The Bond Market for Dummies
The government wants money. One of the ways it can get money is by borrowing it. One of the ways it can borrow money is through bonds, which, when the government issues them, are sometimes called treasury bills, sometimes called treasury notes, and sometimes called treasury bonds. When the government issues a bond, it basically says: “if you buy this bond for $100, then in X years (printed on the bond) I will give you back $100 + Y” – where Y is some extra percentage. The government offers many of its bonds at auction, where Y is not directly set by the government, but they offer to pay the lowest Y that bidders at the auction are willing to buy them for.
In Siggy's OP, he observes that the "lowest Y" at the most recent government bond auction rose considerably. According to CNBC, yields rose on every single bond offering of the US government, with the highest rise being in the US 20 year bond, which rose from 4.605% to 4.752%. That's a rise of 0.148% in one day, which is well within normal range for something like bitcoin, but not for US bonds. They are supposed to be very steady.
A rise in yields such as this is usually treated by the media as an indicator that something went wrong in the bond markets. But whenever I read headlines about yields rising and how that's a bad indicator, they seem confusing to me at first because rising yields sound positive: when something's price rises, that usually means lots of people want that thing, signaling confidence.
But remember, the government auctions treasury bills for the lowest price bidders offer. When their price rises like it did today, that means no one wanted these treasury bills at a lower return, i.e. no one bid to accept a lower yield than 4.752%. i.e. "I won't take your terrible bonds unless, when they mature, you pay me almost 5% more than I'm giving you now." Not wanting the government’s bonds might mean inflation expectations are high. I.e. buyers might think the dollar will be worth less when the bond matures than it’s worth now, perhaps by an amount close enough to the treasury bond’s yield percentage (e.g. 4.752%), so they want more than that to break even.
Importantly, every time the government sells a bond, it takes out a loan, which means they owe more than they got. Where do they get the extra money they need to pay back the loan? They have four options:
  1. get it from taxes
  2. print money
  3. take out more loans
  4. just don't pay off some old loans
Usually they use option 3, but these loans keep getting more and more expensive, adding to the federal deficit, so that every year it gets harder and harder to keep doing that. In theory they can keep taking out more and more loans forever and keep paying them off, but that only works if people keep buying their bonds. If buyers will only do so while simultaneously asking for higher and higher yields (due to higher and higher inflation expectations), the government will end up paying ridiculous amounts of money to bond buyers, indicating that #2 is occurring. Eventually this goes the way of #1, #2, or #4, none of which are good: high taxes, high inflation, and theft are all very bad.
You did everyone a real service by posting this. For years I had trouble wrapping my head around this concept. For some reason my brain could not absorb it. Once I got it, years ago, it finally stuck.
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Yes, it still doesn't "stick" for me. Whenever I see a headline about the bond market, or the Fed's balance sheet, or debt monetization, I get confused because I've forgotten how the market works and what these terms mean. But I made a google doc where I list common "headline templates" re: the bond market and for each one I give an explanation to myself of what that headline would mean, linking to explainers that I've found helpful in the past. That way, when I do see a headline that matches one of my templates, I can refer to my own explanation to help me figure it out. It helps a lot! I recommend readers do something similar if they too find this stuff confusing.
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Technically they can't even get it from option 1 because the dollars need to exist to be taxed in the first place, every dollar taxed must first be spent, which means it must first be loaned into existence
Taxes are just how they control certain behavior and monetary velocity
On paper, the state could just own everything by ceasing to print money, the cascading bankruptcies -> legal system -> state asset
The alternative to this ponzi is hockeystick looking inflation charts as new spend finances old spend
Let's see how it ends...
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Technically they can't even get it from option 1 because the dollars need to exist to be taxed in the first place
They could accept tax payments in a form other than dollars. They used to accept gold bullion and they could do so again
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Sure but that's a more overt confiscating of gold, in the context of their currency taxes are the demand driver of it
If they want to confiscate stuff slowly they need to do it with debt such as they do
This is a long known exploitation against sovereign states by the international bankers, classical state banks didn't allow for much interest because interest is how a countries wealth gets stolen from abroad
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Excellent description.
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I love this. Glad you took the time to write it all out in simplified format!
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19 sats \ 0 replies \ @gmd 1 Jul
Good stuff thanks!
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  1. Citizens can make a donation/payment to the us government.
We can collectively pay off the debt ourselves if we so choose
I think the site is pay.gov
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