Authored by George Ford Smith via The Mises Institute,

On February 18, 2025 President Trump issued an executive order titled, “Ensuring Accountability for all Agencies,” in which he says,

…previous administrations have allowed so-called “independent regulatory agencies” to operate with minimal Presidential supervision. These regulatory agencies currently exercise substantial executive authority without sufficient accountability to the President, and through him, to the American people.

This is a good idea. As Americans, ruled by an elite in Washington, we would really like to know who’s doing what to whom, why, and for how long they’ve been doing it. Most importantly, where they’re getting the money to do it. Money—however thieving means the bureaucrats can get it—is their god, without which they wouldn’t exist.

The problems are enormous for such an undertaking, the biggest one being the issue of trust. Who are you going to believe? Even if the appointees in Trump’s administration are trustworthy individuals, by virtue of their appointments they’ve been coaxed into a corrupt social apparatus. It is corrupt because it is funded entirely on stolen wealth, with the theft not merely getting a pass but hailed far and wide as the bedrock of civilization.

Arguments over taxation almost always center on rates and who should pay, never on taxes as such. But what are they exactly? Taxes are “a sum of money demanded by a government . . .” (infoplease.com). At least they’re honest; taxes are demands. But then we find this: Taxes are “a contribution for the support of a government . . .” (ahdictionary.com). A contribution. As the former Third Reich minister of propaganda once remarked, “A lie told once remains a lie but a lie told a thousand times becomes the truth.”

The bigger lie is the one not told—the inflation tax—because it is still largely a mystery to the public.

As it stands, by an implicit moral code of Western Civilization found in the Bible and in the works of Aquinas, Locke, Adam Smith, Paine, Rothbard, and many others, government, by its nature, is and always has been inimical to human well-being.

Thus, in ensuring accountability, Trump’s team is doing the best it can in an environment hostile not only to him personally but to the principles of good faith and trust. In reading the executive order we find that,

…all executive departments and agencies, including so-called independent agencies, shall submit for review all proposed and final significant regulatory actions to the Office of Information and Regulatory Affairs (OIRA) within the Executive Office of the President before publication in the Federal Register.

Superficially, it sounds good but wait—it said “all.” Does he mean it? “This order shall not apply to the Board of Governors of the Federal Reserve System or to the Federal Open Market Committee in its conduct of monetary policy.” We think of the president as the Chief Executive, but a hands-off-the-Fed approach tells us otherwise.

For the moment the Fed might be untouchable. But its creator was the state, and all it takes is courage to do away with it, which is why it’s been wreaking havoc for over a century.

According to a March 6, 2025 article in International Banker, Trump’s allies have devised a plan that would oust current Fed chair Jerome Powell before his term is up in 2026 and,

…give the US president a role in monetary-policy making. The new chair would regularly seek Trump’s views on interest-rate policy and then negotiate with the FOMC to steer policy on the president’s behalf. This would be a radical change from the current practice whereby the US president is not involved in monetary policy and is not even expected to comment on the decisions made by the FOMC.

Given Trump’s personality—variously described as impulsive, charismatic, and resilient—it’s almost a given that a plan such as this would effectively make him the Chairman of the FOMC. Trump wants lower interest rates to go “hand-in-hand” with his tariffs, whether the free market wants them or not.

As of late February, “Interest-rate futures contracts are now pricing in a more than 70% chance that the Fed will reduce its policy rate by a quarter of a percentage point at its June meeting, to a range of 4.00%-4.25%, and cut it again as soon as September.” In his address to Congress on March 4, 2025 Trump was happy about the current trend, saying, “And today, interest rates took a beautiful drop. Big, beautiful drop. It’s about time.”

Apparently, Trump is unaware of the Austrian School position that “easy money” causes booms that inevitably show up in busts, such as the two major disasters (1930s and 2008), and that no learned bureaucracy such as the FOMC or even Trump personally can know what the interest rate should be, which is why it should be left to market forces exclusively.

Meanwhile, two Republican politicians—Utah Sen. Mike Lee and Kentucky Rep. Thomas Massie—are introducing legislation on March 6, 2025 to “dissolve the Board of Governors of the Federal Reserve System and each Federal Reserve bank with a one-year timeframe,” and repeal the Federal Reserve Act of 1913. Said Mike Lee:

The Federal Reserve has not only failed to achieve its mandate, it has become an economic manipulator, directly contributing to the financial instability many Americans face today. We need to protect our economic future, end the monetization of federal debt that fuels unchecked federal spending, and put American money on solid ground. We need to end the Fed.

