Donald Trump's whiplash-inducing “Hunger Games”-style race to become Treasury Secretary has left the media wondering what's going on with Janet Yellen and the absolute legacy she's leaving behind for her successor. It became easier to ignore the confusion.
It was revealed on Friday that Yellen, who will replace hedge fund tycoon Scott Bessent as treasury secretary in January, is Joe Biden's pick for the secretary general, essentially the country's CFO. .
In fact, given the importance of the U.S. economy, he could be the most important Cabinet position in the White House. The main reason Americans elected President Trump was his handling of the economy during his first term: job growth and wages that kept inflation low.
Despite her illustrious career, Ivy League degree, and time as Fed chair, Ms. Yellen has delivered exactly the opposite result for the country. Just as the American people paid a price economically, her boss paid a price politically.
And my sources say that even though most of the financial media missed the ticking fiscal time bomb that Yellen devised, the American people are not done paying the price for Yellen's mismanagement — with President Trump in office. It's a bomb that could explode if you do.
Specifically, according to my sources who watch the bond market, Yellen is focusing on the massive $1.8 trillion federal debt that has exploded during the Biden era with $36 trillion in accumulated debt. They say they are setting a trap for the incoming Trump administration by funding the budget deficit.
Ms. Yellen has moved away from long-term debt in order to cover the shortfall with short-term securities, and instead of using the usual method of issuing government bonds with 10-year or 30-year bonds, she has increased the amount of Treasury bills and carried over the deficit. are.
This is because according to an analysis by Robert van Batenburg of the influential Bear Trap Report, around 30% of all debt is short-term debt (also known as short-term debt of two years or less), which will rise to 15% by 2023. It is estimated that
Not fixed at low interest rates
In an era of low interest rates, Yellen & Co. could have secured years of relatively low interest payments by issuing more 10- or 30-year bonds.
So why go there? Politics, according to Yellen's Wall Street critics.
With the Biden administration's spending reaching new levels that some say are unsustainable, Yellen is looking for small fiscal maneuvers to keep interest rates low and avoid spooking stock markets in an election year. Critics say more should have been done.
If she had financed the deficit with 10-year or 30-year bonds, it would have caused interest rates to rise, impacting consumers, including mortgages and credit cards.
Follow the latest updates on President-elect Donald Trump's Cabinet picks.
The yield on the 10-year bond remains below 5%, a key level that coincides with rising stock prices. If interest rates rise above 5%, it would likely also cause a decline in the stock market, as it would have to compete with high-yield ultra-safe government bonds for investors' money.
He was playing with more fire as short-term bond yields, albeit low, began to rise sharply in recent years as the Fed raised benchmark interest rates to combat inflation.
Van Battenburg said: “The Treasury currently faces a significant amount of short-term debt that matures each year, which must be refinanced at significantly higher interest rates. Although low, it is still high compared to historical levels. This mismatch between lower-cost historical debt and higher-cost replacement debt has led to a significant increase in government interest expenses.”
Scary thing. Inflation and subsequent interest rate increases have made homeownership unaffordable for the average American. The wealthy luxuriated in profits from rising financial asset prices. However, the yield on the 10-year bond has been slowly rising to dangerous territory of 5%.
If the bond market begins to factor in not only a widening budget deficit to account for Biden's extravagance, but also the need to increase issuance of long-term bonds because short-term borrowing is more expensive, this could set the stage for a stock market collapse or worse. may be in place.
Thank you, Janet.
Gensler's SEC Mine
Speaking of cleaning up the mess, SEC Chairman Gary Gensler announced last week that he will not remain in office until his term ends in 2026.
As of this column's publication, his successor remains in question, but sources say Paul Atkins, a longtime securities lawyer and former SEC commissioner, has inside knowledge.
Wall Street's top cops won't face the same existential anxiety that the new Treasury secretary faces, but it won't be easy either.
“Cleaning up after Gensler was like avoiding landmines left by retreating Japanese soldiers,” an SEC insider told me.
Mr. Gensler has essentially defied Congress's orders during Mr. Biden's more than three years as SEC chairman. By seeking to impose expensive and unreasonable disclosures on publicly traded companies about their carbon emissions, which are nearly impossible to accurately measure, he has put what is essentially an investor protection agency under the control of the Biden administration. of climate change activists.
His executive branch has become the de facto regulator of the $3.5 trillion cryptocurrency business. Instead of setting clear rules for the industry, he filed lawsuits to stifle vital blockchain technology innovation in the United States and push it overseas. Staff morale is at an all-time low due to Mr. Gensler's brusque management style.
I could go on, but I don't want to scare away the person taking Gary's place.
