Breaking Bessent

Welcome back to the power market podcast. I'm Ryan McMan, editor and chief at the Mises Institute. And joining me today are two of our contributing editors. We've got Tho Bishop and we have Connor O'Keefe. And we had meant to talk about this last week, but it's even crazier this week. We're going to talk about the bond market, bond yields, and just how much the markets don't really care what Scott Bessant has to say about it. So, there's some fascinating developments there we'll cover today. But first though, we've still got a couple events coming up that we'll just real briefly mention. >> Yes, we've got coming up this weekend uh in Greenville, South Carolina. Uh we've got an event dedicated to why do government schools not want you to understand economics? Um and so that you can see through uh different interventions and and recognize that uh government jobing boning will not necessarily influence things the way they would like it to be. Um you can find that uh on mises.org/events. We got a great great lineup there. And also on October 22nd uh we are be in San Antonio uh with our supporter summit. will be celebrating 100 years of Rothbard, concluding our year of Rothbard events. Um, we've got uh one of our special guests for that is Judy Shelton, who's been doing a lot of very interesting work on gold the last few years, was a very good Fed critic, one time Fed uh governor candidate, but that did not pass muster there uh thanks to the operations in Washington. but she will be speaking as well as a great list including our own Ryan McMakon, Alex Pollock, uh Peter Klein, a whole lot more. You can find out more about both of those events at mises.org/events. And we're still giving away books to celebrate this year of Rothbard at mises.org/giveaway. It's been our URL the whole year. We're giving away economic depressions, their cause and cure, which may have some relevance for future future news items. Um, that will be given away throughout the month of September. So, feel free to get your fill there. This is a a real book. It's a fiscal book. Uh, so you can read it yourself. You can give it away to friends. You can get up to five copies there. So, again, mises.org/giveaway is where you can find that information. Back to you, Ryan. >> And be sure and subscribe to mises.org if you haven't yet. Just go to mises.org misces.org and click on subscribe there at the top. Then you can get a daily or a weekly email updating you about new podcast articles, new books, all that sort of thing. And by the way, this topic today, boy, what a great illustration of why it's good and important to learn economics if you want to know how you're being ripped off or why the current status quo in politics is going to lead to you being ripped off even more. And I think we're going to talk about that a little bit and how inflation is the only way the regime is going to try and get out of its current fix. So let's just get right into that then. Uh you know I you know I get up in the morning I come down I look at the headlines and all this sort of thing and yeah there were some headlines about PPI uh the producer uh price index and that that exceeded expectations. So, uh, you look at that, you look at recent news on, um, PCE inflation, right? It's clear that inflation is well above the 2% target and isn't going away. It's not even going in the right direction here. It's going entirely the wrong direction. And on top of that, then the big news I see is that uh, yields on especially 10 years and 30 years, your long bonds are going up up up. In fact, now just a little while ago, a couple of hours ago, the 30-year yield hit 5.3 uh 5.365% which is the highest since early 2002. So that's back two cycles essentially. And then the 10-year yield, which the uh 30-year fixed mortgage is based off of, by the way, uh is now at a multi-year high. That's up at 4.95%. And if these things keep ripping, man, you could be looking at 7% mortgage rates by the end of the month. I mean, this is this is significant stuff for like the daily regular lives of people. Now, if you don't follow the bond markets a lot, you might be wondering, okay, what does this even mean? And I think we'll just try and talk a little bit about that today. And it's closely connected to the situation we're facing now. $40 trillion in debt. uh historically high deficits in terms of the fiscal year so far, massive amounts of government spending. Even on an inflationadjusted basis, we're looking at some of the highest levels of federal spending ever and also higher inflation expectations. And so those are the sorts of things then that that cause bond yields to go up. Now remember, if your yield's going up, it means there's less demand for the bond because the price and the yield go in opposite directions. So if yields are going up, that tells you people aren't as enthused about buying the bonds. And in this case, we're talking about treasuries. So why are they less interested in buying these treasuries, at least at the old yields? And the reason is they're expecting a couple of things. Investors seem to be expecting a more price inflation because all the data we're getting on price inflation is suggesting uh that inflation is not going away. That's continued to go up. Uh Trump's insane war that he refuses to give up on in Iran is continuing to drive price increases. Now that's not inflation proper from an Austrian meaning. It's just rising prices. But rising prices in fuel, in diesel, this is going to drive up prices in a lot of areas and investors are expecting now more inflation. And that means they're less interested in the long bonds which have fixed payments because you don't want to nail yourself down to a fixed payments when inflation is going up up up. So that's a problem. And then there's the other aspect of deficits are huge. I just ran the numbers from the July uh Treasury report on what was spending. And if you look at the fiscal year overall, which has gone which started back in October and so we're