Brief Summary
The video discusses concerns about the U.S. fiscal situation, highlighting Treasury Secretary Besson's admission of a high deficit and the strategy to grow the economy faster than the debt. It also covers the potential devaluation of U.S. bonds, the impact of tariffs, and the global pushback against U.S. economic policies.
- Besson admitted to a high deficit-to-GDP ratio, signaling potential devaluation of U.S. bonds.
- The U.S. aims to grow the economy faster than debt, tolerating higher inflation.
- Trump's tariff policies and global ultimatums are facing resistance, with countries pushing back.
Bessent Admits U.S. Fiscal Crisis
The video starts by noting that recent market trends have been influenced by figures like Latnik and Besson. However, current U.S. actions, particularly in trade and bond markets, are causing widespread concern. Besson has acknowledged the ongoing tariff war and the ultimatum being presented to other countries. The rising bond yields indicate trouble, and Trump's previous strategies to save the bond market are no longer effective. A potential downgrade from Moody's could further decrease bond values. Besson's rejection of the downgrade as a lagging indicator suggests the past few months have been a fiscal disaster, leading to the downgrade.
USD Bondholders Real Value To Plunge
Besson admitted that the deficit to GDP is at 6.7%, which is the highest when the US is not at war or in recession. Besson's plan to grow the U.S. economy faster than the debt to stabilize the debt-to-GDP ratio is a hint at a dark future for long-term holders of U.S. debt, who will likely lose money on a real basis. The U.S. economy is in a difficult position, with revenue expected to drop, especially during a tariff war, making inflating away the debt the last resort. Besson didn't say he would reduce the US deficit, but he said he will grow the economy faster than they borrow money. Besson will tolerate higher inflation to juice up GDP.
U.S. Horrific Borrowing
Inflation is the primary strategy due to excessive government spending, and tariffs will increase input costs and consumer prices. The White House is overlooking the option of consumers refusing to buy. The proposed $4 trillion debt increase will only result in a 0.6% GDP rise and 800,000 jobs, necessitating an additional $400 billion in annual borrowing, raising the deficit by 1.3% of GDP. Many estimates, including Moody's, fear the deficit could reach 8% or 9% of GDP. The US-China reprieve has emboldened other countries to negotiate more aggressively, recognizing the U.S. economy's vulnerability.
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Global Economies Push Back
Countries like Japan and Europe are resisting U.S. pressure, recognizing the U.S. economy is weakening and Trump has overplayed his hand. The China deal was an admission of weakness, with inflation expectations rising to 7.3% for the next 12 months. The longer the trade war continues, the more it hurts the U.S., reducing exports and increasing import costs. Other countries are observing and waiting, while Trump is sending ultimatums with new tariff rates, demanding compliance to do business in the U.S.
Bessent's Global Threat
Besson confirmed that if countries don't negotiate in good faith, tariffs will reset to higher levels from April 2nd. Besson's definition of good faith involves countries lowering non-tariff trade barriers, including VAT tax, currency manipulation, and industrial subsidies. The U.S. expects countries not to reinvest their trade surplus back into their export economy, while the U.S. provides its own subsidies through tax breaks, creating a double standard. Countries that don't comply may face punishment. China's industrial output is resilient, exceeding expectations, and countries continue to buy Chinese exports. China's effective deployment of subsidies and lack of a bond market problem contrast with the U.S. situation.
USD Assets Still In Trouble
The U.S. is issuing trade ultimatums because countries are realizing the U.S. has a weak hand. These countries may increase pressure on the U.S. The U.S. bond market is in trouble, and the U.S. cannot compete with China without significant spending. The U.S. may opt for economic growth through government spending and inflation, leading to fiscal repression. U.S. bond values are collapsing, pushing yields up, with the 10-year likely to crack 4.5% and the 30-year hitting 5%. Higher rates will have a deflationary impact, and the only way to counter deflation is through inflation. The U.S. is heading towards a recession or a Fed rescue, and bondholders of U.S. debt may be negatively affected. The House committee passed Trump's tax bill, adding $5 trillion to the debt. With Trump believing he's winning, Besson has limited room to maneuver, and inflation will remain a crisis in the U.S.
