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Adult Supervision
"Oh good, Scott Bessent!"
Maybe that's something people say in all sorts of contexts. Like, when Scott shows up at parties, for example. Donald Trump's nominee for Treasury Secretary seems like a decent enough guy, particularly as Trump nominees go (and when he's not lobbying for cabinet posts in distasteful Wall Street Journal Op-Eds and making dangerous suggestions about the institution of a parallel monetary authority in the US).
But I'd wager there's scarcely ever been a time in Bessent's
Terming out the debt with a growing term premium? Interesting idea.
Well, Scott was basically making the same point a lot of other people have made: That Yellen should’ve taken advantage when long-end yields were very low to term out the debt profile. Conditions are obviously different now. I think he was just saying that if he were Yellen when long-end yields were where they were prior to the inflation shock and the rate hikes, he would’ve done things differently. That sounds good in theory, but what critics never mention is that… well, that’s just not how it works. Granted, her issuance strategy was absolutely motivated by political expediency at various intervals, and sure, she could’ve leaned harder into longer-end issuance than she did, but the inescapable reality is that the US Treasury has to (has to, has to) prioritize the maintenance of the world’s reserve currency and any number of other, related quasi-existential imperatives over the sort of issuance “strategery” Yellen’s many critics insisted she should’ve pursued. There’s a limit to Treasury’s capacity to shift the debt profile opportunistically, and besides, the sheer size of outstanding US public debt means it’s mathematically difficult (and probably impossible, depending on the tenor) to dynamically manage America’s WAM. This is a big-ass ship. You can’t just “pivot.” Basically, Scott (and Stan and all the rest) were talking out their asses for publicity. That’s all it was. Let’s see what Scott says when he’s suddenly in charge of all this. I mean, these guys think — you know — “Oh, I managed XYZ billions” and “I helped George break the BoE,” how hard can it be? Pretty goddamn hard, as it turns out. I understand why it’s tempting to scoff at establishment figures and talk about all the harm the’ve caused over the years, but contrary to popular belief, there’s a reason why, in a pinch, you appoint people like Janet Yellen to very important roles: It’s because whatever else you’re doing, you’re effectively eliminating the left-left-left-most tail, which is to say whatever else someone like a Yellen does or doesn’t do in a role like Treasury Secretary, she’s not going to blow up the universe. I think Scott strikes a good balance here, like Mnuchin: He’s Trumpy enough to get the nod and stay in the role, but he’s smart enough that once he gets in there, and his ops people say “Hey, Scott, we don’t want to come across as insubordinate or otherwise start things off on the wrong foot, but that thing you said that time about XYZ is just dumb as sh-t, and here’s why,” Scott’s going to listen, and as an extremely intelligent guy, Scott’s going to understand. Or at least I think (and hope) that’s the case.
Treasury cannot issue only 30 year or 100 year or whatever, if the demand is not there. There is some demand for ultra-long maturities, but trillions of dollars of sustained demand? I don’t think so – institutions buy Treasuries for specific purposes, and the “lock in ultra-low yield forever with ultra-high duration risk” purpose is niche, to say the least. Even if you did, then how does the global financial system operate without a goodly supply of liquid new issue Treasuries? The idea that Yellen could or should have termed out the US debt in 2020-2022 is unrealistic.
Let’s just hope the US Treasury’s fortunes don’t mirror the trajectory of Key Square, from raising $4.5BN to losing most of its clients and now running a few hundred million AUM.
I try to be generous where I can, but as noted in the article (and across any number of other articles), the truth is that the only way “Trump 2.0” is going to go well is by luck, by accident or by the grace of a few GOP senators. I worry a lot about the Gabbard thing. That’s really, really concerning, more so to me than virtually anything else I’ve seen from Trump since 2016.
Hey H, I remember you posted a great article about Drunkenmiller calling out Yellen as well. Do you happen to have the link? Would be good to re-visit and read. Thanks!
I was late to the article and had to chuckle at the line “implement Trump’s tariffs ‘gradually’ to avoid shocks”, having just read that Trump tweeted he is imposing 25% tariffs on everything from Mexico and Canada starting on January 20th. Good luck Scott Bessent!