Many people here were so confident a few days ago that the tariffs were just some 4d chess to get interest rates down, despite this not making any sense.
I never even understood what the theory was supposed to be for why it would lower interest rates.
You can only run a trade deficit if the country you are trading with is a net investor. Part of that investment is going to be in the form of bonds. If you force a cut in the trade deficit, you cut the demand for bonds, which lowers their price and raises their interest rate.
It's interesting that conspiracy theorists nowadays are looking for hidden plans for how the government might be working in our best interest, in spite of appearances
Most commentary, for and against, has been exclusively on the economics, and from that perspective it makes little to no sense. But I've seen suggestions in a couple of places that there are relevant "national security" motivations, or to put it bluntly, a greater freedom to wage war - or at least to put oneself in a position where the threat of it would be more realistic. Decoupling the US economy from the rest of the world, but especially from China, makes sense if the strategic cost-benefit analysis sees a significant potential for war with that country. It's a commonplace of international relations, and intuitively obvious, that the more integrated are the economies of two countries, the less likely they are to start wars with each other (no doubt there are exceptions, but as a rule...). That doesn't have to mean anything imminent or indicate concrete plans on the part of US, but it's plausibly a factor in the overall calculations.
In fact, the economic interdependence of the US and China had seemed to be a big reason to remain hopeful that there wouldn't be a war between them, among other reasons of course. Reducing this interdependence seems to destabilize this situation. The unfortunate fact is that I can't see the US military establishment just peacefully allowing China to become more militarily powerful than itself. I'd be happy to hear other perspectives on this, I'm far from an expert and haven't seen this angle discussed much.
It seems to me the core issue at hand is that Trump has made a grave strategic error in terms of who really holds more cards in the trade battle, specifically with China.
This bond lever - the threat to abruptly shut off US debt supply - is just one of them. But China can also simply manage far more easily without US imports than the US can manage without Chinese imports. And for any given pain threshold, China can bear that far longer than the US will, because of the authoritarian control the government can exercise.
And then from a geopolitical point of view, even if China loses they win - because the rest of the world fully views this as an act of betrayal and lunacy by the US and the more negative the outcome the better China looks by comparison as a reliable, rule following partner on the world stage.
Basically what I see here is that we have a game of poker where China holds nearly all the cards and Trump is just pushing more and more chips onto the table.
There's also the simple fact that there are an awful lot of countries other than the US for China to export to, and some of them are busy looking for new suppliers (especially since lots of "made in the USA" products have tariffs on their constituent parts). And China is much better equipped to change manufacturing priorities, and directionally the shift would be up the value chain....
>strategic error in terms of who really holds more cards in the trade battle, specifically with China.
I'm not sure who has cards is the problem so much as launching an unnecessary trade battle in the first place.
If you really wanted to onshore industrial production you could have announced sane policy in advance to give people time to build factories in the US etc. without a trade war needed.
Also, don't forget to factor in the reality that many Chinese people live at and expect a far lower standard of living than Americans do. Americans by in large are some of the most spoiled and entitled people on this planet who think that getting a new TV every year is a necessity for life
> error in terms of who really holds more cards in the trade battle, specifically with China.
This isn't 1v1 though. Maybe there was a time when US vs the rest would work, but now?
The problem is this isn't about import / exports of physical goods.
Once tariffs and bans happen on digital goods, services, etc the US is toast. Has Trump forgotten about them? China is already onto things like US films.
Game studios, Disney, Netflix, Hollywood, etc are all on the firing line.
Even sports like NBA, major league, etc would all crash. A large part of their income is from advertisements and broadcasting deals overseas.
A strategic error would imply he actually has a strategy. No-one doing anything in American government right now has a strategy.
As long as he gets to play as much golf and watch as much TV as he likes, he doesn't seem to care much. I don't think anyone bought Trump, I think he's just signing whatever is put in front of him and taking credit for it so he can go back to playing golf.
China has had net positive tariffs against the USA for decades though. Obama tried to use the WTO to label them as a currency manipulator. Trump tried some tariffs the first time around but they just raised theirs higher to keep the imbalance.