looking at 10 months now uh for the fiscal year these these deficits for this year it's the worst since co it's $1.7 trillion dollar I think was how the numbers came out for this year and that's the worst since 200 21 and this is basically like panic level sorts of deficits. So the administration is just spending spending even in inflationadjusted dollars uh outlays for the month of July were huge. So however you want to split it the year to date the total if you want to look at just July we're looking at huge huge numbers. All those fantasies about Doge and making making deficits go away with uh revenue from tariffs and stuff that's all just fantasy land nonsense. What we're really looking at in the in the real world are huge massive deficits that continue to go up and are the sort of thing you would expect during a major war or during this manufactured sort of we'll pay everybody to stay home during COVID sort of thing where we just run humongous deficits and print money. So that's what we're facing right now. And investors know that. They're knowing uh that there's going to continue to be huge amounts of new treasuries are going to have to flood the market to pay for these massive deficits and what's essentially going to be about a $2 trillion deficit for the year by the time we're done with the fiscal year. And that's all going to add on top of that $40 trillion debt. So when you've got all of this debt coming into the market, right, what do we know? We know that when the supply of something goes up, all else being equal, the price is going to go down. So huge amounts of debt coming onto the market, price is going to go down, yields are going to go up. So those are some major issues right there. And this administration is not doing anything about it. Uh they're just it's clear they have no plan to bring down spending. Uh there's there's no plan to change really anything in that regard. And it just further uh fuels the idea that how do you get out of this? And they're they're not going to cut spending. they're not going to do anything except inflate. So, I think a lot of investors are seeing that as well. Politically speaking, spending cuts are a dead end. No one's going to want to uh deal with that politically. And of course, all the interest groups are going to want to get theirs no matter what. Got the administration out there talking about, oh, we need a 50% increase in the defense budget to 1.5 trillion. Where does that all lead? It just leads to more spending. But what do you do about that when your yields are going up, which means your debt service continues to go up? So, you're going to have to spend more and more just to service the debt. How do you deal with that? Just inflation. That's the only way politically that I can see that they could possibly do that. And if you want to just get a sense of what these crippling costs are. Uh, so far year to date, it's 1.1 trillion according to the Treasury report that had to go out the door in terms of just debt service. Those are huge numbers and they're going to have to refinance a ton of that in coming years. 10 trillion of it the last time I checked. And that means that you that they're going to have to refinance into higher yield bonds and they're going to be having to pay even larger amounts in debt service. And remember the uh the defense budget is about a trillion. So they're now paying more than a trillion. They're more paying more than the entire defense budget just to pay service on the debt. So the only way out of that is to devalue that. and you devalue that by printing dollars. And so I don't see any any other way out of that. Uh but a lot of the politics behind this is fairly interesting. We I mean who's who's the guy behind all this we're talking about? It's Scott Bessant, our friend. And I figure though th could tell us a little bit about this guy and what what he's trying to do here. >> Yeah. I mean, Bessant's story right now, I mean, it's almost like a Shakespearean tragedy. Um, if you're going to give him the benefit of the doubt, because what's interesting is that his background, like, you know, relative to other treasury secretaries, I mean, this guy was a brawler in bond markets. I mean, like this is precisely the sort of situation that that that trader Besset would have taken advantage of and we don't have to fantasize about that. I mean, this is very similar, different size and scale, right? I'm not predicting the same outcome in the near future, but there are a lot of parallels to, you know, Besson's, you know, one of Bess's most famous career moves, uh, which was dealing with the, um, British pound situation in the '9s. It was something that, you know, George Soros, right, you know, breaking the pound, all that sort of stuff. And what happened then is that the pound was artificially uh, high relative to the pegs they had at the time. And they were facing very real market restraints. U, you had inflation very high relative to Germany. you had an economic downturn within the country and you had a housing market that was crazy and so Bessant was betting against the you know Bank of England's ability to raise rates to maintain the artificially high peg and like that's you know he was betting that it was that was going to break it did and so they made a billion dollars off that trade right so like this is you I'm not expecting you know this this you know it's size different size and scale but it's a very similar situation where the the underlying market fundamentals here are are completely out of whack with everything this this entire projection of confidence that Bessant has and and you know I I think it's very interesting I mean right now we should expect all of this I mean the number one tool right and we talk about this all the time when it comes to the Fed but really the number one tool that economic policy makers have in the United States right now is propaganda right they project confidence and the hope that it's going to happen they're project talking about how we