"I used to think that, if there was reincarnation, I wanted to come back as the President or the Pope" remarked James Carville, a former advisor to Bill Clinton. "But now I want to come back as the bond market. You can intimidate everybody".

Login or signup to continue reading

Carville was not wrong. The bond market can force governments to sharply change their policies.

When governments don't abide, the bond market has brought down whole economies (think: Argentina), pulled whole regions into crisis (think: the euro area), and ended the careers of world leaders (Think: Liz Truss).

Enter President Trump.

Trump has no respect for institutions. His distaste for international institutions like the World Trade Organisation or United Nations is not new for US Presidents, although he has certainly taken it to a new level.

What is new, however, is Trump's disrespect for domestic institutions.

Past presidents have been known to skirt around Congress and stack the courts with their preferred judges, but none have openly defied or mocked the Constitution, the military, the courts, or law enforcement agencies quite like Trump.

But Trump has made a big mistake. In his quest to bend institutions to his will, he has assumed that all institutions are equal.

This is not correct.

The institutions he has targeted thus far are all powerful and important. But they pale in comparison to the damage and power that can be inflicted by mismanaging one institution in particular given its importance to the bond market: The US Federal Reserve.

The US Federal Reserve is the equivalent of the Reserve Bank in Australia, except that its decisions........

© The Examiner