Thanks a lot for this - I feel I belong to the fraction of subscribers in need of some basic clarifications.
As I don't always have enough time to follow the recommended sources, (Bloomberg, FT and The Economist), closely enough - in German I would say "manchmal versteh' ich nur Bahnhof" - (I am only starting out with this) to get to the heart of what is going on lately (at least not near enough in such a sustained and circumstantial way as you delineate it here and in the Ones and Tooze- podcast), I am - once again - very grateful for this post (after two or three years being a Chartbook-subscriber I will hopefully and surely 😉 have left the "ABC-primary school-state" of knowledge about financial markets...)
I know or reckon many folks here on Substack take this in at a much higher intellectual level than I do.
I wanted to explicitly state my gratitude that you do not leave us "newcomers" behind. This is brilliant education (though the political situation it originates in, is of course dire and surreal etc).
One wonders also how well the "extortion" market is functioning, as tRump has now "exempted" smartphones, laptops, USB drives, monitors, etc., from his tariffs on Chinese exports to the US. I smell yuuge contributions just coming in for the "tRump Presidential Library", tRump memecoins, and other divers slush funds he's running.
Tim Cook, the WH welcomes your calls, and thanks you for reserving a seat at the next Mar-a-Lago "candlelight dinner" and your $5mil seating fee.
Well, Big Ag's response is usually lobbying hard for "subsidies", covering export losses with cash handouts, and I expect that the GOPer Congress will step up in the usual reflexive manner...votes are votes, as you imply. But not money in tRump's pocket, as "exemption carveouts" can be.
During Trump 1.0, the Commodity Credit Corporation borrowed $28 billion to pay for subsidies after Trump imposed tariffs. In a very odd bit of concurrance with House Democrats, Project 2025 advocated for Congress to revoke USDA's ability to use the CCC to borrow. House Democrats have been trying to do that for at least a couple years, including in the 2025 farm bill unveiled during the lame duck session. That bill's dead. If/when they hit the CCC's borrowing limit (I believe it's $30 billion) there have been multiple members of Congress who have already said they're willing to pass legislation authorizing additional borrowing for farm subsides.
On the campaign trail in 2024, Trump bragged about the subsidies as the reason why farmers love him.
US soybeans alone are ~$50B/year, about half exports. Corn a bit more, and half used for ethanol (ie tracks price of gasoline). It's gonna be a rough year
Which is how self-defeating his fecking tariffs are...whatever he gains in tariff "revenue" (!) is given back in "subsidy" payouts, and the fecking "genius' simply can't grasp the concept.
Sounds like we're getting ahead of things. Does the FED stabilize? Yes, that's obvious. In times of necessity this means making key debt products (eg T's, mortgages) go to arbitrary point, at least in nominal dollar terms. It means setting interest rates, injecting or removing liquidity.
What FED can't do by itself, is controlling international capital flows, and forcing the rest of the world to forever build their life around USD and G7 financial services. But ECB/BOJ can assist with that. Albeit perhaps at the expense of investment in their respective economic zones. Still I think for the time being that will be sufficient.
Asia more broadly will continue with finance that's both interconnected and capable of standing alone if bothered. The incident we just witnessed gives them all the conviction one would ever need. But there's no rationale to do this in shock mode, if not forced to.
We can also now see that US elites have no appetite for shock mega-escalation. Barring some even more overtly fascist moves out of the White House, like individually threatening the super rich, we should be fine.
Trump even appears to be climbing down on the China bilateral, with news of the electronics exemption. Unexpected for me, and a genuine relief this time. Also repeatedly asking Xi to talk - seems to indicate a realization which apparently eluded Trump's economic team until now. Namely, that this debacle slashes US export industry competititiveness on both ends: weaker demand from retaliation and accelerated competition, costlier supply from the own-goal vs intermediate-goods.
You may be too negative, at least wrt next week. Trump's team can now manage the narrative with periodic "concessions," like the just-revealed exemption of smartphones from tariffs. A gradual erosion of the Dollar as global reserve currency is likely, but it will take years and not be a one-way street.