can grow grow way out of this sort of stuff magic wand thinking and that by having the authority of the of a very famous seal and and you know all the pomp and circumstance that they can get markets to do what they want. Um and again this was explicit the communications tools used by the Fed for quite some time but this is the number one thing that they have right now. is really the only weapon Bessant truly has and no one is buying it, right? You know, his his you all these moves, no one is buying it and when you have when the markets do not believe you, then they come back with greater and greater vengeance, which is where we have ourselves right now. But I think it's interesting, you know, I I think that that you can take this as propaganda for what it's uh for what it's worth. Um, and again, what else is he going to do? I think what's useful is looking back at what was the argument that Bessant was making in January of 2025. What was his his projection for the the elixir that was going to solve uh the the biggest issues that America had, which was an inflationary problem, right? And and everything else that came with it. And he talked explicitly about how the market and um and economy have become hooked uh addicted to government spending. He identified this as one of the most important things that he this is what brought him into the chair was addressing the spending side of the equation. Doge failed. He talked about how uh cheap and abundant energy was the base layer of an economic renaissance in America. Look at gas prices now because of the Iran conflict. Um he talked about how productivity growth was going to allow for uh addressing that GDP and address some of these young long-term financing issues. But productivity growth has slowed. I mean it was cut basically in half I think last quarter um because of energy prices are bad for productivity growth and so every standard that Besset set out early on we have failed you know the the policy has been self-inflicted to undermine every single aspect of it. So using Besson's own words his own roadmap you know we are in territory that he was not expecting to to be down right now. And so this is where you have a situation where it's throwing everything out there from a communication standpoint hoping it sticks and and meanwhile like the you know the problems of this is again like when you're when we're talking about the declining value of bonds I mean it's it's not simply the inflationary problems it's the extent to which so many institutions rely upon you know bonds are an essential part of their portfolio and so th those declining prices I mean the the bank crisis we had a few years ago was about shocks to the bond markets right like there are a lot of structural issues beyond just simply the inflation risks that come with the the just the general stability of the broader market you the broader economic environment right now. >> Well, we should note also that with bonds ripping like this, this is happening in spite of Besson's attempted interventions >> right >> in the market that were supposed to stop it and this was through uh bond buybacks that the Treasury Department was doing. Now, if you follow us, you know that the central bank will come in and in order to suppress yields, we'll just buy up treasuries. And they've done that to the tune of many trillions of dollars at uh during the global financial crisis, they bought trillions of both mortgage back securities to bail out the banks and other investors in real estate, but they also bought treasuries in large amounts to bail out the the federal government. Well, and and of course, like bringing in the other actor in this equation, Kevin Walsh, you know, who already you're starting to see I mean, you know, like I think Trump was out there with the true social like a wash better, you know, cut rates, right? Like I mean, surprise, surprise, this is a conflict. I you know, if you know, um but but like like wares, so so let's add him to the tra Shakespearean tragedy. Worsher's entire shtick for years is that we've got to normalize the balance sheet. And so like everyone is being forced to do the exact opposite of what they've been spending the last decade saying we shouldn't do. Like that is a situation right now using their own words, their own logic. I mean the Fed very well might be in a situation that's exact opposite of what Worsh was campaigning on for decades. >> Well, we should note both Worsh and Bessant then have been taking steps to try and calm the bond markets, right? Worsh came in in December. Powell says, "Oh, we're ending quantitative tightening to the, you know, the totally weak quantitative tightening that existed to some extent. No, we're going to come back and we're going to start buying up I think it was $40 billion monthly in treasuries. We're going to let the mortgage back securities roll off, but we're going to buy more treasuries now to bail out the federal government essentially, right? So, they do that. They scale that back a little bit, but that's certainly not going away under Worsh. And of course, every time you see that there's a target federal funds rate that is below the the natural market rate, as it almost certainly is right now, then you can be sure that the central bank is intervening with open market operations, the purchasing of treasuries being a big element of that to uh suppress at least short-term interest rates. Now, Besson is doing something I don't know if I would say similar, but something that with a similar goal. and he came, he shows up and he says, "Oh, we're going to do these buybacks through the Treasury and we're going to do two trillion or two billion uh dollars worth of buybacks." And that was immediately revised up to six billion after a couple of weeks. Now, what now this isn't the same really as the Fed just buying treasuries, but it's clearly an attempt to intervene. So the trade and when the when the Treasury offers these buybacks, the trader gives the Treasury Department the longer term