The US used to fight wars to prevent the world from trading oil in currencies other than US$. Now it seems like it has become in the strategic interest of the US to encourage the world to trade energy away from the US$. The reason for this is that more expensive oil in US$ terms forces foreign UST holders to sell down their USTs in order to procure the US$ necessary to buy oil. This UST selling by foreign holders, commensurate with a Treasury that has to finance deficits of 6%+ of gdp with over $500bn in net duration securities every quarter, creates a tremendous amount of supply pressure on USTs like we saw in the Aug-Oct period last year. Since the US decided strategically to expropriate Russian fx reserves (and the reserves of other enemies), it must know now that no country is going to trust it enough to continue to build UST reserves over time. As a result, the US must engage a plan to slow down the foreign selling of USTs to buy time before they can transition back to USTs being forced back onto bank balance sheets or ultimately the Fed. Enter non-USD energy transactions to the mix. If the US allows USTs holders to purchase oil in their local currency, these countries will not be forced to sell USTs aggressively like we saw in last year when oil prices were rising quickly. If they instead price oil in local currency, trade with oil exporters for goods in local currency, and settle excess trade balances first in FDI of the importing country, then in asset purchases of the importer nation (stocks, property, bonds) and finally, if anything is left over, in gold. This system seems to have accelerated post the BRICS meeting in August 2023 after the inclusion of oil producers Saudi, UAE and Iran into the group. Folks mistakenly saw this meeting as a failure to deliver an alternative BRICS currency but in reality, what it did was re-introduce gold as a neutral settlement asset allowing countries to trade goods in local currencies and settle any excesses in gold. This is exactly what BRICS wanted. Immediately after this, we saw what looks in hindsight like an engineered attack on the UST market where a strong move higher in crude oil prices (coordinated?) forced foreign UST holders to sell USTs in order to raise US$ to pay up for more expensive energy. Term premiums rose, equity prices cratered and UST market sold off materially on what were relatively minor drops in foregn holdings of USTs according to TIC data. This scared the Treasury and Fed to pivot in Oct/Nov in an attempt to buy time to weaken the US$ and lower interest rates to help the US govt deficits out. We know that China and India are already buying oil in their local currency. I am starting to think that Japan may be doing this as well and over time, Europe will too. BRICS finance ministers meet again next week and after Xi visits Europe in the coming days, Putin will be heading to China to see him in the middle of May. Watch for more momentum on this dynamic emerging from these meetings. Gold has been re-inserted into the game here again and will continue to grow its share as global neutral reserve asset. Powell's performance last week, once again speaking dovish despite accelerating inflation data, suggests the Fed's primary role of ensuring smooth UST market functioning is in play. The US needs a weaker US$ and lower interest rates to survive and Fed will help accommodate that. I expect more commodity transactions away from US$ over time now that the US is aware of its strategic interest to support non-US$ commodity trading to prevent accelerating UST sales going forward. Although we went to war in Iraq and spent trillions of $$ fighting the battle to prevent oil from being priced in dollars, it seems as though we finally understand the error in that thinking and that allowing for multi-lateral energy pricing which weakens the US$ over time, improving our competitive positioning to rebuild domestic supply chains, is in our best interest.

@bsiscovick Thanks

@amdshorn Yeah. But those days have to end.

@clintgc Austerity cuts better now when you can blame the old administration for bad economic management and running up the deficits. The longer they wait, the more Trump owns the slowdown from deficit reduction.

Thanks for your thoughts. As much as it's hard to believe that Trump is actually the Main Street over Wall Street guy (given his background and even surrounding himself with billionaires in the cabinet and the front row of the inauguration), he has realized that in order to prevent a violent fourth turning, we need to begin to dial back the wealth inequality and enact policies that truly work for all Americans. Tariffs are just a tool in the toolkit to help guide the transition and allow it to be done in a way where the US can still control the outcomes and lead in the 21st century. We were on the wrong path for too long. He is shaken up the table to get us to a better future. It may not work but the old way was destined to fail. This time does in fact feel different.

@amdshorn Debt to gdp ratio and US net international investment position is wildly different than back in early 1980s

@Cessnadriver50 Agree. There will be pain. It's possible Trump will just cave on the deficit reductions too but the bond market won't be happy and that will make it harder for the rest of the agenda to be successful.

@marreoftalles Tariffs will be anti-growth in the short term so that's an offering factor to higher inflation expectations that may come. Again, this is not going to be a seamless transition but it is a necessary one.

@Phatinfantry Thanks. Best I could come with up on Saturday afternoon

@Lompie77 Thanks

@marbledwhite Short term pain for long term gain. Admin needs time and tariffs allow that. Not gonna be a smooth transition but it's a necessary one.

@tdarling1 It's a start

@SpencerHakimian So we won't actually have reciprocal tax announcement day on Monday?

@tomaas26 Reciprocal tariffs to start on everyone is a good place to start. Then do your negotiations from there.

@DsrPrivate Bessent has said that path to 3% deficit is the path to lower 10yr yields. He also wants to use the 10 yr as a benchmark scorecard. Will the bond market vigilantes re-appear if this is all bullshitt on deficit reduction? 6.5% for 4 years creates a lot of debt

@Convertbond and I were just live catching up on the week's biggest thoughts coming out of our live Discord Channel where we are aggregating information from our extensive network of buyside contacts, distilling what folks are thinking and doing and then disseminating it back out it easy to understand format with tradable ideas. Email tatiana@thebeartrapsreport.com to learn more and trial the channel out.

@JakeSherman where do tariffs fit into the pay fors?

Tariffs are the plug for the Budget

RT @financialjuice: 🔴 ⚠️ BREAKING: TRUMP TOLD REPUBLICAN LAWMAKERS HE PLANS TO ISSUE RECIPROCAL TARIFFS AS EARLY AS FRIDAY - SOURCES.