Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 2 of 100

Another Word On Treasury Bonds

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On August 20, 2026

55 Comments

Treasury bonds are auctioned by the Treasury department. It is an auction: banks say what rates they will accept, the ones who offer the lowest rate get the bonds. You can agree to buy bonds without bidding, in which case you just get whatever rate the auction sets.

So Treasury does not set the rates and say “take it or leave it.”

The rates for short term bonds are close to the Federal Reserve rate, longer term bonds can diverge a lot based on how much banks think the future is dangerous. After all if you’re locked in for five, ten or twenty years, and bond interest rates go up, you just took a bath relatively speaking. And since they probably went up because inflation went up, you could wind up with less real money than you started with. With short term bonds you can take a loss, but you aren’t stuck with it.

This is the primary market. The secondary market is FAR larger and is people selling bonds that already exist to each other. If interest rates go up, the price of existing bonds goes down, and vice-versa.

The largest holders of Treasury bonds outside of the US are Japan, China and the EU. If they sell a lot of bonds (and Japan is considering it) then for the usual reasons, the price will go down on bonds and that means interest rates need to rise in the next auction. If I can get bonds for cheaper, I’m not going to buy them off the primary market or from primary dealers.

Now there are banks who are required to buy bonds. First there are primary dealers, 25 of them: they have to bid. But they aren’t required to take the interest rates Treasury wants taken. As a rule they’ll try to be close to what Treasury wants, being a Primary Dealer is valuable, but they aren’t going to cut their throats.

The secondary market effectively determines the minimum interest rate that Primary Dealers can accept, because if they accepted less they’d be buying bonds worth less than bonds on the secondary market. They’re not going to eat billions of dollars of losses.

Next we have the fact that all US banks are essentially required to hold Treasuries as part of their liquidity requirements. Most assets count for liquidity, but only some assets are counted at 100%. Treasuries count, because the idea is that the Feds can always print money and therefore you are always sure to at least get your interest payments. The federal government cannot go bankrupt, so long as the US debt is denominated in dollars.

BUT as prices for bonds drop, which remember happens in inverse to interest rates on new bonds and also drop if there’s much more selling than buying on the secondary market, the value of the bonds that all these banks hold as their reserve requirement also drops.

So if Treasuries become a lot cheaper the banks suddenly can’t, en-masse, and for no fault of their own (this time) meet their liquidity requirements. And then you have a potential banking crisis.

Yes, the Fed could then step in and pull some arguably illegal shenanigans. But that has its own downsides. The bottom line is that if the world suddenly doesn’t want as many Treasuries as the debt and interest payments requires, the US has a real problem.

Go back to “as long as US debt is denominated in dollars”. A lot of counries can’t borrow in their own currency, or can’t borrow all the money they need. So they issue bonds denominated in other currencies, usually the US dollar.

If there isn’t enough demand for US bonds, then suddenly the US is in the same position. Bear in mind, even if I want exposure to the US, do I want it in Treasuries? After all, it’s the stock market that’s been super juicied, and if I think inflation is going to go up significantly, why buy Treasuries now? Why not wait?

But this where the rest of the current clusterfuck comes in. There’s every reason to believe that inflation will go up. A barrel of diesel is now selling for around $180 dollars. The Iran mess shows no end in sight. AI looks like a circle jerk bubble.

What happens if AI is a bubble and bursts at the same time as all this is going on?

Well that tanks the stock market. Suddenly foreigners want a lot less US dollars, since they don’t want as many US bonds or stocks.

If this happens, the US dollar starts falling. All assets owned in US dollars become worth less to everyone, foreigners and domestic, since the US dollar can buy less (remember, net importer.)

What we have right now is a perfect storm: the AI bubble, treasury bond problems, the Bank of Japan needing to sell treasuries to prop up the Yen, the Iran war. The US isn’t intervening to help Japan with the Yen out of the goodness of their own hearts, most of these people would sell their own kids into sex slavery if it’d help them get ahead. They’re doing so because if they don’t help Japan, Japan will help itself by selling potentially hundreds of billions of Treasuries in a short time.

If you’ve been following, you know that means that bond prices will drop and interest rates on new issues will have to go up and banks will become insolvent. It also will mean that a lot of other people will sell because they’ll get hit by margin calls as the value of their portfolio drops precipitously.

This is a real problem. It is not fake. And because it is a few problems: the Iran war, the carry trade, the AI bubble all at the same time, it’s very hard to manage.

If Trump had a lick of sense or wasn’t being blackmailed by Israel (or whatever the reason is) he’d end the damn war tomorrow and give Iran what is needed, because keeping the war going is risking the entire ball of wax.