At this point, it sounds like Trump wants to be a one-man FOMC while significant others who supported him want to do away with the Fed altogether. Is it a fight between tariffs/low interest rates versus free markets? Or is Trump clever enough to get one now and the other later?

In 1962, Mises wrote Planning for Freedom—a collection of 12 essays and addresses demonstrating the futility of government interference with the market. Let’s hope someone sends a copy to Trump.

Israeli Prime Minister Benjamin Netanyahu said Tuesday that if US ‘indirect’ talks with Iran over its nuclear program fail, then a military attack becomes ‘inevitable’. He issued the warning fresh off his Monday Oval Office visit with President Trump, wherein the US leader announced for the first time that Saturday talks with the Iranians will be hosted in Oman. 

Netanyahu said in the new video statement, ““We agree that Iran will not have nuclear weapons. This can be done in an agreement, but only if… they go in, blow up (Iran’s) facilities, dismantle all the equipment, under American supervision.” And he added: “If talks drag on, then the military option becomes inevitable.” Watch the Tuesday video message below:

Netanyahu, fresh off meeting with Trump, says the upcoming Iran “negotiations” will be based on the Libyan model, which would require Iran to “blow up” its own nuclear facilities under US supervision. Of course, the “Libyan model” resulted in Gadaffi getting regime-changed anyway pic.twitter.com/R57QTfodvw

— Michael Tracey (@mtracey) April 8, 2025

Trump himself appeared to allude to this either/or scenario, or ultimatum to Tehran, when he said Monday, “I think everybody agrees that doing a deal would be preferable to doing the obvious. And the obvious is not something that I want to be involved with, or frankly that Israel wants to be involved with, if they can avoid it.”

Trump then admitted, “But it’s getting to be very dangerous territory, and hopefully those talks will be successful.”

And after alluding to the worst case scenario, he offered a bright spot: “We’re having direct talks with Iran and they’ve started, it’ll go on Saturday. We have a very big meeting and we’ll see what can happen.”

Netanyahu’s interesting description of blowing up or exploding Iran’s nuclear sites appears akin to what the US under George W. Bush offered Libya’s Muammar Gaddafi. The strongman had famously ‘come in from the cold’ and gave up all WMD programs in return for an end to global isolation and Western sanctions.

Bush had at the time reportedly warned Gaddafi that “either you get rid of your weapons of mass destruction or [the United States] will personally destroy them and destroy everything with no discussion.” In the end Gaddafi did just that, which didn’t get him too far.

This seems to be the rhetoric that Netanyahu is echoing now. It should be remembered, however, that Gaddafi was still toppled due to US-NATO military intervention in 2011. Again, this after he gave up his advanced weapons program, leaving Libya more vulnerable to West-sponsored regime change.

Meanwhile journalist Ken Klippenstein has pointed out that the Pentagon has prepared for Trump to go berserk on Iran if he gives the order…

In the largest single deployment of stealth bombers in U.S. history, the Pentagon has sent six B-2 “Spirit” aircraft to Diego Garcia in the Indian Ocean.

The long-range bombers, which are uniquely suited to evade Iranian air defenses and can carry America’s most potent bunker busting weapons, flew in from Missouri last week in a little noticed operation.

The B-2s carry not just bombs, but a message for Iran: “do you see our sword?,” as one retired general told Newsmax this week.

If this happens it would likely be a highly unpopular move among the American people and Trump voters, given he is supposed to he the peace president, and starting another ‘war of choice’ in the Middle East is the last thing Americans want.

Over the last few days, we have noted some cracks/leaks (choose your analogy) appearing in the plumbing of the market.

Cross-currency basis swap spreads started to blow out…

…suggesting a huge and sudden demand for US dollars.

Additionally, SOFR swap spreads hit record wides…

…suggesting some credit risk fears building in the markets.

These two events stabilized a little today as markets rallied, but it got us thinking if there is something else going on, and that is where Robert McCauley comes in, wirting an op-ed for The Financial Times explaining why doubts over the Fed’s dollar swap lines are such a big deal.

Kindleberger’s Trap is the danger that a fading hegemon lacks the ability but the ascendant one lacks the will to supply the world economy with vital public goods — such as a reserve currency. In the 1930s, the Bank of England lacked the ability to continue to serve as international lender of last resort, and the ascendant Federal Reserve lacked the will to do so. 

