U.S. on The Lombard Review

Labor Day: Hiring is strong enough to worry the Fed

Mon, 07 Sep 2026 00:00:00 +0000

As the nation celebrated Labor Day, the American labor market delivered an unvarnished message of economic vitality that sent a wave of acute anxiety through the Federal Reserve: the blowout August employment report confirmed that domestic hiring is far too strong for the central bank’s comfort.

The Threat of Full Employment

In standard political discourse, robust employment growth is celebrated as an unalloyed national triumph. In the sterile, technocratic corridors of the Federal Reserve, however, an economy adding hundreds of thousands of jobs alongside 3.4 per cent inflation represents an imminent monetary hazard. Strong hiring sustains consumer purchasing power, enabling households to absorb hundred-dollar oil and retail tariffs without cutting consumption, fueling persistent demand-pull price pressures.

What Americans now pay in tariffs

Fri, 07 Aug 2026 00:00:00 +0000

A comprehensive quantitative audit of federal trade policy confirms that American households and businesses have entered an era of universal, institutionalized border taxation: under the newly enacted Section 301 framework, the average tariff rate paid on imported goods has settled into an uncompromising two-tier architecture.

The Two-Tier Architecture

Quantitative models decomposing current import schedules reveal that approximately sixty global trading economies face a 10 per cent baseline tariff if they have signed preliminary bilateral regulatory review agreements. For non-cooperating nations—including key Asian and Latin American manufacturing origins—the tariff rate escalates to 12.5 per cent, with zero product exemptions. Only a narrow corridor of specialized, life-saving oncology pharmaceuticals remains exempt from federal border duties.

America's emergency oil is running out

Tue, 21 Jul 2026 00:00:00 +0000

Official Department of Energy inventory ledgers confirmed a historic, alarming milestone: the United States Strategic Petroleum Reserve (SPR) has declined to its lowest physical operating level since 1983. Following months of emergency crude releases to mitigate the Hormuz crisis, America’s strategic energy buffer is essentially exhausted.

The Depletion of the Sovereign Shield

The SPR was established in the 1970s to serve as the nation's ultimate national security firewall against foreign oil embargoes. After draining hundreds of millions of barrels over successive administrations to suppress domestic gasoline prices ahead of elections and geopolitical crises, the salt caverns of Texas and Louisiana hold barely thirty days of net import protection. The emergency cushion that allowed the US to withstand global energy shocks for half a century has been liquidated.

Independence Day: Energy independence, tested

Sat, 04 Jul 2026 00:00:00 +0000

As the nation celebrated Independence Day, the cherished political doctrine of American 'energy independence' was subjected to an unforgiving real-world macroeconomic stress test. Despite domestic crude production running near record highs, total US petroleum inventories—including the Strategic Petroleum Reserve—plunged by 79 million barrels over the spring, exposing the fragility of domestic energy isolation.

The Global Price Interconnect

The energy crisis proved once again that physical domestic production does not insulate an economy from global market clearing prices. While American oil fields produce over thirteen million barrels per day, domestic crude is priced against global benchmarks. When twenty million barrels daily are severed from global markets via the Hormuz blockade, American oil producers export crude to international buyers paying premium prices, driving domestic refinery feedstock and retail fuel costs violently higher.

Memorial Day: Summer driving at $100 oil

Mon, 25 May 2026 00:00:00 +0000

As American families hit the highway for Memorial Day weekend, the traditional kickoff to the summer driving season delivered an uncompromising lesson in energy-driven purchasing power destruction. With Brent crude entrenched in the $105 to $108 range and national retail gasoline averaging over $4.60 per gallon, the cost of summer mobility has become a punitive household tax.

The Consumer Real Income Squeeze

Energy expenditure is hyper-regressive and non-discretionary. When a working-class household must allocate an additional $150 to $200 per month simply to fuel vehicles for daily commutes, that cash is siphoned directly out of discretionary restaurant dining, theme park travel, and retail apparel purchases. The compounding effect of hundred-dollar crude has completely neutralized the disinflationary relief delivered by recent tariff rollbacks.

