Trump picks an “inopportune” time to get tough on trade
The events and circumstances putting upward pressure on US Treasury yields are increasing by the day as President Trump decides to get tough with trade and tariffs.
The Trump regime’s plans to institute tariffs on steel and aluminum imports are reigniting fears of rising prices, inflation, and reduced foreign Treasury buying —a bearish development for bonds.
Larry McDonald, founder of the Bear Traps Report, believes top Chinese officials could retaliate against unfriendly tariffs by reducing purchases of U.S. debt in the coming years, even as the Treasury Department prepares for a swell in issuance. And that, in turn, could send yields even higher.
Trump may be right about trade, but it doesn’t matter anymore
I do not argue with President Trump’s logic. Indeed, foreign nations and their exporters to the United States have always been disingenuous when reporting their data. Moreover, many nations have erected unilateral protectionist measures, which are designed to subsidize their own industries at the expense of US producers.
Regardless, the US dollar is the de facto reserve currency and as such its domestic and international monetary objectives often clash. I mentioned that these contradictions are often referred to as the Triffin Paradox. As such the US must continually run trade and budget deficits. These deficits supply the world with the needed dollars. Unfortunately, the gutting of our industries was done by design, so that the deficits would be structural and permanent.
The friction described in the Triffin Paradox is why China does not want to have the yuan as a global reserve currency; it ruins there export-driven economy. It requires China to begin running trade deficits.
U.S. President Donald Trump’s plan to slap stiff tariffs on imported steel and aluminum has rattled financial markets and stirred fears that some trading partners might retaliate by dumping U.S. Treasuries.
Should China, Japan and other nations, which have recycled their trade dollars through their Treasuries holdings, suddenly decide to whittle them down, markets could be in for a rough ride.
Such a retaliatory move, in the wake of Trump’s first big protectionist action, comes at a time when foreign demand for U.S. debt is seen critical to offset an expected surge in federal borrowing needs, analysts and investors said on Friday.
Any victories the Trump regime would gain in any trade war would prove pyrrhic as foreigners could begin to dump US Treasuries en masse. The whole monetary order post-1971; the year Kissinger visited China and Nixon shut the international gold window, could come unglued.
The globalists have told us they are blowing out the bond market
If you are a student of conspiracy then you see these actions as part of a larger plan. These nascent trade wars are coming at the worst time when the world and the US can least afford them. The sovereign debt markets are at a tipping point and anything that starts trade wars can have deleterious effects. But if I were a globalist working to upend the current world order then these trade skirmishes are well-timed and are only part of the ongoing plan to help drive up bond yields worldwide.
Since late January, I have been enumerating the warnings by the globalist mouthpieces that a bond bear market is coming. This bear market will be long-lasting, pernicious, and will profoundly impact our way of life. The bond market is more important than the equities; everything is priced off of sovereign debt.
US Fed policy is proving lethal and the “Fed put” may be a mirage
If I were part of the elite and I wanted to blowout the bond markets I would severely restrict credit under the guise of fighting inflation. I would direct the US Fed to raise rates and sell off Treasury holdings after running relaxed policy for historic lengths of time. Ironically, higher rates will raise the cost of capital, shift the supply curve up and to the left, and will only help to increase price inflation.
As time goes on I believe that many asset market bulls who have put their faith in the US Fed’s ability and desire to support asset prices will come to realize that this agenda is coming to an end. As debt yields continue to climb worldwide asset sectors such as stocks in capital-intensive industries, real estate, fixed-income, and private businesses could run into serious problems.
Is Trump just carrying out orders?
While there are scenarios that would be worse for financial markets—the proverbial asteroid on a collision path with Earth comes to mind—a trade war has the potential to be very bad for both the global economy and investor portfolios.
At some point I look at all my analysis and conclude that this all cannot be coincidental. The more I observe Trump’s actions and agenda changes the more I am convinced that he is just carrying out orders from a higher level; a level that most do not recognize.
It seems that gun-rights advocates have lost more ground in the past year than under eight years with Obama. Is this by chance? Henry Makow frequently points out the secret hand signs Trump displays during scripted meetings. Perhaps the patriot media’s love affair with Trump should be reconsidered.
Unless the US Fed changes course and the Trump regime does an about face with its tough trade talk the bond blowout will continue.