Scott Bessent: New Prince of the Yen?

[music] Welcome back to the Power Market podcast. I'm Ryan McMaken, editor-inchief at the Mises Institute. And with me today is our contributing editor, Tho Bishop. And also helping us out today is of course our Henry Hlett research fellow Jonathan Newman who we love to have on one of our best economics teachers here at the Mises Institute. and I think he's a good fit for this week's topic because I want to talk a little bit about some recent economic data uh as well as what's going on with currency and bond markets right now because just a few days ago, it was about nine days ago I suppose uh the US intervened uh and entered into a joint intervention with Japan to essentially prop up the yen. And why did that happen? And what does that mean for the US's economy, for treasuries? There's a lot of different pieces to this that I think we'll discuss a little bit today. And I think Jonathan can speak to that uh more completely than I can, but I'll just give you kind of the basic rundown on what the story is. So about nine days ago, we start getting uh news from Scott Bessant that the US is intervening to help prop up the yen. And it's very interesting, I think, in terms of the uh the BS version you're getting of things from uh the the media and the regime on this because if you just kind of casually Google US, Japan, yen intervention using those sorts of words, you'll get a lot of articles back. But what most of the articles state is that basically this was just a nice thing the United States was doing for Japan. Uh they asked uh Trump about a little bit. Hey, why is the US intervening to prop up the yen? And Trump says, 'Well, because we're just helping out the Japanese. We like to help them out. With the he said this literally, they've been good friends with the exception, of course, of Pearl Harbor. [laughter] Uh so, okay, fine. So, this was just a nice thing the US was doing was propping up the yen. And uh then he also said and we just do it because it's good for the global economy. It's just good. So we're just going to print dollars and spend a bunch of taxpayer money essentially either uh either in the form of inflation tax or whatever dollars we got and we're going to help prop up the yen, but it's just cuz we're nice people. Uh there were a number of articles that that covered that and had those sorts of quotations in them. the the one article I did come across that seemed to get a little hit a little closer to home was through CNBC and that noted that well actually there's a lot of self-preservation from the US regime in this sort of thing because what they were noting was that as the yen was declining in value um the the US decided that maybe this would be a problem because in order to defend the yen, the Japanese regime was selling treasuries. And that's not good for the United States because that puts upward pressure then on yields. And uh so CNBC went in and this is this is what they say. Uh Louise Louu, head of Asia economics at Oxford Economics said that uh that that is the intervention was quote possibly one of the key reasons that is the the declining uh need to or the the rising need to uh dump uh treasuries to finance unilateral intervention that this was pos this was possibly one of the key reasons behind US participation and she says quote there is a self-preservation element here volatile markets driven by potentially fiscally aggressive policies from Japan could extend to the US Treasury markets, destabilizing the dollar. So, yeah, it's this isn't about Trump being a nice guy and helping out the Japanese because he has fond feelings toward them outside Pearl Harbor. Uh this is this is about worries in terms of the value and the demand for US treasuries. And I saw some good commentary on this in financial Twitter, which is basically the only Twitter I bother reading anymore with the saying that okay, so now if you sell US treasuries, you get you get a call from Washington saying don't do that. So we hear constantly from the regime, the US regime about how treasuries are great, everybody loves treasuries, everybody wants them, the US economy is airtight, everything's great. But then the second another central bank that holds a lot of treasury starts to sell them even in fairly moderate amounts as the Japanese state has been doing so far, well then it this immediately requires a US intervention to create more dollars and intervene to prevent them from selling treasuries, prop up foreign uh currencies. That seems to be what's going on right now. Uh but I wanted to get your take on it, Jonathan. I wanted to Right. What is your view really of of the yen, of the dollar, of treasuries right now? What should our takeaway be from all of this? Or is this just a minor issue that it doesn't really matter? Uh, and this is no harbinger of of anything to come, no big deal. I don't know. What do you think? >> No, I think you hit the nail on the head. The the US is not intervening in the yin market uh because we're friends with Japan or because they're an ally. It's it's because they are sitting on a mountain of US government debt and they they Japan wants to uh resurrect their own currency which is falling for for various reasons namely because of the the yin carry trade. There's low interest rates in Japan, higher interest rates in US and elsewhere. And so a lot of people are borrowing in Japan then selling their yen uh and then they're investing that elsewhere. And so that's that's what's causing trouble for the yen. Japan is trying to to undo that and one option that they have is to sell off a bunch of their US treasuries. And so the Bessant especially, but the the uh US government doesn't want that to happen. They don't want uh Japan to sell a bunch of treasuries because interest rates are already too high in their u in their view. Um, and so any any further increase in in uh Treasury yields uh would just make it more expensive for the US government to borrow. And as we were talking about before uh we started the recording, uh the US