Whiplash-inducing, “Hunger Games” style Donald Trump’s race to become Treasury Secretary It became easier for the media to ignore what was going on Janet Yellen – and she’s leaving a whole mess to her successor.
Yellen — who, it was revealed on Friday, will be replaced as Treasury secretary by hedge fund mogul Scott Bessant in January — was Joe Biden’s choice to run the office that is basically the country’s CFO.
In fact, given the importance of the US economy, this may be the most important cabinet post in the White House. Americans voted for Trump during his first term primarily for his handling of the economy — job growth and wages that kept up with low inflation rates.
Despite her rosy resume, Ivy League degree and time as Fed chair, Yellen gave the country just the opposite. His boss paid the price politically, just as the American people paid the price economically.
And according to my sources, the American people have never stopped paying the price of Yellen’s mismanagement, even if most of the financial media is ignoring the fiscal time bomb she has set up—one that could explode once Trump takes office. .
In particular, my sources tracking the bond market say Yellen is setting a trap for the incoming Trump administration, similar to the way she financed the massive $1.8 trillion federal budget deficit that ran during the Biden years. The debt exploded with the accumulation of $36 trillion during the 1970s.
Yellen is moving away from long-term debt to offset the shortfall of short-term securities, essentially funding the deficit with more Treasury bills instead of the usual way of issuing debt through 10- and 30-year debt. Completing it.
This is according to analysis by Robert Van Battenberg of the influential Bear Traps Report, which estimates that about 30% of all debt will be of the short-term variety – aka 2-year and shorter notes – compared to 15% in 2023.
Not locked in low rates
In an era of low interest rates, Yellen & Co. could lock in relatively cheap interest payments for years by issuing 10- and 30-year debt.
So why go there? Politics, according to Yellen’s Wall Street critics.
Because the Biden administration has taken spending to new and some say unsustainable levels, Yellen needed to get involved His critics say he has used some financial shrewdness to keep interest rates low and not shake the stock market during an election year.
If it had financed the deficit with 10- and 30-year bonds, it would have raised interest rates, which would have affected consumers, i.e. mortgages and credit cards.
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The yield on 10-year bonds remains below 5%, a key level that has coincided with a rally in stocks. If rates rise to 5% and above, it will likely cause a decline in the stock market as stocks will compete with high-yielding super-safe Treasuries for investors’ money.
She was playing with additional fire because rates on short-term loans, though low, began rising in recent years when the Fed raised its base rate to fight inflation.
As Van Battenberg says: “The Treasury now faces a huge amount of short-term debt maturing annually, which must be refinanced at significantly higher interest rates. Current market rates for short-term loans, although slightly lower than recent peaks, remain high compared to historical levels. This mismatch between low-cost historical debt and high-cost replacement debt is substantially increasing the government’s interest expenditure.
Scary stuff. The average American became burdened by inflation and then higher rates, making home ownership less affordable. The rich enjoyed the benefits of high financial-asset prices. But yields are reaching the danger zone of 5% in 10 years.
This could set the stage for a stock market collapse or worse if the bond market begins to factor in not only higher deficits given Biden’s spending spree, but also the need to issue more long-term debt as short-term borrowing is more expensive.
Thank you, Janet.
Gensler’s SEC Land Mines
Speaking of cleaning up the mess, SEC Chairman Gary Gensler announced last week that he has no plans to stay until his term ends in 2026.
His replacement is still in question as this column went to press, although sources say longtime securities lawyer and ex-SEC Commissioner Paul Atkins has inside information.
While Wall Street’s top cop won’t face the same existential concerns as the new Treasury secretary, it won’t be easy, either.
“Cleaning up after Gensler is like dodging landmines left by retreating Japanese soldiers,” one SEC insider told me.
Gensler, during his more than three years as Biden’s SEC chair, fundamentally disregarded the agency’s congressional mandate. He turned what is essentially an investor-protection agency into the climate-activist arm of the Biden administration by trying to impose costly and absurd disclosures on public companies about their carbon footprint, which is almost impossible to accurately estimate.
Their enforcement arm became the de facto regulator of the $3.5 trillion crypto business; Instead of setting clear rules for the industry, they brought cases, blocking the innovation of all-important blockchain technology in the US and pushing it overseas. Due to Gensler’s harsh management style, employee morale is at an all-time low.
I could go on, but I don’t want to scare whoever is replacing Gary.
