Part 8/13:
Interestingly, he points out that the rising yields are not necessarily due to inflation expectations—since the money supply remains sluggish—but are more reflective of market worries about fiscal sustainability and policy instability. Nevertheless, he remains optimistic that bond yields may recede as inflation continues to decline and market realities adjust.
Trade Deficit Myths and Realities
A central misconception addressed by Hanky is the nature of the U.S. trade deficit. Some policymakers and media argue that the trade deficit represents unfair foreign trade practices or that it’s a problem to be rectified. Hanky refutes this, emphasizing that the trade deficit is fundamentally an accounting identity driven by domestic spending beyond domestic income.