government is is just spending out the wazoo. Just tons and tons of deficit spending. It's having to borrow a ton and so interest expenses are huge. I think it's um it's it's still the second largest expense uh from the Treasury. Um and so they so the reason why Bessant especially wants to help prop up the yen is because uh he's trying to discourage Japan from having to sell their treasuries and cause further increases in US treasury yields. Now what was interesting uh there was this tweet from Bessant uh and I I love this sort of like this sort of fighting political drama. Well, [clears throat] I guess it's a politician or bureaucrat on journalist drama. He said one of the highlights of the wars Fed has been watching stenographers posing as journalists like the Wall Street Journal's Nick Timmerouse reduced to reporting Fed backroom gossip because they're incapable of performing real economic or monetary policy analysis without being spoonfed. And so I mean I'm I'm not one to come to the defense of a journalist but uh this journalist was basically reporting the same sorts of things that you were talking about that this uh Louise Louu I think was her names like just pointing out like there there are reasons why the government wants to do this and and what Tim Rouse was reporting on was uh Besson's pressure on the Fed led by Wars now uh to try to get the Fed to participate in this propping up of the yen. So, uh, the the Treasury has the exchange stabilization fund, but the Fed has this other ability to give, uh, uh, dollars to or lend dollars to other governments and and foreign central banks, but there's a cap on it at $60 billion. So, Bessant was trying to get the Fed to increase that that limit so that so basically to um to do anything that they can to prevent Japan from selling treasuries. And so this brought up I mean this has been a common story over the past few years is like how independent is the Fed uh in reality and here we have a Treasury Secretary pressuring the Fed uh uh to to do something in line with the administration's goals. And so it it brought up all this independent stuff. Uh it it's it's all funny to me because I've I've long thought that Fed independence is a myth. Um, I've been working on this article where I go through it's like the Fed is not independent and uh and a lot of this fighting that you see this this time between the Treasury Secretary and journalists, but whenever you see the Treasury pressuring the Fed or the Fed uh Fed chair saying something like the uh US government spending, the debt is on an unsustainable path, all of this is just u it's it's public feuding, but it's all fake. They're really all working together um at the end of the day. And so if a crisis does come in the Treasury market, uh you can bet that the Fed will be there to to do whatever it can to to push interest rates back down. >> Yeah. And I should note that um specifically the fund that uh Timaros was talking about was the foreign and international monetary authorities repo facility. The other FEMA I suppose [laughter] which is is right that the Fed doesn't just like print money and hand over the money usually isn't what they do. >> I wonder if they have barbed wire around their facilities like you have [laughter] >> fewer prison camps. That's a different type of FEMA camp. and they give you cheap loans is what they're going to do, right? Subsidized loans. These are special loans that normal people could never have access to. Uh this is special money for the special people, that is central bankers and powerful politicians and so on. So they're just talking about blowing the lid off of this and just making it like this endless fund would I mean I've been around long enough to know that this is how it always happens, right? Ever since 2009 or so, these sorts of funds that originally had caps, they were supposed to be very limited, rarely used, they always end up morphing into just these limitless funds where endless money comes through them to prop up and bail out whatever enterprise it is that the Fed wants to and or the Treasury wants to bail out uh and prop up. And by the way, this is just the latest evidence that there isn't really any sort of separation between the Treasury and the Fed anymore. This is just I mean one more way that we can see that the Fed exists to serve the Treasury to make sure it has plenty of liquidity to make sure it has cheap borrowing at hand and this is that and people have been really kind of raising the alarm about the yen situation for many months from what I've seen the carry trade. Our own senior fellow Brendan Brown has talked about the carry trade quite a bit and and and I think it's predicted even that that might be where you start to see serious problems with the yen carry trade and he may then be proven very very right that that's where the the the next repo crisis comes out of but I think you start to see a lot of the weakness as you say here in things like treasuries in things like the dollar. And another explanation that was forwarded for that was, well, we got to devalue the dollar also because that's good for America. But as you note, Jonathan, right, isn't it isn't it remarkable how all of these currencies seem to devalue together? Why is it that no currency is allowed to just become significantly more devalued or to conversely become significantly more valuable? And this is something that Brendan Brown has pointed out is that after in uh the early 1980s, right, the dollar became much more valuable after the Vulkar intervention where of course interest rates were allowed to go up significantly. It looks like the US was doing something uh meaningful about its debt and dealing with its inflation situation. The value of the dollar went up significantly. But then lo and behold, by the mid 1980s, you get the plaza accords. So that the US dollar is now being purposely devalued again with Vulkar's approval. Vulkar however was acting uh in I don't know in a joint venture I suppose of the treasury at that point and with probably the bank