As everyone should know by now, the US government runs a massive deficit, that is the difference between tax receipts (and other income) minus expenses. The current US public debt is hovering around $40T and the annual deficit is pushing toards $2T.
A lot of that $40T was borrowed at lower interest rates but let's assume for argument's sake that it was borrowed at 5%. That's $2T in interest alone every year. There's a huge difference between adding $2T in debt at 5%+ every year vs 1-3%.
The Fed has auctions to sell its debt. That market clears at a certain interest rate so if the market isn't buying the debt the rate the Fed pays has to go up. That's what's happening here.
What's driving this is that inflation is above the ~2% target. Well above, actually. There are generally two ways of tackling high inflation: with monetary policy (ie raising interest rates) and with fiscal policy (by raising taxes). Modern US administrations (both parties) have completely abandoned any pretense of ever raising taxes. That was the appropriate solution during the inflation shock of 2020-2022. Some European countries did this with a corporate windfall profits tax (eg Spain). The US did not.
The problem is that since housing is such a huge part of consumer spending, higher interest rates mean higher mortgage rates, which means higher housing expenditure, which means higher inflation. Now luckily most mortgages in the US are 30 year fixed so this is slow to respond and only really affects new mortgage. Other countries aren't so lucky.
But the big drivers in inflation are soaring grocery costs and energy costs. Energy costs, particularly diesel, is a massive driver of inflation. The rise in groceries since Covid has completley outpaced inflation while real wages have fallen. There's only so much more inflation the American consumer can take. Household savings rates are already very low so there's very little in the way of a buffer to absorb higher costs.
This is all being exacerbated by the disastrous war in Iran and the war in Ukraine. Russia had been a net exporter of diesel until recently as Ukraine has damaged an estimated 40% of Russian refining capcity. Refineries in the Gulf have also been taken offline. There's been a loss of over 1 million barrels per day in refining capacity. This is somewhat paradoxically why crudel oil prices are relatively low given all that's going on: because crudel oil is mostly useless unless it's refined. Destroy refineries and demand for oil goes down. But the demand for refined petroleum products goes up, way up [1].
It should be noted that China has essentially saved the world economy up to this point [2]. The closure of the Strait of Hormuz blocked the passage of ~20 million barrels per day of crude (plus 20-30% of the world's natural gas plus fertilizer plus helium). The inflation shock of 2020-2022 occurred because we lost "only" 10 million barrels. But China seemingly cut their imports by 5M. Saudi Arabia diverted 5-7 via the East-West pipeline to the Red Sea. The US has been draining the strategic reserve and so net we've only lost a few million barrels per day. That's temporary. the SPR has hit historic lows not seen in 40 years and it can't get much lower without risking a collapse of the salt caverns it's stroed in in Louisiana. Nobody knows if and when that'll happen because we've never done this before.
The backdrop for all this is that there has been a decades-long effort at this point to essentially loot government coffers in the US. More tax cuts for the top 0.01%. The Western world in general has reached a breaking point where land hoarding and wealth need to be taxed or society as we know it will actually break down. I'm not being hyperbolic. Currently, there's no concern for that from the looters because upheaval means war, which means more weapons sales. Also, free movement of capital means the wealthy believe they can just flee.
For context, a mere 10 years ago the US total public debt was ~$16T. It's 2.5x'ed in a decade and only going to get worse unless something drastically changes.
Warsh was put in to cut rates for political purposes. The best he can do is to hold rates steady because they really should go up in an environment where we aren't going to raise taxes.
As for Iran, it's been clear since at least April, that this is an unmistakable and undeniable total strategic defeat for the US and there is no way out other than to surrender. This event will be written about in history books as a turning point in the world order that was designed by the US, for the US after 1945. We are entering a new era. This is going to redefine US relationships all over the world.
> There are generally two ways of tackling high inflation: with monetary policy (ie raising interest rates) and with fiscal policy (by raising taxes).
While this is the orthodoxy, it should be obvious it is nonsense.
The idea that we must curtail production in order to reduce inflation is so incoherent that it damns the professional court economists who have spread it far and wide.
American fixed 30y mortgages actually make interest rate policy much less effective, in theory.
In most countries with normal mortgages, raising rates fairly immediately transmits through to the rest of the economy, because it affects the mortgage market. This isn't true in America, because everyone quite reasonably is able to get these insane mortgage products with literally no downside risk - if rates go up, you don't pay more. If they go down, you refinance at minimal cost.
Agree to disagree on the tax issue. The way you've framed it is fairly inflammatory, but happy to have a discussion about it. The reality is that as much money as rich people have, the middle class have a whole lot more. Every country with large government spending has broad, high taxes on the entire population, not just the rich.
