The ‘Shocking Developments’ Behind the Upcoming ‘US Liberation Day’

On March 12, in our analysis at Oikonomoklastika, we attempted to synthesize official data and statements from members of the Trump administration (and financial markets) to outline the framework of the tariff-based economic policy that is reaching a pivotal point tomorrow: the so-called ‘US Liberation Day.’ The reason for this attempt was the need to uncover the predictable elements within the surprising aspects of Trump’s economic policy. We had noted on March 12 that over the next six months, the Trump administration is obligated to refinance $36.2 trillion in total debt and manage $7 trillion in maturities while running a deficit of 7.2% of GDP. These amounts are staggering both in absolute terms and as obligations that must be met with specific policies. The significance of these figures was highlighted by Ray Dalio, a well-known figure at Bridgewater Fund, during a conference in Singapore. He stated that the major issue today is the debt problem, emphasizing the serious supply-demand imbalance where the US needs to sell a quantity of debt that the world will not want to buy. Dalio warned of shocking developments in how this situation will be handled. Further, statements from officials like Deputy Treasury Secretary Scott Munchak explained that the Trump administration does not seek lower interest rates from the Fed but rather lower yields on U.S. bonds to facilitate cheaper borrowing. Additionally, economists like David Kelly of JPMorgan and Carl Weinberg warned about the negative impacts of tariffs on economic growth, profits, employment, inequality, productivity, and global tensions. As predicted, the implementation of tariffs has led to a decline in growth rates and capital flight from the stock market to bond markets, driving down yields on both short-term and medium-term U.S. bonds. This reduction in yields significantly lowers the cost of refinancing $7 trillion in debt over the next six months, easing pressure on public finances but increasing costs for foreign buyers of U.S. debt. Tomorrow’s ‘Liberation Day’ will reveal just how far the U.S. intends to go down this perilous path.