Weekend briefing: Debasement of the USD underway

Economy / news

US data stable but bond market loses faith it will stay like that; China FDI weak; Japanese inflation rises; Australia PMIs softer; Panama canal traffic restricted; UST 10yr at 4.74%; gold and oil prices up; NZ$1 = 59.8 USc; TWI-5 = 63.3

22nd Aug 26, 8:40am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news the bond market wants to ensure Scott Bessent understands the seriousness of the imbalances the US is facing. They have rejected his version of QE by bidding yields back up to where they were before this UST 30 year buyback announcement. The USD is falling too.

First in the US, we are now just two weeks away from the end of their summer holiday season, which ends on their Labor Day, September 7, 2026. (The UK has a summer Bank Holiday a week earlier, also signaling their end of their summer break. There is no equivalent unified EU marker, but they will be keen to get the dangerously hot weather behind them all the same.)

The August 'flash' PMI survey from S&P Global shows the US factory easing and now at a five month low. But the services sector is rising with a marginally stronger expansion. Input cost pressures have remained elevated but mainly due to rising fuel prices. Diesel is up +8.4% from a month ago, petrol up +2.2%.

Consumer price inflation is biting harder now in the US. Trump announced he will temporarily ease beef tariffs to help lower prices. Local beef producers weren't impressed, warning the move would hurt efforts to rebuild herds. And industry observers say the move will have little effect on the high prices. For someone who claims to love free-market capitalism, he acts in a very interventionist, the-government-knows-best manner.

Canada posted a good retail increase for the year to June, up +5.2% although this was a slowing from May. But their July result looks like it will fade somewhat.

Across the Pacific, China reported US$11.1 bln in foreign direct investment in July, which was down from US$22.8 in July 2025. Year to date, their foreign direct investment is running -8.8% lower than in the same period a year ago.

CPI inflation rose to 1.9% in Japan in July, their highest since December 2025. (Food prices were up +3.5%.) While the headline rate and the core rate both remain below the Bank of Japan's 2% inflation target, the rising trend may be enough for them to raise their 1% policy rate at their next review on September 18, 2026. They have other reasons to raise their policy rate (like, defending the yen, yielding to the US, needing to get back to 'normal' at some stage, etc.) so this may swing it.

Japanese business activity is expanding at its quickest rate for six months in August, according to the 'flash' PMI data released today. There were good gains for the factory sector, and these were bolstered by modest gains in their services sector. Of not was a steeper rise in new orders. Cost pressures continued to ease from June's recent record, but remained sharp overall, leading to another near-record increase in selling prices. Businesses are finding they can pass on the extra costs.

The 'flash' August PMI's for India show rising activity, especially in their services sector.

The EU consumer sentiment survey retailed its July improvement in August. It is still deeply negative, but less so that at any time since February.

And the ECB updated its inflation expectations survey for July and that shows a minor decrease to 2.9% over the next twelve months, from 3.0% in June.

Eurozone business activity continues to rise in August amid stronger manufacturing growth, with their factory PMI now at a 51 month high.

According to the S&P Global 'flash' PMIs for August, growth in the Australian private sector is softer this month as the cost environment becomes more challenging in both the factory and services sectors. But both are still expanding. They are still getting rising new orders (in both sectors), but cost pressures have picked up in August. However the ability to pass those extra costs on retreated to its weakest of 2026.

And in freight news, El Niño is having an impact on Panama Canal traffic volumes. The authority which runs it says it is reducing traffic levels to 32 ships per day from 36 currently, due to the low water levels. That is an -11% reduction.

The UST 10yr yield is now just on 4.74%, up +4 bps from this time yesterday, up +5 bps for the week. The 30 year yield is at 5.28% and also up +4 bps, up +2 bps for the week. The key 2-10 yield curve is now at +50 bps (down -1 bp). Their 1-5 curve is now at +40 bps (-1 bp) and the 3 mth-10yr curve is at +103 bps (+1 bp). The China 10 year bond rate is unchanged at 1.69%. The Japanese 10 year bond yield is now at 2.88%, up +2 bps, unchanged for the week. The Australian 10 year bond yield starts today at 5.03%, up +1 bp from Friday, up +4 bps for the week. The NZ Government 10 year bond rate is now at 4.76%, up +6 bps for a weekly rise of +5 bps.

