"That higher reward, aka “risk premium,” spiked last week. And remember, when your carrying $30 trillion in debt, another point on the interest rate is $300 billion more in debt service."
I understand that, because of its uncalled for self destructive nature, it is being called the "moron premium."
I get that you and PK are first and foremost economists and the tariffs are so insane that you're bound to focus a lot of your column inches there.
But DOGE chainsawing vast swaths of public services needs much more comment than it's been getting. The negative externalities are likely as damaging to US welfare and productivity as the tariff madness, although unlikely to provoke a financial crisis. From ceasing to inspect for food and drug safety - to ceasing to do cybersecurity or protect against fraud - to defunding science & medical research - to sabotaging social security and IRS systems - to ripping away headstart and housing vouchers - to stopping environmental pollution - to badmouthing vaccines & likely messing with approvals for new drugs and vaccines - to messing with air traffic control - to corrupt outsourcing to insider cronies - and on and on. Some of these may result in spectacular disasters. Wiith others the harm will be less visible or take longer to be felt. All will take a toll on US quality of life. Many in cold economic terms will make for a less productive workforce and economy.
You are missing the war part of the trade war with China.
China has a monopoly on heavy rare earth materials and close to a monopoly on the heavy rare earth magnets that the world needs for weapons systems, drones, cars, AI, smart phones, rockets and more.
China also has a dominant position in the supply line of the raw materials for Active Pharmaceutical Ingredients for things like ibuprofen, diabetes medications, and many antibiotics.
China has already cut the supply lines to the rest of the world for their rare heavy earth materials and magnets. Why would China give American companies access to them without large concessions?
President Trump has awakened the dragon of China's power. It's hard to see how Trump's ego will allow him to back down. In a trade war with China, China holds all the cards.
This may be pure speculation, hyperbole or a stupid conspiracy theory? I hope, I am dead wrong! Trump's Tariffs, could have been deliberately designed to swap out $USD as the worldwide currency of choice, enabling a sell off of bond market/US treasures to tank market with lower prices higher bond yields, ($USD shortage) and rising interest rates. Thereby, deliberately devaluing $USD, so as, to make US imports more expensive and reciprocally US exports cheaper. Forcing domestic industrial policy by use of tariffs.
This deliberate devaluation of $USD by Trump, could be start of replacing it as the worldwide currency of choice; being replaced with a non collateral backed "currency", such as crypto? China, does not want the Yen to become defacto worldwide currency of choice. Instead by replacing a faux "currency" such as crypto with $USD, this could manifest huge currency swap ranges, increase worldwide inflation as underlying post Bretton Woods $USD denominator currency would no longer be used to buy and sell treasuries and bonds on the open world market? Idle speculation? Discuss. BTW, it is more than coincidental that Trump's sons, have recently just become owners/partners in a scam crypto trading firm. Coincidence? I don't think so.
They sometimes say they want a "competitive devaluation"--cheaper $ exchange rate to make exports cheaper, imports more expensive, as you suggest. But higher interest rates can raise the value of the $, though not in this case for the reasons I note.
But the main thing is: I wouldn't attribute a deep plan to this team. It's all the whims and biliousness of he who would be king.
Stephanie’s Economie comment touches a subject that has been bothering me all weekend.
The $USD is the dominant currency in global trade and finance.
This conveys some special powers, some specific advantages to the USA.
But Trump hasn’t the foggiest idea how valuable they are, let alone how to use them for a positive purpose.
This deGaulle quote is relevant here — that our dominant currency, one that has the role of the reserve currency for the world, allows us to have “deficits without tears”.
But if Trump does not see that role as valuable, he has no incentive to protect it.
I guess this gives new meaning to the (slightly edited) phrase:
The American worker and family realize that international trade has not been a "both-and" experience. Both lower prices and more income and security. I tried to read most of your link to your paper of September 2023. It's OK, but tepid. I recently summarized the economy since January 2009, close to the end of the Great Recession. I found this:
Since January 2009 the "average weekly earnings" of nonsupervisory workers (the employees who make up 82% of all workers) has increased by 10%.
And the Real (inflation adjusted) national economy per capita has increased by 30%.
Real household net worth (private wealth) has increased by 120%. (See Flow of Funds reports)
And the "real" S&P 500 has increased by 400% (or from 1,200 to just under 6,000).
Wage growth is at a snail's pace; the economy's growth is moderate, not great; wealth growth has been pathologically strong; and the stock market has shot into outer space. That's the important bit of knowledge everyone should know!
Financialization dominates the economy. We have about 37% in excess wealth, above the historical norm of 1947 to 1997, 50 years. That's about $54 trillion out of the total of $169 trillion (Flow of Funds, page 2 and Table B.101). The federal annual deficit is below $2 trillion, federal public debt is around $29 trillion. Wealth at $169 trillion. Why not interview Elizabeth Warren about her Accountable Capitalism Act which advocates for a wealth tax?
My summary is, we need strong medicine to fix things. The Biden plan backed off from Build Back Better and the PRO Act and the Reward Work Act, and the Accountable Capitalism Act. You shouldn't back off from the needed reforms people are looking for. - even when talking about tariffs. -- my blog -- http://benL88.blogspot.com
"That higher reward, aka “risk premium,” spiked last week. And remember, when your carrying $30 trillion in debt, another point on the interest rate is $300 billion more in debt service."
I understand that, because of its uncalled for self destructive nature, it is being called the "moron premium."
I get that you and PK are first and foremost economists and the tariffs are so insane that you're bound to focus a lot of your column inches there.