of England and other central banks because there is always this coordination among these national central banks to ensure that no dollar or no currency becomes too valuable. Now Jonathan, maybe you can explain a little bit what what the rationale that they give us is behind this, right? They're always saying, well, we can't let the US dollar become too valuable in relation to the yen or in relation to the euro or relation to the to pound sterling or whatever because that would be bad for business. Is that true? Right. Is it true that we never want a a very valuable and stable dollar because it should go down if other currencies go down or else the American economy will implode? That's that's what I hear every time from central bankers, from people in Washington that we want a weaker currency for reasons. Can you tell us a little bit more about that? Yeah, the the reasons that are given are old, thoroughly discredited, thoroughly debunked uh mercantalist and protectionist myths. It's the idea that exports are the greatest thing ever that in order for uh for our domestic economy, I can speak from the perspective of the US. In order for the US to be successful, we just need to to export a bunch of our stuff. And that will be great for US businesses because uh now it's cheaper for foreigners to buy our stuff and so they'll buy more of our stuff and that's that's great for business. Now of course what that misses out on is like the complete other side of the story. It's there's actually two two ways to to uh to think about this and and see the reality. First you can think about from the individual business perspective. Of course there are going to be some businesses who benefit as a result. that's going to be the exporttheavy businesses. Uh the ones that uh that that's their main thing is exporting. Yeah, they'll see at least a short-term boost to their business. This goes back to what Bosat talked about with the seen and the unseen. So, it's really easy to point to those sorts of businesses uh either in prospect or in hindsight and say look like they benefit from this currency devaluation. Look at all of the look at how well these businesses are doing. But what it it ignores is all the businesses who rely on imported goods, raw materials, um inputs to their various production processes. Uh and so it actually so when you do that, of course, you're making exports cheaper, but you're making imports more expensive whenever you devalue your own currency. So it makes it harder for for those businesses uh uh to do well. And in the end, it just it distorts the economy. It means that we're not producing what our comparative advantage is. And so there's that's why that's why this sort of thing only works in in the short run anyway. But the other the other flip side to to the whole cheaper export thing is that the the the domestic economic benefit of exports is imports generally. So like like we don't we can't eat money, right? We can't we can't eat the money that we're receiving when we're when we're selling exports. And so how do we benefit as a result of selling things to other countries, people in other countries? And the answer is well now we have a greater ability to buy stuff that's produced from that country or other other countries. And so if you're using currency devaluation, yes, there's this seen benefit. some exporters um do well as a result of that, but US consumers, many US businesses uh are are made worse off in the short run and everybody is made worse off in the long run. And and I said at the beginning that like this is th this has been debunked for hundreds of years literally like the the economics itself was born out of refuting these arguments. And so it's it's uh it's a little bit disheartening to [laughter] to have to continue to address these things that have been talked about um so thoroughly. >> It is interesting to note though that if other currencies start to go down significantly uh those central banks could end up sinking the uh the US uh debt situation by dumping their treasuries. And of course that seems to be in the end that is the ultimate motivation, right? I'm clearly they do want to devalue the dollar to some extent. Uh but it seems to me that just as with interest rates being set by the central bank overall, especially in our current debt environment, it seems that the overall issue, the overall priority is keeping interest rates as low as they possibly can, which is by which I mean yields on US treasuries. And you can look at this and you can uh just check out the latest numbers on debt nationwide. And there were there was a spate of new headlines just coming out in recent days as new Treasury data became available. Trump's deficit for the year swells to 2.1 trillion according to Fortune. These are bonkers numbers. These are like COVID era. These are Biden at his worst unsustainable sort of deficit numbers. It looked like there might have been a decline at hand for overall debt, but that swiftly turned around thanks to the ongoing war uh increased spending. We've got, of course, uh on top of that, we've got uh the the uh secretary of war um Heg Seth out there saying we we need a $ 1.5 trillion defense budget to all on top of already massively inflated amounts of spending. So when you look at that, how they're going to need massive new deficits in the near future, of course they're going to be obsessed then with keeping yields as low as they can. And it doesn't even seem to be working. A recent headline from Bloomberg here from 17 hours ago, US sells 10-year debt at highest yields since financial crisis. So that's not good news for the regime. >> The 2007 financial crisis, not the not the 2020, >> right? Yes. No. No. We're not talking about Yeah. We're talking about the old global financial crisis, the GFC as some people say it, uh, in the days preceding the Great Recession. Yeah. What years ago, 18 years ago is what we're talking about here. And that, uh, that doesn't sound so great. And that also shows, I think, if that continues, it demonstrates the fact