The refunds that will add to America's borrowing

Tue, 21 Apr 2026 00:00:00 +0000

On 20 April, the Department of the Treasury officially launched the Customs Automated Protest Entity (CAPE), a centralized electronic clearing system designed to expedite court-mandated tariff refund claims. Yet behind the technological efficiency sits an alarming fiscal consequence: funding these refunds will require a massive, unprecedented expansion in federal short-term debt issuance.

The CAPE Liquidity Drain

By automating refund claims through the CAPE portal, the federal government has dramatically accelerated the velocity of cash disbursements. What was projected to be a multi-year trickle has transformed into an immediate, multi-billion-dollar monthly cash drain from the Treasury General Account. To prevent sovereign cash balances from falling below operational safety thresholds, the Treasury Office of Debt Management must dramatically ramp up short-term Treasury bill sales.

Black Friday: Buy now, get a refund later?

Fri, 28 Nov 2025 00:00:00 +0000

Black Friday shopping kicked off with an unprecedented legal twist that reshaped consumer and corporate purchasing behavior: the widespread emergence of the 'contingent refund trade.' Following intense oral arguments at the Supreme Court on 5 November challenging emergency tariffs, retailers and wholesale buyers structured billions in holiday transactions around potential judicial tax refunds.

The Mechanics of Escrowed Surcharges

Major commercial importers and big-box retailers negotiated contractual clauses stipulating that if the Supreme Court strikes down IEEPA tariffs, collected tariff surcharges will be automatically refunded to downstream corporate buyers. This contractual innovation allowed merchants to maintain promotional Black Friday volume without permanently absorbing border taxes into depleted profit margins.

Thanksgiving: Beef, tariffs and the holiday table

Thu, 27 Nov 2025 00:00:00 +0000

As American families gathered for Thanksgiving dinner, the centerpiece roast and after-dinner coffee served as a live quantitative case study in the rapid pass-through dynamics of trade policy rollbacks. Following the emergency exemption of beef and coffee from import tariffs on 14 November, wholesale and retail price adjustments materialized with unprecedented velocity.

The Velocity of Food Pass-Through

Unlike complex durable goods or electronics—where multi-tiered supply chains and lengthy manufacturing cycles delay tariff transmission for months—perishable agricultural commodities adjust in real time. Importers and food processing conglomerates immediately adjusted spot wholesale contracts to reflect the elimination of border levies, allowing grocery chains to roll out aggressive Thanksgiving promotional discounts.

Labor Day: Hiring has stalled

Mon, 01 Sep 2025 00:00:00 +0000

As the nation marked Labor Day, the domestic employment landscape settled into an uncomfortable macroeconomic condition: a widespread hiring freeze operating without large-scale corporate layoffs. The sluggish July payroll print of just 73,000 net new positions confirmed that the corporate hiring engine has essentially ground to a halt.

The 'Low Hiring, Low Firing' Equilibrium

Corporate balance sheets, having spent three years navigating extreme labor shortages, are loath to execute sweeping mass layoffs. Instead, management teams are achieving headcount reductions through unannounced attrition, hiring freezes, and the elimination of redundant open requisitions. For job seekers, the hiring rate has collapsed to levels unseen outside of deep recessions, even as headline initial jobless claims remain deceptively low.

Independence Day: The real cost of the "big beautiful bill"

Fri, 04 Jul 2025 00:00:00 +0000

As the nation celebrated Independence Day, non-partisan budget scorekeepers delivered a chilling structural assessment of the recently enacted fiscal legislation. The Congressional Budget Office officially projected that the OBBBA will add approximately $3.4 trillion to federal deficits over the coming decade, even after incorporating optimistic dynamic economic growth assumptions.

The Fallacy of Self-Funding Tax Cuts

The legislative debate was dominated by assertions that 100 per cent bonus expensing and lower statutory rates would generate sufficient economic expansion to pay for themselves. The CBO’s econometric modeling dismantled this supply-side illusion. While capital investment incentives do provide a moderate lift to potential real GDP, the resulting tax revenue feedback offsets less than twenty per cent of the gross statutory revenue loss. The remaining eighty per cent must be funded through continuous sovereign debt issuance.

America bombs Iran. Oil falls

Tue, 24 Jun 2025 00:00:00 +0000

Following days of intense speculation and surging energy markets, the United States military executed coordinated strikes on 21–22 June targeting specific Iranian-aligned operational facilities in the region. Contrary to widespread market panic, crude oil prices experienced an immediate, sharp decline of over four per cent in the subsequent trading sessions.