As a result, crisis spread from Austria to Germany and Britain and ultimately reached the US, turning the post-1929 slump into an era-defining economic collapse. The Kindleberger Trap led to “the world in depression”, as Charles Kindleberger titled his seminal book. 

This is why worries over whether the Federal Reserve will continue to supply dollars to overseas central banks at times of financial strife are such a big deal. As Reuters reported last month: 

Some European central banking and supervisory officials are questioning whether they can still rely on the U.S. Federal Reserve to provide dollar funding in times of market stress, six people familiar with the matter said, casting some doubt over what has been a bedrock of financial stability. 

The sources told Reuters they consider it highly unlikely the Fed would not honour its funding backstops — and the U.S. central bank itself has given no signals to suggest that. 

But the European officials have held informal discussions about this possibility — which Reuters is reporting for the first time — because their trust in the United States government has been shaken by some of the Trump administration’s policies. 

These concerns are warranted, both in light of the Trump administration’s distaste for America’s traditional alliances and the centrality of the Fed’s swap lines to global financial stability. 

As Deutsche Bank’s chief FX strategist George Saravelos highlighted in a recent report on the topic, doubts over the Fed’s willingness or ability to step up when needed on is a “nuclear button” for the dollar’s future: 

Ultimately, a withdrawal of the Fed as the international lender of last resort is equivalent to a suspension of the dollar’s role as the safest of global currencies. Doubts about a commitment from the Fed to maintain dollar liquidity — especially against major allies — would accelerate efforts by other countries to reduce their dependence on the US financial system. It would ultimately lead to lower foreign ownership of US assets and a broad-based weakening of the dollar’s role in the global financial system.

In the 2008 and 2020 dollar panics, the Fed wisely told 14 central banks that the buck starts here. Through official swap lines the Fed could extend its credit to each central bank against domestic currency as collateral. 

Each central bank could in turn lend the dollars to banks in its market against domestic collateral.

Reaching outstandings as high as $598bn in 2008 and $449bn in 2020, the swaps succeeded in stabilising global dollar markets. The amounts were not small, but offshore dollar lending — both on- and off-balance sheet — is measured in the tens of trillions of dollars. Thus, with pennies on the dollar lent and repaid with interest, co-operating central banks calmed these potentially destructive dollar panics. 

The US also won from the Fed’s international provision of dollars. Crucially, the swaps reversed market-driven interest rate hikes on Libor-priced US corporate loans and mortgages, which in turn would have hammered US jobs and consumption. As Saravelos pointed out: 

Had the Fed not stepped in during the 2008/9 financial crisis and Covid pandemic, the reserves of foreign central banks and international lenders like the IMF would unlikely have been sufficient to meet global dollar demand, leading to an even greater surge in dollar borrowing costs than occurred at the time, defaults, and potentially systemic implications for the global financial system. 

What if a crisis like 2008 or 2020 happens and the Fed does not swap dollars? Central bankers would not be doing their jobs if they weren’t asking this question. 

If it came to such a scenario of “politicise[d] . . . recourse to the dollar swap lines,“ the Fed would have the ability but not the will, as in 1931. Any other single central bank might have the will but not the ability. 

However, central bankers could form a dollar coalition of the willing. 

The central fact is that the 14 central banks that had standing and temporary Fed swaps in 2008 and 2020 collectively hold lots of dollars. Their collective holdings of US safe assets amounted to an estimated $1.9tn at the end of 2021. (Their total foreign exchange reserves at the end of 2024 were about double that sum.) That $1.9tn is big money. It’s triple the previous maximum drawing on the Fed swap lines in 2008, and four times larger than the peak 2020 usage. 

© Deutsche Bank 

Leadership could arise among the Fed’s standing swap partners, the European Central Bank, Bank of Japan, Swiss National Bank, Bank of England, and Bank of Canada. The ECB and BoJ were the largest users of the Fed swap lines in 2008 and 2020, respectively. During the 2023 run on Credit Suisse, the SNB acquired unique experience in tapping the New York Fed for $60bn against US Treasury collateral under the FIMA (foreign and international monetary authorities) repo facility.

The coalition could enlist the Bank for International Settlements for technical support as agent as European central banks did in 1973-95. Or the BIS could serve as intermediary, as it did when the New York Fed lent dollars through the BIS to offshore banks in the 1960s to prevent funding crunches. 