Not saying the current strategy is a good one. But America has lost the entire supply chain, racked up huge debts, and a dollar that encourages more and more consumption. Doesn't something have to happen eventually, before the problem gets worse?
It's hard to say where the lower bound for the value of American companies is now. Is it zero?
Usually one could estimate the absolute minimum of future earnings.
But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.
> It's hard to say where the lower bound for the value of American companies is now. Is it zero?
Come on, it's definitely not zero for most of the companies, even if tons of small businesses go bankrupt.
> But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.
The objective of the current administration is to implement fascism. Companies can operate and make profit, as long as it’s allowed by the government. See the blackmailing of law firms and tech companies for examples.
At what point do investors lose confidence that the US govt will be able to make these bond payments in 10 years? Whatever was considered 'business as usual' through decades of republican/democratic presidents is chucked to the bin now.
>"You look at what happened to the curve last night, that was pretty extreme by anyone's metrics - 2s-10s steepening 30 basis points in a few hours, I've certainly never seen that,"
The 2s-10s spread tends to act a bit like brakes for the economy. The 10 year yield is largely down to inflation and the 2 year largely controlled by the federal reserve. They raise the 2 year above the 10 year to slow the economy if you are getting inflation and lower it if the economy looks like slowing too much and going into recession. This looks like people expecting recession.
> They raise the 2 year above the 10 year to slow the economy
Who is the the "they" here? The government does not set 2 year or 10 year rates, they are priced by auction for new issues and priced by the market for secondary transactions.
That's an interesting point. The 2-year yield did drop noticeably on April 3rd, the day after the tariffs were announced. Do you think the Fed did that to offset the impact of tariffs?
Just so I understand how this works… interest rates on these bonds are going up because of low demand for the bonds? How does this translate to interest rates set by the fed? Do these have to go up to match? .4%?
Fed sets up very short term interest rates - specifically, overnight lending.
It certainly affects longer-term rates, but only indirectly. In effect, the lending rate for 10 year bonds, say (a common benchmark duration) is set entirely by the market. These are closely related - they operate in the same space - but are in principle independent decision-makers.
As to bond yields vs bond prices, t is easiest to see for new bonds - sold directly by the US govt. Unlike consumer loans, with bonds you know exactly how much you get repaid - periodic coupon and maturity. The variable is the price today paid for the bond. The government hopes to achieve a high price, raising as much cash as it can today (for the same future repayment cash flow), i.e. a low interest rate.
If the buyers of bonds - lenders - show up in small numbers, there is weak demand to buy, and the bond price is low. This translates to a high rate of interest - for a smaller upfront loan, you get more repayment down the line.
The same mechanism works in secondary markets - bond owners trading with each other.
In terms of how this affects the decision-making by the Fed - in principle, not at all. Fed is free to do whatever the like. But in practice, Fed is bound by the same forces as the bond traders, and bond yields are going up suggests the Fed will likewise have to raise rates. Or bond yields go up in anticipation to the Fed having to raise rates, etc.
It's complicated but I think 10 year rates are going up mostly because people think there'll be inflation and your dollars will buy less in ten years than they would have without the tariffs. Certainly 100% tariffs on China will make stuff from China cost more in the shops.
There may also be some panic selling by speculators or people worried about their bonds - higher market rates makes the prices of bonds fall.
The narrative I heard yesterday is that bond prices are falling because corporations are selling treasuries to raise cash (to deal with expected increases in prices and/or an economic slowdown, presumably).
When bond prices fall, interest earned on them rises.
1) Trump is playing a storyline. The Market place of ideas in America has one side which is under a monopoly. It sets its own prices, decides what information enters and exits, decides what the market SHOULD look like. It manages half the voting population.
This is why “Trump does what he says” resonated. Previous lawmakers played the role on TV, but in back room deals, acted as if reality mattered.
Trump does not. He will continue to not do so, and the ideas sold in the market place that supports him, will continue to sell ideas to support it. Even if they don’t make logical sense.
It’s like science fiction, reality doesn’t matter.
Without addressing the information asymmetry, no democracy can function. No decisions can be made.
This is the nicest way I can put it to people, without being blunt. This has been the work of decades, reaching all the way back to watergate.
