Do We Live in a Stockyard or Limited by Our Own Human Bond Age?

 Do We Live in a Stockyard or Limited by Our Own Human Bond Age?

PETER ON THE WRITERS’ HANGOUT PODCAST!

If you are wondering why Trump elected to impose a 90-day pause in non-China-directed tariffs, it wasn’t the volatile stock markets. Stocks represent equity; bonds are debt instruments. The share driven markets are on a hair trigger reflecting the pessimism or optimism of the moment. But the overriding issues are deep. Except for the decades of China’s industrial espionage and requirements to share underlying rights, a most legitimate matter, most of the tariffs for the rest of the world really did not need adjusting. Trump’s massive “everybody pays what we demand” will not bring significant revenues to the government, will not bring high-wage manufacturing back, and most definitely not bring prices down. What that effort has produced is a global move to insulate the others, particularly the EU, India, much of Asia and even Mexico and Canada, from American hegemony as to trading platforms and currency exchanges… and moved China to a path to becoming the new go-to trading partner. Nothing Trump can do now will stop that.

“European Commission President Ursula von der Leyen welcomed President Donald Trump's temporary halt on reciprocal tariffs, describing it as a chance to pursue a ‘frictionless’ trading relationship… She later confirmed that the EU would also pause for 90 days its planned countermeasures against Trump's tariffs to ‘give negotiations a chance.’.. However, her broader message signaled that the EU's strategic pivot away from U.S.-centric trade would continue.” Newsweek, April 10th. That last sentence has become the most common global response to a US president perceived as a rogue bully that must be stopped.

But Trump’s obvious capitulation (the 90-day pause) came after a heart-to-heart talk with Treasury Secretary Scott Bessent, who while touting Trump’s strategy (??) to the public, had to inform the President that the bond market, much larger than the aggregation of shares traded on the stock market, was sending some very severe messages to the Trump administration. In normal times, when stocks sink, investors’ money usually gravitates to the less volatile bond market. This time, both indexes have plunged. Why does this matter? Because our national debt (the deficit borrowing) depends on our ability to sell government bonds in the open market (at a scheduled “auction”), with most of the “usual buyers” being engaged in a trade war with the Trump administration, the market was hostile. And if bonds cannot be sold without increasing the interest rate, we lose. That interest carry is an immutable part of the federal budget… which pushes our budget priorities into a vastly more limited place.

In the April 10th Wall Street Journal, Sam Goldfarb explains: “It definitely hasn’t been a good week for the bond market… U.S. Treasurys initially rallied after Trump’s April 2 tariff announcement, reflecting a flight to traditional havens as investors sold riskier assets like stocks. Starting on Monday [4/7], however, they started selling off, and that selling became especially intense Tuesday [4/8] after a $58 billion government auction of 3-year notes was met with weak demand from investors.

“That presented a big problem. As bond prices fell, yields climbed, further threatening an already vulnerable economy, given that yields set a floor on interest rates on everything from mortgages to corporate bonds.

“Investors were basically panicking in ways reminiscent of the most extreme crises, like the 2020 Covid meltdown. One concern was that foreign investors might sell—or at least stop buying—Treasurys in reaction to Trump’s tariffs. Once prices started tumbling, the move was further accelerated by forced selling from hedge funds–a scenario long feared by regulators.

“By Wednesday [4/9] afternoon—after a successful 10-year note auction, and Trump’s pivot on tariffs—the market was acting more normally. Even so, the exposure of its vulnerabilities will likely keep investors nervous for some time.”

Putting this another way, buying federal bonds needed a higher rate to overcome the global animus against the United States and its President, and as those who already owned US government bonds began dumping much of their holdings into the overall marketplace, the value of those bonds was further diluted. US financial instruments are now viewed as damaged goods with vastly higher risk. Trump has set in motion a global movement that he can longer stop… even if all the tariffs were returned to what they were in January. Without any real allies on this issue, the world is preparing to shove American power and influence into second place… behind China.

The net impact of higher government bond interest is that almost everything in the US will see higher pricing, and operating credit will contract quickly. Most impacted: small businesses will either have to pay with credit card interest rates for that capital… or will be closed out of the credit markets entirely. These vectors are moving fast and are highly resistant to any efforts by the Trump administration to moderate them. That massive billionaire tax cut that Trump and Speaker Mike Johnson seem hell-bent on passing will increase the deficit by trillions of dollars… push interest on debt even higher… and will have invited a devastation of the GOP at the midterms (if there are any), as the benefits to their constituents are sliced away to accommodate the billionaires.

I’m Peter Dekom, and Trump’s significant damage to the US economy has some areas that might be reversed… but most changes are permanently going in the wrong direction; perhaps conspiracy theorists believing Trump party line may find solace to ask the Easter Bunny to intervene.