It’s a mistake, and not a small one either, to view Donald Trump’s assault on America’s institutions and his administration’s hostility towards pockets of perceived dissent as separate and distinct from higher bond yields and a wider term premium.
The bond market demands compensation for risk, all sorts of it. Not just fiscal risk. Fiscal rectitude’s irrelevant — or at least could be rendered so — where the rule of law’s weak or nonexistent.
I could preside over the most fiscally responsible government in the world, but if I wield power in an arbitrary way that makes it difficult for lenders to discern what the rules are and to whom they apply, no one will loan me any money, or at least not at favorable rates.
Yes, Fitch (in 2023) and Moody’s (last week) were heavy on the fiscal fretting and light on the rule of law allusions in downgrading the US, but the allusions were there. “We assume respect for the rule of law will remain broadly unchanged,” Moody’s said.
That may not be a safe assumption. Every day there’s some incremental escalation from Trump. Some days, the escalations are more than incremental. On Thursday, the administration effectively branded Harvard a terrorist training camp and accused it of conspiring with Xi Jinping in the course of revoking the university’s Student and Exchange Visitor Program certification.
Harvard’s “fostering violence, antisemitism and coordinating with the Chinese Communist Party,” Kristi Noem declared, in a statement. And just like that, Harvard’s barred from enrolling international students.
I suppose this goes without saying — and with apologies for the language — but this is f-cking crazy. Harvard’s not a puppet of the regime in Beijing, nor is it a haven for “pro-terrorist agitators,” as the Department of Homeland Security alleged.
Someone needs to call this what it is. Trump’s shamelessly exploiting a rising tide of antisemitism in America. He sees in that groundswell an excuse to turn the screws on elite universities — to starve them of resources as a means of discouraging liberal thought. He’s monetizing, politically, incidents like that which occurred on Wednesday night at the Capital Jewish Museum in downtown D.C.
Trump doesn’t give a damn about antisemitism. This is a president who, when confronted with a literal Nazi rally in Charlottesville, Virginia eight years ago, refused to place blame for the ensuing violence solely with the Nazis, who were joined at the event by, among other colorful characters, Ku Klux Klansmen.
That’s not to say Trump’s himself is an anti-Semite. Trump’s not an anti- anything, nor is he really pro- anything other than tariffs and McDonald’s. He has no principles, good or bad.
When it comes to antisemitism, Trump plays to whatever’s politically expedient. He can traffic in the very same notions of Aryan superiority which sent Jews to the gas chambers or he can be the best friend Israel’s ever had. It depends on what day it is, where he’s at, who he’s talking to and, most importantly, what he’s trying to accomplish.
Reich revisionism’s becoming a fixture of the alt-right movement at the core of Trump’s MAGA base. He doesn’t openly espouse it himself, but he doesn’t discourage it either, and he dog-whistles incessantly to white nationalists by, for example, promoting variations of great replacement theory (see Wednesday’s shameful Oval Office ambush of South Africa’s Cyril Ramaphosa).
But Trump’s trying to build an autocracy, and institutions like Harvard are bastions of liberal democracy. At present, they’re also the site of protests against the war in Gaza, and many describe those protests as inherently anti-Semitic. So, Trump puts on his friend-of-Jews hat, not because he’s actually concerned about the tenor of the protests, but rather because he sees in them an opportunity to cut funding to schools which don’t share his vision for America.
Thursday’s action against Harvard raises the stakes in what was already a quasi-existential fight for academic freedom. If Trump’s able to subdue the deepest-pocketed schools in the country, and force them to alter their curricula, the rest of the nation’s colleges and universities have no hope of retaining their intellectual independence and integrity.
Harvard’s already sued Trump once. Now, they’re almost surely going to sue him again. A spokesperson on Thursday described Trump’s actions as “retaliatory” and said the ban on international students “threatens serious harm to the Harvard community and our country.”
Noem, boasting about the ramifications of Trump’s broadside, said existing foreign students at Harvard “must transfer.” If not, they’ll “lose their legal status.”
I implore readers: Don’t kid yourself into believing these sorts of escalations can continue in perpetuity without impacting markets, and specifically long-end Treasury yields.
In isolation, there’s obviously no read-across from these crackdowns to financial assets. None at all. But when considered as a program — an overtly anti-democratic program — they’re alarming in the extreme, and markets can’t ignore that.
Investors, foreign and domestic, already have an excuse to demand more in the way of compensation to fund America’s deficits. As one professional money manager told Bloomberg on Thursday, “People are getting fed up. It’s clear there are no adults in the room in Washington. Zero. No accountability.”
Right or wrong, the bond market’s starting to take seriously the notion that America’s red ink is potentially catastrophic. I don’t agree with that, but it’s certainly true that fiscal rectitude’s out of fashion inside the Beltway. If democracy is too, and if the rule of law goes, then what’s left?
Wondering when the equity market wakes up to the bond market’s unease
Equity market will cheer for bond market disfunction to the extent it prompts a fed intervention.
n.b. International students make up about 27 percent of Harvard’s total enrollment with more than 6,700 international students enrolled at the university as of fall 2024. [Source: Politico]
6700 students were just told to gtfo of Harvard, one of the most prestigious universities on the planet, or lose their legal status.
