'This isn’t normal': Expert warns markets are 'waking up' to GOP dysfunction

The markets are “waking up” to President Donald Trump’s economic policy that just “isn’t normal,” according to New York Times guest columnist and Columbia University history professor, Adam Tooze.

Tooze believes concern over Trump’s policies is “shifting to the $29 trillion market for U.S. Treasuries.”

He explained, “The Treasury market is where macroeconomics and politics meet, in their purest form.” Historically speaking, when the Treasury market “begins to wobble, it is a real cause for concern.”

The Treasury market only handles U.S. government debt. High inflation makes bonds less valuable. The Fed, for its part, sets interest rates and, in extreme circumstances, can buy Treasury bonds "en masse."

Because the Fed is responsible for printing money, Tooze believes, “it makes little sense to worry about default on U.S. debt. Assuming there isn’t willful interference from the White House or Congress, the bills will always be paid.” However, the more money the Fed prints, the higher inflation goes.

This is why Tooze says “we are beginning to see jitters in the Treasury market.”

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“The downgrade of U.S. Treasuries from a perfect AAA score by the ratings firm Moody’s doesn’t help matters. But it reflects market anxiety rather than being a cause of it.” Tooze added, “Inflation isn’t the big worry right now, either. At below 3 percent, inflation is under control.”

“The real issue is politics,” he said. “The market is waking up to the scale of Republican deficits.”

Historically, Tooze said, “advanced societies generally followed prudent fiscal rules.” At least until the 1970s.

Tooze believes the United States can “bear large debts.” But, because we are not borrowing with an “expansive view of future investments," he points to another problem.

Instead, he believes the US deficit is driven by “the unwillingness of the richest Americans, who pay by far the most tax, to pay even the modest levels that would be necessary to fund America’s far-from-generous public sector.”

“What makes the country unique is that even as the economy hums along and the wealthiest prosper as never before,” Tooze added, “a party calling itself conservative is actively conspiring to cut the sinews of the fiscal state.”

“This isn’t normal. And markets are finally, slowly waking up to this fact,” Tooze said.