Latest news with #TreasuryNote
4 days ago
- Business
Can Trump fix the national debt? Republican senators, many investors and even Elon Musk have doubts
WASHINGTON -- President Donald Trump faces the challenge of convincing Republican senators, global investors, voters and even Elon Musk that he won't bury the federal government in debt with his multitrillion-dollar tax breaks package. The response so far from financial markets has been skeptical as Trump seems unable to trim deficits as promised. 'All of this rhetoric about cutting trillions of dollars of spending has come to nothing — and the tax bill codifies that,' said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank. 'There is a level of concern about the competence of Congress and this administration and that makes adding a whole bunch of money to the deficit riskier.' The White House has viciously lashed out at anyone who has voiced concern about the debt snowballing under Trump, even though it did exactly that in his first term after his 2017 tax cuts. White House press secretary Karoline Leavitt opened her briefing Thursday by saying she wanted 'to debunk some false claims" about his tax cuts. Leavitt said that the "blatantly wrong claim that the 'One, Big, Beautiful Bill' increases the deficit is based on the Congressional Budget Office and other scorekeepers who use shoddy assumptions and have historically been terrible at forecasting across Democrat and Republican administrations alike.' But Trump himself has suggested that the lack of sufficient spending cuts to offset his tax reductions came out of the need to hold the Republican congressional coalition together. 'We have to get a lot of votes,' Trump said last week. 'We can't be cutting.' That has left the administration betting on the hope that economic growth can do the trick, a belief that few outside of Trump's orbit think is viable. Tech billionaire Musk, who was until recently part of Trump's inner sanctum as the leader of the Department of Government Efficiency, told CBS News: 'I was disappointed to see the massive spending bill, frankly, which increases the budget deficit, not just decreases it, and undermines the work that the DOGE team is doing." The tax and spending cuts that passed the House last month would add more than $5 trillion to the national debt in the coming decade if all of them are allowed to continue, according to the Committee for a Responsible Financial Budget, a fiscal watchdog group. To make the bill's price tag appear lower, various parts of the legislation are set to expire. This same tactic was used with Trump's 2017 tax cuts and it set up this year's dilemma, in which many of the tax cuts in that earlier package will sunset next year unless Congress renews them. But the debt is a much bigger problem now than it was eight years ago. Investors are demanding the government pay a higher premium to keep borrowing as the total debt has crossed $36.1 trillion. The interest rate on a 10-year Treasury Note is around 4.5%, up dramatically from the roughly 2.5% rate being charged when the 2017 tax cuts became law. The White House Council of Economic Advisers argues that its policies will unleash so much rapid growth that the annual budget deficits will shrink in size relative to the overall economy, putting the U.S. government on a fiscally sustainable path. The council argues the economy would expand over the next four years at an annual average of about 3.2%, instead of the Congressional Budget Office's expected 1.9%, and as many as 7.4 million jobs would be created or saved. Council chair Stephen Miran told reporters that when that growth is coupled with expected revenues from tariffs, the expected budget deficits will fall. The tax cuts will increase the supply of money for investment, the supply of workers and the supply of domestically produced goods — all of which, by Miran's logic, would cause faster growth without creating new inflationary pressures. 'I do want to assure everyone that the deficit is a very significant concern for this administration,' Miran told reporters recently. White House budget director Russell Vought told reporters the idea that the bill is 'in any way harmful to debt and deficits is fundamentally untrue.' Most outside economists expect additional debt would keep interest rates higher and slow overall economic growth as the cost of borrowing for homes, cars, businesses and even college educations would increase. 'This just adds to the problem future policymakers are going to face,' said Brendan Duke, a former Biden administration aide now at the Center on Budget and Policy Priorities, a liberal think tank. Duke said that with the tax cuts in the bill set to expire in 2028, lawmakers would be 'dealing with Social Security, Medicare and expiring tax cuts at the same time.' Kent Smetters, faculty director of the Penn Wharton Budget Model, said the growth projections from Trump's economic team are 'a work of fiction.' He said the bill would lead some workers to choose to work fewer hours in order to qualify for Medicaid. 