Deflating the Escalation Premium

The counterintuitive collapse in oil prices reflects the containment of the strike package. Military planners carefully targeted limited military infrastructure while scrupulously avoiding Iranian oil refining facilities, export terminals at Kharg Island, and commercial shipping lanes. By demonstrating a precise, contained military posture, the operation dismantled the tail-risk scenario of an imminent, unconstrained regional conflagration that would shutter Persian Gulf exports.

Memorial Day: Downgraded, and still spending

Mon, 26 May 2025 00:00:00 +0000

As the nation observed Memorial Day, the American sovereign found itself in an unprecedented fiscal contradiction: newly downgraded to Aa1 by Moody’s, yet hurtling toward the passage of another multi-trillion-dollar fiscal package that promises to blow federal deficits even wider. The discipline of sovereign creditworthiness has been completely abandoned in favor of permanent fiscal expansion.

The Sovereign Disconnect

In standard emerging or developed market history, a sovereign credit rating downgrade triggers immediate fiscal retrenchment, spending austerity, and emergency revenue mobilization to restore creditor confidence. In Washington, the reaction to losing the final pristine credit rating was total indifference. Lawmakers advanced sweeping multi-trillion-dollar tax cut extensions without enacting corresponding expenditure offsets or entitlement reforms.

America loses its last AAA rating

Tue, 20 May 2025 00:00:00 +0000

The United States lost its final pristine sovereign credit rating as Moody’s Investors Service downgraded the federal government’s long-term issuer rating from Aaa to Aa1 on 16 May. Moody’s cited structural, unconstrained federal budget deficits, escalating debt-servicing costs, and chronic legislative inability to enact long-term entitlement or fiscal consolidation.

Rating Symmetry Across the Big Three

Moody’s downgrade establishes complete consensus among the major credit rating agencies, joining S&P (which downgraded in 2011) and Fitch (which downgraded in 2023). The psychological and symbolic impact on Wall Street is profound. For decades, the United States stood as the unmatched global gold standard of sovereign creditworthiness. The loss of the final AAA seal reflects the undeniable reality of an economy carrying an $36 trillion national debt burden with annual financing deficits exceeding six per cent of GDP.

"Sell America": are foreign investors walking away?

Tue, 22 Apr 2025 00:00:00 +0000

The US Dollar Index collapsed to a three-year low near 98, fueling whispers of an institutional 'Sell America' wave across global foreign exchange and sovereign debt desks. The persistent liquidation of dollar-denominated assets reflects a profound reassessment of the institutional and governance risk premia embedded across the United States financial architecture.

The Governance Risk Premium

International sovereign wealth funds and central banks allocate hundreds of billions into US Treasuries on the core assumption of institutional predictability, judicial independence, and adherence to international commercial norms. When trade policy is conducted via unilateral decrees, tariffs are deployed as geopolitical cudgels, and fiscal deficits compound without legislative constraint, that institutional bedrock dissolves. Fixed-income investors are demanding a higher term premium to hold US long-duration obligations.

Steel tariffs squeeze American manufacturers

Fri, 14 Feb 2025 00:00:00 +0000

The White House’s sudden imposition of an uncompromising 25 per cent tariff on imported steel and aluminum, stripped of historical partner exemptions, has sent immediate shockwaves through domestic manufacturing supply chains. While domestic primary metal smelters celebrated the statutory shield, the thousands of downstream fabricators, automotive suppliers, and machinery manufacturers who consume steel as a raw input face an immediate margin crisis.

The Downstream Value Destruction

In modern industrial manufacturing, downstream fabricators employ forty times more American workers than primary steel furnaces. For companies stamping automotive frames, welding structural HVAC components, or assembling heavy agricultural equipment, raw steel accounts for thirty to fifty per cent of total bill-of-materials costs. Because domestic mills lack the immediate specialized capacity to fulfill complex alloys, fabricators are trapped paying inflated domestic spot prices without the ability to pass costs immediately through to fixed-price customer contracts.

