Punched in the Face

Bill Bonner, writing today from Baltimore, Maryland

“That’s it. I’m voting for Trump.”

Such were the words of [a member of our own household] when she got back from the grocery store on Monday.

“I got a single bag of groceries. I’m sure it would have cost me about $50 a few years ago. Now, it’s $120. It’s no wonder Trump has so much support.”

With these thoughts the country veered away from ‘more of the same’… to… more of the same. And today, we celebrate the exquisite blockheadedness of our great democracy.

The stock market reacted yesterday… anticipating easier credit. The Dow rose more than 1,500 points. And the world’s 10 richest people ended the day $64 billion dollars richer.

During the four years of the Trump Team, 2016-2020, the US saw the greatest wingding of government spending in history. The federal budget went from $3.8 trillion in outlays during Obama’s last year, to $7.2 trillion in Trump’s last year. The nation had never seen anything like it… with trillions out the door and down the drains in stimmies, PPP loans, and the like.

And then, as if that weren’t enough, the Biden Team came into office and added another $1.2 trillion of boondoggles and giveaways.

What happens when you add that kind of money to the economy? Milton Friedman, recently channeled by Elon Musk, explained:

Inflation is made in Washington because only Washington can create money, and any other attribution to other groups of inflation is wrong. Consumers don’t produce it. Producers don’t produce it. The trade unions don’t produce it. Foreign sheiks don’t produce it. Oil imports don’t produce it. What produces it is too much government spending and too much government creation of money and nothing else.

Chad Champion adds empirical evidence:

A recent study out of MIT showed that “the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain.” Recall that there was about $7.5 trillion in additional spending from March 2020 when COVID hit, through December 2022.

Trump planted wicked seed. Biden (and Harris) fertilized it and reaped the bitter harvest. Price increases showed up the year after Trump left office, with inflation ramping up to a 7% annual rate in the first quarter. In June, 2022, inflation hit a 9% rate. And while the rate of inflation has come down since then, the effect of sustained inflation at relatively high rates has raised prices across the board.

During the Biden years, the cost of energy rose 34%. Car insurance went up 56%. Hotels 45%. Peanut butter, 41%. The price of the basic Ford F-150 went from $30,000 in 2019 to $39,000 today — up 30%. The price of a new house rose from $380,000 in 2019 to more than $500,000 today — a 25% increase.

More than any human being on the planet, Donald Trump was responsible for these price increases. He was where the buck should have stopped. Instead, he passed out trillions of bucks. These are the bucks that raised consumer prices… and turned people against the Biden Team, helping Donald Trump retake the White House.

And now, apart from the personal wackiness and unpredictability of the man himself, the Trump Team will stick with the Primary Political Trend... which is toward more spending, bigger deficits and more debt. Investment markets know what time it is. Barrons:

Treasury debt gets ‘punched in the face’

The Treasury market, arguably the world’s financial backbone, is seeing yields erupt higher as investors respond to the big shifts that could come from a second Donald Trump presidency. This isn’t a buying opportunity. The yield on the 10-year note, a metric that sets rates on mortgages and credit cards, leapt Wednesday to close at 4.425%, its highest end-of-day value since July, from 4.290% on Tuesday.

Bloomberg:

US Treasury yields surged — with the 30-year rising the most since the global flight to cash in March 2020 — as investors piled back into bets that Donald Trump’s return to the White House will boost inflation.

Donald Trump is, after all, a “low interest guy.” As a leveraged New York real estate speculator, he understands as well as anyone what artificially low interest rates can do for rich people with financial assets. But as we’ve seen, ultra-low rates have a wretched effect on the real economy and real people with real jobs.

That is the indiscreet charm of American democracy. The politicians do the wrong thing for the wrong reasons. And the public, bloodied and abused, then re-elects the scoundrels who did it to them.

Regards,

Bill Bonner

Bill Bonner, writing today from Baltimore, Maryland

“That’s it. I’m voting for Trump.”