Thank you for all of your posts this week. I feel I have in so many ways been resisting the siren song of panic . . . as a citizen, as a woman, as a physician fearing what Medicaid cuts are about to do to my ability to serve my community, and as a person in mid-career contemplating my and my family's financial future . . . And these posts have given a valued framework with which to understand the market aspect of the roller coaster we are all on . . . It is a relief to have some intellectual anchor, if not exactly pure clarity . . . Appreciate you and and your work . . .
I am no economist, stocks go up bonds go down, this currency strengthens exports drop, etc, etc, etc. and all this just flighs over my head and eyes start glazing.
But what I have the impression here is that there are trillions of "dollars"/"money" seeking "safe heaven" to be parked into and get interest accrued. The question here is, why all these rivers and lakes of money do not get invested in something beneficial for human population, for the biosphere, and all those lofty goals that everyone keeps talking about?
We will go pop, or boom, of psssst, or fizzz, on thebed made of burning money...
Pleonexia is indeed the greatest illness out there. You can fill a stomach, you cannot ever fill the want of a greedy person.
The US sells bonds to fund government spending, much of which goes towards all the lofty goals of whoever is currently in power. Those trillions aren’t parked doing nothing, they’re being lent to the government for spending.
The vast majority of treasury bonds are bought by US companies and citizens. It’s traditionally a low risk way to store money, since the interest you receive counteracts inflation, and the US has historically never defaulted.
From the foreigners we buy goods from. They have lots of dollars. Also, from the government itself. Government borrowing takes from the banks and government spending puts it back in the banks.
Rick Wilson of the Lincoln project avered yesterday that the reason trump backed down on his insane tariffs was that Japan, the largest foreign buyer of treasuries, was selling off big time. If this is true then the second highest foreign bond holder being China, now locked into a fierce trade war with the US and no doubt looking for weapons to leverage against trump, might well be tempted to at least not show up at the next auction. Or they just might be in a selling mood as well. This would Jack up treasuries interest rates for sure. Anybody have an idea of the knock on effects?
Adam, great post as always. I’ve been following these all week with growing dread. From your time as a historian, in past escalations such as this one, how long did it take for the song to end before the losers realized there were no chairs left to sit on?
This is not only excellent but brave, in a way too few people honestly dare in this world of “Power can cancel anything “ and “who cares for history and conventions anyway ?”
Thanks for putting this together, Professor. It's both enlightening and a bit disturbing, which is not your fault, btw! If issues that are as complicated and demanding of respect and genuine knowledge as the gory innards of the bond and currency markets become politicized such that we see the emergence of MAGA positions on arcane details of the basis trade...my first thought is "we're doomed!"...but I'm trying to work on my optimism issues. :-)
Thanks, so we should tell the Dutch they can earn a couple of new Guilders and go full speed ahead with a European / EU financial instruments and market?
Trump and MAGA have become far bigger "systemic" rivals of NATO. It is Trump who's mused about invading Greenland, which is part of fellow NATO country Denmark. It's Trump who mused about Canada as the "51st state." It's Trump who's undermined NATO with a hamfisted, stupid "negotiation" with Russia on their war in Ukraine.
Furthermore, just last week Trump reiterated his demand that European countries dedicate 5% of their GDP to military spending (the US allocates approximately 3% of GDP.) He went a step further this time and verbally all but eliminated Article 5 when he said "If you're not going to pay your bills, we're not going to defend you."
The rest of the world has realized Trump and MAGA aren't reliable partners, and China's going to reap the benefits.
If ASML is so confident of its EUV monopoly, why does its CEO complain that Europe isn't protecting its "crown jewels"? Is China's SiCarrier worrying ASML?
Thanks a lot for this - I feel I belong to the fraction of subscribers in need of some basic clarifications.
As I don't always have enough time to follow the recommended sources, (Bloomberg, FT and The Economist), closely enough - in German I would say "manchmal versteh' ich nur Bahnhof" - (I am only starting out with this) to get to the heart of what is going on lately (at least not near enough in such a sustained and circumstantial way as you delineate it here and in the Ones and Tooze- podcast), I am - once again - very grateful for this post (after two or three years being a Chartbook-subscriber I will hopefully and surely 😉 have left the "ABC-primary school-state" of knowledge about financial markets...)