Adding to this, US foreign and military policy is increasingly chaotic, so other countries are quietly disengaging, and tariffs are slowly unravelling the US’ trade relationships. The American people voted for Trump twice: Trumpism is now an established thread in US politics, and the rest of the world is taking steps to insulate itself from the coming turmoil.
And somehow this situation is all Joe Biden's fault, and Trump is still going to fix it, any day now.
A very significant amount of American voters believe this. To this day. And their belief in this is still being reinforced by the vast majority of the "mainstream media" which they believe is left-biased, which hasn't been true for very many years at this point.
This is why we are fucked and there is no way out of this that doesn't involve existential threat to our current society.
I understand the point you're making about blind devotion to Trump but the reality is that Biden is not free from blame here, in four ways:
1. Trump in his first term created the Abraham Accords that directly contributed to the genocide that has since happened (by excluding Palestinians from the process). Biden did not reverse any of that because he is an avowed Zionist;
2. Trump blew up the JCPOA that sought to include Iran in the international community for really no reason than to please his donors, particularly his biggest donors, Sheldon and Miriam Adelson, who are also avowed Zionists. This was an Obama-era deal and part of me is convinced that Trump blew it up simply because it had Obama's name on it. Biden of course did not reinstate it;
3. Trump blew up energy markets in 2020 with the disastrous OPEC deal he made in June that created the inflation shock of Covid. Biden quietly went to MBS to get him to increase oil output. He refused. Biden said nothing. He absolutely could've waved a very big stick to get MBS to change course here, notably by threatening arms shipments; and
4. The so-called "bear-hug strategy" following October 7 set the stage for everything that's happening now. At any point in the last more than a year of his term, Biden could've ended that conflict with a phone call. He did not because, again, he is an avowed Zionist. That both emboldened Israel to drag the US into the Iran war and also was a key factor in the Democrats losing the 2024 presidential election although I'm not actually convinced we'd be in a vastly different situation had Kamala won (eg [1]).
US foreign policy is surprisingly uniparty.
Oil is good for business because it's good for war. It's also why we don't have major investment in renewables. As this article put it, nobody goes to war over a solar panel [2].
A mugger stabs your friend and runs off. They are bleeding out. You do nothing. That’s what he’s saying. The fact is Biden did nothing to prevent this. Including not locking the fucker up. Not stacking the Supreme Court after the Ginsberg shitshow.
Oh, I'm not exactly a huge Joe Biden fan. I just think it is ridiculous that nobody "on the right" calls Trump on using him as a universal scapegoat for everything as we continue to fumble into an economic situation that Trump is consistently actively making worse.
I think Biden did manage to enact some good domestic economic policy in a tough political environment, but in addition to everything you pointed out that I agree with he obviously should have stepped aside for the 2024 election long before he did and his decision to nominate Merrick Garland for Attorney General will be seen as one of those history book moments of very high consequence in the fall of an empire (assuming we have legitimate history books in this future).
Plenty of blame to go around for many Democrats here for both the fact that our disastrous foreign policy is, as you've said, uniparty, and also their fecklessness and early boosting of the whole Trump project in 2016 (because they believed he would be easier to beat than the other Republicans) did a lot to set all of this in motion.
> At any point in the last more than a year of his term, Biden could've ended that conflict with a phone call. He did not because, again, he is an avowed Zionist.
No he could not have. Israel has been a contentious ally for the US, especially while a Democrat has been POTUS because they are actually independently capable of supporting themselves and have their own internal economy and military industrial complex.
The relationship between the United States and Israel started with us(The United States) peeling them off of USSR support in the late 60s[1], and if we abandon them they will either go it on their own or find another ally who has interests in the region due to oil still being important.
Biden as a representative of the United States had leverage over Israel, but not such complete control that he could just call Netanyahu and demand and end tot he war and have that be done with.
As everyone should know by now, the US government runs a massive deficit, that is the difference between tax receipts (and other income) minus expenses. The current US public debt is hovering around $40T and the annual deficit is pushing toards $2T.
A lot of that $40T was borrowed at lower interest rates but let's assume for argument's sake that it was borrowed at 5%. That's $2T in interest alone every year. There's a huge difference between adding $2T in debt at 5%+ every year vs 1-3%.
The Fed has auctions to sell its debt. That market clears at a certain interest rate so if the market isn't buying the debt the rate the Fed pays has to go up. That's what's happening here.