2) Jobs are being lost to automation faster than they are lost to outsourcing. China is the last country that will raise its standard of living through manufacturing. India has to pivot to services, to have a hope of doing anything. All of this is human capital intensive.
3) Wealth inequality is the problem - and frankly, if you have money to spare you are simply going to buy assets. This will be bought from people who are increasingly affected by cost of living issues, and have to sell their assets. This means taxes
4) If Americans want a snowballs chance in hell, there need to be special elections around the country in 2025, to take control of congress. Republican senators and congressfolk are threatened by the voting base if they break with Trump, which they wont anyway. The checks and balances are broken, see point 1.
You cannot win in a broken market place. You cannot fix a marketplace of ideas with government power, because that breaks the principle of Free speech. If you are a government who IS in power because of market place monopolies, these rules do not apply to you.
Trump is serious about devaluing the dollar. The only reason he may not, is because the viewers/storyline suggest he shouldn’t.
I will regret making this post, because of the comments it will generate. It is general enough for a million holes to be poked in it. Sure. This is an outline, that covers most of the pieces that are on the board.
I think Trump is kind of like a semi-fictional character: there’s the real guy and then there’s the character he played on shows The Apprentice which are all a bit scripted, in interviews etc as the larger-than-life successful businessman. People voted for the character. But when you play a character like that for your whole life then it becomes who you are, which is why he’d play the storyline.
One hole to poke into it ;-) There is the growing class of the working poor in the US, and that is something the better off seem to have been ignoring for a while. What I try to say is, that even the status quo ante Trump politics were already quite disconnected from most people's reality.
Now Trump's new politics are different in that they negatively impact rich people's reality.
> If Americans want a snowballs chance in hell, there need to be special elections around the country in 2025, to take control of congress.
Perhaps, though I don't see how you're going to get them without changing or violating the Constitution. And changing the Constitution would mean acceptance by those you're trying to get rid of.
Bluntly, the only way this could happen is a civil war - a real, shooting civil war, with bullets and dead bodies. I'm not yet at the point of cheering for that, much as I dislike the current status quo.
> Republican senators and congressfolk are threatened by the voting base if they break with Trump, which they wont anyway.
Then I don't see how a special election in 2025 would help. You say we need a special election to get rid of these folks, but you also say that these folks would be threatened by the voting base if they break with Trump - which to me means that they won't be threatened by the voting base if they stick with Trump.
So I don't think your point 4 offers any hope at all.
My utopian vision to combat the threat of China (dependency, war, etc.) is as follow.
We should form a "Super West". Instead of a divorce between the US and EU and others, the exact opposite should happen: an unbreakable union with shared values, investments, legislation and protections.
Such a unified block could then intelligently "tax" China for industries we consider to be strategic. You can't do this without a unified West. Right now the US is pushing its (former) western allies towards China.
I think a unified block with intelligent protections can sustain an advanced West and create conditions where the working class and middle class is not facing an endless race to the bottom.
This block could also address a pressing issue of global capitalism, the formation of untouchable monopolies and billionaires. End tax loopholes and yes, I'll say it: cap billionaires. Increase minimum wages and offer more job protection. A unified regulation rather than individual countries undermining common interests.
I'm sure that these classic progressive values are unpopular on this forum but I genuinely believe that these values created the middle class in the first place. And the middle class is being eroded and the working class is close to dead.
We should not mimic the race to the bottom (which leads to a birth rate 25% of replacement), we should recreate the post war West. A ordinary person should be able to start a family, own a home, etc. If we can't do that, nothing matters.
The way to achieve that is cooperation, strict shared values and regulations and a whole lot of technology.
The West's trajectory where life kept getting better stopped in the 90s. We need to bring it back.
> The 10-year U.S. Treasury yield , the globe's benchmark safe-haven anchor...
The US government is ~37 trillion dollars in debt and rising. They're not going to do anything to cut spending until they hit a crisis so massive that they just can't spend any more. Which is going to have to be a shocker of a crisis given how they've handled the last couple. Raising taxes seems to be off the table too.
