The world is teetering on the brink of a financial crisis. Mainstream media are not covering this all-important story, probably because the situation is complicated and would not be understood by most viewers. When the US debt reaches 40 trillion, this is a number that almost no one comprehends. It is 40,000,000,000,000. Hard to get your head around that one.
I follow the financial news, and I am confused by what appear to be contradictions in policy, especially regarding the recent moves in the bond market. Let me first describe sources of my confusion, in terms of questions that the media are not addressing.
- A) Last week the United States bailed out the Japanese yen. Japan was on the verge of selling US Treasuries to buy yen and prop of the yen. The US wanted to prevent the sale of US treasuries, because that would hurt the bond market, so they sold euros to Japan instead.
B) Then this week the US declared that it would sell long treasuries, in order to lower long-term interest rates. This would encourage Japan to buy US treasuries. This move would appear to contradict the policy of the previous week. What is going on? I’m confused.
2. Japan is the largest holder of US treasuries, owning some 1.19 trillion dollars in US debt. That makes it the largest creditor nation. However, when I looked up Japan’s debt-to-GDP ratio, I found that Japan’s ratio is about 250%, making it one of the largest debtor nations in the world. How can one country be the largest creditor and the largest debtor at the same time? The media have not addressed this issue.
I turned on CNN today to see whether they had any explanation for these phenomena. Yesterday, their lead story was Michael Cohen’s conversation with Trump, and today it was all about Natalie Swan. Not a word about economics.
I turned to Yahoo News on my computer. Of late, Yahoo News has become more of a touchy-feely magazine rather than a news outlet. Most stories are either about Hollywood celebrities and their love-lives, or else stories about cute pet dogs or cats doing cuddly things.
The real reason for this post is therefore to discuss not the world economy, but rather the abdication of the media from reporting the real news. There is a war going on in Iran, but you’d never know it from watching CNN or Fox. People want happy news, not reports of the US losing a war to Iran, and certainly not a confusing story about the collapse of the US dollar and the world economy.
Internet posts about the bond crisis always must start by explaining to viewers what a bond is. Viewers may not understand that when the price of a bond goes down, its interest rate goes up.
Trump is the leading epitome of Dunning-Kruger among the economic know-nothings. He understands nothing about the bond market or interest rates. His go-to solution for everything is to lower rates. His over-simple logic is that this will allow people to borrow money more cheaply, so they can spend more and help the economy. This simple logic appeals to his MAGA cultists. What he doesn’t understand is that increasing all this borrowing injects more money into the system. That’s the classic cause of inflation. That’s why the Fed, in its battle against inflation, is reluctant to lower interest rates. Trump can’t figure that out.
Where can I find the important news about what is happening?