Another Word On Treasury Bonds

Keen mirrors this exactly.

https://www.youtube.com/watch?v=OjnZ2dtZpu4

The USA cannot go bust. But Wall Street can

There is speculation everywhere, including in the Financial Times, that the USA might go bust within ten years, and that the day of the dollar is over.

That framing is wrong. America cannot go bust, because its debt is denominated in its own currency and it can always create the dollars required to settle it.

But that does not mean we are safe. What can fail is the financial market itself, and that is the crisis nobody is preparing for.

The warning signs are everywhere. Share prices sit near all-time highs. Investment funds hold more of their money in shares than they almost ever have, with almost no cash left in reserve. The FT has concluded that US financial markets are “nuts” and have lost touch with reality. And bubbles always burst, and this one will. The promise that “this time is different” is always made, and it is always wrong.

This video explains what actually happens when confidence collapses, why our “animal spirits”, as Keynes called them, can crash along with the markets, and why only governments can save us from the folly of finance yet again.

The biggest crisis we face is not that a crash is coming. It is that we have no plan to manage it. Think of this as the summer of 1939: a crisis is about to emerge, with no one ready.

Take a look at today’s poll: • Post

00:00 Can the USA Go Bust?
00:43 Why the US Cannot Run Out of Dollars
01:25 Warning Signs in US Financial Markets
02:10 What Could Trigger a Financial Crash?
03:04 Bubbles Always Burst
03:48 What Happens if Financial Markets Collapse?
04:42 How a Crash Reaches the Real Economy
05:31 Could We Face Another Depression?
06:20 Governments Must Be Ready to Intervene
07:01 The US Cannot Go Bust — But Its Banks Can

‘There’s every reason to believe that inflation will go up’

Absolutely. Very much.

Some are predicting a quadrupling of energy prices very soon.

Dan Kelly:

and that is a private sector problem. the government can still pay its debts. its the private sector that has gotten us into this debt bomb.

any stupid laws that limit government bailing it self out, will be ignored or wiped away in a nano second(see obama). unless they are completely idiotic and corrupt.

japan is simply trying to devalue their way out of a mess of their own making, and they keep digging the hole ever deeper.

soon they will be threatening china like all the rest of the west, because of their own greed and stupidity.

So, in short, in 2024 a plurality of Americans FA’ed and now we’re about to REALLY hit the “FO” stage. Everything before this was just prologue.

Dan Kelly:

of course. but in the end, government can still fund itself.

i for one has said since the 1960’s, that a reserve currency means death to the nations economy.

i for one would welcome the end of it. but the government can still fund itself.

its the trade deficit and the balance of payments, that’s foreign debt, its trouble for sure.

and the ones who did that to us, should be tried for treason.

and the private sector debt is so huge because of the elevation of capital over sovereignty, civil society, and labor(what’s called fascism), its a ticking time bomb.

and as Murphy stated, the capitalists have no idea what’s about to happen, and how to mitigate it.

in the end, we will end up in a century of humiliation, and its all came about from policies from 1993-2001.

1. “…most of these people would sell their own kids into sex slavery if it’d help them get ahead. ”

*Most* of these people? Power selects strongly for sociopathy, and if “these people” were not full-blown sociopaths, they quickly will be replaced by others more ruthless.

2. It bears repeating: Israel is perfectly happy to burn the rest of the world down, ex Israel, if that is what it takes to destroy Iran. Trump is perfectly happy to burn the rest of the world down, ex Trump, if that is what it takes to keep Israel happy.

Israel also is acutely aware that its window of opportunity, the time when Israel can count on unconditional blanket support of all US political factions worth mentioning, that window is closing fast.

Expect Trump to go nuclear. The genocide of Iran would solve many problems for Trump. See point 4 below.

3. Bessent is causing the Treasury to sell 90 day debt to buy back 30 year debt is entirely intentional, as by the time the 90 day paper comes due, the midterms will be over. If the wheels are to come off the bus, this needs to happen after the midterms are safely over, if they happen at all. What happens later is of no consequence, as far as they are concerned.

4. Nobody of influence and authority wants to see the current system replaced or even rebalanced significantly. Nobody in the US, nobody in canada, nobody in europe, nobody in Asia, etc..

Never underestimate how far they will go. If we learned nothing else from the GFC, we learned that people of influence and authority will let nothing get in their way, when there is something they want.

Spud is correct, and Ian is regurgitating conservative fear mongering about the national debt spiraling out of control.

There is no economic law requiring the U.S. to issue any bonds at all, but banks lobbied Congress to require the Treasury to issue bonds equal to deficit spending. Congress could simply repeal that law, and the effect would be deflationary by way of stopping the injection of interest payments into the economy.