What's driving this is that inflation is above the ~2% target. Well above, actually. There are generally two ways of tackling high inflation: with monetary policy (ie raising interest rates) and with fiscal policy (by raising taxes). Modern US administrations (both parties) have completely abandoned any pretense of ever raising taxes. That was the appropriate solution during the inflation shock of 2020-2022. Some European countries did this with a corporate windfall profits tax (eg Spain). The US did not.
The problem is that since housing is such a huge part of consumer spending, higher interest rates mean higher mortgage rates, which means higher housing expenditure, which means higher inflation. Now luckily most mortgages in the US are 30 year fixed so this is slow to respond and only really affects new mortgage. Other countries aren't so lucky.
But the big drivers in inflation are soaring grocery costs and energy costs. Energy costs, particularly diesel, is a massive driver of inflation. The rise in groceries since Covid has completley outpaced inflation while real wages have fallen. There's only so much more inflation the American consumer can take. Household savings rates are already very low so there's very little in the way of a buffer to absorb higher costs.
This is all being exacerbated by the disastrous war in Iran and the war in Ukraine. Russia had been a net exporter of diesel until recently as Ukraine has damaged an estimated 40% of Russian refining capcity. Refineries in the Gulf have also been taken offline. There's been a loss of over 1 million barrels per day in refining capacity. This is somewhat paradoxically why crudel oil prices are relatively low given all that's going on: because crudel oil is mostly useless unless it's refined. Destroy refineries and demand for oil goes down. But the demand for refined petroleum products goes up, way up [1].
It should be noted that China has essentially saved the world economy up to this point [2]. The closure of the Strait of Hormuz blocked the passage of ~20 million barrels per day of crude (plus 20-30% of the world's natural gas plus fertilizer plus helium). The inflation shock of 2020-2022 occurred because we lost "only" 10 million barrels. But China seemingly cut their imports by 5M. Saudi Arabia diverted 5-7 via the East-West pipeline to the Red Sea. The US has been draining the strategic reserve and so net we've only lost a few million barrels per day. That's temporary. the SPR has hit historic lows not seen in 40 years and it can't get much lower without risking a collapse of the salt caverns it's stroed in in Louisiana. Nobody knows if and when that'll happen because we've never done this before.
The backdrop for all this is that there has been a decades-long effort at this point to essentially loot government coffers in the US. More tax cuts for the top 0.01%. The Western world in general has reached a breaking point where land hoarding and wealth need to be taxed or society as we know it will actually break down. I'm not being hyperbolic. Currently, there's no concern for that from the looters because upheaval means war, which means more weapons sales. Also, free movement of capital means the wealthy believe they can just flee.
For context, a mere 10 years ago the US total public debt was ~$16T. It's 2.5x'ed in a decade and only going to get worse unless something drastically changes.
Warsh was put in to cut rates for political purposes. The best he can do is to hold rates steady because they really should go up in an environment where we aren't going to raise taxes.
As for Iran, it's been clear since at least April, that this is an unmistakable and undeniable total strategic defeat for the US and there is no way out other than to surrender. This event will be written about in history books as a turning point in the world order that was designed by the US, for the US after 1945. We are entering a new era. This is going to redefine US relationships all over the world.
[1]: https://rbnenergy.com/market-data/3-2-1-crack-spread
[2]: https://www.theatlantic.com/economy/2026/07/china-iran-usa-o...
> There are generally two ways of tackling high inflation: with monetary policy (ie raising interest rates) and with fiscal policy (by raising taxes).
While this is the orthodoxy, it should be obvious it is nonsense.
The idea that we must curtail production in order to reduce inflation is so incoherent that it damns the professional court economists who have spread it far and wide.
American fixed 30y mortgages actually make interest rate policy much less effective, in theory.
In most countries with normal mortgages, raising rates fairly immediately transmits through to the rest of the economy, because it affects the mortgage market. This isn't true in America, because everyone quite reasonably is able to get these insane mortgage products with literally no downside risk - if rates go up, you don't pay more. If they go down, you refinance at minimal cost.
Agree to disagree on the tax issue. The way you've framed it is fairly inflammatory, but happy to have a discussion about it. The reality is that as much money as rich people have, the middle class have a whole lot more. Every country with large government spending has broad, high taxes on the entire population, not just the rich.
So you don't buy the POV the middle class is squeezed out of existence, almost?
Adding to this, US foreign and military policy is increasingly chaotic, so other countries are quietly disengaging, and tariffs are slowly unravelling the US’ trade relationships. The American people voted for Trump twice: Trumpism is now an established thread in US politics, and the rest of the world is taking steps to insulate itself from the coming turmoil.
