That is what the news is full of today—the really dumb things that really important people just said—the clowns in government. Today’s top story in dumb things begins with the US Secretary of the Treasury Scott Bessent. First, he qualified his statement by contending the question asked of him about whether it was wise to let the economy run hot:
I wouldn’t call it “letting the economy run hot” because that implies that inflation is running hot.
Oh, so inflation that has run 50% or more higher than the Fed’s target rate every month for five years now isn’t inflation running hot? That, of course was before the war and its oil shortages. That’s just the new normal inflation rate that is now regarded as the good news if we can just get inflation back down to 3%, now that it’s boiling over that level.
Bessent should have listened to bond legend Jeffrey Gundlach two days ago when Gundlach commented that the past five years have been a total loss of inflation control for the Fed and explained why the difference between a routine 2% inflation rate, which held consistent for years, and a 3% rate matters due to the compounding effect of interest rates:
According to Gundlach, we are now frozen into a period where long bond interest rates will be well above 5% for years to come because of the extreme debt the US has, which …
… makes it almost impossible in my view for longterm interest rates to decline—even if … we get into a weaker economy.”
We’ve gone from an average Treasury rate of under 2% across the entire maturity spectrum to now just under 4%…. That’s going to continue to happen….
In the past thirteen corrections and/or bear markets in the S&P 500, the dollar went up in all of them … and it went up around 8-10%…. [During the last one] the dollar dropped about 8-10%.
Last I heard, a falling dollar tends to equate with rising price inflation. So, that, at least, runs between his words.
That is corroborating my case that during this cycle of interest rates you’re not going to have the same reaction function, and there’s going to be something of a crisis in the longterm bond market.
You could have a situation where longterm Treasury rates during a weak economy actually go up to 6-6.5 percent….
Maybe no one will lend us money anymore….
You would think the head of the US Treasury would be concerned about that, instead of talking about how beautiful the roses were I what used to be the White House rose garden. In talking of the Treasury’s possible coming credit crisis, Gundlach says,
Refinancing isn’t possible anymore … because the rates are higher now. Bonds that are rolling off have to be refloated at higher rates, and that is actually more stressful…. I recommend people own nothing in the way of momentum stocks….
For the US investor, I’ve been pounding the table. You’ve got to get away from all US…. You’ve got to get away from all dollar-based….
Again, reading between the lines that would be because of inflation. The falling value of the dollar that such investments are made in means those investments lose to inflation.
And if inflation keeps rising, that sucks more and more out of real GDP, which is what we measure to know if the economy is doing anything because we don’t want to just be measuring inflation. All of that clearly goes over Bessent’s head, who goes on to argue that inflation probably won’t be any problem and that GDP will rise nicely, as a result.
Before we get to Bessent’s dumb argument, Gundlach also points out that consumer sentiment, as compared to all the most reliable economic indicators, is at an all-time low. Regardless of what the indicators are trying to tell people the economy is doing, they’re not feeling it! My belief is that one huge part of that is because government inflation readings are way off the mark, so they are under describing the impact of inflation on the consumer or on GDP.
It just suggests there is a social mood that something is not going right. I think that has a lot to do obviously with the inflation rate.
And why would that be when the inflation rate is barely above 3%. Well Gundlach’s answer (and mine, too) has been that it is because that rate has held 50% higher than the Fed’s target rate of 2% for such a long time that it is grinding down the average person’s wealth. (And I would add that this rate is significantly understated, so the long grind has been much worse than indicated.)
And here’s where he gets clear about how dumb thinking like Bessent’s is:
This has been the case now for a few years … before the oil crisis and before the war….
The moment that solidified all this in my mind was at the end of 2021…. Anybody who had a brain knew that the money printing was going to lead to … an inflation spike of significance.
That seemed obvious to me back then, but I couldn’t convince Fed Chair Jerome Powell or Bessent’s prototype, Janet Yellen. That, of course, is because they never read me because the opinions of the people they are willing to listen to are so much better.