bonds uh a 10, 20 or 30-year bond uh that was sold already in the past and the Treasury then exchanges that for cash. The idea is to add more liquidity to the market and it also then helps remove some of the longer term payment uh from the market as well. the idea hoping that we can get more lower interest shorter term uh bonds out there so that we don't have these these higher obligations anymore. So that is what Besson was trying to do first with two billion then with six billion but in spite of all that it had like no effect. The market just kept uh pushing up yields over and over again and that's what we're facing now. And then while Bessant is is doing this sort of thing and while he was intervening uh in the Japanese carry trade to try and preserve demand for bonds there he says he starts like taunting the markets saying oh you know you know you never bet against the house well I am the house now because I have secret information so don't you dare try and bet against me and then almost immediately yields go up again and show you that the markets don't care. I mean, this is I I was asking th before we started recording. Who's the who's the target audience for all this bravado that Besson is saying, "Oh, I'm a big tough guy. Don't you dare bet against me." He knows that the markets couldn't care less about tough talk like that. So, I'm wondering if Trump's just the target audience there. But, at any rate, the markets don't care what Besson has to say about it and yields continue to rip. Uh and so we can all expect what 10 billion as the next buyback scheme until it seems to have maybe just a leveling off effect at which point then I suppose yields to level off for like 24 hours and then they'll just go back up again which is what essentially they've been doing in response to other interventions in the market. So there are definitely limits now to what this administration is able to do and it just it doesn't look like they've got control of the situation to say the least. Yeah, I think you uh hit the nail on the head earlier when you said the real core of all this is that the new administration, the Republicans more broadly are just not willing to go for the actual root of the problem, which is the spending. And once Doge basically got derailed, which we talked a lot about at the time, it was kind of over. And so, and I confess I've not been following this story that closely in terms of the the details with the bomb market, but it just strikes me as the same thing that we're seeing kind of across all economic uh intervention really since the the co years. Basically, the government comes in, intervenes heavily. I mean, historic levels warps all the markets that has consequences. They spend all this time pretending that there's going to be no bad consequences whatsoever, which of course I think is fueling a lot of, you know, this like democratic socialism, like, well, if it's not a problem for the government to come in and warp a bunch of stuff, then why can't we do it for the people or whatever? But no, in fact, it does have a lot of consequences. But now, because they're not willing to actually go and change their behavior, they're stuck like like what's that analogy that um it's it's like trying to fix your uh if your oil light goes on in your car, instead of actually going and having your oil change, you just take out the bulb and the light. Like that's basically what it feels like Besson's doing. That's kind of everything that these government officials are doing because they're not willing to actually go back and address the spending, which you know there's a lot of reasons for that. Obviously, a lot of people are benefiting from the status quo. We also talked about before how um there's just this Republican tendency to just accept the idea that all of this government spending, if you actually look and focus up, you know, line item by line item, that it's good and it's helping people. And that's not true. Like it's all actually doing a lot of damage. the the government's not spending a ton of money on like good stuff that we have to tighten up our bel belt and cut away. Like no, actually all this government spending is it's not just a bad fiscal program. It's causing a lot of damage is warping all of these industries in ways that are hurting everyday people. So cutting all of that back would not be like a difficult but necessary thing that would be a relief for the economy. But the Republicans are not willing to think like that. um they just completely accept kind of the left-wing version um or the leftwing vision of what all this spending is doing. And so as long as that's the case, like this is the best we can hope for that they can kind of come in and like try to have these clever moves that don't actually address the root of the problem. Maybe the can gets kicked down the road a little bit, the problem grows a little bit bigger and the process just repeats itself. Not only that, I mean, again, like Trump's big announcement during the Republican midterm election, which was held overlapping with NFL football. >> Um, which is, yeah, great move. >> Um, uh, it was a $5,000 Trump bug to give giveaway if you, if you elect Republicans. I mean, I mean, just just like I mean, we've already seen this experiment play out. I mean, THIS IS NOT EVEN LIKE A like an academic like, you know, economic test. I mean, we we've se we've seen giving away large stemmies to to everyone. What that does to prices in in the the long long history what 2000 2020 2021, right? And it's just that is that that is now the number one pitch the Trump administration has is making it rain. It's helicopter money on steroids. It's like I mean it's just my favorite part of that clip too is whoever the producer was, they immediately cut over to Bessant there clapping along with everybody. The optics of it were it's just absurd. >> Well, right. We'll just add this to all of the other imaginary money we were going to get from this government. Right. We were going to, of course, we were