While it is true that US treasuries are low risk, they are low risk in the way that lending the broke town drunk money are low risk - you can come up with accurate estimates of how likely you are to get the money back. The real mystery has for some time been why people persist in feeding the US government money voluntarily. The math doesn't seem to be ambiguous, the value lent can't be paid back in real terms. Foreign holders of these things are engaging in charity.
The absolute amount of debt isn't as interesting as it's percentage of GDP, or as percentage of revenue. If US productivity improves faster than its debt grows, the debt becomes less of a burden relatively.
Of course, the long term trend there isn't great either. It was OK until the financial crisis of 2008, after which it grew to around 100% debt to GDP, which is usually seen as a warning level. Then it grew again very sharply during the pandemic and today is around 121%.
The apparent pattern is that it grows during recessions, but stays pretty flat during good times, and as the current administration seems to want to have recessions for fun, confidence among lenders may have been shaken
niklasbuschmann|10 months ago
tim333|10 months ago
Also see "I’d like to apologize to bricks for calling Peter Retarrdo dumber than a sack of bricks. That was so unfair to bricks." - E Musk
QuesnayJr|10 months ago
You can only run a trade deficit if the country you are trading with is a net investor. Part of that investment is going to be in the form of bonds. If you force a cut in the trade deficit, you cut the demand for bonds, which lowers their price and raises their interest rate.
procaryote|10 months ago
griffzhowl|10 months ago
Most commentary, for and against, has been exclusively on the economics, and from that perspective it makes little to no sense. But I've seen suggestions in a couple of places that there are relevant "national security" motivations, or to put it bluntly, a greater freedom to wage war - or at least to put oneself in a position where the threat of it would be more realistic. Decoupling the US economy from the rest of the world, but especially from China, makes sense if the strategic cost-benefit analysis sees a significant potential for war with that country. It's a commonplace of international relations, and intuitively obvious, that the more integrated are the economies of two countries, the less likely they are to start wars with each other (no doubt there are exceptions, but as a rule...). That doesn't have to mean anything imminent or indicate concrete plans on the part of US, but it's plausibly a factor in the overall calculations.
In fact, the economic interdependence of the US and China had seemed to be a big reason to remain hopeful that there wouldn't be a war between them, among other reasons of course. Reducing this interdependence seems to destabilize this situation. The unfortunate fact is that I can't see the US military establishment just peacefully allowing China to become more militarily powerful than itself. I'd be happy to hear other perspectives on this, I'm far from an expert and haven't seen this angle discussed much.
zmmmmm|10 months ago
This bond lever - the threat to abruptly shut off US debt supply - is just one of them. But China can also simply manage far more easily without US imports than the US can manage without Chinese imports. And for any given pain threshold, China can bear that far longer than the US will, because of the authoritarian control the government can exercise.
And then from a geopolitical point of view, even if China loses they win - because the rest of the world fully views this as an act of betrayal and lunacy by the US and the more negative the outcome the better China looks by comparison as a reliable, rule following partner on the world stage.
Basically what I see here is that we have a game of poker where China holds nearly all the cards and Trump is just pushing more and more chips onto the table.
notahacker|10 months ago
tim333|10 months ago
I'm not sure who has cards is the problem so much as launching an unnecessary trade battle in the first place.
If you really wanted to onshore industrial production you could have announced sane policy in advance to give people time to build factories in the US etc. without a trade war needed.
sanp|10 months ago
trilbyglens|10 months ago
re-thc|10 months ago
This isn't 1v1 though. Maybe there was a time when US vs the rest would work, but now?
The problem is this isn't about import / exports of physical goods.
Once tariffs and bans happen on digital goods, services, etc the US is toast. Has Trump forgotten about them? China is already onto things like US films.
Game studios, Disney, Netflix, Hollywood, etc are all on the firing line.
Even sports like NBA, major league, etc would all crash. A large part of their income is from advertisements and broadcasting deals overseas.
pwatsonwailes|10 months ago
As long as he gets to play as much golf and watch as much TV as he likes, he doesn't seem to care much. I don't think anyone bought Trump, I think he's just signing whatever is put in front of him and taking credit for it so he can go back to playing golf.
