EconAir

Secretary of the Treasury UPDATE (10/2026) Some general background. Since 2000, the net government debt of America has tripled as a percent (share) of GDP. If the U.S. had to refinance (not reduce) all of its government debt at the current interest rate of a five-year bond, it would need higher taxes or spending cuts equal to 4.7% of GDP. That would cause a recession. Most of the U.S. national debt has to be refinanced in the next five years. Nobody believes yearly deficits will be eliminated or even reduced significantly. One reason is that interest expense is rising. The new (hopeful) goal is that government debt as a percent of GDP will fall over time. In other words, nominal GDP will grow faster than government debt. Possible but unlikely. Even to achieve a stable debt/GDP ratio, the government would have to run a "primary" budget surplus, that is, a budget surplus before interest expense. For the U.S., it would be about 1.0% of GDP (about $300 billion). Instead, the ...

September 16, 2026:     A Day in the Life of a Retired Finance Professor The Fed raises the Fed funds rate for the first time since 2023. This will raise most short-term interest rates, in response to a rising inflation rate. President Trump is not pleased. European countries are pulling central bank gold out of the Fed’s gold vault in New York. Gold is slowly replacing the dollar as a central bank reserve asset. (Personal note:  Many years ago I was in a small group given a tour of the NY Fed that included going into the Fed's gold vault. As we entered, the guide said "Don't even think about it.") Many countries are exploring and implementing ways not to use the dollar in international transactions. One method is to use central bank digital currencies to settle international trade payments instead of the dollar. Scott Bessent, the U.S. Secretary of the Treasury, announces a government buy-back of a small amount of U.S. 10-year Treasuries ($4-$6 billion) to lower long...

Janet in Wonderland Anyone who believes that financial markets are rational is not looking at the current government bond markets.    The U.S. 10-year government bond is paying around 2.5%.    Believe it or not, the 10-year Spanish government bond is paying less.   The German 10-year government bond is paying a little over 1%, less than a 2-year U.S. bond. If you were not a finance major, skip this paragraph.   The yield curve is incredibly flat.   It is only this way because the Fed hasn’t realized yet the Great Recession has been over for five years.   More sinister explanations rely on conspiracy theories.   When given the choice, I always go with stupidity. According to CNBC (yes, I’m still addicted to my financial soap opera), the interest rates on German and Spanish 10-year bonds are at a 200-year low.   I don’t know how they know that.   Germany didn’t exist 200 years ago but Prussian war bonds probably did. ...