going to abolish the income tax and get to keep all of that money. There were like three other stimulus programs that we were supposed to get. You were supposed to get a bunch of tariff money in the mail. >> Doge, >> the Doge money. This is just the latest one. Now, right, you got two choices on this. Either you think it's like actually going to happen, >> uh, or it's not going to happen. Now, if it's not going to happen, then yeah, no shock there. But if it is going to happen, it's just like as you say, Connor, right? It would just it fuels more inflation. So, you should actually expect yields to go up just based on this $5,000 plan. I mean, and it somebody did the math, of course, and it adds up to more than a trillion dollars of new new spending. So, it's crazy. >> 1.3 and they said like something about the tariffs and the tariffs raised like 300 billion and it's all gone. So, it's like what how we get into 1.3 trillion. It's it's completely absurd. Well, I mean, and let's throw this out there in terms of of great predictions is that I think Bessant this week talked about, okay, well, you when the Iran war ends, which, you know, you know, it's already ended five times, right? But when the Iran war ends, then he expects oil prices to go down to 40 under 40 bucks, you know, because of the Venezuelan deal. And it's like like is that like the entire bet at this point? is that you the Iran war is going to finally end and then go oil prices are going to to drop to 40 bucks and then that solves all the problems and just that seems to be you know the entire the entire strategy at this point if you're to take them at face value that's steel manning the position they've been doing it the whole time with just these assumptions of productivity and which is kind of a classic Republican thing they assume productivity is going to take off and then do absolutely nothing to make that happen And then, oh well, Shucks, so I guess we need more spending. >> Well, it's it's just amazing if this works on people because their explanation is all the Democrat spending that of course the Democrats say they want to do, that's welfare. That's bad. That's deficit stuff. But Trump's $5,000 stim check, which by the way, you only get if the Republicans maintain control of Congress. uh vote for us and you'll get a $5,000 stim check which has got to violate all sorts of federal law and campaign laws. No, NO, NO. THAT THAT'S THAT'S BASIC POLITICAL POLITICS, RIGHT? You know, every single election is some form of this. It's just made more expensive. >> Of course, you're right. It's just there was this invisible makebelieve lie between the reality and what you say is the reality. >> Uh so, yeah. No, you're absolutely correct. There's no fundamental difference, but uh it it's just amazing that anybody would believe the argument on this, which is that the the administration has been so successful at revenues and economic growth that we've just got so much money, we're going to give it away and it's not going to fuel any deficits or anything. But I just looked at the numbers and it's 1.7 trillion deficit just for this year. So, I mean, you have to be so bad at math or have no clue about how federal spending really works to fall for it. Now, Trump being I'm sure he's a horribly cynical person. Uh probably even more cynical than me and he knows that those I'm sure. And he knows that if you just lie to people like this that a certain percentage of them will fall for it. And I guess some do. Boy, there's all this secret money that Trump is collecting. So, I guess we won't run deficits. But, but as we say, since people don't understand how the economy works, how deficits work, they probably still don't see any downside to massive deficits. That's that's what's so remarkable, I think, about what we're approaching right now is finally after decades and decades of people talking about why deficits are bad, you will probably start to see actual cuts then to social services and those sorts of things that will have to be cut in order to give money to debt service because you can only have your debt service go 1.1 trillion, 1.5 trillion, 1.8 8 trillion before you got to start cutting into all of this other stuff. And then you're going to have all these pensioners wondering where their money went or why they're not getting more money, why they're spending all this in taxes. And it's because of the deficit spending, which we've been trying to warn you about for decades. But it's it's it's such a multi-step process that few people are even going to even understand the connection. And and I think that's that's a point for for us in particular to highlight because like again like you know I mean obviously we're going to toot our own horns here but like this is what we have been you know what what what contributors and you know on you if you've been reading misa.org for the last decade, right? These are the very specific issues that have been regular occurrences on our on our site. Um, you know, if if you know, uh, I edited a collection of a lot of this material, uh, you know, to crank out for the 2020 anatomy of a crash, uh, could have could have maybe changed the subtitle a little bit, um, to to be less specific on timing there. But but again, like these are the things that that have been talked about by Austrian scholars for, you know, since 2008, right? When we talk about a government bubble, a government debt bubble, right? It's it's because of the very very low rates that were that were global because of monetary policy after 2008. And once those things normalize, this is these are ways in which it plays itself out in the market. When we talk about the additional fragility in the system, it's because people were moving more into stocks, more into less safe haven assets to make up the yields that were the byproduct of the low yields. The additional stability uh stability component is that as bonds rise then the price of those previously bought and held bonds go down and that's creating the issues