that the wheels are kind of coming off the administration, right? because Bessant is everywhere intervening here and there to try and keep a cap on the situation. We don't want them selling off treasuries cuz that would that would increase yields and yet yields go up anyway. And in fact, it seems that whatever gains had been made, that is by yields going down in the days after the intervention, that's already gone. That's already been completely erased. So yields are now back to where they were before the intervention. So what what now? Do you just keep intervening more and more to prop up the yen or do you let yield markets actually do their thing? Uh bond markets do their thing, which clearly this administration doesn't want to do. But looking at these huge debts and looking at where yields are headed, it seems to me that the bond markets are sending a strong signal. And I don't know how much the uh administration has left in terms of its bag of tricks for getting the bond markets to feel that everything is going to turn out okay. I mean, what what's your take on on with yields heading up? I mean, the 10-year is connected, of course, to the 30-year mortgage, so you're not seeing any significant decline there. 30 years are inching up as well. Why do you think that is? Well, I think uh I think you hit the nail on the head. The at the bottom of all of this is the problem of of government spending. So, it's it's the enormous amount of government spending and of course taxes are politically unpopular and so the treasuries of the US government or the Japanese government as well. They have the same problem. Uh they they just have to issue so much so much debt to do this. Now, in terms of like like what tools are they going to have to deal with this in the future, I don't know. I I saw um a Wall Street Journal headline this morning uh using the sword stagflation. Uh I mean you could make the case that we're already in that sort of situation. We don't have negative GDP numbers uh right now, but I mean that's that's where we have to go in this sort of situation because like the the only button that the Fed knows how to press and the federal government knows what to do is to increase the money supply. It's like if if we have any sort of problem, if there's if there's a problem with government debt, if there's a if we're in a recession, what do we do? Boost aggreate demand. We got to print more money, stimulate demand that way. Um and and so but we're already in a situation now where price inflation is is extremely politically unpopular and like getting like really getting out of hand um um economically speaking. I mean the um I I also just recently because I was preparing for this uh this podcast I watched uh Wars's recent uh press conference and it I was just laughing because he was you know was very sternly saying it's like we are resolutely committed to getting back to our price stability. He he likes to use the word remitt a bunch. Our our remitt of 2% price inflation. And this is, you know, broadly held across the FOMC. And it's like we've been hearing this for for five years now. It's like it's like multiple times a year whenever they have these press conferences, whether it's Powell or Al Wor, they're they're saying it's like we are committed to getting back to price, but we're we're still north of 3%, right? So, it's like it's like they they know they know that it's politically unpopular. They know that the American people are are sick and tired of of prices increasing. Last week, you guys talked about the burrito gate, $20 burritos. [clears throat] So, so people are are sick of it. Uh but like they like what are they going to do? They're they're between a rock and a hard place because the only alternative is to, you know, suffer the consequences when it comes to government finance and allowing yields to rise, allowing interest rates to go up, which is extremely difficult for for the government to do. >> Well, I think some of this can be seen as well. Like I you're going back to the, you know, the big Bessant uh discussion over raising the um the repo cap. One of the things that Worsh has tried to you know, you has talked about long before he was Fed chair was trying to normalize the balance sheet. Well, if if that is the goal, but you also want to massively expun expand the foreign repo market. Like there's those are two contradictory aims being presented out in public, right? So these are behind the scenes discussions. I mean these are the public inherent contradiction into what Worsh is trying to signal what Besset wants the Fed to do playing out in public right now, which I think goes to just how their lack of uh you the the the the lack of obvious solutions that they have within their their toolkit. I think it's also interesting that a lot of um you know the post uh great recession era has been so dependent upon international cooperation between central banks and obviously you the yen you know the Fed intervening the yen being an obvious example that direction but part of you know just this this growing differences in in political cultures um that the fact that the ECB was not informed of the Fed's decision to backs stop the yen using euro caught them completely off guard, which goes to one of our running themes, which is the complete breakdown of of norms, getting these ungo these unwritten governing rules. And so, for some reason, Bessant felt the need not to inform the ECB doing this trade. Afterwards, like, oh, they were offended that the ECB would complain about it. It's like, well, I mean, you're doing something that hasn't been done in a way that that is probably not good for your relationship with the ECB when the central bank cartel is part of propping this entire thing up. like that's some of this stuff, you know, you can see the potentials for some uh snowballs coming down the pike there that get really really interesting when even the central bankers can agree on on what to do in collaboration. >> Yeah. The I mean, speaking of the Worsh speech from last from I