Wall Street has risen today with the S&P500 now up +0.4% from yesterday but down -1.5% from a week ago. The Nasdaq is also up +0.4% today but down -2.3% for the week. Overnight, European markets were up between Paris's +0.4% and Frankfurt's +0.6%. However Tokyo ended its Friday session down -0.3% for a weekly retreat of +4.2%. Hong Kong was up +1.2% on Friday for a +2.8% weekly gain. Shanghai was unchanged Friday, down -0.6% for the week. Singapore ended up +0.3% on the day to end its week. The ASX200 ended its Friday session down -0.3% for a weekly retreat of -0.2%. But the NZX50 rose +0.4% in its Friday session for a weekly +0.7% gain.

The Fear & Greed index is now back in the 'neutral' zone from 'greed' a week ago.

The price of gold is up, now at US$4621/oz, up +US$101 from yesterday at this time, up +US$247 or +5.6% for the week. Silver has risen another +US$1.50 to just over US$69.50, up +7.7%.

Oil prices are up 50 USc from yesterday at just over US$87/bbl in the US, while the international Brent price is now just under US$94.50/bbl and up +US$1. A week ago these prices were US$82.50 and US$88.50/bbl respectively, so a +7% rise in that time. Hormuz transits have stayed very low with activity down to one crude tankers and 3 cargo ship exiting over the past 24 hours (1 dark with transponders off) and three entering for new loads (1 dark), again most Iran-linked. The Red Sea activity is still only about 20 each way at the Yemen chokepoint.

The Kiwi dollar is up +40 bps from yesterday at just over 59.8 USc, up +90 bps for the week. Against the Aussie we have fallen -20 bps to 83.4 AUc. Against the euro we are up +30 bps at 51.2 euro cents. That all means our TWI-5 starts today at just under 63.3, up a bit lees than +40 bps from this time yesterday, up +80 bps from last week.

The bitcoin price starts today at US$77,363 and up another large +6.2% from yesterday, up a whopping +23% jump from last week at this time. Volatility over the past 24 hours has also been high at just on +/-3.5%.

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Source: CoinDesk

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24 Comments

by Peter M | 22nd Aug 26, 9:28am 1787347699

https://www.iata.org/en/publications/economics/fuel-monitor/

(Domestic) airfares will remain high I guess.

by IT GUY | 22nd Aug 26, 10:43am 1787352227

https://www.zerohedge.com/news/2026-08-21/message-clear-theyll-debase-theyll-let-bonds-break

The Message is Clear: They’ll Debase Before They’ll Let Bonds Break.

by Phoenix Capital Research1 Saturday, Aug 22, 2026 - 1:19

The central framework from my 2024 best-selling book Into the Abyss is playing out right on time.

By way of quick review, the framework was:

The most critical issue for policymakers is maintaining the bubble in sovereign debt. The reason for this is that these bonds are the bedrock of the current debt-based financial system, and their yields represent the “risk free” rate of return against which all risk assets (stocks, real estate, etc.) are valued.
Because the crash triggered by the economic shutdowns in 2020 was both extremely rapid (a matter of days) and violent (a 20% decline in less than 20 trading sessions), it forced policymakers to reveal their “entire playbook” for dealing with crises. This playbook consists of three strategies:
1. Cutting interest rates aggressively to control bonds on the short end.
2. Printing money and using it to buy bonds on the long end.
3. Printing money and using it to buy junior debt securities (mortgage-backed securities, student loans, commercial paper).

In this context, the recent move by Treasury Secretary Scott Bessent makes perfect sense. Yields on the long end of the Treasury curve were in danger of breaking out to the upside, which would threaten the “Everything Bubble” including stocks.

This was a critical issue. Remember, ~45% of household wealth is tied up in stocks. And a market meltdown, triggered by a spike in Treasury yields is the last thing the Trump administration needs with the midterm elections approaching.

To address this, the Treasury announced, outside its normal quarterly schedule, that it will be at least doubling the size of its buyback operations for longer-dated government debt, from $2 billion up to a minimum of $4 billion per operation, starting September 9. The move covers Treasuries from the 10-year out to the 30-year sector, and it runs through the current refunding quarter, which ends November 4.

As I outlined in Into the Abyss, this framework favors hard assets. The markets confirmed this earlier this week.

