I appreciate & enjoy this blog's no-chart policy: not everything is a question of social science. But the Trump team is sure demonstrating the importance of keeping some social scientists in the room.
If there’s anything that could genuinely kill the golden goose, it’s fucking up demand for US bonds. It has let the States skate by with much more stimulative fiscal policy than the rest of the developed world post-covid. I don’t think American society or politics are equipped to deal with more normal fiscal constraints. And, as you say, randomly shaking at the “safest” asset in the world is playing with fire.
The distinction between free-marketeer “chart guys”/shape rotatators/consequentialists & theorists/wordcels/deontologists is interesting, but doesn’t come up much on the left. Friedman was the former; Austrians are the latter. As always, there’s a lot of interplay between the two (e.g., Greenspan’s personal relationship with Rand), with chart guys often acting fig leaves for theorists (e.g., the Laffer Curve; Paul Ryan). Trump 2.0 is uniquely rejective of chart guys: there’s rarely a fig leaf, and when there is, it’s very transparent (e.g., https://www.theglobeandmail.com/business/article-the-canadian-researcher-cited-by-the-white-house-is-not-thrilled/).
Even the Silicon Valley reactionaries, despite being shape rotators in their day jobs, are committed deontologists on economics. The arguments e.g. Thiel/Musk make are not about competition maximizing utility, it’s ubermensch-ism and Rand. This all very much accords with your accounts of Trump as descendant of the paleolibs and the Tribune of family capital. Petit-bourgeois ideology is much more Rand/“makers and takers” than Friedmanite.
“Maybe the Trump people are hoping that a mass small business extinction will eventually result in lower costs for consumers that will offset the tariff spikes as a few great American national champions will replace the chaotic market patchwork of middlemen and tiny firms?”
Well they have to find the millions of people who are going to screw together iPhones in the US somewhere.
Also, worth noting that part of the reason the bond market almost melted down was because funds that play this particular game had been anticipating deregulatory action on bank capital. Banks have been constrained from holding too many bonds on their balance sheets because of post-GFC capital requirements that make them relatively costly to hold.
Funds were anticipating that this would be loosened, because well, that’s what this administration is there for, right? This would allow the banks to load up on USTs and drive down yields. So funds were pretty heavily long bonds (lower yields=higher prices where bonds are concerned). They had to unwind fast, exacerbating the problem.
I have been thinking about the collapse of Silicon Valley Bank recently. They had a business making risky loans to illiquid startup founders, but that turned out to be a great and stable business. (In fact, that line of business is still operating under the new ownership, and still using the SVB branding.) They went bust due to losses on Treasuries.
I think in many cases West Coast capitalists can’t handle being exposed to normal liquid markets. That’s why they always have restrictions on secondary sales, very long term funds, super-voting founder shares.
They also seem bad at the type of risk taking I’d usually associate with business magnates. Thiel had a macro hedge fund that did terribly and shut down. All the tech-right Trump guys are constantly saying stupid shit about the markets.
On the other hand, Bessent is as East Coast as it gets, so I don’t know how explanatory this all is.
Trump made a show of backing off - and made some money out of backing off - as he was bragging today. There's no policy or even theory here, except the whims of a pig-ignorant Fox News addict who loves being on TV.
It is is clear he hates the income tax and he sees tariffs as the revenue solution, and he hates foreigners and thus foreign trade. Beyond that, he just does whatever gets him some attention. Bill Ackman giving him tongue baths was the worst thing that could have happened, because that means Trump's going to keep doing it.
As for the bond market - increasing yields on Treasury bonds means that Trump is beating the US dollar's status as reserve currency to death. The yield curve is shifting to something that looks more normal for a country with 3% inflation (low) and 4.5% federal funds rate (low) - a country that doesn't have exorbitant priviledge.
Entities are wanting or being forced to unload their Treasury bonds, which is sign of high stress in the financial system. The equities market are in on steady & rapid downward trend, Trump-induced hiccups notwithstanding, which will put more stress on financial companies. Coupled with the bond market going south and on-going stress from Trump's tantrums, it means we will be getting a financial crisis sooner or later.