that we have right now. Right? All of these are things that that have been articulated by, you know, people with far more credentials and far more knowledge than than I myself, but having the benefit of reading this, it it makes understanding all of this a whole lot easier. And it and it's fascinating now like I mean you look at like Real Clear Markets, right? You look at the headlines of Real Clear Markets, it feels a lot like 2008. Um, which I was, you know, I was not following nearly as closely. I was I was, you know, still college age at the time, but you know, it's it's the next financial crash a scenario. It's, you know, the, you know, when when real clear markets looks like zero hedge, that that is usually a sign that people are picking up a lot of things that kind of a lot of the macro trends we've been talking about. And the thing is that there is no political solution for all this. Again, like I've, you know, you you can assume the best. Like I do not think Besson is a right? I I think we've had Treasury Secretaries that were morons, right? There are plenty of people that have been the Federal Reserve whose entire credentials come from writing economics papers that are are fundamentally facious on theories that are just outright dumb. If you really think about it, right, there's been plenty of morons in these positions. I do not think Bessant is a Uh but the problem is is that what else is going to do, right? Like I mean these things are systemic and self-perpetuating that without the political will to cut with spending and no one's going to do it. No democratic process is going to reward that short of a crisis, right? And so this is not assumption of anyone's uh talent or intellectual ability. They cannot do something about this problem right now in a political system. the political systems of the West are not equipped to deal with this until it gets really really bad. And it's like that is the system that we're in. And sometimes it it requires the absurdity of $5,000 Trump bucks to help highlight just exactly where we are at basically like what what else is going to run on right now? Affordability is a major issue. What can you do besides, you know, again, tells me that they can't even truly end the Iran war. like like promising Trump bucks is probably second to finding a way to actually create stability in the Iran situation, right? Like that's that to me is the signal right there is that this is what they rely upon because if they could end the Iran war and get $40 gas, right? That would probably be an even better selling point than $5,000 Trump bucks, which is largely going to appeal to a certain demographic that can't think in a in a different way, who is probably not your traditional Republican voter or even the Trump years, right? I it's like the whole conversation is about like oh we're going to give away um checks to working-class moms but only at a certain income level. It's like like the biggest person who would benefit from that is Tik Tok because the meme of baby bucks content um from from certain demographics it would would would create endless entertainment value. Um but but it's not really a structural form for any of the the true true objectives at place. But that that's kind of where we're at is is this very low lowest common denominator bribing situation because nothing else. They don't they apparently do not have another level to pull if this is what they're engaging in right now. >> Yeah. I described it as like a zero sum game where you fight over the diminishing loot from a a growing state. That's basic. And and I do like a point we often make on this show is that um maybe not in our circles, but there are certainly some nominally free market people that I do think fueled this. And I think largely because especially from sort of like the the conservatives who were like mainly selling gold. They a lot of people framed the national debt as like this time bomb with a very specific like detonation point where it's we're just going along everything's normal then one day we're going to wake up and the treasury is just going to have nothing in it and we'll go oh no. Um and no it's that's not really the form it takes the government has the power to tax really it's what everything we're seeing right now. becomes this thing that's just draining on all the productive aspects of the economy and that's cycling and yeah like you said we're in the middle of a cycle there but I think a lot of people um they bought into that that idea maybe in the past that yeah okay um it's growing and someday we're going to hit that but I mean just to me like the the speed at which we went from 20 trillion to 40 trillion was crazy and but I do think that there is the risk of kind of a crying wolf situation where a lot of people are like okay they they don't understand that all the craziness we're seeing is related to that. They think of it as a separate issue that's coming due one day. And because that just continues on and is speeding up, they kind of look at it as this isolated thing. Um when no, it's all one big related issue. >> Yeah. Yeah. With with a with a not not with a bang, with a whimper, I think, describes a lot of of this stuff from a from a macroeconomic lens. And and I I I think the next pressure point, right, is wait until stocks start falling. And I I think that that you know you I'm not going to pretend like this is some sort of unique analysis for me. I'm just you know was reading Barren earlier but but like there is a very real dynamic where the the you know along with the the bond pressures at the other side of it is that the the collapse of the the yin carry trade and the way that that was used as a way of borrowing uh at very low yields and then buying dollars and being able to buy dollar assets from that which is beneficial to the stock market, right? is is that that once that tool also goes away as a part of another piece of this puzzle, right? Then the the the you know the the cash flows into the stocks are going to start