stan druckenmiller is wrong

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everyone thinks washington is the crime scene. thirty-year treasuries are above five percent, the vigilantes have apparently ridden back into town, and america is finally being punished for its fiscal sins. maybe. but i think everyone is staring at the debtor because that’s easier than asking what happens to the creditors when the debtor stops playing along.

i get into bessent and the treasury buybacks in this episode. a few billion dollars of long-bond repurchases dressed up as something more consequential has the familiar quality of a magician making a great show of the wrong hand. druckenmiller is worried too, although for slightly different reasons. i’m less interested in adjudicating the daily noise than in the structure underneath it.

michael pettis gives you the useful way in. when china, germany or japan run persistent trade surpluses, somebody else has to run the savings deficit. that isn’t ideology. it’s arithmetic. those excess chinese savings come back into dollar assets, yields get compressed, asset prices rise, and america gets congratulated for enjoying its reserve currency privilege. i’ve always thought privilege was an odd word for an arrangement in which you’re required to absorb everybody else’s excess production. it’s a throne, certainly. it may also be a trap.

that’s why the 1929 comparison matters. creditor nations can look extraordinarily strong while the system is working because somebody else is doing the absorbing. remove that jenga and the pressure migrates very quickly into factories, property collateral and export margins. if america begins refusing the role through tighter monetary policy that forces a resetting recession, the interesting crisis may not begin in washington at all.

that is the argument in this episode. the simple story says the bond market is disciplining america. i’m much more interested in who discovers they were dependent on american indiscipline.

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