Trump + The Fed + China = Inflation Crisis 2025
Addison Wiggin / December 20, 2024

“We can’t continue to allow China to rape our country, and that’s what we’re doing.”
–Donald Trump
The three-way dance between the Fed, China, and Trump will keep markets volatile.
December 20, 2024— After the Fed falsely sent markets into a tizzy Wednesday – the Dow, for example, saw its 9th straight down day, its worst streak since Jimmy Carter was president – today’s personal consumption expenditure (PCE) data revealed that inflation “ain’t so bad.”
However, at an annualized (and increasing) pace of 2.4% in November, prices are still compounding faster than the market or the Fed would like. Pressure is back on to continue cutting rates in 2025 as the Fed continues to deal with an extended bout of inflation the economy hasn’t seen since the peanut president reigned.
You may recall that in the fall of 2023, we released a report we called Shell Game. We were mostly concerned with inflation caused by massive government spending during the pandemic, irrationally sustained during the Biden-Harris progressive takeover of economic policy… and the shell game of statistics used to gaslight the public into thinking the economy was on good footing.
But the underlying causes for inflation, as we outlined in the report section entitled “The End of Cheap,” were Trump-era tariffs, which were initially implemented in 2017, and an economy that had become addicted to the ultra-low interest rates of the 2010s.
At the time, in the then-new Powell era, the Fed had already begun aggressively raising rates after nearly a decade of zero interest rate policy (ZIRP) and quantitative easing (QE).
That is until the pandemic hit, and Trump jumped the shark by nationalizing the entire economy. If anything, the short history of the 21st century reveals one crisis begets another.
During the mess the government’s policy response to the pandemic created, the Fed balance sheet did something it had never done in its history. Since September 15, 2022, the Federal Reserve’s balance sheet has been negative.
Quants at the Federal Reserve say that’s because interest expenses on bank reserves and reverse repos have increased faster than the yield on its securities. As a result, the Fed’s remittances to the Treasury (i.e., the private banking cartel’s contribution to the federal government’s spending habit) have fallen to near zero for the first time since 1934.
What could or will cause the next crisis?
We’re doubling down on the premise it will be related to out-of-control deficit spending and the worsening math behind America’s total debt and interest costs, especially if interest rates stay higher for longer.
Plus, another round of Trump tariffs and a prolonged trade war with China.
How will the Fed, empty coffers and all, respond then? That is, of course, the subject we agonize over in one of our latest Grey Swan research reports.
We put it on the website:
If you haven’t seen it in full we produced this short documentary (using some nifty AI imagery) to help explain what is likely to dominate the economy and markets in 2025.
While China has been losing out on manufacturing jobs thanks to nearshoring and reshoring post-pandemic, China does have a stranglehold on key commodities.
It’s not just one of China’s best cards to play; it may be the only card they have to play in 2025, which will have disastrous results for the U.S. economy. Crisis Investing’s Lau Vegys pours over the details below ~ Enjoy, Addison
China’s Ultimate Trump Card
Lau Vegys, Doug Casey’s Crisis Investing
Mark Twain once said, “History never repeats itself, but it does often rhyme.”
That quote came to mind earlier this month when China announced a ban on exports of gallium, germanium, and antimony—high-tech materials critical to military applications—to the United States. I actually wrote about this last week (catch up here if you missed it).
But while Beijing’s actions caught many off guard, they’re just the tip of the iceberg. China has plenty more pressure points they can squeeze, and one of the most devastating would be rare earth elements (REEs).
Here’s the thing about REEs… Most people know they’re key to consumer electronics like iPhones, flat-screen TVs, and computers, but what often gets overlooked is their critical role in military tech. We’re talking cruise missiles, bombers, rockets, drones—you name it. Take the U.S. Javelin missiles and F-35 fighter jets—they’re practically bursting at the seams with these things.
And here’s the catch: there’s virtually no substitute for REEs in these advanced applications. The U.S. military depends entirely on them. And who holds all the cards in the REE market? You guessed it—China.
China’s Rare Earths Monopoly
Former Chinese leader Deng Xiaoping once said, “The Middle East has oil. China has rare earths.” He wasn’t wrong.
Today, China produces and processes nearly 70% of the world’s rare earth supply, as shown in the chart below.