The Fed controls enough of the bond market to be a “market maker.” (There are alternative and perhaps better ways to control interest rates but that’s another topic). If interest rates are going up, it is because the Fed wants interest rates to go up. The Fed is run by Warsh, not by Bessent.

That does not mean everything is honky dory with the U.S. economy. There is too much private debt, too much financialization, and too little production of useful stuff. So sure, the stock market could crash, banks could crash, and/or there could be an economic downturn, as has happened many times before, including when we were on the gold standard and including when we ran a balanced budget.

Canada does not have dollar hegemony and yet the sky is not falling in Canada. Stop the fear mongering about dollar hegemony. Wall Street loves dollar hegemony, Main Street not so much.

Our present inflation is caused by a combination of supply problems and monopolistic price gouging, not by printing money. But speaking of printing money, most money is “printed” by private lending, not by government deficit spending, yet with the exception of Steve Keen, all the hand wringing is focused on government deficit spending and not on private lending.

Unless I am mistaken, if the FED buys back treasuries the cash can either go directly into the economy if the seller was a non-bank; only if the seller was a bank, would it get added to the bank’s reserves, which may then be used for increased lending.

Therefore if the US chooses to monetise its $40T of debt, that cash will end up in the economy, and will drive inflation and currency devaluation.

So whilst theoretically a country that borrows in its own currency cannot go bankrupt, if it does so without limit (ie in excess of its productive capacity), then it can allow inflation to go out of control and a currency collapse. As Ian noted. This is not dependent on a banking or stock market crash.

Please do correct me if I have got this wrong?

Feral Finster

@ “sex slavery and children”

I’ve actually read that a big source of child pornography involving young children (not teens) are parents “pimping” their children for money. Usually, in desperately poor countries (Eastern Europe, for example).

A multilateral approach to maintaining unilateral dollar hegemony

The article below well describes what’s going on.

It’s important to remember that when Miran talks about these things being Trump’s ideas they are not rather these are the things that Trump and any executive follows in order to become the presdient, the executive, the chairman of the board – who is rarely if ever the richest or smartest person in the room [but they’re smart enough to know the game].

Also, this isn’t a battle between the executive and the fed.

So when Miran writes,

‘Consensus on Wall Street is that there is no unilateral approach that the Trump Administration can take for strengthening undervalued currencies. These economists tend to point to the Federal Reserve’s policy rate as the main driver of the dollar and then emphasize that the Fed will not cut rates merely because the President wants to achieve a currency outcome.

This conclusion is wrong.

There is a variety of steps an Administration can take if it is willing to be creative, that do not rely on the Fed cutting rates.’

This makes it seem like the executive and the fed are at loggerheads when in fact the same people are the executive’s inner circle and are the donors and allies who got the president to where he or she is so that he or she can sit among the inner circle.

There is disagreement among them about HOW to go about preserving and further enriching themselves but there is deep-rooted consenus on the need to do whatever it takes to persist.

—

Multilateral Currency Approaches

Historically, multilateral currency accords have been the principal means of implementing intentional changes in the value of the dollar.

The Plaza Accord of 1985, in which the U.S., France, Germany, Japan and the U.K. coordinated to weaken the dollar, and the Louvre Accord of 1987, which halted such weakness, are generally regarded as successful approaches to adjusting currency levels (though their economic consequences are somewhat more disputed).

Because the value of the dollar in foreign exchange is also dependent on the forces affecting trading partners’ currencies as well, coordination with those partners on the goal of changing the dollar’s value can be very helpful.

Today, the two other major currencies are the euro and the renminbi, though the yen is also of import.

As things stand, there is little reason to expect that either Europe or China would agree to a coordinated move to strengthen their currencies. European real GDP growth has been below 1% for almost three years, and the rise of the Chinese auto export industry has Europe so concerned it is implementing its own set of protectionist measures to limit imports. And Chinese domestic growth has been so weak that China has chosen to double down on its mercantilist, export-led model to secure marginal income, much to the rest of the world’s consternation.

Indeed, China was basically a non-player in global auto exports just a few years ago, and has now rocketed up to be the world’s biggest auto exporter.

Neither Europe nor China will be in the mood to curtail their industrial subsidies and other market interventions that would reallocate tradeable manufacturing demand away from themselves and toward the United States.

Japan, the U.K., and potentially Canada and Mexico, might prove more amenable to currency intervention, but aren’t large enough in today’s global economy to accomplish the desired end.

Instead, recall that President Trump views tariffs as generating negotiating leverage for making deals.

It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs.

As currency accords are typically named after resorts where they are negotiated, like Bretton Woods and Plaza, with some poetic license I’ll describe the potential agreement in the Trump Administration as others have done as the prospective “Mar-a-Lago Accord.”

