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Forbes Business Policy 10-Year Treasuries Aren’t An ‘Important’ Asset, They’re a Consequence John Tamny Contributor Opinions expressed by Forbes Contributors are their own. Following Oct 8, 2023, 10:00am EDT | Press play to listen to this article! Got it! Share to Facebook Share to Twitter Share to Linkedin In a recent opinion piece former Federal Reserve Board Member Kevin Warsh asserted that the “benchmark Treasury rate” (for the 10-year) is “the most consequential price of the most important asset anywhere in the world.” The view here is that Warsh could be convinced he overstated things a bit. He might agree. Why would a government income stream be so important? The latter implies essential, that the health of the global economy and its markets rides on a government bond. This is hard to take seriously. It implies that functioning capital markets require substantial amounts of central planning to function. Think about it. Wealth never, ever sits idle, which means government spending (whether as a consequence of taxes or borrowing) is the economy-sapping scenario whereby information-bereft politicians substitute themselves for information-pregnant markets in the allocation of precious resources. Applied to the U.S., the central planning is immense. As Warsh knows well, total U.S. debt is something north of $33 trillion. In which case we could likely fill Texas with all of the technological, health, and transportation advances that did not take place as a consequence of government arrogating to itself the allocation of so much precious capital. It’s a reminder that there’s nothing important about the 10-year note or any form of Treasury debt other than it existing as a flashing signal of gargantuan, unseen, unfulfilled progress. To which some will reply that to focus on the horrors of government spending is to miss the point. What makes the 10-year so important is benchmarking. So many debt instruments are measured against it. The 10-year informs other asset classes, thus its importance. Ok, nonsense. Utter nonsense . Such a view implies that in order for markets to function, it’s necessary that people with names like Pelosi, McCarthy, Jeffries, Schumer, Trump, and Biden be handed trillions in borrowed funds to move annually. No, it’s not serious. Thinking about this some more, the alleged importance of the 10-year in a benchmarking sense presumes that absent Treasury as the largest borrower in the world, private sector players would be blind as to how to set interest rates. The very notion is laughable. Markets work precisely because they’re the consequence of infinite knowledge and decisions informing the price of everything every second of every day. Markets don’t need government to help them set what is the most important price in the world: the cost of access to capital. MORE FOR YOU U.S. Dollar ‘Collapse’—Shock $8 Trillion Predicted Fed Inflation Flip To Spark A ‘Critical’ Bitcoin, Ethereum, XRP And Crypto Price Boom To Rival Gold WWE Fastlane 2023 Results: Winners And Grades As Jade Cargill Appears To Dodge Russian Missiles, Ukraine’s U.S.-Made Stryker Fighting Vehicles Dodge And Weave. It’s A Tactic From 1973. It's just a reminder that Warsh misspoke in writing as he did. Realistically the 10-year isn’t even an asset at all. It’s just a market signal that the American people are the most productive people on earth, such that those who’ve arrogated to themselves an excessive percentage of their income can borrow rather cheaply as a result. Put more bluntly, the interest rate on the 10-year note and their global ubiquity is a sign that Americans generate way too much tax revenue for Treasury now, and worse as the $33 trillion (and counting) debt signals, they’ll sadly generate exponentially more in the future. In Warsh’s defense, the aforementioned ubiquity of the 10-year may be his broader point about its importance, but all it tells us is that Warsh isn’t thinking broadly enough. Thinking again about the unseen, how much do Americans and the rest of the world not have so that the world can count a “sure thing” in their portfolio? Follow me on Twitter . John Tamny Editorial Standards Print Reprints & Permissions
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