guess last Wednesday um for their most recent press conference where they held the the interest rate steady. We didn't really talk about on the last part, Margaret. We're too busy talking about burritos. Uh we we we did touch on a little bit in terms of inflation and how they weren't going to reduce the interest rate at the latest FOMC meeting precisely because inflation is yet again well above that 2% target. Uh the data came out the other day, yesterday or the day before, and that was at 3.3% well above the 2% target, which I think now makes it 65 months in a row of being above target. Some of those months way above target, up over 3%. And well, and and that's not even counting the 2022 stuff, right? Where it was hitting like 40-year highs in terms of year-over-year inflation. never been fixed. Even though you've got MAGA people out there saying, "Oh, the price of eggs went down. The inflation went away. Inflation's gone in reverse. This this shows the importance of education folks." Because what you had were were MAGA people posting a decline in the rate of increase. So they showed that the rate of increase had decreased from say 7% down to 3% and they said, "Look, inflation's been reversed." No, that's not what that means. Just means the your constant decline in dollar value has slowed somewhat uh because everything continues to get more expensive. And I should note, by the way, that if you look at the most recent job data and you pull out the average earnings, the weekly average earnings, that's not as high as inflation. That was about 3.1%. >> And the inflation number is 3.3%. This is I think now the third month in a row uh that you have declining wages by that measure and that that comes after just a brief reprieve. You had a period of some small growth in average wages year-over-year but that followed a 24month period of falling wages. So you get these economists out there saying oh yeah prices are up but thank goodness uh wages are up too. Well, that depends a whole lot on when you're measuring that as to how exactly you're framing that because there are, as the numbers show, even these official government numbers, there are a whole lot of people out there, especially over the last three years, who have experienced real declines in wages, even just going off averages. Uh, but the economists want us to believe that everything's great. So, they're they're not going to admit that. So looking at the the inflation data, looking at the jobs data, by the way, there were 23,000 jobs lost net uh according to the most recent numbers for July. That was in both the and we saw declines in both the household and in the establishment survey. So the job situation is I don't know it's it's looking increasingly bleak, especially when you look at it over several months. Huge downward revisions in the previous month for that. It's the old Biden trick. The initial number looks good and then we do a big downward revision. Uh so that's the the administration simply adopting uh the the oldfashioned Democrat uh slight of hand sort of economic data stuff. So looking at that, we're looking at people are now trying to dump treasuries to uh to defend their own declining currencies. We But meanwhile, we've got Warsaw. are saying we're we're on top of it. We're committed to doing everything right. How long can this mismatch I think that's when you start to get real political problems is when there's a huge mismatch between what the people in power are saying about how they have everything under control and what the actual situation is in real life. And I I just wonder what this is going to look like a few months from now because I don't I I have a hard time imagining something that's going to happen in the economy that's suddenly going to make everybody's productivity skyrocket. Everyone's going to start hiring. Uh everyone's going to suddenly be demanding yen. It's uh it's just hard to see what scenario uh causes a major turnaround here. >> Yeah. Uh I during uh burrito gate I I posted this uh quote from my favorite quote from Ludv Misus uh where he's he's putting down the the the way that the statistical bureaus as he calls them uh measure price inflation and he said a judicious housewife knows much more about how uh prices affect her household's budget uh much better than the statistical averages can tell. I think that's pretty close to verbatim. might have rearranged a few words there. Uh, but that's what I was thinking about when uh when there was all of this kurfuffle about people saying uh you know, don't you realize that uh you [clears throat] can eat ramen? Don't don't you realize you can you know you can get a a really really cheap meal with the chicken and rice from Aldi, which of course you can. Um but that ignores the fact that like people actually like you're you're ignoring the real data. you're ignoring what people are actually saying and feeling about their their own household budgets and their own ability to to to buy a house and start a family, their own ability to to climb a ladder at work and to to earn higher wages. Uh and so ignoring all of that and relying on these statistical averages. Um and so that's what I was thinking. Another thing I was thinking about with the Worsh press conference uh related to what Tho mentioned about the balance sheet normalization is that they so they've been talking about getting back to the 2% u price inflation target uh for for many months now. How many months did you say? >> I think it's 65 now. >> Yeah, 65 months. Uh but they've been talking about balance sheet normalization since like 2012 or something. It's like that's never going to happen. Um, so they and there was a great uh question from uh Mike McKe at that press conference where uh he he basically said uh Wars, you're what do you say to all these Americans that are thinking it's like you keep talking like you have all this talk about uh stabilizing inflation, but when when are you actually going to act on it because they they didn't they didn't do anything with interest rates uh this this