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The Yield-Curve Control Endgame
I'm reluctant to indulge discussions about US debt and deficits.
Everyone is ready and willing to grant that, as Fitch put it this week while downgrading the US, "the dollar gives the government extraordinary financing flexibility." But almost no one is prepared to concede what currency hegemony actually means when it comes to government finance. The US isn't just special, it's a different animal entirely. "Debt" is a misnomer. The deficit is meaningless. And on and on.
The US deserved to be d
There was a pretty good article in the WSJ today indicating that 40% of CPI is related to housing costs. Furthermore, at this point- continuing to increase interest rates would likely further suppress supply in the face of demand that isn’t decreasing, even with higher rates.
Time for the Fed to shift its primary focus to (more) moderate long term interest rates to bring more potential sellers to actually sell- this could help reduce inflation.
Lower long rates could both increase prices (duration) and decrease prices (supply, existing and new starts).
Can we count Xi and Putin in the growing list of people who are coming to terms with the idea that the US is a different animal entirely when it comes to currency hegemony and government finance? If that were the case, the natural question for them to ask would be: Does it mean budget discipline only matter for the rest of the world and doesn’t matter for the US? Xi and Putin probably didn’t like the answer to that question. Given that WW II was the turning point for the US to become a different animal (with the caveat that I don’t know much about what happened at the time), it’s possible that Xi and Putin are thinking on the same page what needs to happen to reverse that, making them special this time perhaps. That could mean the more undisciplined the US become on the budget front, the more Xi and Putin become aggressive on both the economic and real war front. I’d rather the US run the world, though. But in a disciplined way, if it could.