The US Treasury market is by some margin the most important financial market in the world. Outstanding US debt creates underlying claims to the tune of $26.6 trillion, up from $12.2 trillion ten years ago. From October 2022 to 2023 the US Treasury on net, issued $2.2trn in bills and bonds, worth 8% of gdp. That funded a large US deficit. It also created private claims to that same amount, offering attractive possibilities for investment.
"The key point here is surely that when it comes to US Treasuries, the most important financial market in the world, any notion of the naturalness of markets simply evaporates. The entire edifice is precisely that, a socially, legally, economically and politically constructed edifice from top to bottom.
It is fully internal to the system of politics, law and economics of which it is an artifice."
Wherein Tooze says more succinctly and elegantly what I have been railing about (often with a searing vulgarity which reflects my rage at the duplicity and stupidity on display in the public discourse) for years now -- the whole notion that this is remotely what normal people understand a market to be, along with the premise that this is anything like private enterprise, IS A FUCKING SHAM!!
According to neoclassicists and vulgar mainstream economics credit money - or debt is not a factor in macroeconomics - it is just redistribution. Almost all Neoclassical macroeconomic models entirely omit the existence of banks, private debt and money. Even when they do consider private debt, they assert that only the distribution of debt matters, and not its absolute magnitude. Nobel prize winner Bernanke, argued that debt-deflation represented no more than a redistribution between groups from debtors to creditors, reflecting both sides of the balance sheet. Absent implausibly large differences in marginal spending propensities among the groups pure redistributions should have no significant macroeconomic effects.
There are more contradictions in the post - “Ultimately, these losses pass through to the Treasury”, which at the end of the day is the public. Yet Tooze states in another paragraph “it can in extremis be reabsorbed into the closed loop of the Treasury and the central bank, whose relationship is not that of a private bank to a private borrower”. It is his usual hyypocritical way of beating around the bush - we the public, we are in fact the private borrowers left holding the bag when things go awry, after the elites have been making huge gains out of these finance games with fictitious capital. The game by financial elites and their governmental henchman is kicking the can further down the road by running up endless debt for upward wealth redistribution
I don’t understand why leveling the playing field should be a concern at all when the point of these regulations is to prevent he treasuries market from seizing up. What am I missing?
It’s probably not unreasonable for those responsible for the public’s money to know how much 🇺🇸they’re on the hook for... that’s just basic responsibility for the public’s money and well being.
That they don’t know... means the public that will pay is being failed by the officials they trusted.
Meanwhile- The Machine is Slowing and Grinding to a Halt. You’d have to have the ears and the hands for it, so much of what any man knows is in his hands.
“The Machine Stops” by EM Forster in 1909 saw very far, including social media, atomization, “Likes” (social media affirmation).
What EM Forster did not foresee and ultimately it spares us the road of utter dehumanization and slow descent into infantile degeneracy was the destruction of Europe and ultimately the American Republic via its involvement, and the ensuing guilt driven madness of attempting to ISO9000 Asia and Africa into ... us... and ... the machine is breaking down and the repairman is gone. So the entire West is Johannesburg South Africa now, apparently that’s not filtering up.
Put another way, the Janitor is running ENRON now...
Now all of you are just talking here over the heads of those who decide. All this article and the comments are entirely over their heads, but also hopelessly dated.
None of the assumptions are true, the people who understand our situation want to survive, the people like Gensler and Khan and the rest who sense something is being kept from them responding with “Centralization” and the real word is “truth” not “transparency.” Gensler and Khan 1 They only know that great matters and amounts of money are being concealed from them and “the public.” Of course if the country’s money is entrusted to them and they’re expected to backstop the “markets” they should know how much?
But ... that’s not fair... we are told...
But they were all of them deceived... including Sauron...
We’re all in Johannesburg, it’s just some of us know it, and some of us won’t admit it, but if you took this exact sentence to Gensler or Khan they’d just say I’m racist or whatever, of course the truth is they’re being handed the bag as the smart guys run for the plane... ✈️
If you’re holding others money and you scream unfair when your insurer - the USA in this case- wants to see your books...
Gensler knows very little about markets and is neither thoughtful nor flexible. He has an almost religious view of how things should operate and imposes that mindset on every problem- like a man with a hammer seeing nails everywhere.
It is funny that he reverts to an exchange and central clearing as a solution to a cash market when the distortion causing the large “basis trade” arbs is arising from the exchange-traded, centrally cleared futures markets.