being hit by this as well. And so all of a sudden when stocks stop falling start falling as well. I mean that's going to hit another major voting demographic block and a very particular lens. I there's there's a lot of voters who you know their their entire way of measuring the economy is I mean you know we've mocked this in the past but it's but it's also real right. they they judge uh the the performance of the economy based on their investment portfolio. And I think that is the next domino we could very well start seeing to fall. I mean probably before November. Um and that's a whole another, you know, that's a whole another issue to spin spin. And I have a feeling that that group that demographic is going is is definitely not going to be that g- whizzed over $5,000 Trump bucks. >> Well, there's so many different factors you need to consider when you're going into this is right. You got the yen issue. You've got foreign banks lowering their holdings of dollars, which is an issue there as well. Both China and Japan. Now, Besson's been trying to intervene to prevent Japan from doing too much of that, but that's a general trend. So, that's not helping the value of the dollar. And so, how's that how is that going to affect this this picture overall? Well, on that point, right, one one of the new big policy, you know, uh, uh, you know, communications from Bessant has been further leaning in again making explicit what has long been the implicit of using the dollar explicitly as a component of foreign policy. Again, we've been doing this for for, you know, 25 years now. this is not new, but best but but we haven't had the Treasury Secretary explicitly talk about it in those ways that we're going to use the dollar to benefit allies and we're going to use it to bully enemies, right? Like that's pretty much what he's been saying. And so what is the natural byproduct going to be is that countries that do not think that they're on our best friends list are going to be a lot less even less interested than than they were seeing explicitly weaponized in particular arrangements, right? Like the Russian situation. But like now that that is the explicit stated policy goal, you're naturally going to have an impact on foreign demand because it'd be insane not to. So you outside of and I don't know if the trade-off is that they're hoping to have even more uh purchasing by these friendly countries, right? But how much more how much more is there out there given that this has been the safe reserve asset, right? Like I mean I don't know how much more rope there is among friendly allies. And so all you're doing is turning away foreign ones that aren't in that category in a very firm setting. And so again, this is part of the policy package. Like this is well and of course part of the overall issue of using dollars in foreign policy has then made it so that uh the dollar has been weaponized so that therefore if we don't like you now we cut you out of Swift, we just cut you out of the overall global dollar economy. So if you're using dollars that gives the US power over you. So there's big geopolitical reasons to delever from the dollar. But the the second order effect of that is that when you don't have a bunch of dollars that are sitting around, you're not going to be buying treasuries with those dollars. That's always been a major benefit to the US of foreigners having dollars is Americans buy a bunch of goods. They're using dollars to uh buy uh lots of things. They're flooding other economies with dollars in many cases as as those uh foreigners want more dollars and then what do they do? They then will buy US dollar denominated debt and that helps that helps keep interest rates down keeps yields down etc. So if you're now going to then decide well we need a new global order where there's less incentive to hold dollars what's that going to have on your yields? What effect is that going to have? So all of this then comes into play and it's difficult to predict how it's going to turn out. But if we looked at the end product, we're seeing that yields are heading up. I mean to have a 30-year at the highest level since 2002, that should set off alarm bells in the administration as there's something going on here. This isn't like highest since 2023. This isn't highest since 2019. This is going back to uh the end days of the 2001 recession. So it's it just seems that as you say though there's there's no plan in place for this. They've got there's no strategy. It seems the only strategy is just going to be to inflate in order to get from one day to the next. And >> and one one minor note on this as well is that again like if if we take at face value what was being stated publicly and this I actually do have even more I I do put an additional grain of salt in however that metaphor works. um because this was backed up with legislation, right? Is that one of the one of the visions was that by normalizing the stable coin market in the United States as did with the Clarity Act that they were going to open up a whole new marketplace of US treasury buyers because stable coins have to be backed by US treasuries as as according to the regulation there. So US backed stable coins and so like that was going to be another another way of soaking up this debt. Well, in July stable coin markets dropped for the first time. So, so again, that additional piece of of the puzzle, right? Like, oh, well, you know, the stable coin market is going up to $3 trillion and I'm just, you know, throwing that number out there. And then that's going to end up being another purchaser of securities and like so therefore that's going to that can replace and lose that that itself is not playing out the way that some people might have optimistically projected. This is not a I'm not trying to throw shade at stable coins or crypto markets or et that was a stated policy objective and that is also just not happening right now as something to consider in this in this road road travel. >> Yeah. And it's what they get for