Meanwhile, the real economy is freezing up as everybody pulls back on spending. We're in a self-reduced recession - a financial panic will turn it into a depression.
There's no real theory here, no comprehensible one, just people spewing bullshit to make it appear that something is happening other than Trump engaging in whatever impulse hits him on any given day. The remoras attached to Trump's shark are just following along and grabbing whatever they can.
Trying to theorize it is effectively obscuring that's it's actually a grabbag of random impulses and that obscures seeing the situation clearly. This is Rich Perlstein's 'revolt if the rich' except now it's a 'riot of the rich'.
I had that 'pandemic feeling' at the end of Trump's first term and that feeling has returned in spades.
elm
the upside is that when and if we get to the other end we're in a world of a new constitution and a new country
Perhaps one needn't think the pro-monopoly result comes from a thought-out strategy. Perhaps it's merely another result of Trump's crony logic of personal ties when it comes to deals and economy. If his motivation in shaping economic policy is finding what will benefit him and his allies, if it's gaining leverage and forcing foreign powers and big businesses to negociate with him, then of course it will benefit those who are big enough to be on his radar and to start personal negociations with him. And so it will help concentrating power and riches. The middlemen are too small. They can't approach him. Thinking of their interests would require him to see beyond his personal interests and ties, to have some broader vision, and it doesn't seem like he's got much of it.
Kind of depressing that it falls to anonymous bond traders to (mildly) contain a fascist madman (the distant top disciplining the near top), as opposed to something from below or even domestic. Nixon almost stroked out screaming at the walls about protestors. Trump wouldn’t even notice unless he was casually giving Bondi an order to shoot them. If the white horse is bond holders, there is no white horse.
Good stuff as usual. Solid analysis of financial markets in real time here.
I’ve read from several sources that Japan, Canada and EU govts were a driving factor in the bond sell off yesterday, but hard to really know. Everyone wants to take credit for standing up to Trump.
Also I am semi-relieved that this is what seemed to move Trump. With all his crypto bros and meme coins, it seemed possible to me Trump intended to crash the US dollar and even US govt solvency. As insane as all this is, at least it is not that.
I appreciate & enjoy this blog's no-chart policy: not everything is a question of social science. But the Trump team is sure demonstrating the importance of keeping some social scientists in the room.
If there’s anything that could genuinely kill the golden goose, it’s fucking up demand for US bonds. It has let the States skate by with much more stimulative fiscal policy than the rest of the developed world post-covid. I don’t think American society or politics are equipped to deal with more normal fiscal constraints. And, as you say, randomly shaking at the “safest” asset in the world is playing with fire.
The distinction between free-marketeer “chart guys”/shape rotatators/consequentialists & theorists/wordcels/deontologists is interesting, but doesn’t come up much on the left. Friedman was the former; Austrians are the latter. As always, there’s a lot of interplay between the two (e.g., Greenspan’s personal relationship with Rand), with chart guys often acting fig leaves for theorists (e.g., the Laffer Curve; Paul Ryan). Trump 2.0 is uniquely rejective of chart guys: there’s rarely a fig leaf, and when there is, it’s very transparent (e.g., https://www.theglobeandmail.com/business/article-the-canadian-researcher-cited-by-the-white-house-is-not-thrilled/).
Even the Silicon Valley reactionaries, despite being shape rotators in their day jobs, are committed deontologists on economics. The arguments e.g. Thiel/Musk make are not about competition maximizing utility, it’s ubermensch-ism and Rand. This all very much accords with your accounts of Trump as descendant of the paleolibs and the Tribune of family capital. Petit-bourgeois ideology is much more Rand/“makers and takers” than Friedmanite.
Good points!
“Maybe the Trump people are hoping that a mass small business extinction will eventually result in lower costs for consumers that will offset the tariff spikes as a few great American national champions will replace the chaotic market patchwork of middlemen and tiny firms?”
Well they have to find the millions of people who are going to screw together iPhones in the US somewhere.
Also, worth noting that part of the reason the bond market almost melted down was because funds that play this particular game had been anticipating deregulatory action on bank capital. Banks have been constrained from holding too many bonds on their balance sheets because of post-GFC capital requirements that make them relatively costly to hold.