'I don't know of any serious forecaster that has meaningfully raised their growth forecast because of this legislation,' said Harvard University professor Jason Furman, who was the Council of Economic Advisers chair under the Obama administration. 'These are mostly not growth- and competitiveness-oriented tax cuts. And, in fact, the higher long-term interest rates will go the other way and hurt growth.' The White House's inability so far to calm deficit concerns is stirring up political blowback for Trump as the tax and spending cuts approved by the House now move to the Senate. Republican Sens. Ron Johnson of Wisconsin and Rand Paul of Kentucky have both expressed concerns about the likely deficit increases, with Johnson saying there are enough senators to stall the bill until deficits are addressed. 'I think we have enough to stop the process until the president gets serious about the spending reduction and reducing the deficit,' Johnson said on CNN. The White House is also banking that tariff revenues will help cover the additional deficits, even though recent court rulings cast doubt on the legitimacy of Trump declaring an economic emergency to impose sweeping taxes on imports. When Trump announced his near-universal tariffs in April, he specifically said his policies would generate enough new revenues to start paying down the national debt. His comments dovetailed with remarks by aides, including Treasury Secretary Scott Bessent, that yearly budget deficits could be more than halved. 'It's our turn to prosper and in so doing, use trillions and trillions of dollars to reduce our taxes and pay down our national debt, and it'll all happen very quickly,' Trump said two months ago as he talked up his import taxes and encouraged lawmakers to pass the separate tax and spending cuts. The Trump administration is correct that growth can help reduce deficit pressures, but it's not enough on its own to accomplish the task, according to new research by economists Douglas Elmendorf, Glenn Hubbard and Zachary Liscow. Ernie Tedeschi, director of economics at the Budget Lab at Yale University, said additional 'growth doesn't even get us close to where we need to be.' The government would need $10 trillion of deficit reduction over the next 10 years just to stabilize the debt, Tedeschi said. And even though the White House says the tax cuts would add to growth, most of the cost goes to preserve existing tax breaks, so that's unlikely to boost the economy meaningfully. 'It's treading water,' Tedeschi said.
Miami Herald
17-05-2025
- Business
- Miami Herald
America has officially lost its final AAA credit rating
Moody's has followed in the footsteps of credit rating agencies S&P Global and Fitch Ratings, downgrading their AAA rating on U.S. debt. The move comes amid ongoing challenges associated with mounting U.S. debt and little signs of significant debt reduction in Congress, despite recent actions from the Department of Government Efficiency, or DOGE. Related: Goldman Sachs revamps Fed interest rate cut, recession forecast Moody's decision to lower the U.S. credit rating to Aa1 follows similar decisions by Fitch Ratings in 2023 and S&P Global in 2011. It also adjusted its outlook to stable from negative to reflect the downgrade. "While we recognize the US's significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics," said Moody's statement. The federal budget deficit totals nearly $2 trillion annually, accounting for over 6% of gross domestic product (GDP).The move isn't likely to have a big impact on debt markets, given Fitch and S&P Global's downgrades did little to slow down demand for Treasuries. The 10-Year Treasury Note currently yields 4.44%, up from 3.62% last September. Nevertheless, the downgrade reflects growing concern that sky high deficits and government spending will put upward pressure on Treasury yields, forcing rates on everything from credit cards to mortgages higher over time. Related: Billionaire Steven Cohen sends hard-nosed message on US economy, stocks Moody's decision coincides with President Trump's cornerstone tax and spending bill, which is currently under consideration by the House of Representatives. The bill extends President Trump's 2017 tax changes, while also including new provisions, such as increasing the Social Security income tax deduction and eliminating taxes on overtime and tips. While the bill is popular among many eager for additional tax relief, some GOP members have blocked the bill, hoping for steeper cost cuts to offset the tax breaks. In the crosshairs is Medicaid, which is already the subject of cost-cutting in the bill. The tax proposals could boost long-run GDP by 0.6% but reduce federal tax revenue by $4.1 trillion from 2025 through 2034, according to the non-partisan Tax Foundation. The proposed tax cuts boost deficits by $3.8 trillion over the same period, or by 1.1% of GDP. Five republicans voted against advancing the bill out of the Budget Committee and to the House floor for a vote. "Republicans MUST UNITE behind, 'THE ONE, BIG BEAUTIFUL BILL!'," wrote Trump in a post on Truth Social. "We don't need 'GRANDSTANDERS' in the Republican Party. STOP TALKING, AND GET IT DONE!" The Budget Committee plans to vote again on Sunday, May 18. Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
NZ Herald
13-05-2025
- Business
- NZ Herald
Capital Markets: US investment market undergoes a re-rating
Sharemarkets fell, the US dollar cratered and US treasury note yields (the interest rate on government debt) rose sharply. It was this rapid rise in rates – the 10 Year Treasury Note yield went from below 4% to as high as 4.5% in one of the largest weekly moves in recent memory – that seemed to force Trump's hand. By month's end he had paused the implementation of the tariff plan leading to a sharp rebound in share prices and a fall in US interest rates. Despite the 90-day pause, and market speculation that the eventual tariff levels will be much lower than those initially announced, it's hard not to feel that this signals a change in the world order. This will have implications for managing money. Jasper says 'we have grown up in a world that has been US-centric. The US dollar has been the clear global reserve currency, and we bought the US multi-national companies, the dollar and bonds. Since World War II, it's been the smart and powerful way to invest. Most investors matured in a world built on US exceptionalism. 'There were clear lines of sight for us to follow. US companies were globally dominant, the US dollar was strong and provided a safety valve for trading economies to improve competitiveness. Inflation was well contained and generally falling.' Jasper says that this US investment narrative has been fraying at the edges for some time. ' If you backed the US, you did well, but that is less clear now. Trump's tariff announcements were a symptom (of that fraying) rather than the cause of it, and 'Liberation Day' was another nail in its coffin. 'In its place, we are entering a multipolar world. Rather than the US being a clear world superpower attracting global capital, other regions and countries are gaining relative power and catching up with the US in both economic and geopolitical significance.' He cites the European bloc, China and India as having increased influence. The lines are being drawn. 'The US has dismantled its international aid agency and appears to be retreating from Europe and Nato. Tariffs are the next iteration. 'The European bloc is taking on more responsibility and authority with defence spending, and the future of Ukraine.' Jasper says the multipolar world is likely to be characterised by a wind-back in openness and a pivot towards protectionism. It may mean a realignment of trade patterns and potentially require significant new capital investment, not just in manufacturing but also in defence. He says, despite the sharemarkets bouncing back since 'Liberation Day', the US dollar has weakened as investors retreated from US assets and repatriated capital back to their home markets. 'The DXY Index, which measures US dollar performance against a basket of currencies, fell by 5.3% from April 2 to its intra-month low point. This is a dramatic fall for the world's reserve currency. 'If the multipolar world takes hold, there will be more repatriation of capital out of the US and we need to make sure our portfolios have exposure to other countries and businesses.' While market participants seem to have shrugged off their initial fears of the US tariff regime, risk remains, says Jasper. 'The echoes of this can be seen in the elevated gold price and the US dollar, which despite a small bounce near month's end, remained 9.2% off its highs as measured by the DXY index. 'This is the exact opposite from what economic theorists would expect on the imposition of a tariff; theory points to a stronger not weaker currency on the country imposing the tariff. 'Something strange is going on.' Jasper says 'a change in economic leadership is underway and companies have to be more thoughtful about the way they operate. The US idea was having manufacturing offshore because it was cheaper to produce and then developing logistics (supply chain) and growing markets to sell more products. 