Why America borrows like it's in a crisis

Tue, 07 Jan 2025 00:00:00 +0000

The United States closed fiscal year 2024 with a budget deficit of $1.83 trillion, an extraordinary 6.4 per cent of gross domestic product generated in an economy operating at peacetime full employment. Historically, sovereign borrowing of this magnitude was reserved for wartime mobilization or severe balance-sheet recessions. Running an emergency-grade fiscal impulse during an economic expansion represents an unprecedented procyclical gamble that warps the entire term structure of interest rates.

Biden blocks the US Steel deal

Fri, 03 Jan 2025 00:00:00 +0000

The White House’s formal block of Nippon Steel’s proposed $14.9 billion acquisition of United States Steel marks the definitive subordination of cross-border capital mobility to domestic industrial politics. By invoking national security considerations to derail a transaction between allied industrial nations, the administration has permanently impaired the takeout premium embedded across the domestic metals complex. The immediate financial casualty is US Steel itself, which must now absorb operational reality without Japanese balance-sheet backing.

US Steel's deal is in limbo

Fri, 06 Dec 2024 00:00:00 +0000

The proposed $14.9 billion acquisition of US Steel by Japan’s Nippon Steel has been plunged into deep political limbo. President-elect Donald Trump reaffirmed on 2 December his unequivocal intention to block the transaction upon taking office, declaring that the iconic American industrial asset must remain domestic. The arbitrage spread on the deal has blown out to historic widths.

The Regulatory Black Hole

By subordinating a multi-billion-dollar commercial transaction between allied corporate partners to populist political theater, Washington is sending a chilling signal to foreign direct investors. US Steel’s aging blast furnaces urgently require billions in modern capital investment that only Nippon Steel has pledged to fund. Blocking the deal on national security grounds will leave an American industrial icon starved of capital.

Black Friday: Shoppers race to beat the tariffs

Fri, 29 Nov 2024 00:00:00 +0000

Black Friday shopping malls and e-commerce platforms buzzed with an unusual sense of urgency this year. As holiday promotions unfolded, consumer behavior was shaped not merely by seasonal gifting traditions, but by widespread anxiety that impending import tariffs will trigger sharp price increases across electronics, footwear, and home appliances in early 2025.

The Front-Loaded Consumer Binge

Consumers actively pulled forward future discretionary purchases, hunting aggressively for promotions before trade walls take effect. Retailers, benefiting from temporary transaction volume, capitalized on consumer urgency to clear inventory. Yet pull-forward demand is a double-edged sword: sales borrowed from the future today guarantee an acute consumer spending vacuum in the opening quarters of 2025.

Thanksgiving: Why eggs cost more this year

Thu, 28 Nov 2024 00:00:00 +0000

As American families gathered for Thanksgiving dinner, the annual American Farm Bureau Federation survey provided an interesting study in agricultural price dynamics. The average cost of a traditional Thanksgiving dinner for ten slipped five per cent to $58.08, yet the cost of eggs surged by more than fifty per cent, driven by a virulent resurgence of avian influenza.

The Anatomy of Micro Supply Shocks

The agricultural survey illustrates the fundamental limitation of aggregate consumer price metrics: while broad food disinflation has brought welcome relief to consumer ledgers, idiosyncratic biological and climatic supply shocks can instantly re-inflate essential basket items. Monetary policy can discipline aggregate demand, but it cannot vaccinate poultry flocks against viral outbreaks.

A 60% tariff is a tax on Americans

Tue, 12 Nov 2024 00:00:00 +0000

Donald Trump’s formal reaffirmation of plans to impose an aggressive sixty per cent tariff on all imports from China represents an unprecedented economic shock. While political rhetoric frames the levy as a punitive fine on Beijing, economic modeling from the Peterson Institute for International Economics (PIIE) demonstrates that the tax will land squarely on American households.

The Household Tariff Tax

PIIE estimates that a sixty per cent tariff on China, paired with a universal baseline duty on other imports, will cost the average American family roughly $2,600 per year in diminished purchasing power. Supply chains for consumer electronics, apparel, and toys cannot be repatriated overnight. American consumers will pay for protectionism through higher shelf prices, acting as an unhedged regressive consumption tax.

Labor Day: Is the job market cracking?