However, there are many differences between the economy today and that of the 1980s. For one thing, gross U.S. debt as a share of GDP is now in excess of 120%, relative to roughly 40% when the Plaza Accord was agreed.

That drives concerns about the consequences for the debt market that didn’t exist in the 1980s.

One suggestion put forth in Poszar (2024) is for any accord to incorporate a duration agreement. Poszar’s hermeneutics of the remarks of likely economic policy leaders in a second Trump Administration explicitly links the U.S. provision of a security umbrella to the international financial system, and infers that efforts to reduce interest rates can help finance the security zone.

He synthesizes the following Mar-a-Lago Accord from potential policymakers’ remarks:

1) security zones are a public good, and countries on the inside must fund it by buying Treasurys;

2) security zones are a capital good; they are best funded by century bonds, not short-term bills;

3) security zones have barbed wires: unless you swap your bills for bonds, tariffs will keep you out.

To strengthen their own currencies, reserve managers must sell dollars.

As their currencies appreciate, the United States will receive a competitiveness advantage helping our tradeable and manufacturing sectors.

To help mitigate potential unwanted financial consequences (like higher interest rates), reserve selling can be accompanied by term-out of remaining reserve holdings.

Increased demand for long-term debt by reserve managers will help keep interest rates down, even if there is overall selling of USD fixed income as a result of the currency adjustment. Reserve owners hold fewer USD reserves, pushing their currencies higher, but the reserves they do hold are longer duration, helping contain yields.

If the term-out is into special century bonds as suggested by Poszar, then the funding pressure on the U.S. taxpayer for financing global security is significantly alleviated. The U.S. Treasury can effectively buy duration back from the market and replace that borrowing with century bonds sold to the foreign official sector.

Such a Mar-a-Lago Accord gives form to a 21st Century version of a multilateral currency agreement. President Trump will want foreigners to help pay for the security zone provided by the United States. A reduction in the value of the dollar helps create manufacturing jobs in America and reallocates aggregate demand from the rest of the world to the U.S.

The term-out of reserve debt helps prevent financial market volatility and the economic damage that would ensue. Multiple goals are accomplished with one agreement.

But the term-out of reserve debt shifts interest rate risk from the U.S. taxpayer to foreign taxpayers. How can the U.S. get trading and security partners to agree to such a deal?

First, there is the stick of tariffs.

Second, there is the carrot of the defense umbrella and the risk of losing it. [Link 16, nuclear, etc]

Third, there are ample central bank tools available to help provide liquidity in the face of higher interest rate risk.

Ex ante, there were also numerous doubts and questions about Trump’s ability to secure improved trade terms from Mexico and Canada, Korea, and China, and yet he succeeded.

Recall that the purpose of official sector currency reserves is to defend the value of the currency in the face of market volatility and finance imports in a potential crisis. The reason reserve managers tend to keep duration risk low is because they need to be able to liquidate reserves to defend their own currencies when volatility spikes. If they experience losses on their holdings because interest rates increase, they have reduced firepower for defending their currencies.

Longerterm debt is less liquid than short-term debt, and crossing bid-offer spreads can be costly in ultra-long-term debt.

This mark-to-market risk of holding longer-term debt can be mitigated via swap lines with the Federal Reserve, or alternatively, with the Treasury’s Exchange Stabilization Fund. Either institution can lend dollars to reserve holders at par against their long-term Treasury debt holdings, as a perk of being inside the Mar-a-Lago Accord.

Such liquidity obviates the risk of mark-to-market loss on long-term debt, since reserve managers will always have access to liquidity at the face value of the debt. As Poszar (2024) points out, the Bank Term Funding Program which the Fed used to respond to the regional bank stresses of spring 2023 provides a model.

Holding century bonds is less risky for reserve managers if they have access to swap lines granting them substantial short term dollar liquidity.

The desire to maintain access to such swap lines will be a powerful long-term incentive for remaining inside the U.S. security and economic umbrella.

Such an architecture would mark a shift in global markets as big as Bretton Woods or its end.

It would see our trading partners bear an increased share of the burden of financing global security, and the financing means would be via a weaker dollar reallocating aggregate demand to the United States and a reallocation of interest rate risk from U.S. taxpayers to foreign taxpayers.

It would also more clearly demarcate the lines of the American defense umbrella, removing some uncertainty around who is or is not eligible for protection.

Feasibility

Most importantly, a multilateral approach to dollar adjustment will only work if our trading partners have dollars to sell. In contrast to the period of the Plaza Accord, most currency reserves these days reside in the hands of our Middle Eastern and Asian trading partners, not our European trading partners.

Combined forex reserves in the Eurozone are approximately $280 billion, and Switzerland has an additional ~$800 billion.

