Wow! Have I got a feast of headlines and videos for you today as the world falls apart. The question I raised yesterday about whether we were looking at the start of a global bond crash or something less horrendous, answered itself overnight. Today the US Treasury CLEARLY revealed it to be a global bond crash when they made it complete with the “surprise” flourish of a major rescue plan that has the Treasury copying one of the Fed’s old forms of quantitative easing.
As I said, I’ll need to cover the Great Bond Collapse in a Deeper Dive because of its breadth and depth, but let me give you the gist of some of the craziness that is swirling around this story here. In short, what the Treasury announced was a form of the Fed’s former Operation Twist, which was one of former Fed Chair Ben Burn-the-banky’s forms of QE.
Because bond yields blew out so high on the US30YR Treasury this week, the Secretary Scott Be-sent-by-Trump announced today that his Treasury Dept. will begin massive cannibalistic buybacks of its own bonds in the higher-aging maturity tenors by financing those buybacks with huge issuances of shorter-term Treasuries that have lower rates. This is aimed at having the effect of lowering rates on long-term bonds by raising rates on short-term bonds as the Treasury now floods the market with shorter-term bonds to try to secure lower interest rates on the bloated national debt, using that new funding to reduce supply of long-maturity bonds, thereby driving up price, down yields.
Out of the mouths of babes
Even CNBC’s Crazy Cramer, as I like to call him because he foams at the mouth over stocks like a rabid stock broker, gets it! “Stop!” he in essence yelled. “Stop the lunatic rescue operations, and let markets finally JUST BE MARKETS.” That was a surprise bolt of sanity from an insane source. It is my summary paraphrase of his words since the original story requires a paid subscription; here is someone else’s summary (because I make an effort to take you to stories where you can read the news without subscribing to every source as one of the benefits for subscribing here, unlike The Drudge Report):
Jim Cramer argues that aggressive Federal Reserve Treasury purchases can distort markets by inflating bubbles and masking the economy’s true health. He advocates allowing market forces to operate with less intervention to support sustainable growth and reduce the risk of unintended consequences.
Never thought I’d hear that from him.
The stance underscores a debate about how central bank actions shape valuations and investor expectations. The takeaway is a call for caution about excessive intervention and a reminder that true fundamentals should drive long-term performance.
Did I even wake up this morning, or am I writing in my sleep while still dreaming?
In this case, it is not the Federal Reserve but the US Treasury. However, the two have sometimes worked in tandem; so, it doesn’t really make any difference who does it since both are in charge of the dollar and have effectively infinite money by decree; it’s just that they have different mechanisms available to them. This time the Treasury is copying from the old Fed’s play book right when new and green Fedhead Warsh said he was going to let the market do more of its own intervention. (Is this a feud between government and Fed to push Warsh into Trump alignment by doing what normally was his work in the old Fed?)
Cramer highlights the Federal Reserve’s Treasury purchases as a central factor influencing stock-market dynamics and valuations.
He expresses concern that aggressive buying can create distortions, potentially inflating asset prices beyond what fundamentals would justify.
A key implication he notes is that such interventions can make it harder to accurately assess the economy’s health and to gauge sustainable growth.
Cramer emphasizes the importance of allowing market forces to play a larger role, aiming to reduce unintended consequences from heavy intervention.
I could have written all of that myself—and almost certainly did nearly two decades ago in the heat of the Great Recession.
The overall message frames intervention as a double-edged sword: it may support near-term liquidity but risk longer-term valuation and risk-assessment challenges.
The guidance suggests investors should consider fundamentals and avoid relying solely on central-bank actions when evaluating market prospects.
OK. I’m feeling lightheaded. Somehow Trumpworld has knocked my brain into Cramer’s crazy head.
He’s right about all of that (of course since he is thinking with my brain ; ) It is practically word-for-word what I have been arguing since the Great Recession. In my little book made of my writings from that time when I was a mere babe in economics, I laid out how we endlessly repeat these big crash cycles because we bail them out. (You can buy that humorous little book here and learn from history: “DOWNTIME: Why We Fail to Recover from Rinse and Repeat Recession Cycles.”)