ENGNR|10 months ago
China has had net positive tariffs against the USA for decades though. Obama tried to use the WTO to label them as a currency manipulator. Trump tried some tariffs the first time around but they just raised theirs higher to keep the imbalance.
Not saying the current strategy is a good one. But America has lost the entire supply chain, racked up huge debts, and a dollar that encourages more and more consumption. Doesn't something have to happen eventually, before the problem gets worse?
ArtTimeInvestor|10 months ago
Usually one could estimate the absolute minimum of future earnings.
But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.
ENGNR|10 months ago
Which is still a huuuuuuuuuuuuge market
unknown|10 months ago
[deleted]
intermerda|10 months ago
Come on, it's definitely not zero for most of the companies, even if tons of small businesses go bankrupt.
> But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.
The objective of the current administration is to implement fascism. Companies can operate and make profit, as long as it’s allowed by the government. See the blackmailing of law firms and tech companies for examples.
Ironically, Thomas Sowell made that argument back when Obama dared to give Americans healthcare - https://www.creators.com/read/thomas-sowell/06/12/socialist-.... And he also rang similar alarm bells during the Biden administration - https://www.foxnews.com/media/thomas-sowell-systemic-racism-.... But he has offered nothing more than milquetoast commentary about tariffs being bad when it comes to the current administration.
oldpersonintx|10 months ago
[deleted]
instagraham|10 months ago
rebuilder|10 months ago
tim333|10 months ago
The 2s-10s spread tends to act a bit like brakes for the economy. The 10 year yield is largely down to inflation and the 2 year largely controlled by the federal reserve. They raise the 2 year above the 10 year to slow the economy if you are getting inflation and lower it if the economy looks like slowing too much and going into recession. This looks like people expecting recession.
ac29|10 months ago
Who is the the "they" here? The government does not set 2 year or 10 year rates, they are priced by auction for new issues and priced by the market for secondary transactions.
leereeves|10 months ago
comrade1234|10 months ago
rich_sasha|10 months ago
It certainly affects longer-term rates, but only indirectly. In effect, the lending rate for 10 year bonds, say (a common benchmark duration) is set entirely by the market. These are closely related - they operate in the same space - but are in principle independent decision-makers.
As to bond yields vs bond prices, t is easiest to see for new bonds - sold directly by the US govt. Unlike consumer loans, with bonds you know exactly how much you get repaid - periodic coupon and maturity. The variable is the price today paid for the bond. The government hopes to achieve a high price, raising as much cash as it can today (for the same future repayment cash flow), i.e. a low interest rate.
If the buyers of bonds - lenders - show up in small numbers, there is weak demand to buy, and the bond price is low. This translates to a high rate of interest - for a smaller upfront loan, you get more repayment down the line.
The same mechanism works in secondary markets - bond owners trading with each other.
In terms of how this affects the decision-making by the Fed - in principle, not at all. Fed is free to do whatever the like. But in practice, Fed is bound by the same forces as the bond traders, and bond yields are going up suggests the Fed will likewise have to raise rates. Or bond yields go up in anticipation to the Fed having to raise rates, etc.
tim333|10 months ago
There may also be some panic selling by speculators or people worried about their bonds - higher market rates makes the prices of bonds fall.
ac29|10 months ago
When bond prices fall, interest earned on them rises.
intended|10 months ago
1) Trump is playing a storyline. The Market place of ideas in America has one side which is under a monopoly. It sets its own prices, decides what information enters and exits, decides what the market SHOULD look like. It manages half the voting population.
This is why “Trump does what he says” resonated. Previous lawmakers played the role on TV, but in back room deals, acted as if reality mattered.
Trump does not. He will continue to not do so, and the ideas sold in the market place that supports him, will continue to sell ideas to support it. Even if they don’t make logical sense.
It’s like science fiction, reality doesn’t matter.
Without addressing the information asymmetry, no democracy can function. No decisions can be made.
This is the nicest way I can put it to people, without being blunt. This has been the work of decades, reaching all the way back to watergate.
2) Jobs are being lost to automation faster than they are lost to outsourcing. China is the last country that will raise its standard of living through manufacturing. India has to pivot to services, to have a hope of doing anything. All of this is human capital intensive.
