"The bond market is, in essence, a collection of investors so sharp that they can’t help but realize exactly how precarious the country’s financial situation has gotten,"
Were these the same sharpies who drove the 10-year yield down under 1% in 2020 when spending was to the moon? And who lost money for 4 years after they bought under 1%?
In bonds? Lost money? For years?
Oy vey.
OK, a little snarky I admit. But the herd follows itself. That seems to be the only law of markets. If you keep your job that's the payday.
There are only two elected officials in DC who are principled deficit hawks. Massie and Rand Paul. That’s it. Everyone else, both parties, will drive this runaway fiscal train right off a cliff.
The government creates money. The private sector creates value. Trump is trying to move money from government to the private sector, where value can be created. Increased value is what we really need, not more accounting tricks.
Do we have five years? Will Trump's approach work? Damned if I know. But I've become pretty knowledgeable concerning what doesn't work...
Here's something to think about. For some reason I started thinking bout how the Roman Empire had it's conquered provinces pay tribute, and that's how the actual city of Rome sustained itself. No productivity, just tribute. Curious parallels to the USA.
For multiple reasons which I will not detail here, I think in the short term that the concerns about the trajectory of our debt relative to the size of our GDP may be close to peaking and the damage to the US brand in financial markets may be able to be somewhat reversed. Agree completely about the importance of bond rates both to the success of Trump’s goals and growth of our economy in general , and that the pessimism that comes from the lack of concern of the great majority of our politicians about anything except what actions maximize the probability of them winning their next election. That is almost always the length of their long term horizon. I also admit I am a perennial optimist, which at times has been problematic but in general has served me well during my investment career and has certainly made my life a lot more joyful. But I seriously see the possibilty that if we navigate the next six months successfully ( no recession, reasonably successful tariff negotiation, the threat of widening wars receding, the benefit of oil prices in the $50 -65 range , ending of non productive spending _ maybe waste , fraud and abuse but more importantly the immense misallocation of resources that have stemmed from climate hysteria) that we could enter into a virtuous cycle of growth which given political realities if combined with domestic spending discipline id the best realistic hope of reducing or budget deficits from the insane level of this decade.
When all of a sudden you look up and realize how deeply you've dug yourself into a hole, there is no better time to stop digging than that very moment.
I've seen no indication that Trump has any interest in cutting spending. It skyrocketed during his first term, and I'm skeptical that this time will be any different. So far, it's not.
I mostly agree with what you are saying. However, the bond market is not all-knowing. China, which was the primary holder of US Treasuries, has now fallen to number 3 in the rankings, behind Japan and the UK. Why? They are waging economic war on the US. They are dumping US Treasuries, flooding the market, in order to make it harder for Bessent to refinance the $37 trillion US debt. And thanks to the nitwit Janet Yellen, $12 trillion of that debt is funded by short-term bills. Thus, Bessent is forced to hold Treasury auctions 30, 60 and 90 days in order to refinance that paper while facing a Treasury glut thanks to the Chinese dumping their paper.
Given that, it's been shown that tax cuts raise Federal tax revenues. Thus, Trump's bill will maintain the current level of revenues (i.e., they are extending existing tax cuts) and may possibly raise additional tax revenues due to the overtime tax exemptions. However, there is no excuse for NOT codifying the DOGE audit findings. A Democrat administration can undo EVERYTHING Trump has done with the stroke of an autopen. And that is on Congressional Republicans, many of whom are benefiting from the USAID-NGO fraud. Not only does codifying those savings reduce the deficit, it makes it harder for a subsequent Democrat administration from ramping up the slush funds they use to pay for their anti-American agenda.
I wish you were right in saying the bond market will adjudicate the debt problem. More likely, it will be government intervention into the bond market, not higher interest rates, that will balance supply and demand for Treasuries. Expect Treasury (Bessent) to exercise YCC. Expect the Fed to intervene and monetize. Expect commercial banks to become major new buyers of government debt and monetize even more. Expect incentives, nudges, and perhaps even requirements for domestic savers to buy Treasuries. In other words, expect financial repression - soft at first, then good and hard if necessary.
Is any of this a surprise? We've been happily voting for cutting taxes for 25 years (which has not produced the advertised increase in productivity/revenue ). So here we go again, same game plan with Republicans this time, tax cuts which mostly benefit the rich, symbolic cuts to government which mostly hurt the middle and poor (Medicaid especially) but don't really count for much efficiency. I believe this is the looney toons phase of the capitalistic economic cycle. No defense of Democrats here, though the last administration to actually cut government spending AND have a burgeoning economy was Clinton, a moderate. I don't know how we get ourselves out of this mess but if we rise from the ashes I hope we understand that a bird can't fly without both a left wing and right wing and they need to work in rhythm together.
"the deficit has to be addressed—and the time for doing it is right now — not five years from now, not ten years from now, not at any other point in the future." This is very true but the time to address this was 20 yrs ago, as we all know. Next step to the shit hitting the fan will be after the big beautiful bill passes will be to get rid of Powell and get a new schill to lower interest rates.
Then head for the lifeboats. Make sure you do the right thing and let the women and children go first. I'll stay and work to keep the ship afloat. Along with 75 million other Americans who love this country and will do what's necessary to save it.
"The bond market is, in essence, a collection of investors so sharp that they can’t help but realize exactly how precarious the country’s financial situation has gotten,"
Were these the same sharpies who drove the 10-year yield down under 1% in 2020 when spending was to the moon? And who lost money for 4 years after they bought under 1%?
In bonds? Lost money? For years?
Oy vey.