However, there is a major wrinkle: the $1.9tn is invested, and a crisis calls for cash dollars. In a world where the Federal Reserve refuses to allow access to its swap lines, would the New York Fed continue to provide same-day FIMA repo funding against Treasuries held in custody? 

If it did, the coalition could arrange to access hundreds of billions of dollars in same-day funds. If the Fed did not, then it would end up providing ad hoc funding. 

Without the FIMA backstop, heavy central bank sales of US Treasuries would rock the US bond market. Such selling could prod the Fed into the market as buyer of last resort — as in March 2020, before the FIMA repo was introduced. 

Without the FIMA backstop, the Fed similarly would have to cap market repo rates if central banks sought to repo Treasuries for cash in size. However, the recent benchmark rate shift from dollar Libor to repo-based Sofer means that the Fed’s own domestic monetary transmission requires well-behaved repo rates. 

One way or another, the coalition would need to work with the Fed to manage any “dash for cash.” Even a large pool of dollar reserves would not stack up to “whatever it takes” Fed swaps. Limits excite. It may be, as Eurosystem sources grimly noted to Reuters, that “there is no good substitute to the Fed.”  

Nonetheless, a dollar coalition of the willing could pool trillions of dollars to backstop global dollar funding with no more than self-interested Fed help. An inferior lender of last resort beats no lender of last resort.

Authored by Lauren Boyer via The College Fix,

A research team is on the cusp of releasing a new study that may contribute to the discussion about whether standardized test scores should have a place in the college admissions process.

An abstract for the working paper, published on the National Bureau of Economic Research website, states the researchers analyzed the relationship between students’ standardized test scores, their grades in high school, and grades in college.

“Standardized test scores predict academic outcomes with a normalized slope four times greater than that from high school GPA, all conditional on students’ race, gender, and socioeconomic status,” the researchers wrote.

Some universities recently began requiring SAT or ACT scores from applicants after dropping the requirement during the COVID-19 pandemic. Some scholars advocated for the testing requirement to be removed permanently – bringing up issues like systemic bias and racial inequality.

But the new research indicates that standardized tests are not biased and may even have the opposite effect.

Lead author Professor John Friedman, who teaches economics at Brown University, shared with The College Fix some of the details of his team’s work.

Regarding the research sample, Friedman said the team used data from first-year students at “multiple Ivy-plus colleges.”

“The choice to look at first year scores was entirely driven by data, in that we were able to collect comparable data on first year grades from our partner institutions but not for longer-term grades,” Friedman explained to The Fix in a recent interview. “We’ve looked at grades in later years of college within individual schools, and the broad pattern (test scores are predictive, high school GPA is not) remains.”

“In a separate paper, I have also shown that test scores but not high school GPA predict students’ post-college outcomes, including earning higher incomes, attending elite graduate schools, and working at prestigious firms,” the professor said.

“So while this is a limitation for this specific paper, I’m not concerned that the effects would be very different if we looked at longer-term outcomes,” he said.

As for the study’s findings on “race, gender, and socioeconomic status,” Friedman told The Fix:

“We are measuring the predictive power of both test scores and GPA among students with the same race, gender, and socioeconomic status … Importantly, this is not about comparing test scores and grades between students from different racial group groups, genders, or classes.”

Adam Kissel, a visiting fellow in education policy at the Heritage Foundation and former U.S. Department of Education official, also spoke with The Fix about the implications of Friedman’s team’s findings.

“Standardized tests designed to test college aptitude actually do predict college success—without bias,” Kissel wrote recently on X, linking to the working study.

In a recent interview with The Fix, Kissel elaborated, “This study shows that standardized tests are highly predictive of college success at more selective colleges. Selective colleges that went test-optional have been learning that they have done a worse job at admitting students who are likely to succeed, and this study helps show why.”

Concerning colleges, Kissel advised, “Highly selective colleges that want their students to succeed should heavily rely on standardized test scores as a first approximation of scholastic aptitude, regardless of group identity.”

With respect to prospective students, Kissel’s advice was specific to the selectivity of the school.

“This study notes other literature suggesting that test scores are less predictive of success at less-selective colleges,” he said. “Going test-optional is unwise for selective universities but not as big a mistake for other ones.

“Students should share their test scores, especially when applying to selective colleges, unless the scores are very low compared with published test score ranges or with the student’s GPA,” Kissel said.

It will be a little while yet before the full results of the research will be published.

As Friedman told The Fix, “Our paper (or, to be precise, a slightly shorter version of it given space constraints in the publication) will be published in the AEA Papers and Proceedings for the 2025 Annual Conference, which (I think) will come out in May.”