I wonder how many international students there are enrolled at all U.S. universities combined (public and private)? It must be a very large number.
I wonder how many are Saudi, Qatari, or Emirati? Didn’t some of trump’s kids go to Harvard?
I suppose most of the students from the Gulf will just buy a Trump Gold card, so win, win I suppose. 😉
1.1 million, according to the Institute for International Education
Thank you for looking that up.
I’m glad you brought this up. It was the case that one usually only had to worry about political risk as a financial concern in emerging economies and never in the US. Not so anymore.
Your basic premise–that Trump’s continued attacks on the rule of law will tank the U.S. financial and equity markets is correct and (slowly) happening. But in more than one observation you accept at least in part (or tolerate) the false (and dangerous) notion that criticism of Israeli politics and its dramatic acceleration of the 100-year war against the Palestinian people is “anti-semitism.” That’s crap, pure and simple. Palestinian leadership has historically been worse than incompetent. That does not sanction military policies that are clearly genocide–ironically making the Israeli leadership no different that Nazi war criminals. /s/ Jews from Minsk
“…you accept at least in part (or tolerate) the false (and dangerous) notion that criticism of Israeli politics and its dramatic acceleration of the 100-year war against the Palestinian people is ‘anti-semitism.’”
Are you new here? That’s a serious question. I don’t accept that at all, and the fact that you’d suggest I do is proof positive that you haven’t read my coverage of the war in Gaza.
I’m guessing that the comment author isn’t the well-known David Axelrod, because my fleeting sense of the man is that he wouldn’t have written such a statement without at least having a quote to back it up. I HAVE been a long time reader, so I have read plenty of your coverage of the war in Gaza and agree with you wholeheartedly. But for me, the weird thing is that I went back and re-read THIS article — twice, looking for what prompted his response in the first place. I’m just not seeing it.
Honestly, these days when I see unprovable statements such as his I just chalk it up to Russian, Chinese or maybe domestic agent provocateurs. Maybe too dismissive on my part, but there it is.
Show us on the article where the bad man hurt you.
https://heisenbergreport.com/2025/05/19/destroying-everything-thats-left/
I noticed Moody’s assumption about the rule of law and wondered if they’d written it in 2023. If not, were they asleep the past 3 months?
How do you guys remain calm while we slide into this abyss? Because I am having trouble. What will it take to get us all out into the streets?
I’m not calm. I’m incredibly upset, scared, and angry. I would fly to DC at a moment’s notice to participate in something like a million man march. As far as what it’s going to take: leadership. Someone has to galvanize the populace to take action.
The problem is there are no other galvanizers on the scene anywhere.
I expect that much of Trump’s actions against Harvard will be blocked in litigation. His prior blanket recission of student visas under the SEVIS program was blocked, and Harvard will be a formidable legal opponent.
But H’s point stands. Seeing the US President do anything he wants, flout any right or contract, throw any business or entity into disarray, even if the action is eventually blocked or reversed, does not encourage investment in the US. EQNR will surely think twice before undertaking any projects here, or will demand a hefty risk premium, and so will others, be they international students or international companies.
What about stock and bond investors? The latter, being generally smarter than the former, seem to be starting to exact their premia. Stock investors are not – yet. Individual ones may, but the structural flow of money toward US stocks from retail, retirement, buybacks, carry has yet to really be dented.
I’m wondering what effect the Supreme Court’s dicta on Powell’s job security has on the risk premium.
Businesses, markets and international relations do best when there is stability which has been key to US 20th century economic dominance. We created a world order dependent upon consistent US behavior. Trump 1 was a shock, but expected to be short and with no permanent damage. Now no one anywhere can be certain about the direction the US will take. There is no safe compass direction. Add in climate change and there doesn’t seem to be safe harbor anywhere. What’s the time period now for a buy and hold strategy.
At this point my expectation is that whatever’s left of the US china shop after this bull exits will result in austerity measures for those of us who still are alive and live here. The big beautiful bill act debt loaded wealth transfer will have to be paid for by the only people left who still pay taxes.
Forcing out foreign students (literally the best and the brightest in the world) mean an end to the dominant innovation factory the US has been since the 2nd world war. We became that innovation factory after all the brilliant minds in Germany left that autocratic state to coalesce in a free society, something we are running away from every single day now.
If you haven’t seriously considered an exit strategy it’s not too late to start planning one. I expect at some point some fabrication will close the border for everyone. Otherwise the rich being pandered to right now will have no incentive to stay.
More than half the prospective scientists, doctors, engineers, professors and entrepreneurs in our graduate and professional schools were born overseas. Without them any claim on intellectual leadership is essentially fraudulent. I was in that bus for 40 years. I helped teach these folks. They were generally smarter, more motivated, harder working and generally better than so-called “native students,” and certainly all were better than anyone Trump knows.
I just read Kristi’s Wikipedia page. That is one scary lady we have installed as the one in charge of all the folks who can tear anyone’s life apart on a whim. She killed own dog because she didn’t like its performance.