By contrast, China has $3 trillion in official reserves (though unofficial reserves are likely much higher given the state-owned nature of the Chinese economy); Japan has $1.2 trillion, India $600 billion, Taiwan $560 billion, Saudi Arabia $450 billion, Korea $420 billion, and Singapore $350 billion.

Most of the dollars available to be sold by governments are in the hands of Middle Eastern and East Asian governments.

Some of these nations are not as friendly as the Europeans were during the Cold War.

It will require a different kind of diplomacy to procure that end than the diplomacy that produced the Plaza Accord, and the mixes of sticks and carrots may be extremely challenging to get right.

Moreover, a large fraction of the U.S. debt is held by private sector investors, both institutional and retail. These investors will not be convinced to term out their Treasury holdings as part of some sort of accord.

A run by these investors out of USD assets has potential to overwhelm the bid for duration coming from a term out from the foreign official sector.

The extent to which private sector assets flee the dollar will depend on the price sensitivity of those investors.

Assets held for reserve purposes are less likely to flee than assets held for wealth maximization.

The difficulty in persuading trading partners to agree to such an
approach is a good reason for currency tools to be used after tariffs, which provide additional leverage in negotiations. If a currency agreement is reached, removing tariffs can be a big part of the incentive.

https://cdn.prod.website-files.com/69d7ea95a65997dec59d0f36/69e6a8781864ae309e367c5d_638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf

‘This mark-to-market risk of holding longer-term debt can be mitigated via swap lines with the Federal Reserve’

These permanent swap lines have been in place since 2013 with Canada, Japan, UK, EU and Switzerland. They kick in when the respective countries’ own central banks stop funding their retail commerical banks because fear = no lending.

So the US remains lender of last resort. This is the point Susan Webber attempts to pound home and this layperson for one believes she is correct.

In keeping with Mr Hudson’s alluding to of the level of thinking we’re currently at…I would think in order to dislodge this you have to be more than simply pragmatic and then some on the world stage….you have to build an alternative that is as deeply structured as the hegemon.

This is not just financial rather it is military-intel-financial and the evidence show that this is not how the ‘BRICS bloc’ operates and it’s not even how China, Russia and Iran (throw in N Korea here if you like) operate.

The retort to this is that the hegemon itself is breaking apart and China et al will fill in the pieces as we go.

I do not believe the hegemon is breaking apart rather I believe it is changing its costume.

—

‘Poszar’s hermeneutics of the remarks of likely economic policy leaders in a second Trump Administration explicitly links the U.S. provision of a security umbrella to the international financial system…’

Notice the use of ‘hermeneutics’ which is traditionally and even very recently a term used solely in conjunction with biblical or canonical analysis but has seamlessly worked its way into economics!

It’s a religion alright.

Ian:

understood. never doubted it. youtube is full of analysts barking and braying we went broke. we just pushed back on them a little. you never know, many may read, but never post. a little education can be a good thing.

ventzu:

the system is so easy, its almost criminal. as long as america pays its own internal debt denominated in dollars, it can just print the money and pay.

there is no such thing as a budget deficit, unless if enough money is not printed to service the economy, then you have a deficit, not enough money.

if you print more than the economy can handle, then you have a surplus. then you might see inflation. if you do not tax the rich to take some of that money out, then you might see inflation.

there is not even a need to offer treasuries. they offer treasuries to get more income into the economy.

what we are facing today, is that rich parasites control just about everything, have off shored just about everything, have driven wars for free trade, free trade is colonialism. inflation is roaring.

the system is made confusing by those who are using it for their own benefit, the rich.
now foreign debt is another matter.

Simply consider the fact that if a country has a central bank but its central bank is ultimately backstopped by the US central bank then said country isn’t really independent financially.

I don’t know if anyone read the Hudson Bay Capital paper by Stephen Miran that I quoted from above but I just wanted to add that one tool mentioned in that quoted section is attempting to float ‘century bonds’ in order to both lengthen and stagger maturities.

This obviously hasn’t happened despite attempts.

But they game-strategized everything. This is ‘the blueprint’ if ever there was one.

Hudson Bay Capital manages global capital for public pension plans, university endowments, foundations, insurance companies, and sovereign wealth entities. It operates in New York, Miami, London, Hong Kong, Dubai, and Abu Dhabi. 

—

‘Despite any attempts at gradualism, the market may move sharply anyway; the hint of such a policy change could induce significant market moves without any need for actually implementing the policy.

Such volatility risks spiking long yields as global investors rebalance out of USD assets. Without the assistance of the Fed in capping yields, or of foreign reserve holders terming out their debt, an Administration has fewer good options for intervention to stabilize yields. However, there are still some tricks:

1) Activist Treasury Issuance of the type discussed in Miran and Roubini (2024).