3) Wealth inequality is the problem - and frankly, if you have money to spare you are simply going to buy assets. This will be bought from people who are increasingly affected by cost of living issues, and have to sell their assets. This means taxes
4) If Americans want a snowballs chance in hell, there need to be special elections around the country in 2025, to take control of congress. Republican senators and congressfolk are threatened by the voting base if they break with Trump, which they wont anyway. The checks and balances are broken, see point 1.
You cannot win in a broken market place. You cannot fix a marketplace of ideas with government power, because that breaks the principle of Free speech. If you are a government who IS in power because of market place monopolies, these rules do not apply to you.
Trump is serious about devaluing the dollar. The only reason he may not, is because the viewers/storyline suggest he shouldn’t.
I will regret making this post, because of the comments it will generate. It is general enough for a million holes to be poked in it. Sure. This is an outline, that covers most of the pieces that are on the board.
joegibbs|10 months ago
codingbot3000|10 months ago
AnimalMuppet|10 months ago
Perhaps, though I don't see how you're going to get them without changing or violating the Constitution. And changing the Constitution would mean acceptance by those you're trying to get rid of.
Bluntly, the only way this could happen is a civil war - a real, shooting civil war, with bullets and dead bodies. I'm not yet at the point of cheering for that, much as I dislike the current status quo.
> Republican senators and congressfolk are threatened by the voting base if they break with Trump, which they wont anyway.
Then I don't see how a special election in 2025 would help. You say we need a special election to get rid of these folks, but you also say that these folks would be threatened by the voting base if they break with Trump - which to me means that they won't be threatened by the voting base if they stick with Trump.
So I don't think your point 4 offers any hope at all.
iteratethis|10 months ago
We should form a "Super West". Instead of a divorce between the US and EU and others, the exact opposite should happen: an unbreakable union with shared values, investments, legislation and protections.
Such a unified block could then intelligently "tax" China for industries we consider to be strategic. You can't do this without a unified West. Right now the US is pushing its (former) western allies towards China.
I think a unified block with intelligent protections can sustain an advanced West and create conditions where the working class and middle class is not facing an endless race to the bottom.
This block could also address a pressing issue of global capitalism, the formation of untouchable monopolies and billionaires. End tax loopholes and yes, I'll say it: cap billionaires. Increase minimum wages and offer more job protection. A unified regulation rather than individual countries undermining common interests.
I'm sure that these classic progressive values are unpopular on this forum but I genuinely believe that these values created the middle class in the first place. And the middle class is being eroded and the working class is close to dead.
We should not mimic the race to the bottom (which leads to a birth rate 25% of replacement), we should recreate the post war West. A ordinary person should be able to start a family, own a home, etc. If we can't do that, nothing matters.
The way to achieve that is cooperation, strict shared values and regulations and a whole lot of technology.
The West's trajectory where life kept getting better stopped in the 90s. We need to bring it back.
roenxi|10 months ago
The US government is ~37 trillion dollars in debt and rising. They're not going to do anything to cut spending until they hit a crisis so massive that they just can't spend any more. Which is going to have to be a shocker of a crisis given how they've handled the last couple. Raising taxes seems to be off the table too.
While it is true that US treasuries are low risk, they are low risk in the way that lending the broke town drunk money are low risk - you can come up with accurate estimates of how likely you are to get the money back. The real mystery has for some time been why people persist in feeding the US government money voluntarily. The math doesn't seem to be ambiguous, the value lent can't be paid back in real terms. Foreign holders of these things are engaging in charity.
procaryote|10 months ago
https://fred.stlouisfed.org/series/GFDEGDQ188S
Of course, the long term trend there isn't great either. It was OK until the financial crisis of 2008, after which it grew to around 100% debt to GDP, which is usually seen as a warning level. Then it grew again very sharply during the pandemic and today is around 121%.
The apparent pattern is that it grows during recessions, but stays pretty flat during good times, and as the current administration seems to want to have recessions for fun, confidence among lenders may have been shaken
tim333|10 months ago
t420mom|10 months ago