On the day of the Treasury’s announcement, gold ripped 4.3% to north of $4,520 per ounce. Silver did even better, up 5.3% to break through $66. The S&P 500? It closed up a whopping 0.16%.

Let that sink in. The “risk free” asset class (Treasuries) got a direct liquidity backstop from the U.S. government, and stocks could barely manage a rounding error of a gain. Gold and silver moved 25 to 30 times more than the index that’s supposedly the beneficiary of all this intervention.

This is exactly what the framework predicts. When policymakers are forced to choose between defending bond prices and defending the dollar, they choose bonds every time, because a disorderly move in Treasury yields threatens the entire financial system, while a weaker dollar is just an inconvenience. But hard assets don’t care about that distinction. Gold and silver price in currency debasement directly. Stocks have to work through discount rates, earnings multiples, and investor psychology first, all of which take time and can go either way in the short run.

Put another way: Treasury just told the market it will use its balance sheet to cap long-term yields whenever they get uncomfortable. That is a standing subsidy for every asset that benefits from a lower cost of capital and a weaker dollar. Gold and silver collect that subsidy immediately and directly. Stocks collect it eventually, and only if earnings cooperate.

by DonKerrBab | 22nd Aug 26, 10:59am 1787353144

I traded spot FX through in the late 90's for a short period of time before moving onto other products, I recall markets talking about the debasement back then too. I'll believe it when I see it.

by bulls hit | 22nd Aug 26, 11:06am 1787353588

I don't understand, in the context of around $4 or 5 trillion outstanding long term bond debt, how Bessent paying back $2B is even noticeable and why the market would care

by Colin Maxwell | 22nd Aug 26, 1:08pm 1787360910

Yes the 20-30 year portion is $5.48 trillion, Bulls Hit, but when you add in the benchmark 10 year Treasury Notes (grouped under notes rather than bonds) of $4.85 trillion, the total comes to a much larger $10.33T.

As you say, the long-end buyback of $2 billion, now doubling to $4B, doesn't sound like a particularly big deal, but to the jittery market it nevertheless still signals the beginning of potentially huge indigestion precursor in terms of official intervention deployed to try to prevent accelerating disorderly US treasury market spikes.

Also the massive competing corporate debt issuance (topping $1.68 trillion) for Big Tech AI data centre buildouts, is a a huge competing siphon on available capital - as such the Treasury's decision to double the long end buybacks, sends a very powerful message as to the impending state of the bond markets, not just in the US, but in the entire global Western-centric fiat casino.

Rolling over another $1 trillion of debt from historical 1% coupon rates to today's high $3- low 4% range short-term rates increases the annual interest bill by tens of billions. This single rollover wave adds massive overhead to the government's budget.

When a government depends too heavily on short-term debt during high deficit spending, it can spark a dangerous cycle. If investors begin to panic about inflation and the real value of their money, this dynamic can escalate very quickly.

A step-by-step breakdown of how this "double whammy" scenario could unfold.

(i) When long-term investors demand very high yields to lend money for 10 or 30 years, the Treasury avoids them. Instead, it floods the market with short-term Treasury Bills (T-Bills) that mature in days or months. The government keeps its long-term borrowing costs from spiking today, but it creates a massive "refinancing wall."

(ii) Instead of paying off debt once every 30 years, the government must now find new buyers for trillions of dollars of debt every few weeks. As the interest bill explodes (like the $40 billion jump for every trillion rolled over), tax revenues can no longer cover the payments.

(iii) The government must issue even more new paper just to pay the interest on the old paper. If private investors stop buying this massive mountain of short-term bills, the central bank (the Federal Reserve) is forced to step in as the buyer of last resort. They buy the bills by creating new digital currency - AKA money printing.

(iv) With massive amounts of new currency flooding into the economy to keep the government afloat, the purchasing power of that currency plummets. Investors realize that if inflation is running at 10% or 20%, a T-Bill paying 5% is actually losing them money in real terms (purchasing power).

(v) Investors dump their paper debt and rush into tangible assets like gold, commodities, or foreign currencies, and especially to those that are in the process of being hard-backed.

(iv) The next blow hits when investors look at the actual cash they will get back when their bonds mature (the redemption value).

Even though the government will pay back the exact face value of the bond (e.g., $10,000), that cash can buy significantly less than it did when they first lent it.