By shortening the maturity profile of its debt, Treasury can reduce supply of duration to offset the increased supply that occurs as a result of foreign sales. There are limits and costs to such a policy, as discussed in Miran and Roubini (2024).

The justification for ATI in this context would be to buffer volatility due to foreign selling.

2) The Exchange Stabilization Fund may be used to help reduce volatility in this instance.

3) Pursue a parallel policy of deregulation, cheap energy and fiscal consolidation aimed at reducing deficits and inflation, which will boost aggregate demand and reduce supply of debt to help offset sales by foreigners.

Nonfinancial steps to shore up the fundamental attractiveness of UST securities can help.

None of those provides a huge amount of short-term financial power against market volatility, while they may prevail over longer periods of time.

It is clear that taking this type of unilateral approach is riskier, but it nevertheless is an option if the President decides he wants to pursue changes to the currency markets.

In All Cases

There are some common consequences across all these possible scenarios, if the Administration pursues any of them.

First, a much stronger demarcation between friend, foe and neutral trading partner. Friends are inside the security and economic umbrella, but there is more burden sharing. Based on the scope of that burden sharing, friends may experience more favorable trade or currency terms.

Those outside the security umbrella will also find themselves outside friendly arrangements for international trade and easy access to the U.S. consumer.

They will have more aggressive costs imposed on them via tariffs and other policies. There are obvious implications for asset prices.

Second, the threat of withdrawal of the security umbrella without burden sharing will have its own, potentially volatile, consequences. Will it spur nations around the world to invest more in defense?

Will it encourage more aggressive action by bad actors against those now outside the defense umbrella?

These are significant degrees of uncertainty which will permeate markets.

Risk premia may rise for assets in countries that now experience greater security risks.

Third, a structural increase in implied volatility in currency markets.

The scope for monumental, once-every-few-decades level of shifts in policy ought to significantly heighten expectations for volatility.

Fourth, these policies may supercharge efforts of those looking to minimize exposure to the United States.

Efforts to find alternatives to the dollar and dollar assets will intensify.

There remain significant structural challenges with internationalizing the renminbi or inventing any sort of “BRICS currency,” so any such efforts will likely continue to fail, but alternative reserve assets like gold or cryptocurrencies will likely benefit.’

https://cdn.prod.website-files.com/69d7ea95a65997dec59d0f36/69e6a8781864ae309e367c5d_638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf

‘First, a much stronger demarcation between friend, foe and neutral trading partner. Friends are inside the security and economic umbrella, but there is more burden sharing.

Based on the scope of that burden sharing, friends may experience more favorable trade or currency terms.

Those outside the security umbrella will also find themselves outside friendly arrangements for international trade and easy access to the U.S. consumer.’

This is what is happening and, no, the other countries aren’t moving towards China and Russia because they can’t because of ‘Link 16’ etc.

Look at South Korea. There is all this talk about the cancellation of the drills but the US base on S Korea US hosting over 20,000 US soldiers isn’t going anywhere and S Korea remains entirely dependent on US military-intel for security.

S Korea is currently the only NATO member where the US actually has command control over S Korean troops in the event of a war and it looks like that may be changing but that simply puts S Korea where everyone else already is.

‘a much stronger demarcation between friend, foe and neutral trading partner’

This is what is happening. Taking S Korea as an example again they are actually furtehr apart from N Korea than ever and both sides have ‘hunkered down’ although N Korea has actually been even more forthright in that they destroyed the Arch of Reunification and other potential reunification remidners.

South Korea still speaks of ‘Peace First, Reunification Later’ but the South Korean public – particularly the younger generations who don’t even remember an undivided Korea and view the north as hostile – they are not on board at all.

So South Korea is even more attached to the US-NATO-west and North Korea is more tied to Russia.

Let’s move to Brazil which makes up the first letter of the acronym of the alleged new world order.

Brazil is much much more militarily aligned with the west despite not being ‘Link 16’ compatible. In fact, Brazil does routine training and military drills with western military allies (Operation UNITAS et al) while it does not participate with Russia and China in their wargames at all.

USA Rare Earth purchased the Serra Verde Group and their mine in Goiás, Brazil.

This is the only mine outside Asia that produces Neodymium, Praseodymium, Dysprosium, and Terbium – the four elements necessary for all the weapons and stuff.

The deal is backed by the US govt for fifteen years meaning the US is guaranteed to buy 100 percent of the output which has and will continue to attract invesment.

The mine will reamain a Brazilian entity, employ Brazilian workers and pay taxes to Brazil.

In order to ‘balance’ things somewhat with the Chinese Brazil allowed them to buy Mineração Taboca – a tin mine in the Amazon.