But DOGE chainsawing vast swaths of public services needs much more comment than it's been getting. The negative externalities are likely as damaging to US welfare and productivity as the tariff madness, although unlikely to provoke a financial crisis. From ceasing to inspect for food and drug safety - to ceasing to do cybersecurity or protect against fraud - to defunding science & medical research - to sabotaging social security and IRS systems - to ripping away headstart and housing vouchers - to stopping environmental pollution - to badmouthing vaccines & likely messing with approvals for new drugs and vaccines - to messing with air traffic control - to corrupt outsourcing to insider cronies - and on and on. Some of these may result in spectacular disasters. Wiith others the harm will be less visible or take longer to be felt. All will take a toll on US quality of life. Many in cold economic terms will make for a less productive workforce and economy.
Agree. Will have more to say about that very soon.
Many thanks in advance. And thanks for keeping us sane with your timely commentaries!
Dear Mr. Jared Bernstein,
You are missing the war part of the trade war with China.
China has a monopoly on heavy rare earth materials and close to a monopoly on the heavy rare earth magnets that the world needs for weapons systems, drones, cars, AI, smart phones, rockets and more.
China also has a dominant position in the supply line of the raw materials for Active Pharmaceutical Ingredients for things like ibuprofen, diabetes medications, and many antibiotics.
China has already cut the supply lines to the rest of the world for their rare heavy earth materials and magnets. Why would China give American companies access to them without large concessions?
President Trump has awakened the dragon of China's power. It's hard to see how Trump's ego will allow him to back down. In a trade war with China, China holds all the cards.
https://www.nytimes.com/2025/04/13/business/china-rare-earths-exports.html
https://www.drugpatentwatch.com/blog/the-role-of-china-in-the-global-generic-drug-api-market/
This may be pure speculation, hyperbole or a stupid conspiracy theory? I hope, I am dead wrong! Trump's Tariffs, could have been deliberately designed to swap out $USD as the worldwide currency of choice, enabling a sell off of bond market/US treasures to tank market with lower prices higher bond yields, ($USD shortage) and rising interest rates. Thereby, deliberately devaluing $USD, so as, to make US imports more expensive and reciprocally US exports cheaper. Forcing domestic industrial policy by use of tariffs.
This deliberate devaluation of $USD by Trump, could be start of replacing it as the worldwide currency of choice; being replaced with a non collateral backed "currency", such as crypto? China, does not want the Yen to become defacto worldwide currency of choice. Instead by replacing a faux "currency" such as crypto with $USD, this could manifest huge currency swap ranges, increase worldwide inflation as underlying post Bretton Woods $USD denominator currency would no longer be used to buy and sell treasuries and bonds on the open world market? Idle speculation? Discuss. BTW, it is more than coincidental that Trump's sons, have recently just become owners/partners in a scam crypto trading firm. Coincidence? I don't think so.
They sometimes say they want a "competitive devaluation"--cheaper $ exchange rate to make exports cheaper, imports more expensive, as you suggest. But higher interest rates can raise the value of the $, though not in this case for the reasons I note.
But the main thing is: I wouldn't attribute a deep plan to this team. It's all the whims and biliousness of he who would be king.
Well said. Prof. Bernstein. Thank you.
Talk about precipitous declines…oof. Consumer sentiment and travel from the EU 😳
And that sharp upward expected inflation. Yikes. And it’s only been 3 months. 🤯
Stephanie’s Economie comment touches a subject that has been bothering me all weekend.
The $USD is the dominant currency in global trade and finance.
This conveys some special powers, some specific advantages to the USA.
But Trump hasn’t the foggiest idea how valuable they are, let alone how to use them for a positive purpose.
This deGaulle quote is relevant here — that our dominant currency, one that has the role of the reserve currency for the world, allows us to have “deficits without tears”.
But if Trump does not see that role as valuable, he has no incentive to protect it.
I guess this gives new meaning to the (slightly edited) phrase:
“A fool and [our] money are soon parted.”
See
Currency Power and International Security by Benjamin J Cohen (UCSB)
https://www.polsci.ucsb.edu/sites/default/files/sitefiles/people/cohen/recent/Fletcher%20Security%20Review.pdf
The American worker and family realize that international trade has not been a "both-and" experience. Both lower prices and more income and security. I tried to read most of your link to your paper of September 2023. It's OK, but tepid. I recently summarized the economy since January 2009, close to the end of the Great Recession. I found this:
Since January 2009 the "average weekly earnings" of nonsupervisory workers (the employees who make up 82% of all workers) has increased by 10%.
And the Real (inflation adjusted) national economy per capita has increased by 30%.
Real household net worth (private wealth) has increased by 120%. (See Flow of Funds reports)
And the "real" S&P 500 has increased by 400% (or from 1,200 to just under 6,000).
Wage growth is at a snail's pace; the economy's growth is moderate, not great; wealth growth has been pathologically strong; and the stock market has shot into outer space. That's the important bit of knowledge everyone should know!
Bernie Sanders in his speeches is now saying that wages were higher inn 1973 than in 2025, and he's right. See the BLS table: https://data.bls.gov/timeseries/CES0500000031
Financialization dominates the economy. We have about 37% in excess wealth, above the historical norm of 1947 to 1997, 50 years. That's about $54 trillion out of the total of $169 trillion (Flow of Funds, page 2 and Table B.101). The federal annual deficit is below $2 trillion, federal public debt is around $29 trillion. Wealth at $169 trillion. Why not interview Elizabeth Warren about her Accountable Capitalism Act which advocates for a wealth tax?
My summary is, we need strong medicine to fix things. The Biden plan backed off from Build Back Better and the PRO Act and the Reward Work Act, and the Accountable Capitalism Act. You shouldn't back off from the needed reforms people are looking for. - even when talking about tariffs. -- my blog -- http://benL88.blogspot.com
Sounds like “welcome to my nightmare” week.
Believe me, Xi loves him NOT.