I don’t know what the “solution” is for the futures and cash markets diverging, but if regulators want well-functioning futures markets they need to encourage more arbitrageurs (not fewer) and examine the factors (and players) in both the cash and futures markets that are driving the issue (large issuance needs and rate hikes being two big macro issues). If, however, the regulators are truly worried the basis arb positions are too large and too concentrated, then this morning they could impose higher margin requirements on treasury futures as well as position limits. This would widen the profit opportunities and attract non-traditional players into the arb trade (something that should be encouraged if the CFTC wants well-functioning futures markets). Seems to me they would rather shake up the cash market than impose restrictions on their allies and over at the CME.
I trust the Fed to examine the situation reasonably and to gather info and consider solutions in concert with market participants of all stripes. Gensler did not need to speak to anyone to come up with the same solution he has pushed for everything. You can read Citadel’s rebuttal in the FT
It's almost beyond my ability to imagine that with an MBA from Wharton and in 18 years at Goldman Sachs, much of it in the trading and finance group, Gensler never managed to learn anything about markets.
Gensler was an investment banker at GS and then a senior manager rotated around to get exposure to other segments, being groomed for the top. Never really a markets guy.
Whatever he may have learned about markets has been overwhelmed by his religion- that exchanges and central clearing are the miracle cure for everything. You should talk to some of his former colleagues at the CFTC or some of the dozens of markets end-users he met with during Dodd-Frank rule making and ask them whether he was ever really concerned about understanding markets and user needs or whether he was all about imposing the solution he had already decided on. I have spoken with some of these people.
So if a Republican shouted “cut taxes” as a solution to every problem it would be an ad hominem attack to point this out when questioning his/her “solution” to a brand new problem (cut taxes!)? Gensler is who he is and his inevitable “solutions” should be taken with a grain of salt. There are numerous people at the Fed and Treasury with a lot more knowledge than Gensler has about the Treasury market. Gensler is an ideologue (like Khan at the FTC), not a problem-solver nor thoughtful analyst.
"The key point here is surely that when it comes to US Treasuries, the most important financial market in the world, any notion of the naturalness of markets simply evaporates. The entire edifice is precisely that, a socially, legally, economically and politically constructed edifice from top to bottom.
It is fully internal to the system of politics, law and economics of which it is an artifice."
Wherein Tooze says more succinctly and elegantly what I have been railing about (often with a searing vulgarity which reflects my rage at the duplicity and stupidity on display in the public discourse) for years now -- the whole notion that this is remotely what normal people understand a market to be, along with the premise that this is anything like private enterprise, IS A FUCKING SHAM!!
According to neoclassicists and vulgar mainstream economics credit money - or debt is not a factor in macroeconomics - it is just redistribution. Almost all Neoclassical macroeconomic models entirely omit the existence of banks, private debt and money. Even when they do consider private debt, they assert that only the distribution of debt matters, and not its absolute magnitude. Nobel prize winner Bernanke, argued that debt-deflation represented no more than a redistribution between groups from debtors to creditors, reflecting both sides of the balance sheet. Absent implausibly large differences in marginal spending propensities among the groups pure redistributions should have no significant macroeconomic effects.
There are more contradictions in the post - “Ultimately, these losses pass through to the Treasury”, which at the end of the day is the public. Yet Tooze states in another paragraph “it can in extremis be reabsorbed into the closed loop of the Treasury and the central bank, whose relationship is not that of a private bank to a private borrower”. It is his usual hyypocritical way of beating around the bush - we the public, we are in fact the private borrowers left holding the bag when things go awry, after the elites have been making huge gains out of these finance games with fictitious capital. The game by financial elites and their governmental henchman is kicking the can further down the road by running up endless debt for upward wealth redistribution
I don’t understand why leveling the playing field should be a concern at all when the point of these regulations is to prevent he treasuries market from seizing up. What am I missing?
Love this topic. Thanks.
It’s probably not unreasonable for those responsible for the public’s money to know how much 🇺🇸they’re on the hook for... that’s just basic responsibility for the public’s money and well being.
That they don’t know... means the public that will pay is being failed by the officials they trusted.
Meanwhile- The Machine is Slowing and Grinding to a Halt. You’d have to have the ears and the hands for it, so much of what any man knows is in his hands.
“The Machine Stops” by EM Forster in 1909 saw very far, including social media, atomization, “Likes” (social media affirmation).