Gundlach also gives strong points in the final 10-15 minutes about the seriously deteriorating state of the private credit market and how it appears it is all being covered over in lies about the credit ratings just as happened before the Great Financial Crisis of 2008. So, worth listening to. He scribes how one rating agency rates a particular investment at “95.” Another rates the same investment at “8.” Clearly, he says, people are paying to get the credit rating they want just as happened back in 2007.
But to Bessent, everything is sugar plums and fairies for the economy in the year ahead, which he expects will be running at a real GDP growth rate well above 3%, even though, if inflation were calculated more honestly than those credit ratings in private credit, real GDP would already be sub-zero. Gundlach continues about how software companies were supposed to keep the stock market from crashing:
All of a sudden, in the fall, people woke up and said, ‘Wait a minute, [software] is being disrupted potentially by AI. It reminded me of 2007 when everyone thought that Fannie Mae was going to come in and rescue the problems of defaults and mortgages, and in one weekend—it was a Sunday—I was thinking about it, and I got this crack of doom feeling. All of a sudden, I said, ‘Wait a minute! Fannie Mae is bankrupt!… They’re drowning in these problems!… It can’t bail out anybody!
That’s where Gundlach sees us now in the private credit market. Then it was mortgage-backed securities. Now it is private credit. He’s likely as right now as he was then.
Bessent doesn’t even begin to understand the problems that are going to hit his department directly … to such a level of willful blindness that he doesn’t even believe we have hot inflation; but, getting past his objection to the premise of the question, he gets even dumber:
I think we can have a high GDP economy without the traditional inflation seeping in….
Seeping?
At the present rate that inflationary pressure is growing, that like saying water is seeping into the kitchen when someone just opened a fire hydrant outside, and the stream of water has broken through the kitchen window and has already knocked mom over backward.
Of course, he says that with his usual smarmy kind of smile, which is the kind of smile that only a billionaire could have when a little kid tells him the popcorn at the theater is so expensive, and it turns out the billionaire owns both the theater and the popcorn company, so the kid’s complaint warms the cockles of his grinchy heart.
Asked if there is an underlying inflation rate the Fed should be concerned about, Bessent replies,
What I think is that we do need to have an open mind on the price or the inflation impact of the Iran conflict and see what inflation looks like on the other side of this, and then we have an open mind that the AI boom could up productivity and be disinflationary and get us back down to target.
In other words, instead of worrying about pesky inflation that might evaporate anyway as soon as the war ends, we should take hope in the possibility that the great devil that is already stripping away personal livelihoods at an exponential rate (as I described in yesterday’s radio interview) is going to help the average man by making corporate billionaires more profitable because their will costs go down due to a productivity increase.
Ah yes, the old smell of trickle-down economics that makes billionaires prosper so they can release a drop of precious water to the parched tongue tips of the lesser folk.
The Fed hasn’t been able to “get us back down to target” for years; but, hey, AI may be disinflationary by eliminating enough jobs to increase business productivity per remaining employee, saving corporations the costs that actually put money in the hands of the average working man or woman, which was supposed to be HOW the wealth would trickle down. If that happens—and we should be open minded, Bessent says, and just wait to see if it does—the inflation will cool off for you shortly after you have lost your income due to the same AI. Who could hope for anything more? I think in the world of computing, they call that a “loop.” It’s certainly loopy thinking.
Bessent claims we are going to get back to a GDP growth rate with a three-handle.
Hmm! Let’s look at the trajectory during the first four quarters of Trump’s term to see if that handle pans out:
The US economy expanded an annualized 1.6% in Q1 2026, up from 0.5% in Q4 but below 2% in the advance estimate, primarily reflecting downward revisions to investment and consumer spending. (Trading Economics)
Well, that doesn’t look a lot like a predictable trajectory to something over 3%, but Bessent likely knows more about how the number rigging will improve this year than I do because even those numbers are overstated due to not subtracting out nearly enough inflation to remove actual inflation from what is reported as actual production. Knowing the planned rigging in the reporting mechanisms better than I, he can probably more accurately predict for us where GDP is going to go.
