It had to happen sooner or later. The one thing I know for sure is IQ47 is not going to like this birthday present. That is if his sycophant toadies have even told him yet.
As always Fred, it is so easy to read and listen to your posts/articles. There is no word salad. And you address one thing or issue or point, and don’t belabour it with a lot of “stuff.” You have good information and don’t need to “prove” that you’re good and know your “stuff.” Short and to the point. I always appreciate that. Cheers my friend!
Japan (as in the state) is selling off a lot of US bonds to finance oil import without hiking domestic prices to a level that would hurt the economy badly. So both the private AND the government is selling. Imported inflation drives the interest. It will continue like this for a long time.
Europe is not currently selling off US bonds (Trump has threatened severe consequences if Europe uses its financial bazooka.) However, Germans are now buying German bonds instead of US bonds. So when some countries are selling there is not tbe usual lot queueing to buy. Hence the rise in US bonds' yield rate. Which in turn is set to burn US economy badly for the next ten years. As a result they will most certainly print more, lots more, dollars. And the dollar will weaken. And so on.
A trillion in interest. That number is shocking and puts the USA in a very tight spot economically. I wonder what the business headlines will say when the USA misses payment to service just the interest owed. Not to mention the principle is not touched for years. Economic collapse?
Brian, missing an interest payment would be an earthquake-level event, so I suspect Washington would print money, borrow more, or inflate its way through before letting that happen.
But you’re right about the pressure...
a trillion dollars just to service interest is an astonishing number.
At some point the math starts making the decisions, not the politicians.
Does not printing more money just put them deeper in debt and increase the debt servicing costs and the debt? No one wins and exposes the fault belief that it will all work out in the end.
Printing more money can help short term, but if overused it can weaken the currency and fuel inflation. Borrowing more adds to the debt and interest bill.
That’s why I keep coming back to the math... eventually the options narrow and none of them are painless.
The hope is they manage a slow correction instead of backing into a crisis.
Thanks for another clearly laid out article- reading it made me think of PM Carney and how his economist’s mind might be using shift to promote 🇨🇦’s investment opportunities . A very interesting read 🤗
It had to happen sooner or later. The one thing I know for sure is IQ47 is not going to like this birthday present. That is if his sycophant toadies have even told him yet.
Barb, timing is everything 😄
If this trend keeps building, it’s definitely not the kind of “gift” Washington was hoping for.
Markets have a nasty habit of ignoring political spin and following the math anyway.
Oh, so clever - 'IQ47'.
Thank you. It was suggested to me in favour of what I was using. Says the same thing, but using only four key strokes. Please use it
Thank you.
Barb 😄 Fair enough... I got the memo.
Four keystrokes wins on efficiency alone.
I’ll adopt IQ47 going forward.
😂
As always Fred, it is so easy to read and listen to your posts/articles. There is no word salad. And you address one thing or issue or point, and don’t belabour it with a lot of “stuff.” You have good information and don’t need to “prove” that you’re good and know your “stuff.” Short and to the point. I always appreciate that. Cheers my friend!
Patricia, thank you... I genuinely appreciate that.
I try hard to cut through the noise and get to the point without the usual word salad 😊
There’s already enough confusion floating around these days without me adding to it.
Glad the style works for you, my friend.
Cheers right back 🍁
Works real well Fred! I do so appreciate the clarity and the straightforward honest presentation. Thank you.
Japan (as in the state) is selling off a lot of US bonds to finance oil import without hiking domestic prices to a level that would hurt the economy badly. So both the private AND the government is selling. Imported inflation drives the interest. It will continue like this for a long time.
Europe is not currently selling off US bonds (Trump has threatened severe consequences if Europe uses its financial bazooka.) However, Germans are now buying German bonds instead of US bonds. So when some countries are selling there is not tbe usual lot queueing to buy. Hence the rise in US bonds' yield rate. Which in turn is set to burn US economy badly for the next ten years. As a result they will most certainly print more, lots more, dollars. And the dollar will weaken. And so on.