time around with the FOMC meeting. Uh and of course Worsh had this like political non-answer. Uh that's one thing that that Worsh is very good at is uh it's like using a lot of words to say absolutely nothing which I mean Fed chairs have been doing that a long time. But I guess I think it's more obvious with with Wars. And so like even even the reporters in the room, even these journalists who are who are tied up in this world, it's like they're they're actually they're turning the the page. They're they're they're saying, "Hey, uh the the Fed has has has said that they're going to solve this problem. The Fed has said that they're going to do something about price inflation. Uh but they're they're not doing anything about it." It's like, how how long can this go on? Going back to what you were saying, Ryan, it's like how long can this actually go on? When are people when is there going to be like some sort of like triggering event where there's uh u like people are fed up with this and so like there's some sort of big, you know, political change. >> I don't about it, Jonathan. >> Yeah, that's right. There's a maybe we need a a political revolution task force. >> Oh, that's right. I forgot. Yeah, Wars has uh created like seven new task forces to figure out everything. Um because of course the Fed, what what are they employing all those economists for now anyway? Oh, we need a new task force to study the economy because I guess the existing Fed economists aren't studying the economy. It's uh and they they get well paid. Maybe that just betrays the uselessness of Fed economists right now. But it all just rings so untrue, right? Worsh getting up there and saying he's in control of the inflation situation is about as true as Trump saying that the reason they bailed out the yen is because he just likes the Japanese and they're nice people. I mean, it's just it's just >> Except for Except for that. That was the one bad thing they did. Which, by the way, you know, is uh is not true because I lived I'm old enough to remember the age of uh Japan bashing where everyone was horribly afraid that Japan was going to take over the United States. This was in the very late uh 80s and early 90s. There was a movie that that embodied it called, I think, Rising Sun uh that came out. Uh, I think it was a based on a Michael Kiteon book. And man, it made it made the Japanese look like basically a master race that were going to take over the United States anytime soon. And they had they they had like secret the whole way they conducted their their society was like a giant Masonic temple where everything was secret and membership was closely watched and they had strange rituals and all of this sort of thing. And people kind of believe that about Japan back then. there was this kind of existential fear about them and then they went into recession and nobody ever thought about Japan ever again. >> Yeah. But back back in 1988 when Trump was kind of previewing a presidential run back then I mean like when he was on Oprah Winfrey like he he was using the same exact rhetoric directed towards Japan that he was using in 2016 against China. It's like this this is why we need tariffs of course is because this dang Japanese car manufacturers back in 88 but neither are there >> right. Yeah. Of course, that the fact that Japan just went away without the US uh engaging in a trade war against them was uh inconvenient for the Trump narrative. Uh but I mean just why can't the central bank and the US government well I know why they can't but because of politics but they've got so many excuses for why they need to do this why they need to do that and the solution of course is less government spending that's it if they just send the signal that we're going to engage in less government spending I'm not I'm not saying they even have to actually reduce it significantly. If they just send some signals saying, well, government spending is going to be flat next year. It's just going to be the same next year as this year, you would probably see yields plummet on US treasuries. You would see this huge wave of confidence probably in the US because of course that would really differentiate the US from the Japanese, from the Europeans and so on because they would all just continue spending crazily. And just I remember when Ron Paul was running for president I believe the second time. So it was 2012 and their big thing for the budget was of course not to cut all spending, right? I mean the these were people making serious political uh suggestions, right? This was a presidential campaign, a serious campaign that was putting out real policies that they thought were attainable. And they said we're going to reduce spending to 2009 levels. And this was in 2012, which was a totally reasonable, normal thing to do because prices, everything, all spending had just skyrocketed into crazy town territory after 2009. And they said, "We're just going to go back to when thing wasn't crazy town. It was still irresponsible. It was still unsustainable, but we're just going to go back to 2009." And of course, that was treated as utter insanity and unattainable by the Washington elite. But you can imagine if they had done that, how would that would have changed things? The US would have become this economic powerhouse seen as the safe place to put your money uh the the sound, the sane people globally. They could do something similar now, but they're not going to. >> Yeah. Unfortunately, what what it takes to get that sort of rhetoric from politicians is something like a a Democrat in the White House and a sizable number of vocal Republicans in the House. um maybe in the Senate as well. That that's the only time you get that that sort of rhetoric at least at least from uh the conservative wing. >> Yeah. Well, now now again like getting pre-COVID would be like the the the equivalent of 09 now and you can't do that. It's interesting. I mean, you not as exciting as as Ron, but um remember, you know, for years, you know, Rand Paul, you know, his big radical