Mon, 02 Sep 2024 00:00:00 +0000

As American workers celebrated Labor Day, the domestic labor market stood at a precarious cyclical crossroads. The July unemployment rate touched 4.3 per cent, up nearly a full percentage point from its cyclical low. The fundamental macroeconomic question is whether the labor market is experiencing an orderly, benign cooling or the initial stages of a structural breakdown.

Supply Expansion vs Demand Fatigue

Optimists argue that rising unemployment reflects expanding labor supply driven by immigration and returning workers. Pessimists note that job openings have tumbled, hiring rates have slowed to a crawl, and temporary help payrolls—a reliable leading indicator—are in outright liquidation. When labor demand contracts in an environment of high borrowing costs, employment momentum can turn swiftly negative.

America had 818,000 fewer jobs than we thought

Fri, 23 Aug 2024 00:00:00 +0000

The Bureau of Labor Statistics delivered an astonishing statistical bombshell on 21 August, releasing preliminary benchmark revisions showing that US non-farm payrolls were overstated by an eye-watering 818,000 jobs in the twelve months through March 2024. It represents the largest downward employment revision in fifteen years.

The Phantom Job Phenomenon

The massive statistical wipeout confirmed what skeptical economists long suspected: the BLS birth-death model, which imputes job growth from assumed new business formations, systematically exaggerated labor strength in an era of high interest rates and business bankruptcies. The United States was generating roughly 175,000 jobs per month rather than the reported 242,000. Monetary policy was calibrated against a phantom employment boom.

Independence Day: Is the dollar losing its crown?

Thu, 04 Jul 2024 00:00:00 +0000

As the United States celebrates Independence Day, the global financial architecture is quietly contemplating the durability of American monetary hegemony. According to the International Monetary Fund’s COFER data, the US dollar’s share of allocated global foreign exchange reserves has slipped to roughly fifty-eight per cent—its lowest level in nearly three decades.

The Glacial De-Dollarisation

While commentators periodically predict the imminent demise of the dollar, the reality is a slow, structural diversification rather than an abrupt collapse. Emerging market central banks, unnerved by the weaponisation of Western financial sanctions, are steadily increasing allocations to physical gold and non-traditional currencies. The dollar’s network effects remain formidable, but its sovereign monopoly is slowly being eroded at the margin.

America's deficit won't shrink

Tue, 28 May 2024 00:00:00 +0000

The Congressional Budget Office’s updated baseline confirms that the United States is operating on an unprecedented, structural fiscal trajectory. Even without new legislative initiatives, the federal budget deficit is projected to surpass $1.5 trillion in 2024 and compound toward $2.6 trillion over the coming decade, driven entirely by mandatory entitlements and soaring debt interest.

The Structural Deficit Trap

Neither major political party possesses the institutional will to confront the fiscal arithmetic. Republicans refuse to consider tax increases, while Democrats reject reforms to Social Security and Medicare. With the cost of sovereign debt service compounding at five-per-cent interest rates, the United States is trapped in a mechanical debt spiral that guarantees an unending avalanche of Treasury supply.

Memorial Day: Petrol prices and the summer inflation bump

Mon, 27 May 2024 00:00:00 +0000

Memorial Day weekend traditionally marks the unofficial commencement of the American summer driving season, and with retail gasoline prices averaging roughly $3.59 per gallon, motorists are absorbing an unhedged holiday tax. For macroeconomic forecasters, the seasonal spike in energy demand introduces predictable distortion into summer inflation calculations.

The Seasonal Energy Squeeze

Refinery transitions to costlier summer-blend fuel and elevated travel demand routinely inflate retail pump prices in late spring. While headline inflation prints are vulnerable to energy volatility, central bankers will focus intently on core metrics to strip out transient holiday distortions. Nonetheless, high petrol prices remain the most psychologically salient inflation signal for the American consumer.

Japan wants US Steel. Washington may say no

Fri, 22 Dec 2023 00:00:00 +0000

Nippon Steel’s proposed $14.9 billion acquisition of US Steel at $55 per share represents a forty per cent premium that industrial logic can readily justify. Nippon Steel gains a premier footprint in the protected American steel market, while US Steel shareholders receive an extraordinary cash exit for an operation that has long suffered from chronic underinvestment. Yet the deal has collided with political reality in an election year.