OK, a little snarky I admit. But the herd follows itself. That seems to be the only law of markets. If you keep your job that's the payday.
LOL
The FED drove the ZIRP policy for 10+ years. Where's the tar and feathers?
There are only two elected officials in DC who are principled deficit hawks. Massie and Rand Paul. That’s it. Everyone else, both parties, will drive this runaway fiscal train right off a cliff.
The government creates money. The private sector creates value. Trump is trying to move money from government to the private sector, where value can be created. Increased value is what we really need, not more accounting tricks.
Do we have five years? Will Trump's approach work? Damned if I know. But I've become pretty knowledgeable concerning what doesn't work...
I get that. We should never have let this happen. We may well be in for a well-deserved drubbing. But it need not be fatal.
And as I say incessantly, if you make an economy about he money and not the productivity, you will be overseeing a failing economy.
Here's something to think about. For some reason I started thinking bout how the Roman Empire had it's conquered provinces pay tribute, and that's how the actual city of Rome sustained itself. No productivity, just tribute. Curious parallels to the USA.
For multiple reasons which I will not detail here, I think in the short term that the concerns about the trajectory of our debt relative to the size of our GDP may be close to peaking and the damage to the US brand in financial markets may be able to be somewhat reversed. Agree completely about the importance of bond rates both to the success of Trump’s goals and growth of our economy in general , and that the pessimism that comes from the lack of concern of the great majority of our politicians about anything except what actions maximize the probability of them winning their next election. That is almost always the length of their long term horizon. I also admit I am a perennial optimist, which at times has been problematic but in general has served me well during my investment career and has certainly made my life a lot more joyful. But I seriously see the possibilty that if we navigate the next six months successfully ( no recession, reasonably successful tariff negotiation, the threat of widening wars receding, the benefit of oil prices in the $50 -65 range , ending of non productive spending _ maybe waste , fraud and abuse but more importantly the immense misallocation of resources that have stemmed from climate hysteria) that we could enter into a virtuous cycle of growth which given political realities if combined with domestic spending discipline id the best realistic hope of reducing or budget deficits from the insane level of this decade.
When all of a sudden you look up and realize how deeply you've dug yourself into a hole, there is no better time to stop digging than that very moment.
I've seen no indication that Trump has any interest in cutting spending. It skyrocketed during his first term, and I'm skeptical that this time will be any different. So far, it's not.
Great article & title!
New Budget is huge disappointment as Musk said Congress and of course Trump must cut spending or we're going to have a Debt Jubilee!
I mostly agree with what you are saying. However, the bond market is not all-knowing. China, which was the primary holder of US Treasuries, has now fallen to number 3 in the rankings, behind Japan and the UK. Why? They are waging economic war on the US. They are dumping US Treasuries, flooding the market, in order to make it harder for Bessent to refinance the $37 trillion US debt. And thanks to the nitwit Janet Yellen, $12 trillion of that debt is funded by short-term bills. Thus, Bessent is forced to hold Treasury auctions 30, 60 and 90 days in order to refinance that paper while facing a Treasury glut thanks to the Chinese dumping their paper.
Given that, it's been shown that tax cuts raise Federal tax revenues. Thus, Trump's bill will maintain the current level of revenues (i.e., they are extending existing tax cuts) and may possibly raise additional tax revenues due to the overtime tax exemptions. However, there is no excuse for NOT codifying the DOGE audit findings. A Democrat administration can undo EVERYTHING Trump has done with the stroke of an autopen. And that is on Congressional Republicans, many of whom are benefiting from the USAID-NGO fraud. Not only does codifying those savings reduce the deficit, it makes it harder for a subsequent Democrat administration from ramping up the slush funds they use to pay for their anti-American agenda.
I wish you were right in saying the bond market will adjudicate the debt problem. More likely, it will be government intervention into the bond market, not higher interest rates, that will balance supply and demand for Treasuries. Expect Treasury (Bessent) to exercise YCC. Expect the Fed to intervene and monetize. Expect commercial banks to become major new buyers of government debt and monetize even more. Expect incentives, nudges, and perhaps even requirements for domestic savers to buy Treasuries. In other words, expect financial repression - soft at first, then good and hard if necessary.
“If something is beautiful, you don’t do it after midnight.”
The bond vigilantes have taken the printing press away from the Fed.
Is any of this a surprise? We've been happily voting for cutting taxes for 25 years (which has not produced the advertised increase in productivity/revenue ). So here we go again, same game plan with Republicans this time, tax cuts which mostly benefit the rich, symbolic cuts to government which mostly hurt the middle and poor (Medicaid especially) but don't really count for much efficiency. I believe this is the looney toons phase of the capitalistic economic cycle. No defense of Democrats here, though the last administration to actually cut government spending AND have a burgeoning economy was Clinton, a moderate. I don't know how we get ourselves out of this mess but if we rise from the ashes I hope we understand that a bird can't fly without both a left wing and right wing and they need to work in rhythm together.
I'm good with that analogy!
"the deficit has to be addressed—and the time for doing it is right now — not five years from now, not ten years from now, not at any other point in the future." This is very true but the time to address this was 20 yrs ago, as we all know. Next step to the shit hitting the fan will be after the big beautiful bill passes will be to get rid of Powell and get a new schill to lower interest rates.
Spot on. The best time to plant a tree was 20 years ago; the second best time is today
Then head for the lifeboats. Make sure you do the right thing and let the women and children go first. I'll stay and work to keep the ship afloat. Along with 75 million other Americans who love this country and will do what's necessary to save it.
Sorry you've surrendered. Are you French?