Once the US loses dollar hegemony, it won’t get it back because most of the world hates it and Russia/China and others have been working hard to create SWIFT alternatives. Likewise if the US loses dollar hegemony most of the West can expect a huge hit to standards of living.

Dollar hegemony could have continued for another twenty years if the US had played nice with China and Russia, not abused sanctions, and not started stupid wars. Moving off has real costs and if the price of staying on wasn’t high, countries would have just gone along with it. But the US made unnecessary enemies and fucked around, and now it’s going to find out. If not during this crisis conflux, then the next, and there will be a next.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Another Big Profit Opportunity For Elites Is On The Way (Bonds/Carry Trade)

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On August 19, 2026

22 Comments

Japan has, since the mid 90s, had very low interest rates. The Japanese carry trade was to borrow in Japan and invest in America. You didn’t even need to take any real risk. Borrow Japanese, buy safe bonds in the US that paid more. Or you could use the money for riskier bets.

This has been going on for more than half my life and I’m not young. It was one of those money spigots that insiders and wealthy people have access too, but most of the rest of us simply watch: free money for some.

Now it’s coming to an end. The Japanese Yen is under immense pressure and so far interventions have not done squat. So the Japanese are raising interest rates.

But more than that they’re selling large chunks of their US treasuries in interventions, and Japan is the largest holder of US government debt outside of America. (China is second.)

This happens at the same time as the US bond market is breaking. Treasury literally can’t sell all of its bonds. Rates are high, about at 2007 levels, and they’re selling short term bonds and using that to buy their own long term bonds.

Add to this issues with oil and distillates, especially diesel, the fact that the US military is basically out of a lot of weapons and has lost a war.

Then there’s the real-estate market:

America and Americans are under a lot of stress. Because interest rates are high and Biden and Trump love to spend but not tax there are also soaring interest payments on the US debt.

Now the big advantage the US has over most countries is that its debt is denominated in its own currency. The federal government cannot go bankrupt unless elites lose their will to print money, which so far they haven’t. They’ve printed literal trillions since 2008, though it’s concealed by pretending that Federal Reserve operations which create money out of mid air to keep rich people rich aren’t money printing.

The result was massive inflation in the top end, and a drying up of businesses aiming at the middle class and poor. You see this most clearly in Las Vegas, which used to have cheap rooms and food but now doesn’t, because why cater to people who have no money?

(In China prices are low, even at luxury hotels, because there is a mass market like the one the US had in the 50s and 60s.)

After all this add in the AI bubble and fertilizer and diesel shortages hitting farmers.

The entire system is cracking apart.

The smartest money isn’t the money that has been plunging into the AI bubble, it’s the people who have kept their powder dry, because as everything goes to hell, there will be significant buying opportunities. Warren Buffet, for example, built up a huge amount of cash, though his successor has spent some.

In a serious economic crisis, and one is coming, you can buy up companies and assets (and all those homes, which you then rent at profit maximizing rates which leave millions homeless) for cents on the dollar.

As for you, dear reader, well, probably you won’t be able to take advantage of this, any more than you could in the bounce after 2007.

The Federal Reserve and other central banks will have to decide whether or not to do bail outs, and whether or not to bail out the rich or ordinary people. They’ll choose the rich. But there is a problem with the whole “America’s debt is in dollars so it doesn’t matter theory.”

America’s a net importer. It has less and less to sell to the world that the world needs. There has been a slow but consistent move away from the US dollar as a reserve currency, a movement away from settling trade in US dollars and China’s now forcing companies to choose between America and China. If you enforce US sanctions, they’ll fine you and if you don’t pay, you’ll lose access to their market.

Ultimately the US dollar’s value comes from US strength: economically and militarily. Like the British Pound (which was once worth five times or more than the US dollar) it can be expected to lose value because there is simply less need for it. Everything you really need you can get somewhere else, unless like Europe, you’ve sanctioned other suppliers so much you’re destroying your own economy.

Anyway, all of these things all happening at the same time is all sorts of bad news. I’d expect some sort of financial crisis within a year and it will be a doozy. Wherever it starts it will hit everything in the US and Europe and the Anglosphere and much of the rest of the world. Central banks will have to spent trillions in another bail out.

But this will be the last major US bailout, because after this there will be nothing. The US will not have the tech lead in almost anything, is not creating the world’s future techs other than AI (which China is winning, anyway) and will have lost much of its military intimidation factor.

