Joe Bidens fiscal time bomb is set to explode just in time time for Trump to take office
As evidence keeps building that the hapless Biden administration couldn’t end fast enough, there’s also evidence that the first Trump presidency of strong growth and low inflation pre-COVID won’t return immediately.That’s the signal we’re getting from the bond market: The possibility that the fiscal time bomb of nonstop spending that Joe Biden and his minions have planted is ready to explode just in time for Trump to take office.Most of the financial punditry is too obsessed with stock indexes to appreciate the bond market’s warning signs.Stock prices have their place, of course.
When investors pile into stocks as they’ve been doing since Trump’s election — until recently, that is — it’s an indication that many are betting his policies of lower taxes and less regulation will lead to higher corporate earnings and GDP growth.For my money, the bond markets provide a more accurate window into underlying fissures that could lead to severe fiscal distress in the future.Recall, the Dow reached record highs at the end of 2007 just as lending markets started to flash the first warning signs of the 2008 financial crisis.And that’s just one example of bonds exposing a problem well before the rest of the financial world had a clue.I’m not saying we’re heading for a 2008-like financial collapse.
For starters, all collapses are different.But bonds are certainly signaling trouble ahead.The best gauge of this is the price of the 10-year bond the Treasury issues to finance much of the federal debt.
Smart traders follow it for signs of economic distress because consumer rates — such as mortgages — are priced off of its interest rate, or “yield.”Bond prices move in the opposite direction from yields.And since the beginning of December, prices of the 10-year have nose-dived while yields have spiked significantly, more than 10%.
When this happens, it’s a sign of trouble ahead.Maybe Fed Chairman Jerome Powell hasn’t quite conquered inf...