Tin is not a rare earth.

The point of all this is that Brazil is much more structurally-aligned with NATO and the west. It’s not even close really.

Yet despite these deeply-embedded realities Brazil and its ‘B’ continue to be pushed and looked as being part of some sort of alternataive to the current status quo.

They are not.

I’d just like to note that neither US debt being in dollars nor Modern Monetary Theory entirely mean that the kind of deficits the US is running these days are OK. MMT doesn’t say infinite deficits are OK, it just says deficits are OK under certain circumstances to certain degrees, basically if the deficit is spent on goods and services that the economy is able to produce, taking up slack in the economy, and that beyond that, deficits cause inflation. The US debt being in dollars means that the US could, in theory, print 40, trillion dollar coins and pay off the debt. But again, that would cause a whole lot of inflation and a bunch of other weird shit, and if they did it right now it would probably bring on some kind of massive financial and economic crisis. For one thing, having all their government lending suddenly paid back would probably do some nasty counterintuitive things to the banks. And sure, there are things the US government and the Fed could do that might improve the situation, although they won’t do any of the better ones because they’re oligarch idiots, but the point is it IS A SITUATION–this level of debt service combined with loss of confidence in the US economy and government, deficits this high that are not being used to do anything useful, do become real problems despite currency sovereignty and even according to MMT.

MMT is also very limited in what it talks about. I’ve never seen an MMT person noting that the SHAPE of that inflation depends on what the deficit money is buying. For the last quite-a-few years, central bank and taxation policies around the Western world have been dedicated to creating inflation in things rich people care about like stocks, so they can all speculate successfully. This is not sustainable.

In 2008, 20+ yr (the longer duration the better) US Treasury Bond saved a diversified portfolio. From memory, EDV (which has even longer duration as it is zero coupon bond index ETF) dividend-reinvested inflation-adjusted return was 50%.

On the US market, despite the proliferation in recent years of an absurd number of ETFs, there is no ETF for say the Canada or China or a world index of 20+ yr sovereign bonds. I haven’t investigated say buying an individual 30-yr Canadian bond & selling it when it has 20-yrs left, I just assume the transaction cost & reporting costs would be prohibitive for a small account non-millionaire like myself.

Despite the current 20+ yr US Treasury problems in the news, I continue to think that the 20+ yr sovereign treasury asset like EDV, alongside gold, and 12 months of cash emergency fund (with decent funds like I Bonds Savings Bonds or Vanguard money market) is key to hold as “safety assets” for stock market crash risk.

In the 2008 stock market crash, EDV was THE only asset that saved the portfolio & mitigated a loss.

If yall are gurus on this topic, what do you think (for “educational purposes only, not legal/fiduciary advice” disclaimer)?

PLP: “MMT is also very limited in what it talks about.”

As far as I can tell, MMT is very limited with regard to the foreign exchange value of fiat currencies. Chartalism — the doctrine that identifies money with scrip the sovereign circulates to facilitate domestic tax collection — stops having explanatory power near borders and it is all hand-waving after that, supplemented by off-hand references to floating exchange rates with no more attention to a basis of stability than Milton Friedman was conjuring to allow Nixon to end Bretton Woods.

Mainstream economics mumbles, too. Adam Tooze had an excellent lookback to the 2020 Covid shock in his Chartbook newsletter. I hadn’t realized how big the Federal Reserve’s intervention was, to stabilize the Treasury market in the face of the sudden need for liquidity.
https://adamtooze.substack.com/p/chartbook-468-apocalypse-now-in-the?

Tooze has some quotes from participants in the emergency Open Market Committee, which are revealing in a way. The jargon is both a shield from and a path into thinking about the nature of the underlying problem and finding a course of wisdom. Analytic insight mixes with sloganeering in a way that might embarrass a high school football coach.

Comparisons are made to the onset of the GFC 2007-8, as if a pandemic and a collapse of banking fraud are analogous “shocks”. Macroeconomists litter their every conversation with “shocks”, positive and negative, little worrying about their inability to name or identify these supposed events explaining everything, but at least 2007 and 2020 had observable events. 2020 was a surprise, 2007 not so much and some of us think that matters very much, but what are you going to do?

The larger point I would make — in line with the OP and several comments — is that a fiat currency / sovereign’s debt is inherently incapable of serving an international trade and finance purpose. That ought to be clear to MMT, which adheres to chartalism as dogma, but they just mumble. The U.S. Federal deficit spiraling upward is channeling dollar debt into the international financial system and, not incidentally, imposing “dutch disease” and asset-inflating financialization on the U.S., accelerating the final erosion of U.S. economic hegemony.