Welcome to the end of the American Empire. You’ll see it in food shortages, high prices and an elite determined to become an elite similar to India’s or much of South America’s: ruling over essentially poor nations, but filthy rich amongst the rubble.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

The Continued Abandonment Of America’s Poor

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On August 6, 2026

42 Comments

Financialization and neoliberalism require everything to be looted so the rich can keep getting richer.

First:

The number of people enrolled in Medicaid and Affordable Care Act plans fell by more than 5 million in the last 12 months, according to a new report from the advocacy group Protect Our Care.

The decline stems in part from President Donald Trump’s “big, beautiful” bill — which was signed into law last July — and the expiration of the enhanced ACA subsidies, the group says. The law includes nearly $1 trillion in Medicaid cuts over 10 years; the subsidies expired in December after Republicans declined to extend them, leading to double- to triple-digit premium increases for millions of people.

This general trend is exactly what I predicted during the debate about the ACA: it would initially help, it would become more expensive over time and it would slowly die from a thousand cuts.

Second:

Using data from the U.S. Department of Agriculture, CBPP, a left-leaning policy organization, found the number of people on SNAP dropped by 6% — or 2.5 million people — from July, when the bill was signed, to December. In Wisconsin, participation fell by 2.3%, which equates to more than 15,500 people.

The post war consensus was to take care of the poor and people who the economy didn’t work for. Every since the 70s, and especially Clinton (with his welfare “reform”) every part of that architecture has been chiseled away. At one time, by law, all medical institutions were not for profit, including health care. That was repealed in the 70s and the predictable result happened.

Not for profit or mutual insurers are much cheaper. One of the few formal acreditations I have is “Fellow of the Life Management Institute”. Despite the name, it includes a lot about annuities and health insurance, and plenty of cites for studies. (Or did back when I took it.) And the studies are clear: for profit insurance is more expensive. This shouldn’t be a surprise, after all, they want to optimize profits, not care.

Cuts to SNAP have been going on for decades, and except during the pandemic all I remember is cuts and restrictions.

If you’re poor, the government will keep offering less and less help. If you require government assistance to live, or live half decently, you’d better find another way, I’m afraid.

This is also true Medicare and Social Security, which have been nibbled to death by constant under-statement of inflation.

Meanwhile the military budget keeps going up, the Pentagon can’t pass an audit, the US is running out of weapons, Ukraine is out of Patriots and being hammered into the ground, Iran is winning against the US and heck, the US couldn’t even with vs. Yemen’s Ansar-Allah.

If America doesn’t have health care because it has a big military, Americans sure aren’t getting their money’s worth.

But because of the Red Queen’s Race that rich are in, where if they don’t get richer at least as fast as other rich, they get bought out and drop out of the game, nothing is off the table when it comes to cuts. After all, those missiles and weapons have MASSIVE markups and high profit margins. SNAP? Helps some farmers, but otherwise no one’s making money off it, and the margins are low. Medicaid, same idea: low margins.

Surely there are wealthy people, or governments, who can earn the rich higher profits than poor people, so fuck them.

This is the West. This is the legacy of neo-liberalism. All because American whites didn’t want to be forced to live in the same neighbourhoods as blacks, so they voted Reagan. (That was the margin of victory, check into it yourself.)

If you’re in trouble in America, don’t cross the kill line, because once you do, no one’s going to help you enough to matter.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

SpaceX’s Rug Pull Is Making Me Laugh

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On August 1, 2026

12 Comments

So, SpaceX’s stock is down to $108. It started at $150. It spiked as high as $225. (Hope you didn’t buy it then.)

Ouch.

This was completely predictable, because SpaceX doesn’t have a product worth its MASSIVE valuation. Everything was done to spike SpaceX’s initial offering, including letting it into multiple indices, which means that pension funds and so on were forced, in effect, to buy it.

Meaning your pension fund just took a huge loss.

The key to SpaceX’s valuation, such as it is, is reusable rockets.

But…

The news comes just days after Chinese state-run media showed a Long March 10B rocket booster being caught by an offshore recovery platform, indicating the country was making major strides in catching up with SpaceX’s reusable rocket tech. Over the weekend, an experimental Japanese reusable rocket safely took off and landed, suggesting the nation may be right behind China as well.

Beyond some steepening international space launch competition, experts believe SpaceX’s transformation into an “AI play” may be closely related to its Wall Street woes, as the BBC reports.

“Everyone saw SpaceX as an AI story,” CFRA investment research analyst Keith Snyder told the broadcaster.

“With Elon Musk, any company he touches gets people excited,” he added. “But this was also the first time people felt like they were able to invest in something that was being marketed as an AI play.”

