Bonds

The President of the United States is an idiot. There, I said it. I'm not saying "I disagree with him", or even "I think his policies are harmful", but that he is an idiot, that he has no understanding of how things work, and doesn't care. Some of his idiot supporters applaud his bull-in-a-china-shop approach, reasoning (I am using "reasoning" quite loosely) that the government needed shaking up by an outsider who didn't play by the old tired rules. No, Dotard Donnie's approach is analogous to a the owner of a repair shop deciding that internal combustion is just an attempt by the "Deep Garage" to make him look bad and that any car that comes into his garage will have its engine replaced by windmills. His mechanics patiently explain why this plan won't work, but he decides that no one knows more about cars than he does and goes ahead with the plan.

No, it's not that Trump is boldly implementing new approaches to governance, it's that he doesn't  even understand the basics of economics, global trade, tariffs, military alliances or the functioning of a free press.  The newest unveiling of ignorance regards bonds.

While stocks, put simply, are ownership shares of a company, with the price fluctuating based on the perception of value of a company, bonds can be viewed as a loan to a company or a government. In order to turn a profit from a stock, you have to sell it at a higher price than what you paid for it. Bonds, on the other hand, have a prescribed maturity date, 2 years, 10 years, 30 years, 30 days - there are multiple varieties. In general a $100 bond is purchased for $100, but may pay a predetermined annual interest rate to the bond holder. However, bonds may be bought and sold at prices that differ from the face value. Just like with any other commodity, high demand for a bond may cause it to be traded at higher than face value (a premium) or with lower demand or perception of high risk, at less (a discount).

Donnie has been complaining lately that what we need to do is issue negative interest rate bonds, like Germany is doing. He takes the simplistic view that if an investor is paying more for a bond than what is going to be paid out, the issuer (in this case the Treasury) is making a profit. He can't understand why The Fed won't lower interest rates to below zero so we can make a profit this way. It's not simple, however. Popularity of bonds that yield less than what was paid for them is a sign that investors feel that just parking their money somewhere is the safest bet in a volatile economy. Not only is it a sign that simply warehousing cash is the prudent option, but they're locking into these bonds now in the belief that the market will sink lower.

Now, what you have just read is a very simple explanation. It is by no means complete. But that's the point, it's very complex and has difficult-to-predict consequences. Everything about economics is complex, it's a chaotic system with countless variables, yet Donnie tries to paint it as simple, with obvious solutions. When he implements his "solutions" and the inevitable chaos ensues, he then refuses to acknowledge that he may have been wrong and flails about looking for scapegoats: the press, the Democrats, the Federal Reserve, the "Deep State". A prime example is his "easy to win" trade war with China that he continues to escalate. It is having a negative effect on the economy, costing US importers and consumers money and harming businesses, yet he continues to deny the obvious.

Many people rationalized their vote for Trump in 2016 as a pragmatic vote for a "successful businessman" when even a cursory look at his career would suggest quite the opposite. Trump was mainly successful at securing a big paycheck for himself at the expense of businesses that he bankrupted and contractors that he  didn't pay. He was a genius at one thing: marketing himself as a successful businessman and playing one on television. It was obvious during the 2016 campaign that he was ignorant and would certainly be incompetent, and time has confirmed it.