If you’re wondering how China took over the rare earths game, it’s simple: no environmental rules and generous subsidies from the communist government.
But here’s the critical point hiding in the chart above: China could restrict rare earth supplies at the drop of a hat.
This isn’t some wild speculation. They have done it before.
The story is actually pretty interesting…
It all started with a Chinese fishing boat in 2010, sailing through disputed waters when it collided with a Japanese coast guard patrol boat.
The Japanese arrest the boat’s captain. China demands his release. Japan refuses.
What starts as a minor maritime incident quickly erupts into a full-blown diplomatic crisis. In response, China completely cuts off REE exports to Japan and slashes global exports by 40%.
The result? One of the most spectacular REE price booms in recent memory. We’re talking gains of over 2,100% on average across the group. Some rare earths shot up even higher—Lanthanum and Cerium skyrocketed by 4,141% and 2,978% between 2010 and 2011. Take a look at the chart below.
The ban also sparked a veritable mania in REE stocks that lasted for nearly a year. Companies involved in rare earth mining and processing saw their shares soar to record highs. Mining companies that hadn’t produced an ounce of rare earths—some that barely even had plans on paper—saw their stock prices multiply virtually overnight.
The Writing on the Wall
To say that U.S.-China relations are currently strained would be a gross understatement. They were rocky during President Trump’s first term, and they haven’t exactly “reset” under President Biden. U.S. tariffs on $350 billion worth of Chinese products remain in place, and just this month, Biden’s administration rolled out another round of export restrictions targeting 140 Chinese companies.
Trump’s second term doesn’t look any better for U.S.-China relations either, with his promise to impose a sweeping 60% tariff on all Chinese imports.
But we’d be naive to think China will sit back and do nothing.
Its recent retaliatory ban on gallium, germanium, and antimony exports to the U.S. is a case in point. And it’s no coincidence that it directly targets the military-industrial complex.
But what’s an even bigger card for China to play? You guessed it: REEs.
If history is any guide, a Chinese ban on rare earths is a real possibility. In fact, if you pay attention, you’ll realize it may already be in the works.
Consider this…
In February 2021, the Financial Times reported that Beijing had reached out to its rare earth industry and basically asked: “How much damage could we inflict on the U.S. military by cutting off rare earth exports? Could we cripple their fighter jet production?”
Then, in December 2023, China banned the export of technology used to produce rare earth magnets, which are vital for electric vehicles, wind turbines, and advanced military systems.
And, most recently, in October 2024, China started requiring exporters to detail step-by-step how rare earth shipments are used in Western supply chains.
As an outside observer, it seems China is positioning itself to act before the U.S. can loosen its hold. If it does, it could spark a rare earths bull market for the record books—potentially eclipsing the 2010-2011 boom. ~ Lau Vegys, Doug Casey’s Crisis Investing
Regards,
Addison Wiggin,
Grey Swan
P.S. Like just about every other author I know, I have my own name keyed into Google Alerts. Yes, vanity exists in our humble metier, too.
Yesterday, while minding my own business, I was alerted to this post from a guy named Noah Levis, who calls himself the Stock Dork:
Grey Swan Bulletin Review 2024 : Is Addison Wiggin Legit?
Of course, I read it with more than a bit of trepidation. But, to my great relief it turns out Noah thinks I am, in fact, legit.
P.S. Meanwhile, we continue to enjoy our conversation with Robert in Houston, who writes about DOGE:
Mr Wiggin, You ask some interesting questions. My thoughts:
No-one wanted WW1 yet it happened. Mostly by villifying the other guy.
When you villify any position, do not expect people to tell you
their truth on a survey. Build-yr-own-echo-chamber.
The best liars tend to predominate in the competition of politics.
Most of these believe their own lies. Few are smart enough to
knowingly lie convincingly.
While I wish Elon and Vivek well, I fear their hunting will
be short. There is plenty of government waste to be bagged, but
all of it has learned to hide from decades of PayGo JV discipline.
If they had not, they’d be gone by now. The low-hanging fruit
has learned to dodge, it may be the only thing they do.
Your thoughts on the Fed, tariffs and China in 2025 are welcome here: addison@greyswanfraternity.com
How did we get here? Find out in these riveting reads: Demise of the Dollar; Financial Reckoning Day; and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.