I predicted years ago that Musk didn’t have a moat on reusable rockets. The problem is simple: once the Chinese get a tech, they an always scale much better than competitors, because they have a robust, low priced industrial sector due to actually having competitive markets and useful industrial policy.

As for X being an “AI stock”, well, generally Grok is and has remained by behind most other major AIs in performance benchmarks. There’s no particular reason to believe it’s going to win the AI race, and it’s expensive and closed source, so how it’ll make a profit is unclear to me.

Musk is the world’s greatest conman. Oh, he’s done some important stuff, but it’s been years now since he actually pulled off anything major and real: electrical cars, batteries, reusable rockets are all well in the past. Tesla is only kept alive by the refusal of the US and EU to let much cheaper Chinese EVs into their markets. Spaceship keeps failing. Musk is personally toxic with the sort of people who buy EVs in Europe and the US: liberals and left wingers who believe in climate change.

Anyway, I hope you didn’t buy SpaceX unless you were taking advantage of the rug pull to do a short term trade.

This is just another example of “make the rich, richer” and American delusional belief in their own superiority. Musk is the world’s first trillionaire, but he isn’t going to stay that way.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Just Let the Peons Die, The Rich Must Get Richer, French Edition

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On July 31, 2026

13 Comments

Sometimes even I can be sickened by the banality of evil:

“Heavy users of healthcare”, aka: the sickest people.

Always it is the weakest who are targeted. Once we taxed the rich to help the poor, now we kill the poor so the rich can afford another vacation property or mega-yacht, or, really, keep up with the Musks.

When the revolution comes, people like Macron need to be charged with mass homicide, and either be executed or sent to prison if (when) they are found guilty.

The West’s rich are in a red-Queen’s race with each other. If you fall behind, you get bought out and even if you still have lots of money, you’re no longer a player in the game. To keep their place in this game they must immiserate everyone else. The other option, to stop playing the game and put in controls over buying out other members of the elite never serious occurs to them.

It’s similar to how carbon taxes are always regressive, rather than massively hitting private jets and private mega-yachts and people with multiple homes. Nope, hit farmers and ordinary people. Certainly don’t really tax oil majors.

The West has only one inviolable rule during this sub-ideological period: the rich must always get richer. Everything else is sacrificed to that goal.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Oilpocalypse Incoming

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On July 25, 2026

28 Comments

So, it seems that Ansar-Allah (the Houthis) struck an oil refinery in Jizan, Saudi Arabia. They also took a shot at a refinery in Yanbu, apparently intercepted by a battery the Greeks had there (what?)

Anyway, this is getting real. Between the Ukrainian strikes on Russian refineries, which have been very successful, Iranians hits, and now the Houthis, I don’t see how we avoid serious shortages. It’s the refineries that matter most: crude is worthless without refineries and they’re expensive, take a long time to build and aren’t always easy to repair, depending on what exactly got hit.

I also don’t see how we avoid massive famines and increased food prices in places that don’t have a formal famine. A lot of fertilizer runs from oil thru refineries.

The irony here (conspiracy theorists of elite intentions to depopulate the world, here you go) that Trump confirmed he OK’d the Saudi strike on the Houthi airport which set Ansar-Allah off. They’ve closed the strait and they’re going right for the jugular vein with these refinery strikes. If they keep shooting, the missiles will get thru. The defenders have to be lucky every time, they only have to be lucky on occasion.

Beans and rice. If you need distillates like diesel or motor oil, stock up now. It’s hard to stock up on medicine, but a lot also used petrochemicals, so do what you can: even simple things like aspirin are included.

Anyway, I don’t think Trump is together enough to have a diabolical super villain plan. To the extent he can plan at all, it’s about his next corrupt scam or bribe. But it amounts to the same thing in the end.

It’s hard to overstate how much this will destroy all goodwill for America in the globe. I mean all of it. Everyone knows the US started the war and refuses to stop it, whatever their reasons are. And when people can’t eat, the hatred will be immense. Iran will catch some backlash, but most people get that they’re defending themselves.

Empires end ugly and stupid. The rule of incompetence in late Imperial rulership maintains its record. I expected stupid, but it’s still flabbergasting to witness late Imperial Roman levels of moronitude.

Amazing.

Amazing is not a synonym for good.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Nothing Can Be Done When People Believe Lies

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On July 23, 2026

36 Comments

Former CIA Agent John Stockwell on the CIA’s propaganda war on Cuba:

“We pumped dozens of stories about Cuban atrocities…we didn’t know of a single atrocity committed by the Cubans. It was pure false propaganda to create an illusion of communists eating babies for breakfast.”

