Luke Gromen: Yield Curve Control is the Only Way to Stop a Global Bond Crisis
Episode publishedPodcast: Monetary Matters with Jack Far...Monetary Matters with Jack Farley
Transcript preview
Preview only
Germany, Japan and Korea are all historically big creditors from a sovereign perspective. And in particular, Japan, if they're borrowing money to do defense stimmy, have turned sellers of bonds as well. So now they're selling, they're competing with Besant to place bonds. Like everywhere you look, yield should be going up. And so to me, it's just all about when does something break at any of them, because once it breaks at one, they're all gonna have to do something. And that something's gonna look a lot like yield curve control, although my suspicion is they'll never call it yield curve contr
you by the Fundrise Income Fund. You'll hear more about the Income Fund later in the show, but for now, let's get into today's interview. Welcome to Other People's Money. I'm Max Wheatley. I am joined today by Luke Gromen, president and founder of Forest for the Trees. Luke, thank you so much for coming on the show. Thanks for having me
on, Max. Great to be
here. So there is so much happening in markets and macro right now. We have yields at twenty year highs. I want to understand what is the driving force for this sell off in the bond market?
Guess ultimately a supply and demand issue. And then the secularly inflationary dynamics or results of how the supply demand issue has been managed. What do I mean by that is that we've seen The US in particular shift issuance to the front end since Yellen late in '23. Bessen criticized it. As soon as he got in Yellen's seat, he did the same thing except more or at least as much. But then added accelerated the treasury buybacks that Yellen was doing, which was also shifting to the front end on the margin. And he accelerated that quite a bit versus what Yellen was doing. And if you take a step
And it's not like defense spending has gone down. It's not like
the Defense spending hasn't gone down. This chart looks like this. And this again is an off balance sheet liability that comes on. You want to go to war? Great. Well, you've got an awesome military? Great. And you better reserve for what happens on the other side of a war if it lasts too long, which is you're going be paying out a lot of benefits. We didn't. So now those are coming on balance sheet. And to put some numbers around it, dollars 400,000,000,000 of veterans benefits annually now. It's about 8% of tax receipts, which are near all time highs. And it's growing at like two to three X t
Well, it's interesting. We just had another ceasefire pause in the war as people consider the the cost of the war. And if you were being generous, you would say, you know, maybe we have some sense here in in keeping in trying to keep this the cost of this thing in check. But the alternative way to look at it is I can't remember a time with the idea of America not being able to afford waging a war, that it is maybe a signpost, of that negative side of things that you're talking about that that we can't actually afford to wage this war.
In short, yes. There's, you know, we can we can wage war on weekends and as long as the ten year treasury yield is below 4.7%, which tells you either it's not that serious a threat on one hand, right? Let's let's say, number one, it could mean it's not that serious a threat and Trump is going through the motions. So, you know, he he keeps his friends in Tel Aviv happy. Or it means we can't go to war anymore. And it has huge macro geopolitical implications in terms of what we hear so often, right? Ultimately, the U. S. Military backs the dollar. Hey, if you try to make things multi polar or sel
Keep exploring with a free account.
A free account preserves the short preview. Upgrade to Pro for the full transcript and episode chat.