Ukrainian President Volodymyr Zelensky on Tuesday announced that two Chinese nationals fighting in the Russian army have been taken prisoner from the battlefield in eastern Ukraine.

Zelensky touted proof of their capture, saying that Ukraine’s military in the Donetsk region has obtained the captured Chinese nationals’ documents, bank cards and personal data.

“We have information that there are many more Chinese citizens in the occupier’s units than just two. We are now finding out all the facts,” Zelensky said in a statement posted to Telegram. “I have instructed the Minister of Foreign Affairs of Ukraine to immediately contact Beijing and find out how China is going to react to this.”

Subsequently, Ukraine’s Foreign Minister Andrii Sybiha summoned the Chinese government’s chargé d’affaires in Ukraine “to condemn this fact and demand an explanation.”

Zelensky continued in his statement, “Russia’s involvement of China in this war in Europe, directly or indirectly, is a clear signal that Putin is going to do anything except end the war. He is looking for ways to continue fighting.”

Kiev has been arguing that Trump’s ongoing efforts to bring both sides to the negotiating table are futile so long as Moscow keeps expanding the fighting. Zelensky urged the United States and Europe to strongly protest the presence of Chinese fighters in Ukraine.

It is as yet unclear whether the alleged captured Chinese nationals are volunteers, mercenaries, or else have actually been integrated into the regular Russian army.

China’s President Xi had around the start of the Ukraine war declared a ‘no limits’ partnership with Putin; however, there’s been no evidence to suggest that Beijing has directly facilitated the movement of Chinese troops to Russia or Ukraine.

Instead, China has long supplied Russia’s military-industrial sector with ‘dual purpose’ goods which are crucial in the production of military equipment. For this reason Zelensky has in the recent past suggested there’s an ‘axis’ conspiring against Ukraine, turning the conflict into a global war. He’s also named Iran and North Korea.

The past six months has seen many headlines focused on the presence of North Korean soldiers within the Russian military’s ranks, and some have been killed or captured, but the question of Chinese participation remains an open one.

BREAKING: UKRAINIAN FORCES CAPTURE CHINESE SOLDIERS

Zelensky says Chinese troops were caught fighting with Russia, declaring China has now entered the war.

He calls on the US to respond, pushing for WWIII.
pic.twitter.com/vOVKfkiZhE

— ADAM (@AdameMedia) April 8, 2025

President Zelensky posted the above video while also explaining, “This definitely requires a response. A response from the United States, Europe, and all those around the world who want peace. The captured Chinese citizens are now in the custody of the Security Service of Ukraine.”

There has been some evidence over the past year suggesting there are indeed at least small numbers Chinese nationals fighting on behalf of Russia. But now it seems Zelensky is touting ‘proof’ in the form of Chinese POWs. Beijing is unlikely to confirm or deny.

Authored by Jack Phillips via The Epoch Times (emphasis ours),

The U.S. Supreme Court on Tuesday rejected a move to bring back federal workers who were fired by the Trump administration, handing a win to President Donald Trump as he works to downsize the government.

Trump asked the high court to intervene after a lower court judge ordered the administration to reinstate thousands of probationary workers to their jobs after they were terminated earlier this year.

Tuesday’s emergency ruling by the Supreme Court, presented to Justice Elena Kagan, is not final and is stayed pending the disposition of an appeal in the U.S. Court of Appeals for the 9th Circuit.

“Should certiorari be denied, this stay shall terminate automatically,” the unsigned order said. “In the event certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court.”

The lower court “injunction was based solely on the allegations of the nine non-profit-organization plaintiffs in this case,” it continued. “But under established law, those allegations are presently insufficient to support the organizations’ standing.”

The high court’s order will keep employees in six federal agencies on paid administrative leave for now.

Supreme Court Justices Ketanji Brown Jackson and Sonia Sotomayor wrote that they would have denied the Trump administration’s petition to deny the lower court order.

Although Sotomayor did not explain why she would deny the petition, Jackson wrote that the Trump administration did not provide arguments showing urgency to compel the Supreme Court to intervene.

A group of unions that are challenging the Trump administration’s move to fire the workers argued that other courts have allowed federal employees to be reinstated or blocked related decisions, according to court papers submitted to the Supreme Court earlier this month.

“The Government illegally fired tens of thousands of public servants, significantly degrading crucial services on which the public and members of Respondent organizations rely,” the petition said. “The Government makes no showing of any irreparable harm and just told the district court that it has already substantially complied with the preliminary injunction.”