'Since 'Liberation Day' companies are more concerned about their risks and thinking of bringing more manufacturing onshore. There is a move to a multipolar world in managing manufacturing. Managing money and risk is far more important now than it was 10 years ago.' Advertise with NZME. The new economic and investment landscape means megatrends have to be built into portfolios, says Jasper. 'The idea of mega trends is that there are structural trends or themes driving asset pricing over extended periods of time. In the more stable US-centric world that had existed, these themes tended to be less important to achieving investment success. 'We are of the view that explicitly considering them as we build portfolios today will be central to delivering tomorrow's investment outcomes.' He says the megatrends include: ● Geopolitical fragmentation: The change to a multipolar world will result in a change in supply chains. ● Artificial intelligence (this has a geopolitical theme): The arrival of the Chinese AI assistant app DeepSeek was a big wake-up call for the industry and will change business operating models. ● Low carbon economy: The transition to lower carbon-intensity economy will require significant investment. ● Demographic divergence: The demographics in the developing world are still growing while birth rates in the Western World are low, affecting potential economic growth. ● Future of finance: More money will be spent on defence, and manufacturing and the sources needed to fund this will change. This may provide further impetus to the growth of private assets like private credit. Jasper says while there are strong reasons to believe 'we are entering a new investment paradigm, exactly how this plays out, is in many ways, unknowable. 'The US does one thing and we don't know how China will respond until we hear from them.' Portfolios must be dynamic and able to respond to changing conditions, he says. Advertise with NZME. 'Set and forget is not a winning strategy in a rapidly-changing world. Being able to adapt your investment portfolio as new insights come to hand will be critical. 'That doesn't mean you trade every five minutes as you reassess the risk in different parts of the world. But it's important to look through the noise and isolate the signals.' During last month's market volatility when the NZ dollar fell to US55c, ASB reduced its level of exposure to international currencies. 'That's paid off,' says Jasper. 'We increased the size of our hedge at 55c to partially offset any rise back against the American dollar. We also paid a small cost for the put option to do this. It's a shorter-term position and it's like an insurance policy – you get a pay-out if the market moves beyond a certain level. And we have an allocation of gold to act as a defensive asset.' Jasper says when building its investment portfolio, ASB factors in a medium-term outlook of three to five years, considering the mispricings in the markets and which parts of the world are benefiting from the mega trends. This results in the portfolio being varied from its typical long-term exposures. 'You can't assume the future will be like the past. There will be different ways to look at investing, and the value of diversification has just gone up. When everything is changing, working out the end-game is complex. 'Being dynamic and moving money around will ensure portfolios are well-diversified and well-positioned,' says Jasper.
Yahoo
18-04-2025
- Business
- Yahoo
Veteran analyst who predicted gold prices would rally offers a blunt new forecast
Gold prices have surged to all-time highs in 2025 thanks to growing economic worry and a tariffs-driven trade war. So far, gold has soared over 20%, including a 10% gain in April following President Trump's "Liberation Day" tariff announcement on April 2, rewarding gold bugs handsomely. Gold's big gains are even more striking when compared to other assets, including stocks and bonds. The S&P 500 is down over 8% this year, and the 10-year Treasury Note yield has climbed to 4.33% from below 4% ahead of the tariff rally has likely surprised many, but long-time commodities pro Carley Garner isn't among them, given her bullishness in 2024. "Previously, higher interest rates and a higher dollar have been headwinds preventing the yellow metal from pricing inflation and geopolitical risk into valuation, but investors have finally looked past those hurdles," said Garner in April 2024. At the time, Garner's gold forecast was for the precious metal to rally "until we test the weekly trendline." Now that gold prices have not only tested — but exceeded — that trendline, Garner has updated her outlook, offering a blunt take on what could happen to the yellow metal next. The U.S. economy may be on the cusp of a reckoning. After notching 3% GDP growth last summer, concerns are mounting as manufacturing and services activity slips, job losses increase, and inflation risks return. ISM's