The government takes out what the government reports for inflation, and those reports nearly everyone said were way off last year due to DOGE cuts greatly taking down the data gathering and due to all the usual “seasonal adjustments” the government likes to make, which are almost always to the government’s good, as well as two months of missing data due to a government shutdown, plus the government’s always ludicrous way of calculating the inflation in costs of homeownership by asking people who haven’t rented a house for years what they think their house would rent for, not what they think it costs them to live there … because THAT makes sense. Surely whatever non-renters think it would rent for must be whatever it costs them to live there.
So, hey, with the aftermath of inflation caused by an oil crisis that is just now hitting home with major oil hubs hitting “tank bottoms” and the SPR, according to the president, going to run dry in, now, less than a month, we should easily get back to where GDP was BEFORE THE TRUMP TARIFFS RIPPED THE GUTS OUT OF IT IN THE TWO QUARTERS JUST PRECEDING THAT WAR!
Let that be a lesson not to complain to a billionaire about the cost of your popcorn. He’ll just tell you that you are darn lucky you can still afford going to the movies, so shut up about your silly worries.
Now, we’re going to dart quickly to two other really dumb things people said in the news today:
The EU parliament just voted in a central-bank digital currency, but they have assured everyone it will “never replace cash” because people like cash. Well, what did you think they were going to say? “Here it is—the end of cash forever!” The stupid thing is that they think you will be dumb enough to believe them, which I am sure you will not. Maybe their constituents are dumber.
But, hey, that is nowhere near as stupid as King Trump’s energy secretary who reportedly claimed today that the oil problems are now over because “Iran will not have the ability to close the Strait of Hormuz going forward.”
His proof of that is that ships are going through right now with US escorts. Well, really just Iranian ships are going through, and they are going through because the US has OPENED the strait from its own barricade not because those ships were ever stopped by Iran. Iran was never in the business of stopping its own ships. So, that’s just a little bit dumb.
“That’s their key leverage and we’re taking that leverage away from them.”
Their key leverage is the way we kept their own ships from going through, and now they’ve lost that?
At this point we see traffic at about 25% of normal but with expectation of more Iranian oil coming out to the market.
Excuse me, did you just agree with me and say the Trump administration “expectations of more Iranian oil coming out to the market?” So, the Iranians have lost control of the strait because the 25% that is coming out is their oil and we can expect to see more of their oil get shipped to market?
I’ll tell you, though, when we look at the inentory levels of gasoline, they’re really quite low. They are at historic lows, and they look like they will continue to get lower.
This is supposed to be comforting?
Is that why Bessent is so sure inflation will vanish now that the war is ending? Maybe you should have a talk with him.
But still at this point, the transit through the Strait of Hormuz is still only about at the level of 25% of what has been normal.
Yes, that is because Iran is now able to get all of its gas and oil out at record prices, which are kept high by those low inventories of gasoline in the US and other nations and by the low competition that results from none of Iran’s competitors being able to safely transit out of the strait, leaving Iran with a hand that looks like a strait flush out of Hormuz!
So, in Trump’s favorite phrase, they “hold all the cards.”
Asked how long he thinks it will ever take to get back to normal, the energy secretary answers,
Well, I don’t think we’ll ever be back to normal…
Also comforting.
… as we’ve had it in the past because there is the question of who controls the Strait of Hormuz.
Now, I’m really confused: the article started by claiming you said Iran no longer controls the Strait of Hormuz. Of course, they never controlled it before the war either, so who does control it?
And the president has said that Iran can’t charge tolls.
Uh well, in terms of getting back to normal, that was normal all the time, going back throughout automobile history. However, do they listen to the president?
Iran has said we’ll have a Persian Gulf strait authority and a Persian Gulf insurance company.