pitch was what he called the penny plan to go we're just going to take a penny out of every dollar the government spends and that will get us on to, you know, uh a balanced budget over x amount of time. And like now he's now he's campaigning on the six penny plan because like that's how much you need to kind of achieve the same sort of gains from back then, which kind of tells you uh everything you need to know. Um, you know, it's just >> inflation everywhere. >> It's so disappointing though because I I guess I got I got hoodwinkedked. I got tricked. I I actually had a little bit of optimism at the beginning of the second Trump administration because there was there was Doge and uh Elon Musk was like slashing all this stuff and there was lots of great rhetoric about getting rid of whole departments. Um, I I I I admit I was I was optimistic about that, but then it just all went down the tubes and and it's it's it's such a disappointment now. I mean, there's also all of the campaign promises about no new wars. Um, and it's it's just it's been sad and disappointing. U maybe I I shouldn't have gotten my hopes up at the beginning. Isn't it great, guys, that uh tariff revenue replaced the income tax and they abolished the income tax. I'm really loving that. That was that was a great thing the Trump administration did. There were people who actually believed that was going to happen. I mean, just astounding. I mean, obviously, these people can't do math. if they just looked at even the most optimistic revenue uh projections for tariffs versus the actual revenue that comes in through the income tax. Obviously, that was the pipe dream, but a lot of people believe that was going to happen. And boy, I just I need to start compiling a list of all of the cockamame schemes that we were told were going to happen and none of it ever happened. But like you, Jonathan, I had some optimism. I thought he's going to appoint some of these people. And in fact, he did appoint some of those people. It's just it all came to nothing, right? I liked that he was going to appoint Kennedy to Healthy Human Services. I thought maybe that'll make some some difference. I like that he appointed um Tulsi Gabbard, right? But boy, she was just so completely sidelineed, right? Evidence, by the way, that personnel is not necessarily policy. Uh because what really matters are that that core group that runs things. But so much of that just turned out to not matter at all. And so that the question is which TDS do you have? I can't remember who came up with this, but there's three different TDS's. There's Trump derangement syndrome, which we're accused of having anytime we point out anything that the administration has done wrong. But the reality is I think most of us have Trump disappointment syndrome, >> which is we were we really wanted him to succeed in doing these things he said he was going to do. And obviously he was a better uh candidate than Kamla, right? None of I didn't think it just didn't matter. Vote for Ka, whatever. I mean, yeah, an economic policy. Now, knowing what we know, there probably was going to be no difference, but there was a lot of other policies to worry about in that case. But we we do not have Trump deification syndrome which is what many of the core MAGA people still have although that's that number gets smaller and smaller >> and and I think the biggest thing too like the failure of Doge I think is the single most important failure of the I mean the war situation is is horrible as well like I'm not trying to I'm not trying to mitigate that um but in terms of the long-term realities and going just through lack of answers here because you know there's two different proh problems with with the budget. For one, there's there's no political will to do it at a at a legislative level. I mean, you know, no one wants to actively vote for even the most minor reforms to let's say, you know, social safety net pro programs because you're immediately, you know, sold as, you know, throwing granny off the cliff. It's also funny. It also works in local government. Like we had someone talk about like uh making some minor changes to the library and all of a sudden you had a B. Don't you dare take one Danielle Steel book at the library. like this is this is this is a war on on you like it's just it's it's across all levels. Um but uh u but you doge was the opportunity of bypassing or sold as the opportunity of bypassing a lot of the standard budgetary process that the legislature refused to do. We don't have a we haven't had a you know real budget in what almost 30 years now. um and that the inability for with all the capital baked in that particular promise that was supposed to be an easy button in this issue and it's it's it's absolute failure in terms of practice outside of you know some minor things can glad USA ID is less money great fantastic but in terms of these broad structural things and I I think it's you know just looking at going back to you know one of the original points like if you look at uh uh the 10-year Treasury yields I mean there there was significant there there was about a8% cut in US Treasury yields between January till about April and that's about as long as any hopes Doge lasted and I fear it immediately goes back up. I think those two might be might have a little bit more uh more late than than some might want to see. >> But it's it's als it's not just Trump that I'm disappointed in. It's also the Republicans in Congress who were like all for Trump on on the on the campaign. And so like they were like they they were echoing the same rhetoric about Doge and cutting things. And then when they had a chance to codify actually, you know, like make it longerl lasting as opposed to something that the next president uh can can just reverse uh they they fumbled the ball. I I don't know what happened, but they did. And of course, the the one congressman who was good on this stuff, uh was pushed out with billions of dollars, millions of dollars, maybe not billions, millions of dollars from some