manufacturing index dipped to 49 in March from 50.9, and its services index fell to 50.8 from 54 in December. Historically, when those readings drop below 50, it signals a contracting also appear in the job market following the most hawkish Fed monetary policy tightening since the early 1980s. While historically low, unemployment has climbed to 4.2% from 3.5% in 2023, and layoffs in high-paying jobs have become more common. In Q1, more than 497,000 workers were laid off, the largest first-quarter showing since 2009, according to Challenger, Gray, & Christmas. Meanwhile, March CPI inflation of 2.4% is down considerably from 2022, yet remains above the Fed's 2% target, and could head higher because of tariffs. The White House has imposed 25% tariffs on Canada, Mexico, and autos and a 10% baseline import tax on almost everything else. In China, a trade war has erupted, lifting U.S. tariffs to a staggering 145%, risking inflation on everything from clothing to electronics. The uncertain backdrop set the stage perfectly for gold, which tends to perform best when investors search for safe havens amid chaos. The trade war has investors broadly shunning other typical safe havens, adding additional fuel to gold's rally. The U.S. Dollar and Treasury bonds have sold off, likely at least in part because they're widely held by global central banks that are less willing to finance our economy amid a tussle over tariffs. Gold's price surge to over $3,200 has lifted it to all-time highs, which could signal that overly bullish speculators are getting too complacent. The risk gold bugs have become too offside isn't lost on Garner, whose updated thoughts might frustrate some bulls."This is going to be kind of an unpopular opinion, but I do not think it's sustainable," said Garner in a TheStreet interview. "I think the gold market is putting in a bit of a blow-off top." Blow-off tops happen when prices surge vertically on heavy volume, a move investors consider "parabolic." "I've seen this price action before this," said Garner. "We're as overbought today as we were in the summer of 2011. And we haven't been this overbought the reality is, when everybody has the same idea, the markets tend to do the other, the opposite." Garner cites the 80/20 rule as a reason for her concern about what's next for gold prices. "This is an 80 over 20 game, 80% of speculators. And I'm not talking about investors, I'm talking about speculators. People that are [investing] with hot money that are chasing prices. 80% of those people are generally wrong. 80% of analysts are generally wrong. It's a really tough game to predict what the future is going to hold. And if 80%, which is roughly what our polling suggests, are already bullish gold, the odds are we probably get some sort of surprise to the downside," said Garner. Wall Street analysts have recently been boosting targets to catch up to rising gold prices. For example, Deutsche Bank targets $3,700 in 2026, up from $2,900 previously. Garner has a very different conclusion right now: "If you've made money in the gold market on the way up, please protect yourself, take some off the table, maybe even take all of it off the table and see what happens."Sign in to access your portfolio
Reuters
25-03-2025
- Business
- Reuters
Australian government raises borrowing requirement after federal budget
SYDNEY, March 26 (Reuters) - The Australian government plans to borrow more than indicated in the 2024/25 financial year, its debt arm said on Wednesday, after it announced several cost-of-living relief measures in the federal budget ahead of a national election due by May. Following the government's budget on Tuesday, the Australian Office of Financial Management said it planned to sell around A$100 billion ($63 billion) of Treasury bonds in the year to end-June 2025. Treasury Indexed Bond issuance will be around A$3 billion. Back in December, the AOFM had indicated it would need to borrow around A$95 billion for this financial year. For 2025-26, the AOFM plans to sell around A$150 billion ($94.6 billion) of Treasury bonds. The AOFM said it would remain active in the Treasury Note market with regular issuance for cash management purposes. Australia's centre-left government launched fresh tax cuts, extended electricity rebates until the end of the year and cut student debt, tipping the budget back into the red after two years of rare surpluses, in a major push to win back voters. Opinion polls show a close-run election in Australia with the opposition Liberal-National coalition ahead of the ruling centre-left Labor party by a narrow margin. The government expects an A$27.6 billion ($17.4 billion) deficit for the fiscal year ending June 2025, slightly worse than its projection of a deficit of A$26.9 billion in December. ($1 = 1.5865 Australian dollars)
