Now That the Election Is Over, Watch the Debt Auctions

Uh-oh, elections over and there will be a period where there is less monkey business with government statistics and other economic events, like auctions of US debt.  A huge amount of debt is going to be issued in coming months.  And it looks like it is going to paying higher interest rates.  This was a somewhat small auction by recent terms, only $16 billion of 20-year bonds.  But it hit with a big thud, having to pay a notably higher interest rate than desired and having weak demand characteristics.  Bond buyers are understandably nervous about the trajectory of the deficit under Trump.  He talks a good game about reducing federal spending, but he also wants to get tax rates, which no matter what anyone says, means less tax revenue.  And we need some realism in the spending cut debate.  I would love to see a lot of cuts, but it is very difficult to do, partly because both Republican and Democrat Congresspeople have a strong interest in spending that benefits their district or state.  We should be astounded if even a couple hundred billion is cut; and that is nothing in the total budget.  One reason I believe the Federal Reserve won’t be in a big hurry to cut rates more is that they don’t want to look foolish when bond buyers still demand high interest payments on US debt, as they did after the 50% earlier this fall.  This is going to be a real drag on the next Trump administration unless he figures out some way to very quickly show a huge reduction in the projected deficit for fiscal 2025, which is already underway.  (ZH Post)