•U.S. 20Y Yield: Spiked to 5.097%, up +10.7 bps intraday. •10Y Yield: Rose +11.1 bps to 4.592% •30Y Yield: Jumped +10 bps to 5.067%
This caused stocks to trend down and even the dollar. Simply put, the US is adding a lot of debt, reducing revenue by cutting taxes, and there’s wild amounts of uncertainties due to Trump’s tariff and trade policies. Bond traders are worried, Japan is reducing its Treasuries’ holdings, and everyone is looking imploringly at the Federal Reserve.
As a friend quipped, “the economy is perfectly healthy, as long as we keep it on life support.”
Which is to say the likely result is that the Federal Reserve will have to step up and start buying Treasuries again. The last time it did that was during Covid.
“Print more money to bail out elites.”
But here’s the problem. The US really is trouble. Yes, in principle the US can print as much money as it wants, like any sovereign that issues its own currency. But that’s not the issue. The question is, “What does the money being printed produce?”
QE has essentially produced richer elites, more monopolization, a poorer general population (a recent study found 60 percent of Americans cannot afford a “decent” lifestyle), and higher prices. You could also say it has funded a less competitive US that is falling further and further behind in technology.
It’s what you spend money on that matters. All QE has EVER done is make it so that current elites stay in power, keep getting richer, and are rewarded for driving Americans into the ground at very accelerating speeds.
The Fed can’t rescue the US from spending its money to do all the wrong things. That requires legislative and executive action. Those parts of the government, however, are even more fickle and stupid than the Fed, which is like saying that Mount Everest is taller than K2. Technically true, but both are so tall (stupid) that it beggars belief.
If there’s something the US can do wrong right now, it’s doing it wrong, and it if it isn’t, it’s a legacy policy they haven’t gotten around to fucking up yet.
cc
According Louis-Vincent Gave, in this YouTube clip from about 3 weeks ago:
https://www.youtube.com/watch?v=W6090X67O2Q
Five years ago, in 2020 when COVID happened, the US and US companies started borrowing heavily by issuing lots of bonds.
Now after five years, many of these are coming due, and they’ll have to roll them over at higher interest rates – in the second half of this year, and first half of 2026.
With the higher interest rates to pay out, companies will have to cut back on other spending, making recession possible or likely – and the mid-term elections are coming up.
So the Trump administration wants/needs interest rates to be lower, and wants to force other countries, China, Japan, South Korea, etc. to buy more IOU’s (bonds/Treasuries)
The suggestion is that the tariffs are a tool to compel (extort) other countries to lend (give) the US more money by buying Treasuries/bonds (IOUs that will probably never be repaid.)
Robin R Payne
“Yes, in principle the US can print as much money as it wants, like any sovereign that issues its own currency. ”
OK yes I understand the resultant math and logic (because it is logical, or at least reasoned) from billionaires.
Soon an AI will not replace me, but maybe.
Ian Welsh
Population still matters, as war is automated, it matters less. Autonomous drones will become more and more common.
Jan Wiklund
Concerning QE, according to José Gabriel Palma, one percent went to investments (and indirectly earnings for common people), the rest was used to increase the value of the stock exchange. See https://www.econ.cam.ac.uk/publications/cwpe/2211
Daniel A Lynch
There are two markets for treasuries, the primary market and the secondary market. The primary market is where the Treasury sells newly minted t-bills to primary dealers. Primary dealers — the big Wall Street banks — are legally REQUIRED to bid on treasuries sold at the primary market, so there is never any danger of Uncle Sam ever being unable to sell T-bills.
The secondary market is where “previously owned” t-bills are re-sold. The Fed sometimes participates in the secondary market, selling or buying previously owned t-bills in order to manipulate the price. The saying is, “never bet against the Fed,” because the Fed can bid up the price, or the Fed can flood the market and cause the price to go down. The Fed controls enough of the secondary market to control prices and that is one way the Fed can control interest rate (the other way being the rate the Fed pays on bank reserves). The Fed does not control the quantity of money, but it does control interest rates.
Rates are up on the 30 year t-bill because 1) THE FED WANTS RATES TO GO UP and 2) because investors are worried about inflation. Who wants to buy a 30 year bond that pays 1% if inflation is 10%? If you expect inflation to be 10%, then you need a 10% return just to break even.
Why is inflation up? Tariffs, bird flu, covid killing or disabling millions of workers, Yemen’s blockade of the Red Sea increasing shipping costs, the inadequately regulated housing market, but most of all due to monopolies jacking up prices just because they can. NOT BECAUSE OF THE BUDGE DEFICIT. Yet the pundits and the politicians blame the budget deficit and “money printing” while ignoring the monopoly problem and the covid problem and the bird flu problem and the tariff problem and the Middle East genocide problem and the inadequately regulated housing problem. The powers that be don’t want to fix the problems, but they do want an excuse to cut social programs that they never liked in the first place. Don’t fall for it.
