Bessent’s Debt Dilemma (Financial Times Unhedged, Armstrong/Reiter) \ stacker news ~econ

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Bessent’s Debt Dilemma (Financial Times Unhedged, Armstrong/Reiter)www.ft.com/content/ec80497d-d7ff-4866-8d5c-26dc8bec8d39

859 sats \ 14 comments \ @denlillaapan 21 Mar econ

"Scott Bessent’s debt maturity problem Treasury secretary Scott Bessent has a tough choice to make this year."

Uh-hu, we're painfully aware over here!

If you issue short-term debt, you gotta roll over a bunch and expose yourself to critique of being the same as Yellen. If you issue long-term debt, you lock in unsustainable, debilitating interest payments for a LONG TIME. Unhappy situation, eh.

This next bit gets bogged down and sandbox accusations... c'mon, y'alls are stuck in a not-so-nice dilemma—whoever sits in the ruling chair.

It’s possible that Bessent’s hands are already tied. If he were to shift to longer-term issuance, the market might revolt — investors are currently running away from duration.

the Treasury is quickly burning through its account at the Fed, which could hit empty this summer. But until the debt ceiling is lifted or suspended, no new debt can be issued. That means that once the ceiling is out of the way, a lot of new issuance will have to follow. That would be a good opportunity to extend the maturity profile of the national debt — if the market will tolerate it.

What if we just priiiiint a bunch??

non-paywalled here: https://archive.md/tItES

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36 sats \ 0 replies \ @justin_shocknet 21 Mar

Convenient how this globalist rag leaves out the fact that the critique of Yellen was because rates were under 1%, and she didn't lock them in.

Why might she have done that? Because paying out interest on the short term bills is stimulative: #918919

Bessent on the other hand has been clear that rates need to come down to quit choking out private credit and slowing monetary velocity.

What if we just miiiiint a bunch??

ftfy #918728

56 sats \ 6 replies \ @Undisciplined 21 Mar

Yeah, just fire up those magic money machines that Elon just discovered.

Or, how about this novel finance idea? Let the Treasury's account at the Fed go negative. I don't even know what that means, but they haven't let that stop them before.

39 sats \ 3 replies \ @028559d218 22 Mar

Let it go negative... How would that even work?

0 sats \ 2 replies \ @Undisciplined 22 Mar

No idea, but apparently the MMTers have already proposed it.

I was inspired by this bonkers graph, that I also don't understand the ramifications of:

30 sats \ 1 reply \ @028559d218 22 Mar

I don't know. Is this associated with the rapid increase in interest rates in 21-22?

0 sats \ 0 replies \ @Undisciplined 22 Mar

It is, but the weird part is that conceptually the minimum value of that thing is zero (unless the Treasury is writing the Fed massive reverse remittance checks).

32 sats \ 1 reply \ @denlillaapan OP 21 Mar

again, have heard the MMTers suggest that too. (would be a nice validation test for them, though)

25 sats \ 0 replies \ @Undisciplined 21 Mar

Just when I think I've come up with a new dumb idea, those pesky MMTers have beaten me to it.

19 sats \ 0 replies \ @Aardvark 21 Mar

I don't know why they bother calling it a celing anymore. How is it a celing if you just perpetually raise it?

0 sats \ 4 replies \ @Solomonsatoshi 21 Mar

The USA is facing insolvency. 70 years of chronic and growing trade deficits and living beyond its means addicted to the seigniorage and debt rents derived from reserve currency status makes USA vulnerable to China who have already won the trade war.

7 sats \ 3 replies \ @028559d218 22 Mar

I think the US will try to export debt through the dollar stablecoins. What else could they do?

0 sats \ 2 replies \ @Solomonsatoshi 22 Mar

How does that work? People buy stablecoins and the issuers of the stablecoins must acquire USD to back them?

This would only work as long as the USD is seen as holding value better than other currencies and useful for trade payments.

If more and more trade is denominated in Yuan, as it is being, and the Yuan holds its value relative to the USD which it does, then the utility of the USD still fades away over time...because the USA Inc is operating an unsustainable trading deficit.

7 sats \ 1 reply \ @028559d218 22 Mar

My understanding is that yes, the issuers must by Dollar Bonds... in order to back them. In other words there's more demand for US debt?

And there are a lot of people that rather have Dollar stablecoins then their local fiat

On the whole Yuan-trade denomination...

"The number of bilateral transactions using the Chinese currency grew by a third in July to 53% from 40% in the same month in 2021. In 2010, 80% of outbound Chinese trade was conducted in dollars, the FT reported, but that figure has halved since Western sanctions on Russia went into effect. Over the same period, outbound trade in yuan has grown from almost zero to more than half of all transactions.

"Trading in yuan is convenient for both Russia and China," Maia Nikoladze, associate director at the Atlantic Council think tank's GeoEconomics Center, told DW. "Russia does not have too many other currency alternatives, while China benefits from exerting more economic influence over Moscow, and also makes progress towards internationalizing the yuan."

Globally, however, the yuan is used for less than 7% of all foreign-exchange transactions, versus 88% for the dollar, according to the Dollar Dominance Monitor by the Washington-based Atlantic Council. The tracker found that 54% of export invoicing is still done in dollars, versus 4% for the yuan."

From https://www.dw.com/en/dedollarization-how-the-west-is-boosting-chinas-yuan/a-70118356

0 sats \ 0 replies \ @Solomonsatoshi 22 Mar

I would question the accuracy of the stats provided by US controlled and aligned organisations. I would also suggest that much of the Yuan denominated trade is simply not reported to western institutions.

For more than a decade Iran has sold oil to China via a shadow market operated by Chinese 'teapot' refineries and shadow banking payments to avoid US/SWIFT sanctions. Increasing trade with Africa, Asia and other regions is denominated in Yuan but the data does not go to US/western institutions.

That said USD is certainly still dominant, but also, gradually, and increasingly, waning in its dominance.

China sees gradually shifting trade payments away from USD controlled channels and protocols as important as developing its military and trade infrastructure (Belt and Road) . They are all logical and concurrent requirements of developing its emerging status as the worlds dominant economy and power.