Israeli influenced uh billionaire. It's it's just sad. >> Yeah, it was it was double digit millions, I do believe, which is a lot for a single house race. >> A Senate race can run a billion dollars now. >> Uh but yeah, for a single congressional, that's just Apac really just pulled out all the stops to just throw money at uh the Thomas Massie problem, quote unquote, which of course wasn't a problem for any normal American anywhere. Uh so I I say just keep an eye out on yields. I if we continue to see these sorts of numbers in terms of federal spending, I don't see how you're going to see the 10-year head down again in terms of the yield. People are just going to expect so much uh debt, US debt to flood the market now with these $2 trillion deficits coming out of the Trump administration. Why would you be uh why would you be paying higher prices for any of this stuff? Because you're just going to expect more to be coming right immediately afterward. There's going to be dumping more and more debt in the market. So, of course, you're going to want you're going to demand higher yields on that. And now because they're fearing not only on top of all this new debt being added to the marketplace, they're fearing the Japanese dumping what they got. That's the that's the key is you get so much new fresh debt coming onto the market and then you got the Japanese simultaneously dumping the older stuff that that could just really destroy Treasury markets from the government's perspective in terms of now they're having to uh to pay so much more. And that was the other statistic on these huge debt numbers coming out of uh the Trump administration. I think I I think I saw that it was 1.2 trillion. It could have even been higher paying that's that's just what they're paying on the debt. That's just the debt service so far. That's these are astounding bonkers numbers. So when you look at that, of course, yields are going up and that's going to really I think destabilize uh a a lot of both the US and the global economy even because right as you note Jonathan all of these central banks are interconnected. The global economy is all interconnected and I think we're just going to start to see a lot more of intervention from all of these banks and not just the Fed. But it'll be interesting to see going forward just how this perhaps the pace of this steps up. But then every every six weeks we're going to get Worsh out there telling us that everything's under control and he's his task force is is going to solve that problem any day now. Then we'll get up >> they're resolutely committed, >> right? And then it'll be 70 months of inflation [snorts] above 2% then maybe 75 unless of course the economy crashes and then you'll have your official inflation go down significantly. Uh but stay tuned I guess. But I do think keeping an eye on the 10-year yield, 30-year, all of that, I think, is going to give us an idea of what the mood is out there for investors and how much people actually believe this rhetoric about getting inflation and spending under control. >> Yeah. In case people think that like this this conversation got sort of derailed when we were talking about Trump and Doge and Massie and all these things, it's because the the central problem, as you said, Ryan, the central problem is government spending. That's that's the problem. It's it's extremely high levels of government spending that's causing all of these problems uh with you know higher yields and and people are are are becoming increasingly um or maybe I should say decreasingly willing to hold on to to treasury debt. It's all because of the size of government spending. This is something that Murray Rothbart was was great on. He in a man state there's a section where he's talking about uh uh debt hawkery. It's like people um are worried about the size of of government debt. But Rothbart pointed out that the the debt is is a uh it's a symptom. It's it's like a it's a side issue. It's a consequence of all of the excessive government spending. And the government spending is where all the distortions happen. And so the solution to all of this is reducing government spending. It's it's it's not some weird new policy trick, some weird new intervention that the Japanese central bank, Japanese government or US government can do to to shortterm fix problems with foreign exchange markets or fix problems in the Treasury market. Like they of course they they have tools that can like do things in the short run, but as as we've seen what they did with the yen has already corrected itself. Like there was like this little blip in the yen. So all the stuff that Besson did last week and earlier this week to to try to prop up the yen that all of that has already evaporated. So like all of all the stuff that they can do to to put band-aids on these problems are are just band-aids just like short-term almost like like super short almost like immediate run uh things that they can do. Uh but the underlying problem is government spending. >> Well, with that we'll go ahead and wrap up this episode of the Power Market podcast. I suspect there well we'll have many new trends along these lines to return to in a few weeks. Uh and then we've got that that election coming up. So it's going to be an interesting year. >> Speaking of speaking of the future, I I I pulled up the US debt clock and we're inching closer to $40 trillion. So that's [laughter] coming >> 40. >> Well, thank you everyone out there for listening. I do appreciate it. We will be back uh next week with a bit more. Uh perhaps Connor may be able to rejoin us uh next week. So, thank you very much, Jonathan, for filling in today. And uh yeah, it was great that we were able to cover this topic because I do think it's one of those things that just it doesn't break into the mainstream news is it news is just in the business media for the most part, but I think it's the sort of thing that proves to be pretty important later on. So, thanks all out there for listening. We'll be back next time with more. We'll see you then.