The National Security Discount

Union opposition from the United Steelworkers and synchronized bipartisan condemnation from Washington politicians have transformed a straightforward commercial acquisition into a geopolitical flashpoint. By demanding that the Committee on Foreign Investment in the United States (CFIUS) block the deal on national security grounds, politicians are ignoring that Japan is America’s closest Asian ally. Political interference will inject a massive deal-break risk into the arbitrage spread.

Black Friday: Retailers finally have the right amount of stock

Fri, 24 Nov 2023 00:00:00 +0000

Black Friday arrived with an unfamiliar sight across American retail: tidy shelves, disciplined inventory, and the near-total absence of panic clearance sales. After eighteen months of absorbing punitive inventory write-downs and margin erosion from bloated pandemic stockpiles, major retailers like Target and Walmart have successfully re-engineered their supply chains. Lean inventory has restored pricing power.

The Margin Restoration

Target’s third-quarter operating margin rebounded sharply to 5.2 per cent, proving that operational inventory hygiene can expand earnings even in an environment of sluggish sales volume. Instead of discounting merchandise to liquidate stock, retailers ordered conservatively and managed working capital aggressively. Retail earnings have stabilized not because consumers are spending freely, but because corporate ledgers are operating with surgical efficiency.

Thanksgiving: Bond investors finally have something to be thankful for

Thu, 23 Nov 2023 00:00:00 +0000

As American families gathered for Thanksgiving, fixed-income fund managers enjoyed a rare moment of genuine gratitude. After enduring one of the most brutal bear markets in modern financial history, bondholders witnessed a breathtaking November duration rally. The benchmark ten-year yield plummeted from its October peak of 5.02 per cent to near 4.40 per cent, delivering massive mark-to-market gains across fixed-income portfolios.

The Great Easing Spasm

The sudden reversal was triggered by cooler inflation prints, moderated Treasury issuance guidance, and growing conviction that the Federal Reserve has finished hiking. Yet this spectacular bond rally carries the seeds of its own destruction: by driving long-term borrowing costs down and boosting equity multiples, the market has engineered a dramatic easing of financial conditions. If financial markets ease too aggressively, they risk rekindling the very economic demand the Fed is striving to cool.

Moody's warns on America's debt

Tue, 21 Nov 2023 00:00:00 +0000

Moody’s Investors Service delivered a sober fiscal reality check to Washington on 10 November by lowering its outlook on the United States’ pristine Aaa credit rating from 'stable' to 'negative'. While Fitch and S&P have already downgraded the sovereign, Moody’s was the final rating agency holding the line. The move is a clear warning that America’s status as a triple-A sovereign borrower is living on borrowed time.

The Fiscal Deterioration Clock

Moody’s cited widening fiscal deficits, escalating interest expense, and the complete absence of political consensus to enact structural budgetary reforms. Net interest costs are on track to surpass defence spending, consuming an ever-larger proportion of federal revenues. While the US dollar’s reserve status provides unique latitude, running persistent multi-trillion-dollar deficits will inevitably expand the sovereign term premium.

Washington's chaos now has a price

Tue, 03 Oct 2023 00:00:00 +0000

Congress managed to avoid a catastrophic federal government shutdown with hours to spare by passing a 45-day continuing resolution on 30 September. Yet the temporary patch arrived at an immense political cost, precipitating the historic ouster of the House Speaker and plunging Capitol Hill into unprecedented institutional chaos. Political dysfunction in Washington is no longer a circus; it is an explicit financial liability.

The Dysfunction Premium

Sovereign bond investors are increasingly demanding an explicit governance premium to hold long-term US liabilities. When the world’s pre-eminent reserve currency issuer is governed by serial debt-ceiling crises, short-term spending patches, and factional paralysis, the institutional foundation supporting risk-free sovereign debt begins to erode. Political risk has migrated from emerging markets to the world's benchmark debt issuer.

Labor Day: The job market is cooling the right way

Mon, 04 Sep 2023 00:00:00 +0000

For eighteen months, monetary orthodoxy insisted that cooling inflation required engineering a painful surge in unemployment. The Beveridge curve, economists warned, would steepen mercilessly, forcing millions into joblessness before wage pressure abated. Yet the August employment data suggests that the American labour market may be pulling off a historically anomalous balancing act, cooling vacancies while leaving employment intact.

