Wednesday, August 26th, 2026
Bill Bonner, from Poitou, France
‘The ultimate intervention is our military, and if we have to use that, we will.’
—Donald Trump
Here’s America’s own Secretary of the Treasury, Scott Bessent. The New York Times:
Bessent’s Warning of ‘Economic D-Day’ for Iran…
The headline suggests grim, determined men setting off...their lives in danger...as they try to change the course of history. And Bessent may succeed. He’s been practicing at home.
The US government now spends nearly $1.40 for each dollar it collects honestly. That is not a statement of success. Rather it is the kind of thing a doctor says in a hushed voice to a soon-to-be widow.
Pretty soon, the monitors will sound the alarm. That’s when you can expect the landing craft to come ashore. In New Jersey, if not in Iran.
Yesterday, we looked at how it’s s’posed to work.
Normally and naturally, a boom financed on credit is followed by a bust in which the bad loans — and the asset prices that depend on them — are marked down.
And since asset prices are plainly in BubbleLand, it is a bust we are expecting, not a boom.
There have been two dips in AI stocks — one in January...the other in June. Each one knocked about a trillion dollars off the top of the market. But investors have been trained to buy the dip. They followed the plan...and each dip was followed by a bounce.
When the real correction begins, yields (and interest rates) will soar – at first. Interest rates are prices; they are what you pay to use someone else’s money. The longer you use his money, the more you pay for the privilege.
But when the financial world begins to shake and shimmy, lenders become cautious. They’re no longer concerned so much about the rate of return ON their money; what they worry about is the return OF their money.
That’s what happens in a crash/depression. There are bounces, but they aren’t sustained. And a lot of loans are never paid back.
Some of the biggest lenders, however, have political power as well as financial power. And that is really where our story for today begins.
The biggest banks actually own the Federal Reserve. They have their people — economists, bankers, investors — embedded in the Fed and the administration, helping them decide when to lend and to whom.
When the bust comes, these insiders are keenly interested in avoiding a system-wide collapse. It is perfectly okay for little banks, Savings and Loans, and mutual lending societies to go belly up. The ordinary foot-soldier of capitalism — the man from Ohio who invests in a strip mall — falls into an unmarked grave. But Goldman Sachs and J.P.Morgan get medevac’ed. They are ‘too big to fail.’ Which is to say, they are powerful enough to demand a bailout when they need it.
And a weapon that the feds have that nobody else has is the little printing press in the basement. They can counterfeit dollars without going to jail.
In a pinch, which is what you have when your you-know-what gets caught in a wringer, the feds can ‘print’ up extra money and lend it to you...or to themselves.
The price of credit is subject to the law of supply and demand too. So, when the federal government splashes ashore with trillions of crisp, new dollars, interest rates go down.
Scott Bessent is now feeling around in the dark for the right lever. He wants to cripple Iran’s economy...but make the US economy dance.
First, he announced that he would buy 30-year US Treasuries. The extra ‘demand’ ought to raise bond prices and lower bond yields.
But it was too little...and too obvious. Interest rates fell, briefly, and then went back up.
The too-obvious part was that he had to get the money to buy the bonds from somewhere. Everyone knew that that would mean selling more short-term paper in order to buy the long-term paper.
And the shorter the term...the more ‘inflationary’ the intervention. The shortest-term paper is the dollar itself...a ‘bill’ of immediate maturity. No need to wait before using it to buy something.
Somewhat less immediate, but with similar inflationary effect (though subject to a delay) are the fed’s overnight, 30-day, 90-day bills, etc. You might as well be ‘printing’ dollars themselves.
It was obvious to one and all that Bessent was really proposing to make mortgages more accessible by making credit card use more expensive. Bond investors were not impressed. They saw the writing on the wall...it said in plain English: inflation ahead. They dumped bonds. Yields rose.
Then, Bessent tried another lever. He pretended that he could get the money to buy long-dated bonds from the feds’ checkbook. This was just silly. The feds’ general account holds, presently, a little shy of $1 trillion. But it is the money they use for paying all their bills. And currently, revenues are running way behind expenses. So, if you suck out money to diddle the bond market, you still have to come up with some new money from somewhere.
And the only way — though the exact mechanisms can vary — is to ‘print’ it.
Right now, Bessent is just trying to manipulate long-bonds to lower mortgage rates going into the November elections. Very ordinary stuff...misleading voters in the customary way. But when the bust comes...then you will see Scott Bessent with beads of sweat on his forehead...and maybe a slight stutter.
He’ll announce another D-Day attack...Perhaps like McArthur landing at Luzon in 1945, he will step onto the beach at Atlantic City.
Stay tuned.
Regards,
Bill Bonner
I wonder what Old Janet Yellen would do? HAHAHAHA If Trump only had one executive order left in his bag, it should be that over the next two years, he would not sign any bill that added to the national debt and come what may.