We never learn from history. We don’t let all the dead wood burn, so next time the forest is loaded with even more tinder from the last fire that we rapidly hosed out. Then the next forest fire is worse still. And so the cycle repeats in ever larger loops. All along the way, markets follow the money, and the big money is always either the Fed or the feds (the Treasury). They have seemingly bottomless pockets, so they become almost the only game in town with all markets betting on where they will move their money next. Market follow the money.
Thus, it is not as surprising as it is sad that the feds came to the rescue today, nor surprising stocks rose in response to horrendously bad news about a global bond default because it means there is a big new money dump in town. Stocks rose and Treasury yields fell as they were rigged by the Treasury to do, sliding on the long end of the curve. It went according to plan.
Yet, it is precisely because we always solve these things with rescues and never with true fiscal reform that we have built up the biggest bond crisis in history that now needs another rescue. It is because other nations like Japan did the same thing that those nations impact ours because they are so wedded to the global dollar. It is the global dollar that is at stake again, hence the Treasury’s rush to the rescue because the dollar is largely controlled through major bond actions by the Fed or Treasury, called quantitative easing (or tightening, as the case may be), which is why I often list bond-market headlines under the “Money Matters” section of The Daily Doom, rather than with other economic stories.
Because our markets get so used to operating from one major rescue plan to the next, the bond vigilantes fell asleep in the poppy fields for years. They finally woke up for a bit because of all the noise from the Trump-Iran War, but even then they have settled back into semi repose. Then, today, the Treasury gave them knock-out drugs to sink them into a deep sleep in order to keep them out of the way of servicing the national debt, which was suddenly under great peril from rising interest rates and extremely large Treasury auctions (though they are, of course, not breathing a word about Andy that, lest they multiply their peril into panic).
But here’s the problem. The knock out drugs, massively powerful as they are, don’t last long. They always require another hit … a bigger hit … and then another to keep the new high going. So, the rescue plans, as we particularly saw during the Great Recession where I cut my economics writing teeth, get bigger and bigger and more drawn out and filled with fancier new tricks. (That path has been my biggest and most consistently accurate prediction ever since that time.) Eventually, they get the forest fire out, but then we do nothing to fix the fundamental problems because, “Hey, the rescue saved us. Back to greed and easy money as usual.”
If you let all the rubble burn up in their own wreckage, then they don’t get to repeat their mistakes on grander scales, and you don’t create the moral hazard of enticing others to repeat those greedy mistakes because of how well they worked out. Back in the Great Recession I observed that the truly greatest banksters are the ones who can bust their own massive institutions in a way to qualifies for practically free $20-billion Fed bailouts! You had to be a masterful captain to pilot your ship to strategic ruin on those rocks in order to achieve greater wealth. (Just giving you some samples here of the writing in Downtime.)
We are back to abnormality as the new norm
It is not normal for Treasury rates to fall on the day after massive bond problems blow up in global markets, especially a blowout as tightly wedded to US Treasuries as Japan. The announcement by Be-sent of Trump of a major rescue would spark fear into the hearts of bond investors if not for the fact that the Treasury money will be massive enough to outweigh the risk … so long as there is more to come … as there always is.
BUT that doesn’t stop bond investors from now being unsettled by the sudden realization that things really did suddenly emerge as bad as they were starting to fear as they were slowly waking from the poppy fields again and imposing new interest rates of their own due to a gentle slap in the face by the new Fed chair who said he was going to let bond markets do more of the muscle work in adjusting the dollar and the economy. Well, that natural rise in bond rates didn’t last long because Trump’s other guy, Big Bessent, jumped in to the rescue.
However, we have seen how these game plans go—in 2008 with the almost endless rounds of nearly almighty easing for years and in 2019 during the Repocalypse that ultimately forced the Fed BACK into quantitative easing after its brief experiment with quantitative tightening that former Fed chair Yellen and promised would be as boring as watching paint dry but it wasn’t.
What happens every time, is they do more, then they have to do more. So get ready for another rodeo ride as the Fed and feds go back to bronco busting the dusty “OK Dollar Corral.” It’s going to be a long ride, fraught with new perils. Just another prediction in which I have total laid-back confidence.