Funds were anticipating that this would be loosened, because well, that’s what this administration is there for, right? This would allow the banks to load up on USTs and drive down yields. So funds were pretty heavily long bonds (lower yields=higher prices where bonds are concerned). They had to unwind fast, exacerbating the problem.
I have been thinking about the collapse of Silicon Valley Bank recently. They had a business making risky loans to illiquid startup founders, but that turned out to be a great and stable business. (In fact, that line of business is still operating under the new ownership, and still using the SVB branding.) They went bust due to losses on Treasuries.
I think in many cases West Coast capitalists can’t handle being exposed to normal liquid markets. That’s why they always have restrictions on secondary sales, very long term funds, super-voting founder shares.
They also seem bad at the type of risk taking I’d usually associate with business magnates. Thiel had a macro hedge fund that did terribly and shut down. All the tech-right Trump guys are constantly saying stupid shit about the markets.
On the other hand, Bessent is as East Coast as it gets, so I don’t know how explanatory this all is.
Trump made a show of backing off - and made some money out of backing off - as he was bragging today. There's no policy or even theory here, except the whims of a pig-ignorant Fox News addict who loves being on TV.
It is is clear he hates the income tax and he sees tariffs as the revenue solution, and he hates foreigners and thus foreign trade. Beyond that, he just does whatever gets him some attention. Bill Ackman giving him tongue baths was the worst thing that could have happened, because that means Trump's going to keep doing it.
As for the bond market - increasing yields on Treasury bonds means that Trump is beating the US dollar's status as reserve currency to death. The yield curve is shifting to something that looks more normal for a country with 3% inflation (low) and 4.5% federal funds rate (low) - a country that doesn't have exorbitant priviledge.
Entities are wanting or being forced to unload their Treasury bonds, which is sign of high stress in the financial system. The equities market are in on steady & rapid downward trend, Trump-induced hiccups notwithstanding, which will put more stress on financial companies. Coupled with the bond market going south and on-going stress from Trump's tantrums, it means we will be getting a financial crisis sooner or later.
Meanwhile, the real economy is freezing up as everybody pulls back on spending. We're in a self-reduced recession - a financial panic will turn it into a depression.
There's no real theory here, no comprehensible one, just people spewing bullshit to make it appear that something is happening other than Trump engaging in whatever impulse hits him on any given day. The remoras attached to Trump's shark are just following along and grabbing whatever they can.
Trying to theorize it is effectively obscuring that's it's actually a grabbag of random impulses and that obscures seeing the situation clearly. This is Rich Perlstein's 'revolt if the rich' except now it's a 'riot of the rich'.
I had that 'pandemic feeling' at the end of Trump's first term and that feeling has returned in spades.
elm
the upside is that when and if we get to the other end we're in a world of a new constitution and a new country
Perhaps one needn't think the pro-monopoly result comes from a thought-out strategy. Perhaps it's merely another result of Trump's crony logic of personal ties when it comes to deals and economy. If his motivation in shaping economic policy is finding what will benefit him and his allies, if it's gaining leverage and forcing foreign powers and big businesses to negociate with him, then of course it will benefit those who are big enough to be on his radar and to start personal negociations with him. And so it will help concentrating power and riches. The middlemen are too small. They can't approach him. Thinking of their interests would require him to see beyond his personal interests and ties, to have some broader vision, and it doesn't seem like he's got much of it.
Kind of depressing that it falls to anonymous bond traders to (mildly) contain a fascist madman (the distant top disciplining the near top), as opposed to something from below or even domestic. Nixon almost stroked out screaming at the walls about protestors. Trump wouldn’t even notice unless he was casually giving Bondi an order to shoot them. If the white horse is bond holders, there is no white horse.
Good stuff as usual. Solid analysis of financial markets in real time here.
I’ve read from several sources that Japan, Canada and EU govts were a driving factor in the bond sell off yesterday, but hard to really know. Everyone wants to take credit for standing up to Trump.
Also I am semi-relieved that this is what seemed to move Trump. With all his crypto bros and meme coins, it seemed possible to me Trump intended to crash the US dollar and even US govt solvency. As insane as all this is, at least it is not that.