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> Instead of being seen as a safe haven, U.S. debt itself started to look shaky There's also a more basic answer to why US debt got more expensive. There is no
by milesvp 2y ago
> Instead of being seen as a safe haven, U.S. debt itself started to look shaky
There's also a more basic answer to why US debt got more expensive. There is no such thing as a "trade deficit". You cannot import something without exporting something else. That something else, in almost 100% of the situations, is dollars. What do you do with dollars, if there's nothing you want to buy? You buy debt. So, every trade deficit ultimately tends to export debt. We have long known that government debt is proportional to trade deficits.
The problem with tariffs, in this context, is that they are being used as a signal that we don't want to sell people dollars anymore, explicitly saying "no more trade deficits". In doing so we are choking off the supply of dollars used to buy debt (rather abruptly), so that US debt is chasing fewer dollars and has to give a bigger yield as a result.
What's worse, is that because we are signalling that the tariffs are meant to be permanent, and we're seeing reciprocal tariffs as a result. When that happens, it means that using dollars in the future will purchase fewer US goods, so the time discount of money has gone up too. Further driving up yields to make bonds attractive enough to sell.
- lawlessone 2y agoisn't this also kinda opposed to having the dollar as the dominant world currency? Lots of countries settle trades between each other using dollars. Making it harder to get those dollars will leave them seeking to use something else to trade.
- magicreadu 2y agoHaving dollar being the worlds currency is not necessarily a good thing. Yes, you can borrow at low interests rate for a while. But guess what? Those are still debts. And eventually rates rise due to inflation. Now you have hollowed out your industrial base and you are stuck with tons of debts. Even if dollar gets weaker, better to have less debts and more industrialization
- PaulDavisThe1st 2y agoInflation reduces the effective cost of debt. Inflation and the "hollowing of your industrial base" are not inevitably connected, and in the case of the USA, have almost no connection to each other at all.
- rat87 2y agoNot being the world's reserve currency can be argued over but having these massive economy crushing tarrifs is just stupid
- wqaatwt 2y agoLike Germany? Which country do you think did better over the last 20 years and which had barely any growth?
- ashoeafoot 2y agoThe state printed paper money, he still owns a debt to the forrest donating the tree?
- ashoeafoot 2y agoLeaving the euro! Authoritarian currency is as good as their word.
- matheusmoreira 2y agoBRICs were making plans to introduce their own reserve currency as an alternative to the USD. Trump once threatened 100% tariffs if they did. https://www.msn.com/en-us/money/markets/aggressive-tariffs-fuel-brics-strategic-push-toward-dollar-free-trade/ar-AA1Co2kW https://www.msn.com/en-us/money/markets/aggressive-tariffs-f... https://www.msn.com/en-us/money/markets/trump-threatens-100-tariffs-on-china-and-russia-if-brics-group-of-nations-issues-new-currency/ar-AA1v5omC https://www.msn.com/en-us/money/markets/trump-threatens-100-... https://www.bloomberg.com/news/articles/2024-12-02/south-africa-rejects-trump-s-claims-over-brics-currency-plans https://www.bloomberg.com/news/articles/2024-12-02/south-afr... These developments are going to be interesting.
- ashoeafoot 2y agoThe C and the I are at war, R is stuck in a vietnam in Ukraine and South Africa is unstable .Leaving Brazil, which yes, brazil and India alone may hold up a stable reserve currency .
- xg15 2y ago> South Africa is unstable Is it? They have some intra-government spats, but I hadn't heard that this threatened the stability of the whole country yet. > which yes, brazil and India alone may hold up a stable reserve currency. Also several other countries which joined the last year or are in the process of joining. I believe at some point, the official name was also changed to BRICS+
- matheusmoreira 2y agoI seriously doubt Brazil will keep it up if Trump follows through with his threat. Honestly I'm surprised Brazil hasn't been hit hard yet. Brazilian taxes on american products can approach 100%. One for me and one for the government, as we say. A "reciprocal" 10% tariff against brazilian goods is just comical to me. I wish I was paying just 10%.