Hmm. The word “insurance” there reminds me of the mafia. “We suggest you buy some insurance from us for your little restaurant here in the Bronx so that we don’t have to blow it up or bust your head against your open till.” So, since the president will not allow them to use the word “toll,” they are switching to defining it as “insurance.” And they’ll bill it as insurance, too, … where you pay the contractual $2,000,000 premium, and they will insure you against your ship being bombed, and their state-owned insurance company will be highly profitable because they will have no losses since they are the ones bombing ships, making it easy to assure the company never pays out on losses awarded to anyone who paid to buy their insurance.
I suppose for a guy like Trump, who grew up doing real-estate development in New York, this is just how business works.
So, I think there is a pervasive anxiety among shippers about the degree to which Iran will actually have a say—will control the strait.
Gee, ya think?
And that’s still to be worked out.
Oh, so everything is solved then. No wonder Bessent is so sure the inflation coming from the oil crisis will be short-lived.
In the fourteen point memorandum there’s ambiguity about charges.
Wasn’t that MY point several days back? It is all so ambiguous that it is likely to all blow up again, as it has each time, whenever each side interprets the points as they want?
No wonder Bessent feels we should just be open minded and see how it all turns out. You have to be open minded when the whole thing is open to very opposing interpretations.
The rest of the world will look at it as tolls, and that is something that is very troubling to the shipping industry and the global oil industry.
Ah, so the insurance IS what I thought. I’m thinking the president, at this point, does not feel you should be the spokesperson on this. (Though I am liking your refreshing honesty, except that it runs completely against your claim that Iran has lost control over the strait.)
Asked if he thinks that “sticks” by a reporter dumb enough to say all of that just “sounds like noise at this point,” I think, “Maybe like thunder that comes from the guns of very big ships.” It certainly sounds like the sticking point to me! The secretary’s response:
Well, that’s what we’re going to see play out—that Iran is very clear that it intends to have fees that they will charge.
Gee, I’m really struggling here to see how you are not making all my points for me. So, uh, thanks … I guess?
It is, in a sense, a creeping nationalization.
Ah, even better. He points out that the world won’t accept Iran nationalizing shipping through the Strait of Hormuz, especially not the Arab world since they are on the other shore of that strait.
So, that leads to a peaceful, inflation-free resolution how?
And that will be playing out over the next few months.
Great. At least, we now have a timeframe from Trump’s lead energy head. We’ll get this thorny deal with opposite interpretations worked out over the next few months. So, let’s see, the Cushing tank farms have hit bottom already, and the president has announced the nation’s Strategic Petroleum Reserves will be out of oil in, now, less than a month; but we’ll, at least have this worked out in a few more months!
But Iran has discovered that it CAN become a regulator of the world oil market by controlling the strait.
Oooo kay. And that equals “the US has ended Iran’s ability to close Hormuz” how?
He, then, places oil prices ending up short-term at $75-85 per barrel. Uh, sure. Wait until you see what happens when the SPR runs dry, and you’ve still got “a few months” of negotiation to go with Iran over what this vague deal means.
Then he admits that even when the strait finally does get back open …
I’ve talked to shippers. Some are rushing to get their tankers back in. Others are holding back because they don’t know what’s going to happen. They don’t want their tankers to be stuck there again…. You have a thousand tankers or so that need to get out of the gulf. Then you have to get tankers in. Production has to be started, and there’s the degree of bringing production back … to previous levels, and dealing with the damage and how extensive is still to be ascertained … given the amount of missiles and drones that pounded the Arab parts of the country.
Thank you, Mr. Secretary. That was completely comforting. Just a few little snags, and we can, if all goes well in the interpretive process of these negotiations, get production back up to where it was in many more months. With all oil reserves running out in the US this summer, that sounds like a lot of fun. No wonder Secretary Bessent sees no inflation problems ahead.
I’m guessing that, if he were captain of the Titanic, he’d be telling us that the tropical seas that he sees right before us have no chance of hosting icebergs. So, breathe easy: these are the people running our country … as presented in their own words!
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