The Beveridge Miracle

While the unemployment rate rose to 3.8 per cent, the increase was driven by a surge in labour force participation rather than widespread corporate layoffs. Meanwhile, job openings have retreated by millions from their post-pandemic peaks. If companies can eliminate unfilled requisitions without liquidating existing payrolls, the Fed may achieve the elusive 'soft landing' without imposing widespread human misery.

America is borrowing like it's in a recession. It isn't

Tue, 08 Aug 2023 00:00:00 +0000

Running substantial fiscal deficits during severe economic contractions is standard Keynesian doctrine: automatic stabilizers kick in, tax receipts fall, and public spending cushions the decline. Running a federal deficit approaching six per cent of GDP while the national unemployment rate sits near historic lows of 3.5 per cent, however, is an act of fiscal recklessness without peacetime precedent.

Full-Employment Profligacy

This unprecedented fiscal stance injects relentless nominal demand into an economy already operating near full capacity, working in direct opposition to the Federal Reserve’s monetary tightening. To clear this colossal debt supply without monetisation, sovereign debt markets must demand a substantial term premium. Bond investors will no longer accept wafer-thin yields when the sovereign is borrowing at full-employment like a wartime debtor.

America loses its AAA again. Does it matter?

Tue, 01 Aug 2023 00:00:00 +0000

Fitch Ratings delivered an unwelcome dose of fiscal reality on 1 August by stripping the United States of its pristine AAA sovereign credit rating, downgrading it to AA+. Predictably, administration officials reacted with indignation, while equity markets experienced a momentary spasm of risk aversion. Yet nobody seriously believes the US government is at risk of defaulting on obligations denominated in its own sovereign currency.

The Governance Tax

Fitch’s downgrade was not an indictment of sovereign solvency, but a condemnation of institutional governance and structural fiscal deterioration. Repeated debt ceiling standoffs, unfunded fiscal expansions, and the complete absence of a credible medium-term deficit consolidation plan have eroded institutional credibility. The rating agency merely stated what the sovereign debt market already prices: American public finances are on an unsustainable trajectory.

Independence Day: Washington is paying factories to come home

Tue, 04 Jul 2023 00:00:00 +0000

The global race for industrial reshoring has transformed corporate capital allocation from a private optimization exercise into a state-subsidised land grab. Through the CHIPS and Science Act and the Inflation Reduction Act, Washington is deploying tens of billions in direct grants, loans, and tax credits to coax manufacturing capacity back to domestic shores. Semiconductor and clean-energy balance sheets are suddenly basking in government largesse.

Subsidised Hurdle Rates

By absorbing up-front capital expenditure and guaranteeing tax credits for domestic production, the state is artificially compressing project hurdle rates. Capital investment that would have failed standard discounted cash flow tests on a pure cost basis is rendered immediately accretive by federal subsidies. Yet corporate treasurers know that state-sponsored capex carries hidden frictions: complex regulatory strings, prevailing wage mandates, and escalating domestic construction costs.

Memorial Day: The debt deal is done. Now comes the bill

Mon, 29 May 2023 00:00:00 +0000

Political theatre in Washington has concluded with its customary anticlimax, but the financial reckoning is only just entering the order books. With the suspension of the statutory debt ceiling agreed on 27 May, the Treasury can finally cease its extraordinary accounting manoeuvres and address the depleted state of its operating balances. The cost of avoiding default, however, will be borne directly by wholesale funding markets as the Treasury General Account undergoes a violent reconstitution.

Nobody can agree how much savings Americans have left

Fri, 19 May 2023 00:00:00 +0000

The primary macroeconomic debate of 2023 has coalesced around a deceptively simple question: how much money do American households have left in their pandemic savings accounts? The answer depends entirely on which econometric model an analyst chooses to consult. While the Federal Reserve Bank of San Francisco published a widely cited paper estimating that roughly $500 billion of the original $2.1 trillion excess savings cushion remains intact—projecting complete depletion by late summer—other Wall Street research teams argue that households still retain over $1 trillion in accumulated surplus liquidity. This enormous statistical dispersion is not an academic curiosity; it is the critical unknown variable dictating the longevity of the consumer spending cycle.