I know or reckon many folks here on Substack take this in at a much higher intellectual level than I do.
I wanted to explicitly state my gratitude that you do not leave us "newcomers" behind. This is brilliant education (though the political situation it originates in, is of course dire and surreal etc).
Thank you so much 👍
One wonders also how well the "extortion" market is functioning, as tRump has now "exempted" smartphones, laptops, USB drives, monitors, etc., from his tariffs on Chinese exports to the US. I smell yuuge contributions just coming in for the "tRump Presidential Library", tRump memecoins, and other divers slush funds he's running.
Tim Cook, the WH welcomes your calls, and thanks you for reserving a seat at the next Mar-a-Lago "candlelight dinner" and your $5mil seating fee.
Yep, although it's the soybean farmers he should be worried about. They might actually hurt him
Well, Big Ag's response is usually lobbying hard for "subsidies", covering export losses with cash handouts, and I expect that the GOPer Congress will step up in the usual reflexive manner...votes are votes, as you imply. But not money in tRump's pocket, as "exemption carveouts" can be.
During Trump 1.0, the Commodity Credit Corporation borrowed $28 billion to pay for subsidies after Trump imposed tariffs. In a very odd bit of concurrance with House Democrats, Project 2025 advocated for Congress to revoke USDA's ability to use the CCC to borrow. House Democrats have been trying to do that for at least a couple years, including in the 2025 farm bill unveiled during the lame duck session. That bill's dead. If/when they hit the CCC's borrowing limit (I believe it's $30 billion) there have been multiple members of Congress who have already said they're willing to pass legislation authorizing additional borrowing for farm subsides.
On the campaign trail in 2024, Trump bragged about the subsidies as the reason why farmers love him.
US soybeans alone are ~$50B/year, about half exports. Corn a bit more, and half used for ethanol (ie tracks price of gasoline). It's gonna be a rough year
Which is how self-defeating his fecking tariffs are...whatever he gains in tariff "revenue" (!) is given back in "subsidy" payouts, and the fecking "genius' simply can't grasp the concept.
Btw: The JP Morgan transcript you linked is excellent stand up comedy material - who would have thought 😃👏
Sounds like we're getting ahead of things. Does the FED stabilize? Yes, that's obvious. In times of necessity this means making key debt products (eg T's, mortgages) go to arbitrary point, at least in nominal dollar terms. It means setting interest rates, injecting or removing liquidity.
What FED can't do by itself, is controlling international capital flows, and forcing the rest of the world to forever build their life around USD and G7 financial services. But ECB/BOJ can assist with that. Albeit perhaps at the expense of investment in their respective economic zones. Still I think for the time being that will be sufficient.
Asia more broadly will continue with finance that's both interconnected and capable of standing alone if bothered. The incident we just witnessed gives them all the conviction one would ever need. But there's no rationale to do this in shock mode, if not forced to.
We can also now see that US elites have no appetite for shock mega-escalation. Barring some even more overtly fascist moves out of the White House, like individually threatening the super rich, we should be fine.
Trump even appears to be climbing down on the China bilateral, with news of the electronics exemption. Unexpected for me, and a genuine relief this time. Also repeatedly asking Xi to talk - seems to indicate a realization which apparently eluded Trump's economic team until now. Namely, that this debacle slashes US export industry competititiveness on both ends: weaker demand from retaliation and accelerated competition, costlier supply from the own-goal vs intermediate-goods.
and, uh... you can forget about the part with relief. Per Trump and Lutnick, electronics tariffs exemption was just a fake-out. Should've known
You may be too negative, at least wrt next week. Trump's team can now manage the narrative with periodic "concessions," like the just-revealed exemption of smartphones from tariffs. A gradual erosion of the Dollar as global reserve currency is likely, but it will take years and not be a one-way street.
Thank you for all of your posts this week. I feel I have in so many ways been resisting the siren song of panic . . . as a citizen, as a woman, as a physician fearing what Medicaid cuts are about to do to my ability to serve my community, and as a person in mid-career contemplating my and my family's financial future . . . And these posts have given a valued framework with which to understand the market aspect of the roller coaster we are all on . . . It is a relief to have some intellectual anchor, if not exactly pure clarity . . . Appreciate you and and your work . . .
