315. Why we should all care about Japan’s rising rates
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What are the big questions about US debt, the Treasury, and Japan’s rising interest rates?
How close are we to a global financial crisis that could be triggered by collapsing confidence in the stewardship of America's huge debts by the US Treasury Secretary Scott Bessert and his boss Donald Trump? Why has Bessert been selling euros to buy the yen? Why are all Western governments nervous about interest rates that are rising in Japan? And as credit conditions in America force up interest rates everywhere, What can Andy Burnham do to lessen the impact on his government's finances and on us? These are big questions that have been bothering Steph and me, and we could think of few better to help us answer them than the hedge fund manager and finance professor, Patrick Boyle. Here's our chat with him.
This year on The Rest Is Money, we're proud to be partnered with Octopus Energy. Octopus's Greg Jackson is with me. Before we get on the show, I've got a quick one for you. Andy Burnham announced plans to cut VAT on electricity. Is there anything we could also do on the supply side to bring down costs?
First of all, it's good that the government have recognised the importance of energy costs. They took VAT off electricity and prior to that, by the way, some of the levies off electricity, which means that despite the underlying rising cost of energy at the moment, and our gas bills are going up with the next price cap, electricity bills are actually staying roughly where they are during this price cap. That's a good start. But you can't paper over the cracks with these kind of tax changes forever. Fundamentally, we need to drive down the cost of our electricity system. There's a lot of ways of doing it. We need to review the plans to build 100 billion pounds of new grid and networks because new technologies like super cheap batteries, flexible use of electric cars, all mean we might not need that expensive infrastructure and we can push the costs of electricity down.
Our thanks to Octopus Energy for powering the rest is money this year. Listen out for Greg on our future episodes.
Patrick, really great to see you. We're talking only hours after the Federal Reserve has raised interest rates. Inevitably, we've already got the president railing against the interest rate rise from the man that he appointed because he actually prosecuted him. His predecessor, so angry was he that the Fed wasn't cutting rates in the way that he wanted. And it also comes across, it comes against the backdrop of his Treasury secretary using what I might call a slightly novel tactics to try and force market rates down. What on earth is going on?
It's a very interesting situation. You know, essentially, interest rates have been going up. They've been going up around the world, not just in the United States. And what makes this particularly tricky is that they're going up at a time when debt is particularly high. You know, we saw national debts grow around the world largely due to COVID, but they were really growing before that anyhow. and governments seem very reluctant to in any way deal with this problem and so bond investors are worried about inflation, they're worried about foreign exchange rates and so they want to be paid a premium. If you're going to buy a 10-year treasury or a 30-year bond you want to lock in a good rate. When you've got inflation running at about double what the Fed says it should be, you're not really willing to make a 10 or a 30-year loan and have your returns eroded by inflation.
Patrick, can you just remind everyone as well, why is it that Trump wants to bring down rates so much? Because, I mean, it is obviously a short termist view of him wanting to make things cheaper for people. But can you just explain why that's the case and why he's so against the Fed putting up rates?
Yeah. You know, I'm not sure that he necessarily understands interest rates or kind of why they are at the level they are at. If you look at, you know, there's a lot there's been a lot of press where people are saying interest rates are quite high right now, but they're really only quite high internationally.
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Chapters
6 chapters
1
What are the big questions about US debt, the Treasury, and Japan’s rising interest rates?
0:01–5:04
2
How is Octopus Energy’s partnership used to discuss UK electricity VAT cuts and grid investment?
5:04–13:41
3
Why does President Trump want the Federal Reserve to keep interest rates low and how does that affect the market?
13:41–17:40
4
What is Treasury Secretary Scott Bessent’s unusual yen‑buying strategy and why did he intervene in the foreign‑exchange market?
17:40–30:34
5
How does the carry‑trade between the yen and US Treasuries work and what happens if Japanese rates rise?
30:34–56:41
6
What are the risks of a global funding crisis for the United States and how could it spill over to the UK and Europe?
56:41–58:49
Speakers
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