Journalist: Trump is with the right foot. He placed the beasts in the Middle East and forced a truce between Israel and Iran. NATO told yes to everything he wanted, with the exception of the Spaniards (to whom he promised a “tariff”). ‘Daddy’ Trump enjoyed that meeting as never before. But now he has to fight with his own senators to pass the tax package, which already has the blessing of the lower house. Who can the most difficult, should be able to the easiest. Will it succeed? Immediately, as happened in Iran? The tax reduction, will law be made on Friday?
Gordon Gekko: Its people are bombing the rebels. I would say that there are two that are a lost case. Thomas Tillis, who does not renew the bank, and Rand Paul, for a firm issue of principles. There is one more that can refuse not without frustrating the initiative. And at least there are three that are in full struggle.
Q.: There will be another epic.
GG: Sure. I don’t know if it’s going to be on Friday at the president’s desk for his signature, but he will be.
Q.: What will remain in the package after so much negotiation?
GG: A reduction of expenses and another of taxes, much greater. In part, it is an extension of the reduction that Congress approved in Trump’s first mandate and that expires next year. So its expansive effect will be more limited than it seems to the naked eye. And do not forget that an imposite not legislated operates – the rise of tariffs – that blows against. The public debt roof will also be expanded by moving away the danger of a partial closure of the government. 4 billion dollars approved the representatives. 5 billion is negotiated in the Senate. Until seeing the definitive text of the law, all figures are provisional, susceptible to modification by Toma and Daca.
Q.: But the final size of the package, and its impact by increasing the fiscal deficit of the coming years, will be important.
GG: The Congress Budget Office, taking into account the project that approved the lower house, estimated that red will increase by 3.3 billion dollars in the next decade.
Q.: How is it that the initiative progresses and treasure bonds have no drama? In April they starred in a serious tantrum. On the other hand, now, bonds surprise for their firmness. The ten -year rates fell to the lowest levels of the last two months. Shortly before Trump assumed they lined 4.80%. Last week they were still 4.50%. And with the law about to sanction they fell to 4.20%. How is it understood?
GG: It is the treasure engineering by Scott Besent. The deficit is going to widen. We do not know how precisely, but it will grow and, in principle, there is no appetite to absorb a larger sowing of bonds.
Q.: It is what we suffered in April. It’s hard to forget. Because the bonds collapsed, we had to back down with reciprocal tariffs.
GG: And we saw it in the electoral campaign. The Fed cut 100 bases the short rates, and the long ones did not fall, they climbed more than 100 points, in the heat of the fiscal disagreements of the two candidates. And Trump was the most provocative.
Q.: And then what changed? What made now that the Fed intends to resume the loss of rates, and a tax flood is coming, the market sees it with other eyes, and no longer with fright or reluctance?
GG: The key goes through the aggressive management of the supply of treasure titles and its placement deadlines. Besent changed the mix: many short -term letters and few bonds long. E, even, he already began to repurchase. Trump, the weekend, was very explicit. “I already instructed my people not to place any debt to more than nine months,” he said.
Q.: A delicate matter.
GG: This is what Besent criticized Janet Yellen, who occupied his armchair in the Biden government, but raised to the cube.
Q.: Let’s see if I understood it well. We are going to a greater fiscal deficit, an increase that the market has no interest in absorbing. Long rates, however, fall. But it is not that there is more demand for treasure bonds, long rates fall because what is expected is a strong reduction of emissions. The bonds will be proportionally more scarce.
GG: He understood it well.
Q.: And the deficit is going to finance, how? All with very short -term letters? Is there demand for those letters? Let’s say today, and tomorrow when they beat again, too? And so on. Can the risk of Roll Over be a problem?
GG: An inflationary problem, not credit. Treasury lyrics are very close to cash. This is equivalent to an increase in liquidity, only than propelled by the treasure and not by the Fed.
Q.: It is an exercise of quantitative expansion (QE), but the Fed did not decide but Trump under the advice of a veteran trader as Besent.
GG: That’s how it is. Trump posts his brulotes in the networks demanding feat cuts, Besent operates with more technical wisdom doing a job of Zapa in favor of fiscal dominance. And, in parallel, Congress is about to sanction a fiscal expansion at the request of the administration so that there are no doubt about what it is.
Q.: Suddenly, Powell’s Fed has the castle surrounded. Will you want to lower the rates like that?
GG: Governors Waller and Bowman want to do it at the end of the month. That is, it also has a Trojan horse inside.
Q.: What do you think will do?
GG: Besent is subtle. It is manufacturing demand for letters. For example, the liberalization of the use of 100% stablcoins backed by cash or Treasury letters. It is not as gross as Trump. Powell, I imagine, will leave the decision for September. You need to know the response of inflation more than ever. But monetary policy will not be able to relax so much in such a framework, where the control of the yield curve passes to a frantic treasure, urged by the laxity in a hurry. This just begins. With the dollar 10% below. And not by chance.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
