What Happens When You Abuse People
It appears that President Trump may have developed a case of the blinkies. After indicating a desire to terminate Federal Reserve Chairman Jerome Powell, Trump announced yesterday that he has no intent of doing so after all. Moreover, in the vicious trade war that Trump launched against China several weeks ago, it seems that he is the first to blink there as well. Yesterday, he unilaterally announced that his high tariffs against China will “come down substantially.” No word yet on what China’s response will be to what seems to be a Trump trade-war capitulation.
So, why these two apparent Trump surrenders? It could be the pressure arising from the plunging U.S. stock market or the deep plunge in the value of the dollar that Trump’s tariffs and trade wars have produced.
But my hunch instead is that it is the long-term U.S. bond market that has caused Trump to make his U-turns.
In past economic crises, investors have rushed to put their money into U.S. long-term bonds, given the longtime sentiment that the bonds are the most secure investment one can find. However, during the crisis produced by Trump’s tariffs and trade wars, such has not been the case. Instead, when Trump’s tariff/trade-war crisis materialized, the value of long-term U.S. bonds went down. That means that in order to attract people to buy the bonds, the U.S. government must offer higher rates of interest to investors.
But higher rates of interest come with a high cost to the U.S. government, given its $36.7 trillion in debt. The amount of interest paid on such debt is so high that it now exceeds the amount of money paid to the U.S. national-security establishment for national “defense.” Thus, if the U.S. government is required to pay a higher rate of interest when it rolls over its maturing long-term bonds, that increase in interest payments is necessarily a very
Article from The Future of Freedom Foundation
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