A Potential Game Changer - Obama's Hoover Moment?

If you follow the markets as avidly as I do, this is already old news to you but Friday Obama announced tariffs on tires coming from China. When I read that news my mouth dropped to the floor. I couldn't believe it. Immediately the question became what if anything will China do. It didn't take long.

From Bloomberg:

China announced a probe into the alleged dumping of American auto and chicken products, two days after U.S. President Barack Obama imposed tariffs on imports of tires from the Asian nation.

This has the potential to be the catalyst to start the next long decline in the markets. China is obviously trying to compromise at this point sense the it is a "probe" which means they are giving Obama a chance to withdraw the tire tariffs. At this point, Obama has backed himself into a corner politically. It would seem difficult to completely withdraw the tariff.

Why is this so important? The tariffs of the 1930s was one of the top culprits of the severity of the Depression. No one wins. It sounds good often times politically and even on paper but a wave of protectionism worldwide would crush the recovery. Also, at this point, the markets are not running off fundamentals, but off of pyschology. This could be the change at the margin that shifts supply and demand where more shares are being sold than bought.

I am not saying it will be and Obama and China still control the outcome but it could be the game changer.

Something to watch longer term is the debt levels being run by the government. According to a new report by the European Commission it could very ugly for the UK very quickly.

From the Telegraph:

Britain's public debt will explode to 180pc of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission.

The projection is more than twice the level forecast by the UK Treasury, which expects the debt to peak at around 80pc before gradually falling as growth revives and tax revenues come back to life.

and

Debt anywhere near 180pc of GDP today would test the UK Gilt market to destruction. While Japan is still able to fund an even higher level of debt without paying exorbitant rates, it is does not depend on foreigners to cover the bond auctions.