Such were the words of [a member of our own household] when she got back from the grocery store on Monday.

“I got a single bag of groceries. I’m sure it would have cost me about $50 a few years ago. Now, it’s $120. It’s no wonder Trump has so much support.”

With these thoughts the country veered away from ‘more of the same’… to… more of the same. And today, we celebrate the exquisite blockheadedness of our great democracy.

The stock market reacted yesterday… anticipating easier credit. The Dow rose more than 1,500 points. And the world’s 10 richest people ended the day $64 billion dollars richer.

And then, as if that weren’t enough, the Biden Team came into office and added another $1.2 trillion of boondoggles and giveaways.

What happens when you add that kind of money to the economy? Milton Friedman, recently channeled by Elon Musk, explained:

Inflation is made in Washington because only Washington can create money, and any other attribution to other groups of inflation is wrong. Consumers don’t produce it. Producers don’t produce it. The trade unions don’t produce it. Foreign sheiks don’t produce it. Oil imports don’t produce it. What produces it is too much government spending and too much government creation of money and nothing else.

Chad Champion adds empirical evidence:

A recent study out of MIT showed that “the overwhelming driver of that burst of inflation in 2022 was federal spending, not the supply chain.” Recall that there was about $7.5 trillion in additional spending from March 2020 when COVID hit, through December 2022.

Treasury debt gets ‘punched in the face’

The Treasury market, arguably the world’s financial backbone, is seeing yields erupt higher as investors respond to the big shifts that could come from a second Donald Trump presidency. This isn’t a buying opportunity. The yield on the 10-year note, a metric that sets rates on mortgages and credit cards, leapt Wednesday to close at 4.425%, its highest end-of-day value since July, from 4.290% on Tuesday.

Bloomberg:

US Treasury yields surged — with the 30-year rising the most since the global flight to cash in March 2020 — as investors piled back into bets that Donald Trump’s return to the White House will boost inflation.

That is the indiscreet charm of American democracy. The politicians do the wrong thing for the wrong reasons. And the public, bloodied and abused, then re-elects the scoundrels who did it to them.

Regards,

Bill Bonner

Right now, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are battling over whether certain cryptocurrencies should be classified as securities or commodities.

And there is ongoing debate over whether stablecoins should fall under banking regulations.

The task force needs to ensure that these issues are resolved.

It also needs to ensure that crypto businesses are regulated in a way that allows them to benefit from being decentralized, yet still offers their stakeholders some protections.

And with the IRS increasing scrutiny on crypto transactions, the task force should review tax policies, exemptions and reporting thresholds.

But these issues can be solved with some foresight.

With the proper regulations in place, crypto businesses like Maker and Aave have the potential to truly go mainstream.

And this will solidify Satoshi’s vision of decentralized financial system, built from the ground up.

After a spike during the pandemic, U.S. debt-to-GDP ratio is still over 120% – and climbing again.

Historically, no country that crossed the 130% debt-to-GDP ratio has been able to survive long enough to “grow its way out” of a debt crisis.

Therein lies the tension. The Trump Reset formula requires an extension of his first-term tax cuts, low and fair tariffs… and low interest rates.

It’s fair to say, the market’s resilience isn’t coming from strength in the real economy—it’s running on the fumes of AI exuberance, deregulation promises, and the chance that the Trump administration might delay its July 9 tariff hammer.

The passage of the GENIUS Act is a step in the right direction. It brings much-needed clarity to stablecoins and shows that lawmakers are finally taking digital assets seriously.

But we need to go further.

If we want to control the rails of the coming financial era, then we have to view crypto as part of our national infrastructure.

The U.S. has an opportunity to lead in this space.

But only if we treat the digital realm like a new layer of national power. One that needs to be protected, regulated and defended when necessary.

Otherwise, we could end up on the wrong side of a technology we helped build.

And that would be a loss with consequences far beyond crypto.