Like other commenters, I cannot imagine how politics — U.S. or global — could be marshaled to introduce reform. China is opaque to me, admittedly because of language primarily. They may have the best economists anywhere, judging from their success to date. Maybe, they will intervene when the Federal Reserve collapses under the weight of off-shore dollar debt — debt China artfully leveraged the making of.

Feral Finster:

deterrence can only work if you understand that only two things drive the rich and powerful, greed and fear.

so make sure the rich and powerful knows what will happen if they mess with you. that example of deterrence must be credible, and devastating at the same time.

putin has gone to far with threats that are never backed up. now the drones are coming from just about every where.

putin thinks that by devastating the ukraine, its a deterrence. but the plan was always for the ukraine to take the punishment.

the E.U. is a paper tiger, right now is the time for a example. other wise some clever fascist will come up with a weapon that evades russia military advantage, and the fascists will use it without hesitation.

if the fascists know that using that weapon will mean automatic strike back, might cause fear to kick in.

Adam Tooze, once again, with important factual detail on how the U.S. Treasuries emigrating abroad are used.
https://adamtooze.substack.com/p/chartbook-469-the-risk-of-unwind

bruce wilder:

but we have practiced what me worry for decades now, only you do not understand why.

you answered my own point, by worrying about nothing, its why we can’t have nice things.

china is creating tons of money right now, and we just saw them smack down the billionaires brutally.

why? because MMT works great for some, or great for the many. to get it to work for the many, you must be protectionist. capital controls are protectionists.

MMT is working well in china. not to much inflation, but lots of R&D and nice things.

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China’s capital controls are designed to manage inflation and stabilize the economy by regulating the flow of money in and out of the country. These measures help prevent capital flight and maintain financial stability, especially during economic stress.
ide.go.jp Central Banking
Overview of China’s Capital Controls

China employs capital controls as a strategic tool to manage inflation and stabilize its economy. These controls regulate the flow of money in and out of the country, helping to prevent capital flight and maintain financial stability.
Purpose of Capital Controls

Inflation Management: By controlling capital flows, the government can influence inflation rates, ensuring that excessive money does not lead to price increases.

Economic Stability: Capital controls help maintain financial stability, particularly during periods of economic stress, by preventing sudden outflows of capital that could destabilize the economy.

Mechanisms of Capital Controls

China’s capital controls include various measures, such as:

Restrictions on Foreign Investment: Limits on foreign investors accessing Chinese financial markets.

Domestic Investment Restrictions: Domestic households face restrictions on investing abroad, keeping funds within the country.

Transaction Taxes: Implementation of taxes on certain financial transactions to discourage excessive capital movement.

Impact on the Economy

While capital controls can effectively mitigate risks associated with capital flight and financial volatility, they may also have mixed effects on economic growth:

Short-term Benefits: Controls can stabilize the economy and reduce downside risks during economic downturns.

Potential Growth Constraints: In the long term, these measures may limit economic growth by restricting the flow of investment and resources.

In summary, China’s capital controls play a crucial role in managing inflation and ensuring economic stability, although they come with trade-offs regarding growth potential.
ide.go.jp Wikipedia

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and does china worry about the economic boogie man and internal debt, don’t think so.
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China applies Modern Monetary Theory (MMT) in its economic framework, using it to achieve fiscal goals and manage its economic structure effectively. This approach has contributed to China’s significant economic growth and poverty alleviation over the past decades.
millbrook.org

Understanding Modern Monetary Theory (MMT) in China
Application of MMT in China’s Economic Framework

China has integrated Modern Monetary Theory (MMT) into its economic policies to achieve fiscal goals and manage its economic structure. This approach has played a crucial role in the country’s significant economic growth and poverty alleviation over the past several decades.

Key Features of China’s MMT Application

Fiscal Goals: MMT allows China to finance public expenditure through money creation, which supports economic growth without immediate reliance on tax revenues.

Economic Management: The theory emphasizes that a sovereign currency issuer, like China, can manage its debts effectively using its own currency, which helps in maintaining economic stability.

Resource Utilization: MMT focuses on utilizing real resources, such as labor and production capacity, to ensure that economic growth is sustainable and inclusive.

Impacts of MMT on China’s Economy

Aspect Description
Economic Growth MMT has facilitated significant economic expansion, making China the second-largest economy globally.
Poverty Alleviation The application of MMT principles has contributed to the reduction of extreme poverty in China.
Fiscal Policy China’s fiscal policies reflect MMT’s emphasis on government spending to stimulate growth, especially during economic downturns.

