You Might Not Know

It appears, for a long time, that John Q. Public has a false notion of how the Damn Gummint interest rate works. First, and most importantly, the USofA doesn't have a Gummint Bank to rule all others. Most countries (1st world and lower) do, the Bank of England is one such. Our Fed doesn't set any interest rate, at all. Imagine that? The closest lever it has is the so-called Overnight or Interbank Lending rate. But this is just a benchmark which the Fed promulgates to commercial entities. "Pretty please." Of course, if an entity thumbs its nose...

Ok, you might ask, where does an interest rate come from? Well... it depends, but most importantly, it isn't like when you get a credit card (20% ish), or a car loan (6.35% for new and 11.62% for used; people buying used are high risk deadbeats I guess), or a house mortgage (6.62% 30 year). All of those rates are given to you by the lender, period.

Selling Uncle Sugar's Treasuries doesn't work that way. First off, once a note is sold "to the public", it remains an asset for sale forever, well until retired. So the value at which a note sells for this minute is not likely to be exactly the same value shown on the face of the note (you're not likely to ever see one printed like an Abe). So what, you might rejoin!!! It sold for 4.5% at auction last week, so it's a 4.5% note. Nope.

The key word there is "auction". Treasury announces the so-called coupon (what Treasury pays the holder every so often) of, say $5 for a (nominal) $100 note. Normal citizens can't directly buy one or two, but if they could they don't really buy a $100 note because the actual price will be determined by the auction process. So the earned interest rate will depend on the coupon / sale value. If they sell at $100, then the earned rate is 5%, just what Treasury expected. But it doesn't have to be.

More to the point, all those active notes are on sale every minute just like Tesla stock, and the current sale price (and thus the earned interest) is what the trading public wishes to pay. More than $100 and the buyer gets less than 5%; conversely, lower and more.

So, once the implications of Mad Dictator Don's insane tariff regime began to sink in with the hedge funds, and retirement funds, and Japan, and billionaires they all went bananas. According to some reporting Japan (and not China, surprise) was sufficiently pissed at the gag that they sold off reams and reams of Treasuries. Pretty much all at once. Treasury prices sank, implied interest rate soared, and the financial Daddy Warbucks sent Mad Dictator Don a message: "cut the shit, asshole". And he did.

Treasury does auctions, under usual circumstances four times a year. Guess when the next auction (again, normally) is up? May. Guess what happens to that $5/$100 note auction if the trading market keeps dropping the price of Treasuries? Uncle Sugar takes it in the nuts. Expecting $X billion but ending up with $(X - Y) billion instead. Not Good Eats. Even Batshit J. Moron could read those big block crayon letters on the wall. He loves him some debt, and he's gonna need gobs of it to pay hisself and fellow millionaires and billionaires that juicy tax cut he promised. Again. Oops.

Thus endeth the Tariff War. May be. He's so unhinged that he could well try it again soon. Stay tuned.