They also contended that the administration was incorrect in arguing “that no one can challenge the illegal mass firing of federal employees” by the Office of Personnel Management (OPM), which effectively is the federal government’s human resources arm, and attempted to refute claims that “the only way to challenge termination of federal employees is by individual employee claims” before the Merit Systems Protection Board.

Trump administration lawyers submitted their appeal to the Supreme Court after a San Francisco-based 9th Circuit Court judge granted the unions’ request to have the government take back thousands of probationary workers in the departments of Veterans Affairs, Agriculture, Defense, Energy, Interior, and Treasury.

In part, the Trump administration argued that courts lack the authority to block “federal workplace reforms at the behest of anyone who wishes to retain particular levels of general government services.”

The administration has said that the agencies themselves directed the firings and they “have since decided to stand by those terminations,” Solicitor General D. John Sauer told the court on behalf of the administration.

A second lawsuit, filed in Maryland, also resulted in an order blocking the firings at those same six agencies, plus roughly a dozen more. That order only applies in the 19 states and the District of Columbia that sued the administration.

The Justice Department is separately appealing the Maryland order.

The Associated Press contributed to this report.

Just over a week ago, before the proverbial tariff fecal matter struck the rotating market object, we warned that cracks were starting to appear in the credit market…

Credit starting to crack.
Finally the Fed is about to wake up pic.twitter.com/1azfoGABPH

— zerohedge (@zerohedge) March 31, 2025

…a week later, things started to ‘escalate quickly’…

And while stocks have rebounded (amid utter chaos and headline roulette), credit market remain stressed and Saba Capital Management founder Boaz Weinstein warned Bloomberg that the selloff in corporate bonds accelerate by tariffs tensions could spur a wave of bankruptcies that may ramp up faster than in previous market crises… and The Fed is hamstrung from taking action (cutting rates to save the world) because of inflation fears.

“The avalanche has really just started,” Weinstein said on Friday during an interview for an upcoming Bloomberg Originals series, Bullish.

“The hit could be faster and the bankruptcy rate could spike much faster than other crises.”

Investors shouldn’t rule out the possibility of a severe recession, he added. (Click on image for link to full conversation – no embeddable link provided)

Weinstein, whose hedge fund firm is known for navigating volatile markets, added that he expected the credit selloff “to accelerate.”

“There might be something in between that stops the boulder, but I’m very concerned about a crash,” he said.

As Bloomberg reports, Weinstein joins a chorus of investors and strategists who have swiftly started revising down their economic forecasts. A JPMorgan Chase & Co. team led by Bruce Kasman hiked the odds of a global recession to 60% on Thursday.

Weinstein’s warning is that “you cannot out this genie back in the bottle”:

“Maybe it’s not a buy the dip,” Weinstein said. 

“Maybe it’s a phrase no one ever used before, a sell the dip because this is not going to get fixed tomorrow.”

Weinstein, the former co-head of credit at Deutsche Bank AG, made a now famous trade back in 2012, when he rode a bet on a bank rushing to offload risk, taking the other side of outsize wagers made by JPMorgan’s so-called London Whale.

“This is really, really major,” he said. 

“The range of outcomes is so wide here, and markets started quite expensive, credit especially, so I think we could go a lot lower.”

Returning back to where we started, if the credit markets do crack (more), then The Fed will be increasingly forced to address the uncomfortable need to cut rates in a stagflationary environment (as Trump has demanded) as Powell’s “pause” gets put on hold until markets stabilize.

Ahead of today’s closely watched 3Y auction, many were wondering if we would see the fingerprint of a Chinese treasury boycott and/or liquidation in the results from today’s sale. Well, here is the data that the Treasury released moments ago.

The sale of $58 billion in 3Y paper priced at a high yield of 3.784%, down from 3.908% last month, but massively wider than the When Issued, which at 3.760%, meant we had a 2.4bps tail. As the chart below shows, there were only two bigger tails previously: Covid, and the 2023 SVB failure/banking crisis. So yeah, superficially, this was not a good auction.

The bid to cover also tumbled, from 2.70 to 2.47, the lowest since October.

