Michael
@michael
It's nuts that people are surprised by tariffs driving interest rates higher: The US imports more than it exports. Stuff comes in, dollars go out. At the end of the day, our trading partners end up with a bunch of USD laying around. These dollars need to go somewhere, and a big portion of them go back into the US in the form of treasuries — they're super liquid, considered very safe, and are an instrument of exchange basically anywhere on earth. If you have to park spare capital somewhere, treasuries are a good place to do it. The US issues new debt often and this constant flow of dollars coming back into the country creates a floor of demand for those new debt issuances. When demand is high, the US can get away with offering lower interest rates. Adding tariffs unwinds this. ↓↓ https://x.com/KobeissiLetter/status/1909816230107623803
1 reply
0 recast
0 reaction
Michael
@michael
Tariffs make international products more expensive for US consumers. More expensive products = fewer people in the US buying them = fewer dollars going to foreign entities Fewer dollars in foreign bank accounts = less need for somewhere to park those dollars = less demand for new US treasury issuance And when demand for treasuries is lower, the US needs to offer a larger incentive (aka higher rates) to convince investors to buy them. tariffs ↑ = treasury demand ↓ = rates ↑ tariffs ↓ = treasury demand ↑ = rates ↓
0 reply
0 recast
0 reaction