not going after the root issues. And what really drives me crazy too and Jonathan Newman shared a I think it was a Wall Street Journal oped or I guess column from a George W. Bush speech writer where he was it was basically arguing that Trump needs to hold the line when it comes to Iran that during the Iraq war like the public opinion completely turned against it and the Bush White House was just so isolated and um but they held firm. They did the surge and everything in Iraq apparently turned out great. Um that was sort of the what you got from the article. But it and it reminded me of that um that montage that went viral in the early days of the war where clearly the talking point went out that we have to go through some short-term pain right now for long-term gain because the regime is going to collapse and it's going to open the straight and energy will be super cheap for the rest of the world for the rest of time or whatever. And so what drives me crazy is like that is the right mindset to have when it comes to actually addressing these fiscal issues. If you actually wanted to attack spending, there's going to be some chaos caused by that. it's going to be politically very very unpopular and this shows like they they are willing to do it in the worst when it comes to the worst issues here that comes back to which we've talked about a lot before I think it's all about interest groups there's there are interest groups that are pushing those policies those policies also involve more spending it's it's never really about cutting spending you know that that's that's never the direction they're going to go in but um just to to watch them just dive into the most the the stupidest most unpopular policies like this war in Iran while being so like politically afraid of addressing those root problems like the the the dichotomy of those makes it especially infuriating from my perspective. >> Well, if you're if they're ever asking if the regime is asking you to endure pain, you know that it benefits the regime directly in some way, right? Your pain is good for the regime. if if actual pain would in some way make the private sector better off. Well, they're not interested in that. So, you're never going to hear about that. Well, just save your money, invest, we'll lower taxes, and then there will be some pain there, right? Where you you'll have to cut social security checks or obviously they're never going to ask anybody to do that. That doesn't benefit the regime. So, yeah, there's there's never an end really to these. Has any administration just come out more and told people to just suffer so that the regime can get what it wants? I mean, it's always implicit, but >> FDR, >> okay, >> during World War II, sure, that makes sense. Yeah, these are World War II levels of being told to just suffer and put up with things so the regime can do its project. uh the the the benefit of course uh of living now is that the propaganda doesn't work nearly as well as it did in uh 1942 when even most Americans when asked why is the United States fighting in Europe would have had no idea uh throughout even even the men fighting in Europe had no idea why they were fighting in Europe. Everyone understood why the US was at war with Japan, but they most were quite confused about why they were at war uh in Europe and that apparently is applicable to today. Most people like why why is the US at war in Iran? Either they know it has something to do with the state of Israel or they just don't know or they were told by the regime that it's because Iran was 10 minutes from getting nukes, which they've been 10 minutes away from getting for the last 40 years. But it uh I I I think it's a shrinking percentage of the population that's falling for that sort of information. >> Okay, I want to leave off on again like this is going back to the best of thing, but like the these quotes I think are are just you know wrapping this up and just like how how absurd we are in the situation we're in. It's from a political article uh in 2025. U a lot of people say it when it comes to reducing spending and don't really mean it. I think he means it. Uh, from one of his his good friends, Wall Street, best himself has said on multiple occasions that government overspending is what got him out from behind his desk to serve in government. As I'm just interested to see how how long how long this situation's really last with Bessa. >> Well, I'm I'm sure we're going to have to return to this issue. Oh, yeah. Um, again, we'll see how things look at the end of the fiscal year, where we are, where 30-year yields are six weeks time, and we probably won't even be out of the remember though, we were saying back in April, boy, what if there's still a war going on in September? And you said that would be a disaster for the administration. And here we are, and it's September. It's not looking too good for the administration. So, you were right. uh how this how this ends exactly, I do not know. But yeah, obviously we're going to come back to this. And so I'm say if you want to see how things are going really in terms of what the world thinks of the US's fiscal situation, look at the bond markets because I think that's going to tell us a lot going forward, especially in the longer term bonds. So we'll see here before long how those things start to turn out. Yeah, keep an eye on the amount of gold being held in reserves and central banks. I think there's a lot of different little pieces that we can look to to see what's going on. And of course, the administration will say, "Hey, look at the stock market. It's big. Everything's falling around your ears, but the stock market is up." That seems to be the current propaganda line. But there are some other places you can look here like yields that I think give a better idea of what the picture is. So, thanks Jents for joining me today. Thank you Connor. Thank you though. Thank you everyone out there for listening this time. We'll be back next time with more. So, we'll see you then.