Bad money decisions are coming home to roost for the US and Japan
For major economies that have relied on debt to maintain living standards since 2007, high inflation might be one way out
Last week, the 10-year US Treasury yield briefly reached 5.04 per cent, the highest level since 2007, right before the global financial crisis. Bessent had tripled a Treasury buy-back operation on September 10 to US$6 billion, in an attempt to manipulate the market. He must have thought the market was a bunch of fools. How could this modest buy-back make a dent in the debt market, given that the United States government is on course to borrow US$2.1 trillion this year?
Meanwhile, oil prices surged again, as Iran tightened its hold on the Strait of Hormuz. Yet prices have been relatively stable despite export flows out of the Gulf falling by more than 10 million barrels per day from pre-war levels. The release of US and other emergency oil reserves and lower Chinese demand have been cited as main factors. But it must be kept in mind that the gap between paper and physical oil prices has widened since the war, meaning that actual physical costs could turn out higher down the road.
Last week, the yen fell, even after Tokyo and Washington jointly intervened – and Bessent dared currency traders to bet against the yen and himself, saying that “I am the house now”. So much for his attempt to manipulate the market.