When does America run out of money?

Tue, 09 May 2023 00:00:00 +0000

Treasury Secretary Janet Yellen escalated the Washington debt ceiling standoff into an immediate institutional crisis by warning congressional leaders that the federal government could run out of cash "as early as 1 June." With the projected "X-date" now less than three weeks away and the Treasury General Account (TGA) balance dropping precipitously toward $80 billion, the financial system must confront an operational question that was once unthinkable: what happens when the United States government runs out of money? While politicians posture before television cameras, Treasury operational staff and the Federal Reserve Bank of New York are dusting off confidential contingency manuals for the execution of payment prioritisation.

Markets start pricing an American default

Tue, 25 Apr 2023 00:00:00 +0000

The United States sovereign credit default swap (CDS) market was long regarded as an academic backwater, an illiquid instrument traded by a handful of quantitative desks to hedge bizarre structural edge cases. In late April, however, that quiet market began flashing bright red. The spread on one-year US sovereign CDS surged past 100 basis points, eclipsing the distressed debt levels of Greece and Mexico and reaching the highest level ever recorded. While headline equity markets hovered placidly near cyclical highs, derivative markets began actively pricing a non-zero probability that the United States government will commit a technical default on its sovereign debt obligations.

America's banks are sitting on $620bn of hidden losses

Fri, 03 Mar 2023 00:00:00 +0000

The Federal Deposit Insurance Corporation (FDIC) recently published a statistic that should have set off alarm bells across every bank risk committee in America: commercial banks are currently sitting on approximately $620 billion in unrealised losses on their securities portfolios. This colossal balance-sheet hole—representing nearly forty per cent of the total tangible common equity of the entire US commercial banking sector—is an immaculate artifact of regulatory accounting. By classifying hundreds of billions of long-dated Treasuries and mortgage-backed securities as "Held to Maturity" (HTM), banks have been permitted to legally pretend that the fastest bond sell-off in forty years simply never happened.

America hits its debt limit again. The countdown starts

Tue, 24 Jan 2023 00:00:00 +0000

On 19 January, the United States federal government officially struck its statutory borrowing ceiling of $31.4 trillion, compelling Treasury Secretary Janet Yellen to initiate "extraordinary measures" to keep the federal apparatus funded. Financial markets greeted the milestone with total indifference, treating the event as another routine instalment of Washington political theatre that will inevitably resolve with an eleventh-hour legislative compromise. Yet institutional market participants who dismiss the debt ceiling as a benign political ritual are ignoring the profound liquidity distortions being injected into money markets as the Treasury General Account (TGA) begins its slow, mechanical drain toward zero.

Black Friday: Shop now, pay later, default sooner

Fri, 25 Nov 2022 00:00:00 +0000

As the holiday shopping season officially launches with the retail ritual of Black Friday, shopping malls and digital storefronts are bustling with promotional activity. Yet behind the optimistic foot-traffic metrics and upbeat corporate announcements lies a fragile financial architecture: the holiday shopping boom is being funded on borrowed money. According to the Federal Reserve Bank of New York’s latest household debt report, aggregate US credit card balances reached $930 billion in the third quarter of 2022, tracking an annual growth rate of fifteen per cent—the largest annual surge recorded in more than twenty years. Combined with the explosive growth of unregulated 'Buy Now, Pay Later' (BNPL) micro-loans, the American consumer is attempting to maintain their standard of living through aggressive balance-sheet borrowing.

Thanksgiving: Why your turkey cost 20% more

Thu, 24 Nov 2022 00:00:00 +0000

As American families assemble around dining tables this Thanksgiving, they are confronting an uncomfortable lesson in agricultural supply-chain economics: the traditional holiday centerpiece is costing them twenty per cent more than it did twelve months ago. According to the American Farm Bureau Federation’s annual survey, the average cost of a classic ten-person Thanksgiving dinner has surged to $64.05, driven overwhelmingly by a dramatic escalation in wholesale turkey prices. Yet behind the predictable holiday headlines lamenting food inflation lies a sophisticated case study in asymmetric supply shocks, biological vulnerability, and corporate margin defense.