Trump’s interest-rate fantasy runs into debt gravity

The useful part

You can have very low interest rates, and you can have debt-driven inflation. Reserve can set the short-term rates as low as it wants, but the bond markets will continue to rebel and reflect reality. "We should have the lowest interest rates anywhere in the world," Trump said last week in response to a reporter's question in the Oval Office.

How it works

• Now, if you announce good numbers, interest rates go up because they're so afraid of inflation." It's hard to make sense of that statement, but it reflects a grievance Trump has voiced consistently.
• He wants endless spending for his projects, he doesn't want the inflation it causes, and he wants to pay near-zero interest on the resulting record debt.
• In this one, when you have protracted inflation and must sell endless Treasuries to service the debt, you cannot offer near-zero interest to buyers of that debt — especially at a rate below inflation.
• We had multiple periods of near-zero interest rates this century, including during COVID.
• We also spent trillions of dollars we did not have during Trump's first term and Biden's presidency.

What to take from it

Prices have continued rising even as the inflation rate slowed, while the debt keeps exploding.

Details worth keeping

That is the reality President Trump refuses to recognize. "In the old days … if we announced good numbers, interest rates went down. Perhaps in another lifetime, God will create such an innovative world.