You’re right about a lot of this but there’s no evidence of trade slowing down. US exports are actually accelerating https://fred.stlouisfed.org/series/IEAXGS
Believe it or not...calls.
Higher interest rates mean buyers can afford less house for the money. House prices go down. Boomers get mad.
You're sure house prices are elastic here?
And somehow this situation is all Joe Biden's fault, and Trump is still going to fix it, any day now.
A very significant amount of American voters believe this. To this day. And their belief in this is still being reinforced by the vast majority of the "mainstream media" which they believe is left-biased, which hasn't been true for very many years at this point.
This is why we are fucked and there is no way out of this that doesn't involve existential threat to our current society.
I understand the point you're making about blind devotion to Trump but the reality is that Biden is not free from blame here, in four ways:
1. Trump in his first term created the Abraham Accords that directly contributed to the genocide that has since happened (by excluding Palestinians from the process). Biden did not reverse any of that because he is an avowed Zionist;
2. Trump blew up the JCPOA that sought to include Iran in the international community for really no reason than to please his donors, particularly his biggest donors, Sheldon and Miriam Adelson, who are also avowed Zionists. This was an Obama-era deal and part of me is convinced that Trump blew it up simply because it had Obama's name on it. Biden of course did not reinstate it;
3. Trump blew up energy markets in 2020 with the disastrous OPEC deal he made in June that created the inflation shock of Covid. Biden quietly went to MBS to get him to increase oil output. He refused. Biden said nothing. He absolutely could've waved a very big stick to get MBS to change course here, notably by threatening arms shipments; and
4. The so-called "bear-hug strategy" following October 7 set the stage for everything that's happening now. At any point in the last more than a year of his term, Biden could've ended that conflict with a phone call. He did not because, again, he is an avowed Zionist. That both emboldened Israel to drag the US into the Iran war and also was a key factor in the Democrats losing the 2024 presidential election although I'm not actually convinced we'd be in a vastly different situation had Kamala won (eg [1]).
US foreign policy is surprisingly uniparty.
Oil is good for business because it's good for war. It's also why we don't have major investment in renewables. As this article put it, nobody goes to war over a solar panel [2].
[1]: https://www.aljazeera.com/news/2024/10/8/kamala-harris-says-...
[2]: https://www.theenergymix.com/no-one-goes-to-war-over-a-solar...
I can't understand the logic behind party A did something, and then blame party B for not undoing it.
Not everything is a simple ctrl-z, and the blame lays squarely on who implemented it.
A mugger stabs your friend and runs off. They are bleeding out. You do nothing. That’s what he’s saying. The fact is Biden did nothing to prevent this. Including not locking the fucker up. Not stacking the Supreme Court after the Ginsberg shitshow.
No comment on the points you made, but thanks for the article No One Goes to War Over a Solar Panel' was a good read.
Oh, I'm not exactly a huge Joe Biden fan. I just think it is ridiculous that nobody "on the right" calls Trump on using him as a universal scapegoat for everything as we continue to fumble into an economic situation that Trump is consistently actively making worse.
I think Biden did manage to enact some good domestic economic policy in a tough political environment, but in addition to everything you pointed out that I agree with he obviously should have stepped aside for the 2024 election long before he did and his decision to nominate Merrick Garland for Attorney General will be seen as one of those history book moments of very high consequence in the fall of an empire (assuming we have legitimate history books in this future).
Plenty of blame to go around for many Democrats here for both the fact that our disastrous foreign policy is, as you've said, uniparty, and also their fecklessness and early boosting of the whole Trump project in 2016 (because they believed he would be easier to beat than the other Republicans) did a lot to set all of this in motion.
"he is an avowed Zionist"
What exactly do you mean when you say Zionist?
I believe they're referring to when Joe Biden said "I am a Zionist."
> At any point in the last more than a year of his term, Biden could've ended that conflict with a phone call. He did not because, again, he is an avowed Zionist.
No he could not have. Israel has been a contentious ally for the US, especially while a Democrat has been POTUS because they are actually independently capable of supporting themselves and have their own internal economy and military industrial complex.
The relationship between the United States and Israel started with us(The United States) peeling them off of USSR support in the late 60s[1], and if we abandon them they will either go it on their own or find another ally who has interests in the region due to oil still being important.
Biden as a representative of the United States had leverage over Israel, but not such complete control that he could just call Netanyahu and demand and end tot he war and have that be done with.
And that's not even getting into whatever the fuck you mean by " ... he is an avowed Zionist" [1]https://en.wikipedia.org/wiki/Soviet_Union_and_the_Arab%E2%8...