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Are The Bonds Broken?
"Die gas pumper!"
References to The Jerk are a staple in these pages, even as I realize a lot of younger readers aren't familiar. If that's you (i.e., if you haven't seen The Jerk), do yourself a favor. To call the film a classic is to do it a disservice. It's among the greatest comedies ever made.
There's a sense in which the long-end of the US Treasury curve's a victim of circumstance. Investors don't "hate these bonds," they're just nervous about the fiscal trajectory of the government whic
Thx. Ties in well your Minsky Moment article and future manifestations of trumpian chaos.
My theory regarding societal breakdown can be traced back to the decline of phonebooks. It used to be that you’d strive to get your name in the phonebook and you knew you were somebody when it happened. Now, everyone can just pay for a blue checkmark.
As for bonds, this is a classic “George Costanza/do the opposite” situation where my instincts said bonds were the right play prior to the election.
“My name is dayjob. I’m unemployed and live with my parents.”
The US is somewhat dependent on foreign buying of our treasuries, unless we go full MMT.
Once DJT gets going with some of his crazier antics, will they start to ponder potential repayment risk? US entities don’t face that, but in his first term, DJT was reported to have asked his Advisors if the US could selectively default on bonds held by the Chinese. Might he ressurect that idea and use it alongside tariffs as an instrument of power?
What’s that old quip “If you owe a bank a small amount, they own you. But if you owe them a lot, you own them?”
Trump learned and used that in his business career. Perhaps he will try and use that strategy against foreign “suckers” who bought our bonds?
In regard to MMT, surely if you create more money, you create more inflation . Is there a way to create money without creating inflation as we already have an inflation problem.
Remember: MMT isn’t prescriptive. It’s descriptive. It’s just a description of how government spending in advanced, hard currency-issuing economies already works. This is quite possibly the least-understood macro topic of the 2020s. Governments spend first and “pay for it” later. Or not at all. MMT isn’t a “theory.” It’s just the way things already work. I long ago gave up pounding this table, though. Life’s too short.
I’d go a step further and say that it works that way only to the point that the “shared illusion of value” you’ve spoken about is maintained. Once faith starts to weaken a bit (i.e. even a slight derating, lesser demand for issuance, etc) the same things that were true today may no longer be true in the future. Just look at stock/bond correlations as an example of how “it is until it isn’t”.
I wholeheartedly agree with your statement that MMT is a description of the way things are, not some prescriptive policy playbook. I guess what I’m driving at here is that I wonder how violent/sharp the unwinding is when the laws of market physics that we’ve been relying on suddenly change. It happens regularly with all kinds of shorter-term correlations/truisms/etc. But this one seems like a much higher order change if it occurs.
Yeah, I mean I guess I just wonder how so many people don’t understand the basic tenets here. Plainly, the money has no intrinsic value. This is what makes the hoarding of it past a certain point nonsensical. If you have everything you need and want, and you have enough to ensure that your children will have everything they need and want, and you don’t have designs on anything beyond that, hoarding paper money (or digitized paper money in the internet era) is completely pointless. Particularly considering humans have a penchant for up and dying all of a sudden. What sense, I used to wonder of my neighbors, when I lived on the island, does it make for someone who owns a $10 million beach home free and clear, and has $10 million more in the bank, and is 60 years old, to keep hoarding scrip? I wanted to just shout at them: “Jesus Christ, just spend it! You have plenty and you could die literally today!”
H-Man, I am in the 5+ camp in 1Q25.