- desdenova 2y agoThat 10% would be over the other taxes. But Trump also managed to devalue the dollar so much, we won't even feel the difference.
- PaulDavisThe1st 2y ago> You cannot import something without exporting something else. This is incorrect when your national currency happens to be the global reserve currency. All it requires is for the other country to be willing to accept dollars in payment. [ EDIT: even that's wrong. All it requires is someone being willing to accept dollars, either in payment or as part of a currency exchange. ]
- Retric 2y agoExporting dollars is exporting something. Combine a constantly depreciating dollar with constant rates of trade and you could end up in a steady state. However, we define trade deficits to exclude financial transactions for various reasons.
- PaulDavisThe1st 2y agoIf by "exporting something else" you include dollars then fine, but I don't believe that was what the GP was saying.
- anigbrowl 2y agoI'm pretty sure it's exactly what they were saying. You cannot import something without exporting something else. That something else, in almost 100% of the situations, is dollars.
- PaulDavisThe1st 2y agoNormal economics does not talk about "exporting currency". You generally buy stuff with currency, which when the seller is in another country happens to mean that dollars (probably) move across borders and thus in some odd sense the currency is exported. But this is really not what is generally said in this context. Exporting stuff normally means providing goods and services to willing buyers in other countries.
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- ToucanLoucan 2y agoThe real issue is people are still treating this reactionary buffoonery as if it's a trade policy that warrants critique. It isn't. Trump is a fucking idiot and he has surrounded himself with other fucking idiots and they and the reactionary base of fucking idiots they've created are cheering him on for doing fucking idiot things. A journalist successfully reverse-engineered the likely formula used to arrive at the figures for each nation, and it's not only implemented stupidly, it's also wrong from first principles. It's the same thing an actual school child might come up with if you asked them to. This is the same kind of "economic policy" cooked up by dumbasses on reddit who sincerely believe they are qualified to "fix US trade." If our congress wasn't also packed full of ineffectual liberals and other fucking idiots, he'd be impeached by now for sheer incompetence. It's the same issue we had in the last Trump admin. This nonsense is elevated to undue credibility by serious people discussing it seriously. It shouldn't be debated, it should be mocked, relentlessly, mercilessly, cruelly. As should Trump himself, as should his supporters, as should his sycophantic followers. Mock, belittle, make fun of, bully, parody, just continuously until every single one of these people refuses to approach a microphone.
- monkeyfun 2y agoIt's especially such a farce because what do they expect? If trump said the sky is green and the ocean is red, you'd find scores of these useless faux-intellectuals trying to "prove" the truth, and each data point of evidence would simply be met with various forms of "no it isn't! The sky is green! The ocean is red!" In their world, any "evidence" to the contrary must be manipulated or misinterpreted, because as we all know the sky is green, the ocean is -- oh, he said it's yellow now? And the sky is red? Hah, of course! We knew it all along, it was the plan, stupid! And meanwhile... Most of the democrats' tiny minds struggle to operate outside of a context of rigid rules and procedures. A context of arguing a point and getting at least some degree of fair debate in return. But this is another age of populism. It doesn't matter what you argue, on either side. Debate transforms, serving only to transmit your message to your side, ideally while inspiring them and demoralizing the enemy. It matters that you seem confident and powerful while you say whatever you're saying. It matters that you seem invincible and indefatigable. Their world won't be back for quite some time, assuming something at all like it sticks around. They'll keep operating like robots, not understanding why an excellent diss or crude mockery matters more than 1000 additional volumes of "proof" about something in contention.
- insane_dreamer 2y ago> We have long known that government debt is proportional to trade deficits. And so far we've been cool with that because it: - continues to make the USD the dominant global reserve currency, strengthening our economic and political clout - allows us to borrow cheaply to finance our military and whatever else we're spending $ on
- creer 2y agoUS debt was mostly being bought because "safe". The US being seen as politically and economically stable and the center of the world. Right now that argument is much harder to make. And meanwhile there is always a lot of US debt that needs to be rolled over (i.e. re-issued to a willing buyer.) Except for the data point of today's 10-Year Treasury Auction which had a normal, usual result.