But it was the internals that everyone was paying attention to and specifically, everyone was focusing on the Indirect award to see if China would boycott today’s auction. Yet while many were expecting a big move (lower) in the indirect award, that did not happen; instead Indirects rose to 73.0%, up sharply from 62.5%. and one of the  highest on record. So nothing to worry about? Not exactly: there was a plunge in demand, but not by the Indirects who accepted $42.2BN of the $57.8BN notional (after SOMA): instead, it was plain vanilla domestic Directs, who unexpectedly collpsed to just 6.2% from 26.0% last month, which was one of the lowest on record!

So yes, there was broad aversion to today’s auction… just not where people expected it.

Bottom line: this was a very ugly auction, with just Covid and SVB 3Y auction uglier, although the silver lining is that while Direct demand collapsed, at least the foreign bid was in place for now. The question how much longer foreigners will keep funding the US budget deficit is not going away any time soon.

Update (1245ET): Stocks could not maintain joy on Tuesday after the White House confirmed that 104% additional tariffs went into effect at Noon because China refused to remove its retaliatory measures.

The new tariff will be collected beginning tomorrow, April 9th. Markets were predictably displeased.

We ran out of chart pic.twitter.com/3uuXcoNxXy

— zerohedge (@zerohedge) April 7, 2025

Clearly only another Ackman meltdown or Walter Bloomberg tweet can save us now.

* * *

Update (1100ET): US equity market are fading rapidly from a huge start this morning…

…the top seemed to coincide with a renewed surge lower in China’s offshore yuan…

…to a new record low against the dollar…

…further raising the specter of China trade war escalation with the possibility of a devaluation looming (as we detailed overnight).

The spread between Onshore Yuan (fixing) and offshore yuan is at its limit – something has to give.

Remember, China has three options:

China has three options:

1. Concede defeat to whatever terms Trump demands
2. Devalue the yuan by 20-40%
3. Unleash biggest fiscal stimulus in its history (talking $2-3 trillion) which will push its debt off the chart

— zerohedge (@zerohedge) April 4, 2025

Did that just decide to go with Option 2?

Notably the initial exuberant short-squeeze was unsustainable and has been hinting at the rally’s fragility all morning…

Finally, bear in mind that, as Goldman noted, those paying attention during the first trade war in 2018 would remember similar wording from the MOFCOM in Apr 2018 when the spokesperson also said Beijing will “fight to the end” yet the two sides entered into talks just the month after.

*  *  *

Update (1920ET): President Donald Trump sent futures accelerating to the upside on Tuesday after suggesting on Truth Social that China “wants to make a deal, badly, but they don’t know how to get it started.”

“We are waiting for their call,” Trump continued, adding “It will happen!”

The comments come after China threatened various “countermeasures” in response to US tariffs – including increasing counter-tariffs on US agricultural products, prohibiting the import of US poultry, suspending China-US cooperation on fentanyl, restricting corporate trade, banning the import of American films, and reassessing the benefit US companies have gained from intellectual property in China.

“If the US escalates its tariff measures, China will resolutely take countermeasures to safeguard its own rights and interests,” a ministry spokesperson said on Monday. “The US threat to escalate tariffs against China is a mistake on top of a mistake, which once again exposes the US’s blackmailing nature. China will never accept this. If the US insists on going its own way, China will fight it to the end.”

“The US hegemonic move in the name of ‘reciprocity’ serves its selfish interests at the expense of other countries’ legitimate interests and puts ‘America first’ over international rules,” embassy spokesman Liu Pengyu said in response to a question on the latest US move.

“China will firmly safeguard its legitimate rights and interests,” he said, without specifying any actions.

Needless to say – after China’s threats, markets are so far pleased at Trump’s response…

Wolfe Research says Monday’s sharp intraday reversal—driven by fake rumors of a 90-day tariff pause—highlights just how fragile markets are to tariff headlines right now. The firm believes the President “could stop or lessen the selloff with a single social media post,” given how…

— Wall St Engine (@wallstengine) April 8, 2025

*  *  *

Best sellers at ZH Store last week:

• IQ Biologix Colostrum (25% IgG from first milking of grassfed cows)

• IQ Astaxanthin Ultimate Antioxidant (6,000x stronger than vitamin C)

• ZeroHedge Multitool (Extremely solid, very sharp, comes with ZH Logo belt pouch)

• Anza Red-Black Infinity Handle Knife (Made in the USA from carbon steel)

*  *  *

US Equity futures are accelerating gains following comments by US Treasury Secretary Bessent this morning that tariff negotiations are the result of massive inbound calls, not the market.

• When asked about tax with Europe, says “everything is on the table.”

• Trump will be personally involved in negotiations.