By leveraging MMT, China has been able to navigate complex economic challenges and promote a more resilient economic structure.
millbrook.org Wikipedia
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so right before your eyes, you see MMT in action. i do not lose sleep over night on the ridiculous bond vigilantes or debt crises myths. we can only succumb to that through stupid and corrupt leadership. see bill clinton.

now foreign debt is another matter. that’s why we need protectionism. i have repeated this before.

its so easy to understand.

https://www.youtube.com/watch?v=pVnmM7NpCRQ

Why the $40 Trillion U.S. Debt Is NOT REAL

Status Coup reporter Jordan Chariton talked with Steve Grumbine, founder of Real Progressives, about the reality with the U.S.’ so-called $40 trillion in debt and how Republicans and most elites are lying about the national debt. Status Coup regulars may know some of this as it relates to MMT (Modern Monetary Theory), but it goes even deeper than that.

but we have practiced what me worry for decades now, only you do not understand why.

you answered my own point, by worrying about nothing, its why we can’t have nice things.

I do not worry about nothing. The Republicans since Nixon have been practicing the deficit spending two-step (prosperity for me, austerity for thee) for most of my adult life and it has nearly always had bad results for most people (but good results for the Republican donor class), and each round of deficits has been larger than the last. If public deficit finance alone was going to be “the solution”, we would have arrived in nirvana by now.

I get why Stephanie Kelton, for example, frames her macroeconomic analysis in opposition to the conventional fairy tale about bond vigilantes and nonsense toy models of “loanable funds” shortages. I cheer her on. But, I don’t kid myself that lack of MMT insight “deprives us of nice things.” I think greed among the wealthy might have something to do with it. Maybe benighted monetary thinking contributes a small bit by convincing some earnest but foolish people that public austerity measures are prudent policy or sets up college sophomores to believe in bond vigilantes all their live long days. Meanwhile, Ezra Klein has written a new fairy tale about how we are held back from Abundance by dilatory building permit processing and excessive performative planning and review. He might even be right, somewhat.

Instead of fighting for the good old cause of class warfare, MMT cultivates ideas only a monetary crank could love. “Fed independence” is the boogie man in the newly revised MMT fairy tales.

Your just so story about China’s purported use of MMT in economic management if you hadn’t had to refer euphemistically to the use of capital controls to “manage inflation”.

there is no 40 trillion dollar public debt.

I don’t get how that is persuasive. There is a public debt. It is an institutional fact.

The bond vigilante story is an explanatory narrative which serves certain conservative business interests, but it isn’t a statement of fact or the state of power relations. The Federal government, through control of the central bank, has complete mastery of the dollar payment system. The government does not need the permission of a caste of bondholders /buyers to make payments.

The latter might not be persuasive, either, but at least I am not guilty of denying reality.

As for whether capital controls manage inflation, per se, I think that is a misleading explanation for decades of complex foreign exchange rate manipulation and domestic price level suppression, alongside a complex, coordinated industrial policy and infrastructure development plan. Capital controls served, among other means, to keep China’s successful entrepreneurs from escaping the homeland.

China promoted a massive household savings rate, which is now deeply embedded in culture and institutions and is proving hard to unwind. I am not saying they were somehow wrong to manage the economy’s aggregate demand in part by encouraging high levels of household saving to offset massive investment rates, which by practical definition is spending today that produces investment goods and NOT consumption goods today for households. So, if household refrain from spending today, that prevents the economy from running out of consumption goods today.

China leveraged an existing system of international settlement in dollars as a universal reserve currency. And, an existing system of low tariffs and regulatory harmonization, the WTO framework, to which Clinton admitted China. China accumulated vast quantities of U.S. Treasury securities and Mortgage Backed Securities (MBS), the latter contributing to the financial pressure that corrupted mortgage finance. Again, I do not blame China for the regulatory failures in the corrupt and decadent U.S. political system.

I offer these additional examples as being beyond the scope of the usual MMT imaginary.

excellent point, dc

different clue:

what you describe is interest payments on treasury bonds. we do not even need to issue bonds. and the bonds are not sold to cover any debt, because there is none. the bonds are issued to inject more income into the economy.

the rich have done a very good job pulling the wool over the eyes of people like you. its embarrassing how many so-called educated people, get snookered all of the time.

you want nice things, yet you do not understand why you can’t have them. in fact, people like you actively make sure we cannot have nice things.

the amazing part of this is that the responses from some, remind me of when people had had enough, and chopped off the head of some parasite, many huddled in fear looking at the sky for god striking back. then it did not happen.

i imagine those that knew god would not, snickered under the breaths.

there is no budget deficit, and there is no debt from it. as long as its denominated in dollars.

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The phrase suggests that people historically feared both God and the aristocracy, which often held significant power and influence over society. Aristocracy refers to a form of government where a small, privileged class rules, often leading to a societal structure that can instill fear among the lower classes.
ebsco.com Wikipedia