit a hard one to quantify. Since it is an economic activity, it participates in exchanges and provides people with activities that supports them and their families. Drastically reducing crime has the effect of creating *'unemployed criminals'* people with a skillset that's hard to sell in a traditional economy.
El Salvador probably did take a hit to its GDP, but that was compensated by the increase in economic activity and investments.
Bitcoin was a big part of that.
Bitcoin got a lot of bad press as a technology only used by criminals, or a crazy investment for crazy speculators. These takes failed to understand the technology and it's potential. What Bitcoin offers is a decentralized, fast and secure payment system for free. El Salvador doesn't have to maintain it, regulate it, or even monitor it. All very costly activities that a small country can do without. Bitcoin is a mathematically secure way of payment.
In a country where road infrastructures are challenging, Bitcoin offers people in remote areas the possibility to pay their bills without travelling for hours. In a country that was unsafe, Bitcoin offered people the possibility to go out without the fear of being robbed.
It also attracted a kind of investors that would go nowhere else. And even if these investment can appear small, for a country like El Salvador it's a big change.
The Salvadorian experiment in a freer economy, crypto-friendly and smaller government, in a time of increasing inflation, has a lot of people watching. In a continent that leaned left for so long, this is a big change.
My opinion is that there would be no Javier Millier hadn't there been a Nayib Bukele before. Argentina has been a bastion of the left for decades. If the libertarian policies of Millier succeed in bettering the lives of Argentinians, we might be on the brink of a major cultural shift in the Americas and then the world.
Argentina is a far bigger country than El Salvador, with far more people watching.
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El Salvador: The most important country you barely hear about
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8: A formal Definition of Stealing
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One of the basic rules of economy is that value is created by exchanging (not by printing money).
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==Lets imagine a simple example:==
Person A has lots of pens. For them a pen is only worth 1$, a sheet of paper, however is worth 4$. Person B has a lot of paper for them a sheet is only worth 1$, but a pen is a valuable item worth 4$.
Person A wants a sheet and Person B wants a pen. They decide to exchange A gives a pen to B and, B gives a sheet of paper to A.
At the end of the exchange, both have lost 1$ of value, but got 4$ in return, meaning that they have made 3$ of value each.
A total of 6$ of value has been created by the exchange.
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Now lets look at what happen during theft. When something is stolen, no exchange happenes between the parties, therefor no value has been created. In fact for society as a whole the yield is negative, as the thief had to spend energy (value) to get what he wanted. So although he enriched himself, he also made everybody poorer.
We can consider this a definition of stealing: A transfer of goods that results in a negative creation of value.
The same is true, to a lesser degree, when one of the parties cheats the other by providing an item that is less valuable than previously thought. Like a pen that does not write.
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A formal Definition of Stealing
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