Comment by prymitive
1 day ago
The funny thing is that with $40T of public dept US is basically taking money from other countries (in exchange for a pice of paper saying IOU) and then using that money to force these countries to do what’s in US best interests (real or perceived). And the bigger that pile of debt is the more every government is invested in us not going bankrupt, hence the leverage just gets stronger. US is basically a private equity typo of global power - getting others to lend them a knife it stabs them in the back.
Wouldn’t that necessarily mean that if the US keeps making enemies of allies, then the premium required for these countries to give US money would be higher? Sure, I’ll lend you some, but I don’t trust you that much, you’ll have to pay me more.
Go further with your reasoning... Why would anyone lend the US more...
I am not defending the US government but the reason why you hold treasuries is because if you want to buy something in two years, or ten years, etc. there is a good chance you will want to buy something with dollars. Oil, soy beans, New York real estate..
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> Go further with your reasoning... Why would anyone lend the US more...
Because if you don't, you are abducted or killed or "regime changed" or sanctioned to famine-level poverty - all for "freedom & democracy". Kindly remember that the Corporate States of America has the world's most powerful military... well I suppose it is nowadays in the top #3.
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The real answer to your question is the US bond market is an auction, and rates are going up and up, with some sketchy tactics being employed to try and keep them down.
What’s happening to US bonds has been compared to using a credit card to pay off your mortgage...
its mostly because the global economy is dollarized so there's a number of benefits store your wealth in dollars as a hedge or point of stability. If the dollar's dominance wanes, so too will be the appetite for US treasuries.
There is no alternative.
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Sure, but that premium would still be in dollars; until the world realizes that the US is using the primacy of the dollar as a reason to do whatever they want...
That is exactly why the bond yields keep rising.
What you point out here is a major weakness in the typical US citizen's understanding of where US wealth and power comes from.
The US prints two kinds of dollars, the regular kind, then the T-bills.
T-bills get exchanged like dollars, investors/governments buy them because they are thought to be as stable as dollars, but also bear a bit of yield. The US benefits by printing T-bills over dollars because merely by changing the current interest rate, they change the dollar supply. Increasing interest rates lower the value of T-bills, decreasing the supply of dollars (as Silicon Valkey Bank found out...). This allows the US currency to remain very stable.
Referring to the $40T of T-bills merely as "debt" is quite deceptive. It's the global currency. You need enough currency out there to represent the actual amount of wealth, otherwise the values of dollars increases, and deflation is the only thing worse than inflation.
The US' $2T budget deficit is basically the rest of the world paying the US for the privilege of using US currency. The US is printing money, and getting the benefits of spending, because the rest of the world needs dollars to transact. They send us goods, we send them printed dollars. And then we get a president who calls this situation bad, because he doesn't understand what a "trade deficit" is. Utter insanity to have such a position and then just throw it all away.
That said, it's not necessarily a great deal for the US middle class anymore, due to the Triffin Dilemma:
https://en.wikipedia.org/wiki/Triffin_dilemma
This 2020 piece by Lyn Alden is a great explainer:
https://www.lynalden.com/fraying-petrodollar-system/
(Not that I think anything Trump has done has helped the situation even accidentally.)
Vance is making this idea popular/mainstream again lately, I wonder why? The US will predictably lose reserve-currency status as a consequence of losing all the rest of the trust and good will available to her, so it's time to make it seem like that was the plan all along.
Sure, there was a serious conversation to be had about this at some point, but it was probably before stacking up tons of unsustainable debt that directly depends on that part of the shell game. And there are many things that can/should change, but in a certain way and at a certain time to avoid pain and chaos. Arguing "this was always bad for us, fuck it" is kind of a pattern now, right? When someone wants to change some things, great, everything sucks. But when someone wants to tear down every status quo, and especially the ones that they apparently benefited from while saying "everyone after me doesn't need it", then it's a pretty clear sign.
US is now a lot of crazy old people finding new ways to eat their children and trying to see the world burn before they check out. They created the bulk of the debt, benefited from it immensely, propped it up with collateral that was always kind of imaginary, continue to increase the debt. Not great, but now we are also proposing to just destroy what's left of that thin collateral? I don't know how to explain that with greed or stupidity even, it just seems like spite.
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Nothing there explains why it's a bad deal for the middle class.
The middle class actually benefits the most from this situation! More goods, more government services, etc. How much more? Just add up all the trade deficits, that's all benefit accrued almost entirely to the middle class.
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>deflation is the only thing worse than inflation.
In any empirical sense this is absolutely false. The only instance of a significant negative instance of deflation was its contribution to the Great Depression in the early nineteen hundreds, and the effect of that was minor compared to the effects of extreme inflation (hyperinflation) that occurred in places like Weimar Germany and Zimbabwe. Deflation is inherently self-limiting because people have a baseline of goods they must consume for survival (housing, food etc.), and once that baseline is reached spending does not fall further; there's not a single instance in history of 99% deflation, while 99%, 999% and even 999999999% inflation has happened within even just the past few decades.
> people have a baseline of goods they must consume for survival (housing, food etc.), and once that baseline is reached spending does not fall further
Oh boy, do I have news for you. It is in fact possible to run out of money, and in a deflating economy with no jobs you can't just go out and earn more. It puts peoples' collective backs against the wall -- at which point they decide to fight like cornered animals rather than die in a corner, and things get nasty.
Inflation crises are awful, but when you run out of money there are jobs and you can get more and this generally prevents them from turning into bloodbaths. This is why we collectively decided to err in this direction.
Weimar Germany is the perfect example. Did it suck? Yeah. Savings were incinerated, everyday activities became market speculation, the memes are all true -- but it happened under nearly full employment and once the root causes were addressed everything largely simmered down. This is in stark contrast to the deflationary shock of the Great Depression later that decade which propelled the Nazis into power and led directly to WWII.
99% deflation doesn't happen because people start killing each other long before then.
> the rest of the world needs dollars to transact
Why? Dollars are currently the most convenient. If that changes the world could easily switch to Euros, Yen, Yuan, etc.
So which do you choose? Yuan carries Chinese geopolitical risk, Yen, probably not enough of it in the world plus Japan keeps trying to devalue, Euro maybe, but there's plenty of geopolitical risk there with Russia on the doorstep and shifting politics...
Plus if everyone doesn't choose the same it's less convenient.
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The US isn’t taking money from other countries - you clearly don’t understand the scam!
We give money to Israel, Ukraine, and everyone else - we print and print and print and a few people close to the action take some off the top.
That’s it. Maybe some rich kids get their university debt wiped clean (not community college though).
The US and even local governments within have become corrupted to the core - they are like ATMs and havens of various types for the emerging international wealth class.
That class may very well want to promote your idea since the best seat at the table right now is China.
Now everyone wants to be owed by the US à la China, it’s been great for international business. Mexico is the heir to that throne more than Europe - which doesn’t produce anything the world wants.
It’s not other people’s money they just print it out of thin air and say we have a deeper deficit.