One of the most fundamental reasons the world is screwed up is that most people believe a bunch of lies. This can be flagrant, like the “drones of death” Iraq supposedly had, ore that Iran killed 50K protestors or that Iraqi troops bayoneted babies in Kuwait.

But it can also be subtle. The generations long understatement of inflation in the consumer price index, for example, means that people lost a third of their actual purchasing power (or more) while the government gaslit them.

Everyone’s walking around talking about stats which have no relation the real world and which predict nothing. It’s like GDP: “Spain’s GDP is about the same as Russia’s.”

So? GDP measures the market value (price) of what your country is spending money on. That’s all. It doesn’t tell you how much industrial capacity they have: how many drones, artillery shells and weapons they can create. Whether or not they can generate their own energy without imports. Whether they can feed themselves. Whether their energy grid could survive mass adoption of air conditioning (hello Britain.) Britain’s water companies added a lot to GDP while flushing sewage into rivers.

American intelligence recently noted that Iran had repaired most of the damage from the first part of the war. But Iran’s GDP is tiny.

Turns out, however, that since they couldn’t buy industrial and construction goods for so long, they became good at making them themselves. Sanctions mean they mostly can’t sell to foreign markets, so they don’t show up much in GDP, but they have the capacity. Meanwhile the US has a massive GDP and takes years to build or repair a bridge that China can fix in weeks or building in months.

We’re swimming in a sea of toxic bullshit. The “facts” our decision-making apparatus uses are often just straight wrong. The population is lied to even more systematically.

If I were writing laws it’d be a mandatory prison sentence for a politician or government official to knowingly lie to the public. No one can make good decisions with bad facts.

Now this isn’t to say that often we do have good facts and do the wrong thing anyway. I’m old enough to remember the doctor shortage in Canada being predicted back in the late 80s, especially the shortage of family physicians. Same with the nurse shortage.

The solution was obvious: train more doctors and nurses. This takes time: more medical school slots, more residencies, etc… But we knew well in advance. We did nothing except think “we can steal doctors and nurses from the third world”, then make it hard for them to work in Canada.

So good facts alone won’t save you. But bad facts make it hard to do the right thing even if you wanted to. Just before the Iraq War over 70% of Americans thought that Iraq was behind 9/11. There is zero evidence of that. There was zero evidence of that back then. But if you believe a lie, you may act on the lie and so Americans supported the war.

For going on 40 years we’ve been making our statistics not reflect reality. This was deliberate, because low inflation stats meant low adjustments to pensions, wages and so on. GDP goes up as the only statistic that mattered concealed that the industrial base was being offshored, which made some people very very rich.

Some people knew the lies were lies, but many didn’t, and the longer the lies continued the more people forgot they were lies.

Till reality (that grocery bill) became impossible to ignore, but compromised stats made it nearly impossible to make the argument to do something.

Lying is a primal sin exactly because it makes even understanding a problem either impossible or much worse. I lie is how we change the world into something fake but better for us. It’s one thing to say “my dog ate my homework”, it’s another for public officials to lie so that some people benefit and others (always a much larger group) suffer. If it was up to me a politician or government official knowingly lying would carry a mandatory prison sentence.

Our “masters” have completely forgotten that democracy is supposed to be about service to the people. Politicians work for the public, not the other way around.

At least in theory. But the further the theory moves from practice, the more politicians act for any reason other than the common weal, the more they need to lie so they can do what they really want. In this era, mint more billionaires.

The complete normalcy of government lies, politely called propaganda, conceals the sort of rot which destroys civilizations, and it’s helping destroy ours.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

BLS Alters How It Counts Core PCE Inflation – Guess What Changed?

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On July 23, 2026

5 Comments

~by Sean Paul Kelley

From the Seoul Economic Daily:

The overhaul is expected to partly resolve an unusual gap between PCE and the more widely known Consumer Price Index (CPI). The annual core CPI rate in June was 2.6%, while core PCE was estimated at 3.3%. Typically CPI runs slightly above PCE, but recently the two reversed because of software and investment advisory figures. Both items are expected to show smaller increases after the overhaul.

Why the change? Well, “chipflation” was bleeding into software.

The SED continues:

For the software price measurement being revised, the BEA uses the BLS computing cost index. But that figure includes items such as USB flash drives. Their prices have surged amid a spike in demand for artificial intelligence (AI). The result was a distortion in which rising hardware prices were reflected in the software index.

For some reason game consoles are included in the software measurement. As I argued on July 14, these numbers are fraudulent. And this story is pretty solid evidence of that reality.

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