Peter, good points.
There are clearly multiple forces pushing this...
Energy imports, currency pressure, domestic inflation, and now finally better returns at home.
What strikes me most is exactly what you said: when a major buyer steps back and nobody rushes to replace them, yields start doing the talking.
Bond markets can be brutally honest.
once more the U.S. is "hoist by its own petard." Japan is paying more for oil because of Iran. Fitting that the U.S. should cover the difference.
Jim, there’s definitely some irony in it.
Japan’s energy costs have been hit hard by Middle East instability, and higher oil prices have added inflation pressure at home...
one reason the Bank of Japan is finally moving rates higher.
Japan also relies heavily on imported energy, so these shocks land hard there.
The interesting part for me is this: geopolitics has a way of boomeranging.
Decisions made abroad eventually circle back through oil prices, inflation, bond markets, and borrowing costs.
The bill always lands somewhere.
It’s not just oil, Japan is also trying to stabilize the value of the yen. This is another reason they have been selling.
Kalyrn, yes... good point.
Stabilizing the yen is definitely part of the story too.
A weak yen makes imports more expensive for Japan, especially energy, which feeds inflation at home.
Selling foreign assets and moving capital back into yen-denominated investments can help support the currency.
It’s one of those situations where several pressures are piling onto the same decision at once.
Correct, and that translates directly into yen for dollars to buy resources of all kinds.
A trillion in interest. That number is shocking and puts the USA in a very tight spot economically. I wonder what the business headlines will say when the USA misses payment to service just the interest owed. Not to mention the principle is not touched for years. Economic collapse?
Brian, missing an interest payment would be an earthquake-level event, so I suspect Washington would print money, borrow more, or inflate its way through before letting that happen.
But you’re right about the pressure...
a trillion dollars just to service interest is an astonishing number.
At some point the math starts making the decisions, not the politicians.
Does not printing more money just put them deeper in debt and increase the debt servicing costs and the debt? No one wins and exposes the fault belief that it will all work out in the end.
Brian, that’s the trap in a nutshell.
Printing more money can help short term, but if overused it can weaken the currency and fuel inflation. Borrowing more adds to the debt and interest bill.
That’s why I keep coming back to the math... eventually the options narrow and none of them are painless.
The hope is they manage a slow correction instead of backing into a crisis.
They could probably easily pay that if they taxed their extremely high earners appropriately.
Kalyrn, fair point...
there’s definitely an argument that tax policy is part of the conversation.
But I think the bigger issue is spending versus revenue over time.
Even very large tax increases don’t magically close trillion-dollar gaps if borrowing and interest costs keep compounding.
At some point, the system has to deal with both sides of the ledger.
That does not make for a good outcome.
Carol-Ann, no… it really doesn’t.
Even if this unfolds slowly instead of dramatically, higher borrowing costs and financial stress rarely end with ordinary people coming out ahead.
Let’s hope smart policy shows up before the math gets too painful.
Thanks for another clearly laid out article- reading it made me think of PM Carney and how his economist’s mind might be using shift to promote 🇨🇦’s investment opportunities . A very interesting read 🤗
Shelley, thank you 🤗
And that’s an interesting thought.
If there was ever a moment for Canada to look stable, predictable, and investment-friendly, this may be it.
Carney does tend to think several moves ahead on the economic chessboard.
We’ll see if Canada is ready to seize the opportunity.
The future is not going to look like the past. Hopefully stable minds can deal with the issues that will bring.
Rebecca, I think you’re exactly right.
We keep trying to solve tomorrow’s problems using yesterday’s assumptions.
The world is shifting fast... economically, politically, technologically.
Stable minds, clear thinking, and less ideology would go a long way right now.
Hopefully wisdom makes a comeback 😊
Makes me think of the saying “Problems cannot be solved by the same thinking that created them.”