• Japan, South Korea and Taiwan may be engaged in Alaska deal (Early March, Trump said Japan, south Korea and others want to partner with US in a gigantic natural gas pipeline in Alaska).

• If they are successful, tariffs would be a melting ice cube in a way.

• Have discussed which countries to prioritize. Japan would get priority after swiftly reaching out to the US.

• If there are solid proposals, could end up with some good deals.

• As part of calculus with deals, some part of tariffs may stay on.

• Bessent was not involved in the calculations of the tariff numbers.

• Thinks escalation by China was a big mistake.

• China has chosen to isolate itself by retaliating and doubling down on previous negative behavior.

• US President Trump is committed to fixing trade imbalances.

The reaction was positive to Bessent’s comments:

Watch Bessent’s full interview here: “The President has maximum negotiating leverage. Many of our trading partners have not escalated, and they will get priority in the queue. I think it was a big mistake, this Chinese escalation.”

BESSENT: The President has maximum negotiating leverage. Many of our trading partners have not escalated, and they will get priority in the queue. I think it was a big mistake, this Chinese escalation.

pic.twitter.com/h2UgjWM9D6

— Election Wizard (@ElectionWiz) April 8, 2025

Is the short-squeeze back sustainable?

Politico reports that Bessent is having some success steering the White House tariff messaging away from permanence and toward negotiations after warning Trump of further market losses.

Elon Musk and Trump trade adviser Peter Navarro don’t like each other.

It all started on Saturday when Musk – who’s not a fan of the Trump tariffs, responded to a video on X of Navarro defending how the Trump administration calculated its tariffs on various countries’ goods (with crayons?), suggesting that Navarro’s “PhD in Econ from Harvard is a bad thing, not a good thing,” adding in a now-deleted tweet that Navarro “ain’t built shit.”

A PhD in Econ from Harvard is a bad thing, not a good thing.

Results in the ego/brains>>1 problem.

— Elon Musk (@elonmusk) April 5, 2025

When asked by Fox News on Sunday about the beef, Navarro said the relationship is “fine,” adding “there’s no rift here.”

FOX: Elon Musk took a shot on you on X and he’s going against the administration with respect to tariffs. Is there a rift?

PETER NAVARRO: Look, Elon when he’s in his DOGE lane is great, but we understand what’s going on here. Elon sells cars. He’s simply protecting his own… pic.twitter.com/BnbG9mPw5a

— Aaron Rupar (@atrupar) April 6, 2025

Yet, Navarro still hit back –  saying “Elon, when in his DOGE lane, is great,” adding that the billionaire “sells cars” and is “simply protecting his own interest” by opposing him and Trump’s tariffs “as any business person would do.”

Then on Monday, Navarro said “We all understand in the White House (and the American people understand) that Elon’s a car manufacturer. But he’s not a car manufacturer — He’s a car assembler,” adding “In many cases, if you go to his Texas plant, a good part of the engines that he gets (which in the EV case are the batteries) come from Japan and come from China. The electronics come from Taiwan…”

“what we want — and the difference is in our thinking and Elon’s on this — is that we want the tires made in Akron. We want the transmissions made in Indianapolis. We want the engines made in Flint and Saginaw. And we want the cars manufactured here,” Navarro continued.

To which Musk replied that Navarro is “truly a moron,” adding “What he says here is demonstrably false.”

Navarro is truly a moron. What he says here is demonstrably false.

— Elon Musk (@elonmusk) April 8, 2025

“Tesla has the most American-made cars. Navarro is dumber than a sack of bricks,” Musk continued, linking to a Kelly Blue Book report, and adding “By any definition whatsoever, Tesla is the most vertically integrated auto manufacturer in America with the highest percentage of US content.”

By any definition whatsoever, Tesla is the most vertically integrated auto manufacturer in America with the highest percentage of US content.

Navarro should ask the fake expert he invented, Ron Vara.

— Elon Musk (@elonmusk) April 8, 2025

Musk then called him “Peter Retarrdo”:

*Peter Retarrdo

— Elon Musk (@elonmusk) April 8, 2025

While Tesla is the most ‘American’ manufactured car, Musk acknowledged last month that “The tariff impact on Tesla is still significant.”

Indeed…

NHTSA Filing:

Indeed, according to a late 2024 NHTSA filing of which vehicles contain the most North American parts, Tesla’s vehicles were found to contain the most.

Meanwhile, a Ford F-150 Lightning contains just 29% North American parts.