What EM Forster did not foresee and ultimately it spares us the road of utter dehumanization and slow descent into infantile degeneracy was the destruction of Europe and ultimately the American Republic via its involvement, and the ensuing guilt driven madness of attempting to ISO9000 Asia and Africa into ... us... and ... the machine is breaking down and the repairman is gone. So the entire West is Johannesburg South Africa now, apparently that’s not filtering up.
Put another way, the Janitor is running ENRON now...
Now all of you are just talking here over the heads of those who decide. All this article and the comments are entirely over their heads, but also hopelessly dated.
None of the assumptions are true, the people who understand our situation want to survive, the people like Gensler and Khan and the rest who sense something is being kept from them responding with “Centralization” and the real word is “truth” not “transparency.” Gensler and Khan 1 They only know that great matters and amounts of money are being concealed from them and “the public.” Of course if the country’s money is entrusted to them and they’re expected to backstop the “markets” they should know how much?
But ... that’s not fair... we are told...
But they were all of them deceived... including Sauron...
We’re all in Johannesburg, it’s just some of us know it, and some of us won’t admit it, but if you took this exact sentence to Gensler or Khan they’d just say I’m racist or whatever, of course the truth is they’re being handed the bag as the smart guys run for the plane... ✈️
If you’re holding others money and you scream unfair when your insurer - the USA in this case- wants to see your books...
We’re just all in ZA 🇿🇦 now.
“Capitalism is a very difficult road to Communism” - Ayn Rand
“If I had read Tooze, I would have been a Priest after all.” - Stalin
“Who chooses what for whom?” - Lenin
“Communists are very greedy Capitalists.” - Karl Marx
“We are all Keynesians now.” - Alexander Hamilton
“Just level the playing field- of the Penthouse Suite.” - Richard Nixon
“We’re from the Government, and we’re here to Kill You.” - Audie Murphy
“Mr. Gorbachev, lend me your wall.” - Ronald Reagan
Gensler knows very little about markets and is neither thoughtful nor flexible. He has an almost religious view of how things should operate and imposes that mindset on every problem- like a man with a hammer seeing nails everywhere.
In general, it's just odd that he sees an fragile, unpopular system that survives by being flexible and opaque, and thinks "let's formalize it."
It is funny that he reverts to an exchange and central clearing as a solution to a cash market when the distortion causing the large “basis trade” arbs is arising from the exchange-traded, centrally cleared futures markets.
I don’t know what the “solution” is for the futures and cash markets diverging, but if regulators want well-functioning futures markets they need to encourage more arbitrageurs (not fewer) and examine the factors (and players) in both the cash and futures markets that are driving the issue (large issuance needs and rate hikes being two big macro issues). If, however, the regulators are truly worried the basis arb positions are too large and too concentrated, then this morning they could impose higher margin requirements on treasury futures as well as position limits. This would widen the profit opportunities and attract non-traditional players into the arb trade (something that should be encouraged if the CFTC wants well-functioning futures markets). Seems to me they would rather shake up the cash market than impose restrictions on their allies and over at the CME.
I trust the Fed to examine the situation reasonably and to gather info and consider solutions in concert with market participants of all stripes. Gensler did not need to speak to anyone to come up with the same solution he has pushed for everything. You can read Citadel’s rebuttal in the FT
It's almost beyond my ability to imagine that with an MBA from Wharton and in 18 years at Goldman Sachs, much of it in the trading and finance group, Gensler never managed to learn anything about markets.
Gensler was an investment banker at GS and then a senior manager rotated around to get exposure to other segments, being groomed for the top. Never really a markets guy.
Whatever he may have learned about markets has been overwhelmed by his religion- that exchanges and central clearing are the miracle cure for everything. You should talk to some of his former colleagues at the CFTC or some of the dozens of markets end-users he met with during Dodd-Frank rule making and ask them whether he was ever really concerned about understanding markets and user needs or whether he was all about imposing the solution he had already decided on. I have spoken with some of these people.
OK. Even if I'm willing to accept your critique of Gensler it's still an ad hominem argument on the gist of the article.
So if a Republican shouted “cut taxes” as a solution to every problem it would be an ad hominem attack to point this out when questioning his/her “solution” to a brand new problem (cut taxes!)? Gensler is who he is and his inevitable “solutions” should be taken with a grain of salt. There are numerous people at the Fed and Treasury with a lot more knowledge than Gensler has about the Treasury market. Gensler is an ideologue (like Khan at the FTC), not a problem-solver nor thoughtful analyst.