The Rising Cost of Money

You’ve probably seen that Treasury Secretary Scott Bessent has now tried to knock down interest rates on US debt – and thus secondarily general rates – with a series of buy backs. But it’s failing. I was actually going to reach out to some economists I know about this because in addition to the real factors – not just momentary crises of confidence – the scale of the interventions seem quite small. $6 billion? In any case, I noticed this update on Paul Krugman’s substack. And he adds something important. Clearly there are an endless list of things Donald Trump has done over the last twenty months or so which would create very rational loss of confidence in the management of the US economy and particularly the US Treasury. But he doesn’t think this is about Trump or falling confidence in US institutions, in large part because the run up is affecting other countries’ borrowing as well. The immediate issue is that there’s only a finite about of money in the world to borrow and the AI build out is taking up enough of it that it’s simply driving up the cost of money. Here’s Krugman’s take.