In the headlines below, you will find lots of other news today about the total Big Bubble Bust that is starting in bonds this week with some of the big news being the rushing collapse in the housing market. If they let it go, which they never do entirely before they huff and puff their hardest to blow it back up into an even bigger bubble, it will be boon to first-time homebuyers who will finally find a new path back in to homeownership.
However, based on the patterns of The Great Recession, it will have to fall harder to where it starts causing bank failures or comes close to that before the Federal Reserve is likely to jump to the rescue. So, maybe next week? ; )
That’s hard to say with Warsh saying he wants market forces to do more of the driving. All of this will test his mettle to see if he really won’t meddle. Good luck with that. He’s be a rare breed if he holds out against that temptation with the Trumpet blowing up his back side.
There are lots of massive headlines about the Treasury’s out-of-the-blue major emergency rescue today, which does not just cover the problem of turning down rising longterm Treasury interest on the US debt, but also dives deep into rescuing Japan to save the dollar—because the yen has a statutory tie to the dollar since the biggest of rescue plans after World War II—and into the dark news of other quavering and quaking bond markets all over the world this week as Trump’s War on oil continues to undermine global financial courage.
Those are highlighted even though I am not digging down into them today in case you want to do advance reading before I can get to that Deeper Dive, which might be slower in coming, as I hinted yesterday, because of family coming in for the weekend. (Or maybe I’ll skip regular editorial writing and headlines tomorrow to dig into it as much as I can in a single day before ehe company arrives. depending on whether there is other severe news that demands coverage tomorrow). It’s getting hard to keep up with the big flush.
All of this on the day when the national debt finally topped $40-Trillion! There’s a grim milestone perfect for the occasion. Yet, you’ll find so much more in today’s headlines:
There is more on the coming food crisis.
There is an article about US gold confiscation (of Venezuela’s gold out of the UK central bank).
There is more on Russia’s gas shortage, telling how it has taken then next step that I just said was coming—with gas stations/the government now setting limits on how much fuel each customer can buy in order to ration limited supply (just like in the 70s in the US as I’ve said we’ll see this turn into, except this crisis will be a lot worse).
There is more on Trump’s big re-ignition of tariff wars with Canada because Lord knows we need those sources of new inflation and economic demolition in times like these! New big deal struck, getting him to jettison his 50% tariff in exchange for something like a more reasonable 20% (and, yes, YOU pay).
Iran threatens to expand the war to Europe,
and Ukraine continues blowing up Russian refineries, crippling the heck out of Russia as Russians begin to openly fret that Putin (and all of Russia) are about to feel the “August curse” that Russians have come to superstitiously believe in.
UK energy bill set to run up to a three-year high because of the wars.
Murban Crude Jumps to 4-Month High.
Iran calls Trump “delusional.”
Why Japan is leading the global bond selloff.
US Democratic socialists stack up wins by competing against Trump in his home state. (“Nixon Wins!”)
But when we turn our eyes to the bubble itself, we are shocked. This is no ordinary bubble. This is a SuperBubble...bigger...more flamboyant...and more charged with gas than any that came before it. When the pin gets close, watch out…. The total of US debt in 2008 was only $10 trillion. Now it is approaching $40 trillion…. And the cost of servicing the debt this year is $1.3 trillion. In 2008, the interest cost was still less than $200 billion...only a fraction of today’s bill. A trillion here. A trillion there. Pretty soon you’re talking about one helluva bubble. —Bill Bonner from his article listed under “Economania.”
The size of the super bubble that is now imploding in global bond markets perhaps forces the Treasury to take action (followed by a lot more action, I assure you), but that is only because we kept building bubbles on top of bubbles with each similar bailout of the past. We NEVER fixed the fundamental flaws because bubble rescues are the core flaw!
The reasons Republicans have stopped talking about the national debt or claiming they are going to do something about it are two-fold: 1) They were never serious about doing anything about it, or they would not have kept expanding it. 2) They now know there is NOTHING left they can do about it! We are, as I promised we would be way back in the Great Recession—BECAUSE OF THE BAILOUTS—finally way past the point of no return. (Again, you can read about all of that here in a simple, short, and fairly humorous (I hope) work (because the comedy in those days practically wrote itself by how dumb the ideas were).
Here is one headline for everyone as a good summary of the state of things today:
