Let's import some inflation

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**Kai Ryssdal** (0:26)
It's bonds again today, gang. We didn't want to, but we kind of got to. From American Public Media, this is Marketplace.
In Los Angeles, I'm Kai Rizdall. It is Wednesday today, the 19th of August, good as it always is to have you along, everybody. So true story, we were going to take a day off from the bond market today. We can't go to that well too many times, you know. But then the Treasury Department changed our minds when it decided this morning, you know what, those yields on the 30-year bond are a little too high for our liking. So we've brought Robin Brooks back again. He's a senior fellow at the Brookings Institution. Hi, Robin.

**Justin Ho** (1:17)
Great to be with you, Kai.

**Kai Ryssdal** (1:18)
Okay, layman's terms, please. What did Treasury do this morning?

**Robin Brooks** (1:23)
So Treasury Buyback is basically announcing that you're going to buy literally long-term Treasury bonds back. And remember, Kai, that yields, which is basically the interest rate on bonds, moves inversely with prices. So when you buy something back, the price goes up and the yield goes down. So this is something the Treasury announced because basically the pain threshold for yields going up was crossed.

**Kai Ryssdal** (1:53)
Do you think that Secretary Besant has solved the underlying problem that you and I discussed yesterday?

**Robin Brooks** (2:03)
So the problem is fiscal policy, right? We have deficits that in a non-crisis period, we don't have COVID, we don't have the pandemic, we have a deficit of 7% of GDP, give or take. And if you want yields to come down sustainably, then that is what you need to rein in. I would call what we're doing now this buyback, I would call it financial engineering. It is really shuffling the deck chairs.

**Kai Ryssdal** (2:39)
There will come a time then, one might infer, that the markets are going to, you know, wise up as it were and do with yields what they will.

**Robin Brooks** (2:49)
Totally, Kai. In fact, markets today are doing very much that. The dollar is tumbling and gold is going through the roof. Gold and precious metals across the board are up 4-5 percent. Bitcoin is up 6 percent. So remember Kai, last year, this time, the debasement trade that was all about precious metals got going. We had crazy rallies in precious metals across the board.
That's what the market is trading, and it is basically trading debasement and fiscal dysfunction.

**Kai Ryssdal** (3:25)
All right. For the non-financial types among us, debasement trade in 30 seconds, please, what is that?

**Robin Brooks** (3:31)
It is basically markets saying, hey, wait a minute, fiscal policy is out of control. The government is unable to get on top of this. It is going to print money to inflate away the value of debt. And so the market buys safe havens of which precious metals are one expression.

**Kai Ryssdal** (3:52)
I really, really, really don't want to be alarmist here, because you can see how people would be hearing, you and me talking and many others right in the financial press about this. Yesterday, you were about a six or a seven in terms of how worried you were about this.
It's a reminder of, I guess it was Hemingway who said, go broke slowly and then all at once. I mean, the bond markets have decided in relatively quick order that they're not happy, right? And so calm things down a little bit and tell me that there's hope out there, that this is going to get taken care of and not get worse.

**Robin Brooks** (4:27)
So I'd say two things.
If I were Secretary Besson and I looked at what happened in the bond market versus what happened in the dollar and what happened in gold, I would be pretty unhappy that this bang for the buck got me the 30-year Treasury yield going only from 5.3 to 5.2. But the dollar is tumbling. This is not a good trade-off.

**Kai Ryssdal** (4:51)
We know Secretary Besson likes a weak dollar though, right?

**Robin Brooks** (4:54)
Yeah, the thing with the weak dollar is it's tricky, right?
You want it to go down, but you don't want it to tumble, because that's bad for reserve currency status. And in the end, we need foreigners to invest in the United States. We have a big current account deficit. So you want to tread that line very carefully. Japan is a warning sign that if you fiddle too much with your yields, and we talked about this yesterday, Kai, then your currency can really go into a depreciation spiral. The US doesn't want that.