The weekend started off with a bang as the US credit rating was downgraded by Moody’s late in the day. That will start things on a soft footing but a few developments afterwards also aren’t promising:
1) Bessent’s reaction to the downgrade
When he campaigned for the job of Treasury Secretary, Scott Bessent repeatedly highlighted the poor US fiscal trajectory as his defining reason for taking the jobs. Something about politics seems to have changed that. In an interview today he said he wouldn’t put much creedence in Moody’s. He also said that GDP growth will outrun the deficit, bringing down debt-to-GDP. That’s a laughable idea with deficits set to run at +7% of GDP.
The point here is that no one in charge seems to care about the deficit and Bessent is now downplaying the problem. Maybe some hawks in Congress stand up but I wouldn’t bet on it.
2) What happened to capitalism?
Bessent also said that Walmart is going to eat some of the tariffs after Trump took a straight-up socialist turn with this post:
This is the kind of thing that would destroy corporate profits. Walmart is one of the all-time great examples of the power of capitalism. It generated $648.1 billion in sales globally last year and earned $15.5 billion. That’s a 2.4% margin. Moreover, some of the lowest-margin items they sell (ex-groceries) are made in China, like electronics.
3) Bessent said Liberation Day tariffs will be reinstated for many countries
Late last week, the FT reported that Japan has cut off negotiations on tariffs until after July elections. So far we have one ‘deal’ with the UK and weeks of rumors about other deals that haven’t come to fruition. Where are the countries that are willing to tolerate 10% tariffs? Lately there is a report that the US and EU have exchanged some negotiating documents but I think it’s a fantasy that the US will get away with a 10% tariff floor and open up more trade without retaliation