- deleted 2y ago[deleted]
- casey2 2y agoWhy do people keep repeating this nonsense? 2008? Every "recession" for the last 50 years? Nobody was under the impression that the US was economically stable. Go press max on the 10 year bond yields and tell me what you see. The "crash" puts it to where it was not even a year ago. For 10-year bonds.
- lazide 2y agoCompared to literally every other economy in the planet, the US is economically stable.
- rdsubhas 2y agoCompared to every other developed democracy in the planet, the US is politically unstable with its two party democracy. Trump is just a product of this right-vs-left volatile maximalism, represented as woke-vs-maga, which is fully on-track to get worse. Try guessing who will be the next woke maximalist and maga maximalist candidate, and what Executive Orders it leads to, which the US is pretty much ruled by at this stage. Good luck with flip-flopping maga and woke Executive law as a country.
- lazide 2y agoTrump is a new experience for America, but you don’t have to go back far pretty much anywhere else to have similar examples. Trump is notable because he is unusual for the US.
- ajross 2y agoThis is all correct, but it's a first principles explanation that doesn't explain why US bonds, and in particular the 10-year note, spiked today. Yes, eventually excessive tariffs would have that result. They literally hadn't even taken effect yet. So this doesn't explain the bond motion today. Someone was dumping, we don't know who or why. But the answer to that question is a lot (a lot) more important than people realize, and certainly more so than the immediate market motion or tariff policy. Honestly if the answer was "The PRC was unloading bonds to send a message" that's sort of the best option, as they have limited wiggle room to continue to do so without wrecking their own financial situation. If it's "The market as a whole lost confidence in US debt", then we're fucked no matter what Trump does next.
- bilbo0s 2y agoHmm. The problem is that China holds only 2.6% of US Debt as of February 2025. Can they leverage that small a percentage to make a market move like that? Especially assuming they didn't dedicate all of their holdings to that action?
- ajross 2y agoIt depends entirely on what the trading volume is, and I don't know. But again IMHO it's critically important that someone find out.
- intended 2y agoYou know what the answer is. It’s the global system dumping US debt. Its not like someone knew THIS would be the specific smoke signal that Trump would see and say “oh, lets pump the brakes”
- scotty79 2y agoReversing idiotic decisions after not being able to explain away the backlash they caused is kind of his thing and many people recognized it and expected it before the tariff pause.
- skybrian 2y agoIt's usually not "dollars." It could be any investment or service that could be bought using dollars. And calling foreign investment an "export" is just confusing.
- kamaal 2y ago>>You cannot import something without exporting something else. That something else, in almost 100% of the situations, is dollars. If you want the world to trade using your currency. You have to give them dollars. That is buy something from them. That is, imports. All of this comes a section of US politics not being able to understand why the dollar standard even exists.
- intended 2y agoYou are exporting services. Vast amounts of highly profitable services.
- ashoeafoot 2y agoThey really did and then they didn't
- JumpCrisscross 2y ago> we are choking off the supply of dollars used to buy debt (rather abruptly), so that US debt is chasing fewer dollars and has to give a bigger yield as a result Well, also, the holders of our debt now need liquidity. So they sell this famously-liquid asset we've been selling them for decades.
- rayiner 2y agoBoomers really fucked on the economy to Sunday didn’t they?
- mindslight 2y agoYep, and despite the dwindling numbers they just keep on coming up with new ways of fucking it. "When you're a star they just let you do it"
- drumdance 2y agoSadly, this go-round it's Gen X more than Boomers. We voted for Trump disproportionately compared to other age cohorts. I'm embarrassed on behalf of my idiot friends from high school.
- deleted 2y ago[deleted]