Why doesn’t the Fed manipulate the secondary market to lower interest rates, which they could do if they so desired? I can’t speak for the Fed, and we should not believe everything they say publicly, but it is known that the Fed does not approve of Donny’s crazy tariffs. Maybe the Fed wants to send a message?
Mark Pontin
@ Ian —
“Population still matters, as war is automated, it matters less. ”
Thank you. Same with manufacturing, too, in principle — a point you maybe don’t make as much as you might.
Granted, both automation of manufacturing and war tech will require a level of investment and, thus, of elite competence that’s completely beyond Western elites now.
The EU’s current movement towards military Keynesianism is particularly pathetic as in practice it’ll be nothing but an illustration of Orwell’s dictum: “War is a way of shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent.”
In other words, the funding of big platform weapons systems like manned fighter jets and tanks, which will be used to justify cutting social programs but in practice in an actual 21st battlespace have the utility that mounted French knights at Agincourt had.
Feral Finster
From a human friend:
https://policytensor.substack.com/p/rate-outlook-and-the-coming-fiscal
different clue
autonomous drones . . . That will facilitate more implausibly deniable government and/or rich private actor drone assassinations.
A little honeybee drone flies up and stings you. Only days later does an autopsy reveal that it was really a fake honeybee drone with a ricin stinger.
( I remember reading somewhere and I can’t remember where . . . that Dirty Fat President has a secret goal which is to drive America bankrupt so as to default on every American debt, especially treating Social Security and Medicare as unrepayable debts to be defaulted on. The theory goes that he plans to bankrupt America the way he bankrupted several businesses. I can’t remember where I read that, though.
And the Triple Nazi support base support this because each leg of the stool thinks it will be the one to pick up the remaining pieces and build up its own post-America utopia.)
bruce wilder
I think the chattering classes have almost no capacity to help people think thru the emerging problem of international de-dollarization, of which the U.S. Federal deficit is an aspect and pressure point. Framing this as an imperative to “cut Federal spending” is inevitable as is an interpretation that leans on cutting Federal spending “entitlements”. Defaulting on Social Security is what the billionaire right-wing wants to do. And, almost no one is available in the political parties or the media punditry and podcast mafia who could articulate an alternative course of action.
The base problem is not the U.S. government’s deficit per se and in isolation, but rather the American economy’s current account deficit — a deficit that mirrors China’s massive domestic savings surplus and trade surplus. There are institutional structures of power in both countries built around these imbalances that lend great inertia to their continuation, even beyond points of crisis. “Fixing the problem” — whether the problem is framed as rising debt service costs to the U.S. government, say, or excessive Chinese savings and investment leading to precarious R.E. developer and local government finances will tend to provoke existing power structures to push “kicking the can down the road” over any reform that might destroy sources of economic and political power rooted in the economic habits of 30+ years.
I do not have in mind an ideal “solution” that we can(not) get to. A new Bretton Woods agreement, reviving Keynes’ Bancor proposal for an international exchange “imaginary currency” mechanism to force long-term balancing of trade and investment flows is the closest gesture I can conjure. But, realistically, there is just way too much (dollar-denominated) debt circling the globe as uncontrolled capital and way too much political power marshaled behind that capital to permit disinterested intellect to do that kind of work. Maybe, the core BRICS hold the line, man the barricades against that raging torrent of dollar capital, until the predatory flood tide recedes leaving the remnant industrial capacity of the West isolated on an archipelago of dilapidated, high-cost plateaus.
I just do not see much prospect of reform in the West. Democratic politics is being actively suppressed by the “liberal” or neoliberal centrists. There is little evidence I can see of intellectual ferment on the economics. MMT has never wanted to engage with the implications of international trade dependency or a marketable national debt. I love Matt Stoller and the new antitrust for their New Deal nostalgia, but think the institutional support is not there — Chris Hedges is right about the dire implications of the Death of the Liberal Classes (which is partly a story of the corruption attendant on neoliberal “markets in everything” — the flood of public and private debt liquidity has worn away the foundations of everything). Think about what the transformation of Harvard into a hedge fund with classrooms has meant to the availability of principled intellectual resources. The plague of NGOs networking uselessly and mindlessly where social activism once labored earnestly is more than symbolic. I don’t mean to turn this into a rant, but it is important to see how broad is the context that turns the political struggle over the federal deficit into a performative ritual of partisan rancor and stupidity with no possibility of a hopeful resolution short of massively destructive collapse.