I am no economist, stocks go up bonds go down, this currency strengthens exports drop, etc, etc, etc. and all this just flighs over my head and eyes start glazing.
But what I have the impression here is that there are trillions of "dollars"/"money" seeking "safe heaven" to be parked into and get interest accrued. The question here is, why all these rivers and lakes of money do not get invested in something beneficial for human population, for the biosphere, and all those lofty goals that everyone keeps talking about?
We will go pop, or boom, of psssst, or fizzz, on thebed made of burning money...
Pleonexia is indeed the greatest illness out there. You can fill a stomach, you cannot ever fill the want of a greedy person.
The US sells bonds to fund government spending, much of which goes towards all the lofty goals of whoever is currently in power. Those trillions aren’t parked doing nothing, they’re being lent to the government for spending.
Where do the $USD come from that is "lent" to the government?
The vast majority of treasury bonds are bought by US companies and citizens. It’s traditionally a low risk way to store money, since the interest you receive counteracts inflation, and the US has historically never defaulted.
Foreign holdings of US debt have dropped from 34% a decade ago to 24% today. A lot of the decline is from China holding less of our debt.
From the foreigners we buy goods from. They have lots of dollars. Also, from the government itself. Government borrowing takes from the banks and government spending puts it back in the banks.
Rick Wilson of the Lincoln project avered yesterday that the reason trump backed down on his insane tariffs was that Japan, the largest foreign buyer of treasuries, was selling off big time. If this is true then the second highest foreign bond holder being China, now locked into a fierce trade war with the US and no doubt looking for weapons to leverage against trump, might well be tempted to at least not show up at the next auction. Or they just might be in a selling mood as well. This would Jack up treasuries interest rates for sure. Anybody have an idea of the knock on effects?
https://open.substack.com/pub/deanblundell/p/carneys-checkmate-how-canadas-quiet?r=3h4ow&utm_medium=ios
This suggests that the move on US treasuries was coordinated by Mark Carney, the Canadian PM! Lesson: don’t fuck with a central banker.
Adam, great post as always. I’ve been following these all week with growing dread. From your time as a historian, in past escalations such as this one, how long did it take for the song to end before the losers realized there were no chairs left to sit on?
As soon as the luxury liner hits the iceberg at about 100 kilometers per hour! 😁
I do wish spellcheck would rein in, as in horses, not reign in, as in Camilla and Charles. Interesting article.
This is not only excellent but brave, in a way too few people honestly dare in this world of “Power can cancel anything “ and “who cares for history and conventions anyway ?”
Thanks for putting this together, Professor. It's both enlightening and a bit disturbing, which is not your fault, btw! If issues that are as complicated and demanding of respect and genuine knowledge as the gory innards of the bond and currency markets become politicized such that we see the emergence of MAGA positions on arcane details of the basis trade...my first thought is "we're doomed!"...but I'm trying to work on my optimism issues. :-)
Thanks, so we should tell the Dutch they can earn a couple of new Guilders and go full speed ahead with a European / EU financial instruments and market?
#SellAmerica
We always are political. Just that the Trumpy view differs wildly from the consensus view. FWIW, I consider Trump an unfunny clown.
EU and China team up against Trump.
EU and China team up against Trump.
Is no one in Brussels talking about "China as a systemic rival of NATO" anymore?
Trump and MAGA have become far bigger "systemic" rivals of NATO. It is Trump who's mused about invading Greenland, which is part of fellow NATO country Denmark. It's Trump who mused about Canada as the "51st state." It's Trump who's undermined NATO with a hamfisted, stupid "negotiation" with Russia on their war in Ukraine.
Furthermore, just last week Trump reiterated his demand that European countries dedicate 5% of their GDP to military spending (the US allocates approximately 3% of GDP.) He went a step further this time and verbally all but eliminated Article 5 when he said "If you're not going to pay your bills, we're not going to defend you."
The rest of the world has realized Trump and MAGA aren't reliable partners, and China's going to reap the benefits.
If ASML is so confident of its EUV monopoly, why does its CEO complain that Europe isn't protecting its "crown jewels"? Is China's SiCarrier worrying ASML?