In a true hyper-inflationary panic, the nominal price of short-term paper might hold steady at maturity, but its value as usable wealth is completely destroyed.

The Final Tipping Point

Once this loop accelerates, the timeline to disaster shortens dramatically.
Because the debt is heavily concentrated at the short end of the yield curve, the entire national debt structure resets to higher interest rates almost instantly.

The market intervention by ex-George Soros RH-man, the Blathering Bessent, should be seen as a precursor to the possibility of the above debt cycle accelerating.

The market pricing this in reinforces the cycle, as they recognise the ineffectiveness of the intervention. This is all without even mentioning the dire situation in Japan which could add to this risk dramatically, as a flight from sovereign fiat-based debt morphs into a stampede.

by bulls hit | 22nd Aug 26, 2:13pm 1787364803

Nice explanation.

Think it was Hemingway, when asked how he went bankrupt, replied 'Two ways. Gradually, then suddenly'

by Kate | 22nd Aug 26, 5:05pm 1787375147

I do have to wonder whether the USD debasement is intentional. Pair that complete incompetence of the the Treasury with this;

https://www.reuters.com/world/us-regulator-approves-bank-charter-trump-backed-crypto-company-world-liberty-2026-08-14/

And ask yourself - given Witkoff's stake in WLF - then determining Bessent's involvement as well, certainly isn't a outsider bet. Is it all a carefully planned exercise?

The USD fails and the "boys" start paying all US government employees and contracts in USD1?

The name "World Liberty Financial" isn't an accident - nor is the stablecoin's name "USD1".

by Independent_Observer | 23rd Aug 26, 1:43pm 1787449390

Surely just a conspiracy....but given recent past on so called 'conspiracy theories' that turned out to be true it wouldn't surprise me if there is some truth (or more) in what you say.

by Kate | 23rd Aug 26, 7:27pm 1787470050

Yes, indeed, a conspiracy (by me) - I keep waiting to see if anyone else has had the same thought :-).

by Threecents | 22nd Aug 26, 4:26pm 1787372767

The ‘work arounds’ to keep the fiat currency system on an even keel seem to be getting harder to maintain. When the following article was written in 2001 the Japanese debt:GDP ratio (and for most countries) was a lot less and we didn’t have many of the BRICS adding gold into their reserves etc. Ed Steer says the US PTB are increasingly intervening in the dollar index, US treasuries market and in the precious metals. Most of this is not discussed in polite conversation. The management of the oil price during the Iranian conflict is another example.

https://gata.org/node/8303

Central banks are engaged in a desperate battle on two fronts

What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then the stock of the investment banks would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.

Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.

by Let me be Frank | 22nd Aug 26, 11:06am 1787353567

Trade, bonds, sanctions and AI....on the money again.

https://www.youtube.com/watch?v=B4xN8P_aaMo

by Phoenix (FKA JC) | 22nd Aug 26, 4:05pm 1787371547

Trump announced that the U.S. would allow up to 300,000 metric tons of beef for ground-beef production to enter over 90 days without the normally higher “out-of-quota” tariff. He said foreign suppliers had committed to sell it at 25% below prevailing market prices, though the supplying countries and final implementation details had not been disclosed; the White House said an executive order was expected within two weeks.

This is specifically about lean beef trimmings, typically blended into ground beef, not a broad opening for all cuts of imported beef.

https://abcnews.com/Politics/trump-announces-temporary-pause-beef-impor…

by bulls hit | 22nd Aug 26, 5:52pm 1787377953

But...but.. if tariffs are paid by the exporting country as Trump has always maintained, how does removing them make it cheaper for American consumers?

by Palmtree08 | 23rd Aug 26, 11:49am 1787442564

In all fairness, it was Trumps original plan that the exporting country would pay tariffs, not precious exceptional American consumers. In other words the US admin would bully countries to accept lower prices, Trump would pocket the extorted funds and US consumers wouldn't notice the difference. I'm sure such deals have been quietly negotiated around the planet, otherwise US inflation would be more like Russian inflation

by JimboJones | 23rd Aug 26, 9:12am 1787433170

I often wonder if Trump wasn't the president and was still a "businessesman", what would he think of all these tarrifs?

The main thing businesses need is consistency. Nothing worse than investing in something then the government changes the rules and it's no longer profitable. If Trump is going to use tarrifs, they need to be strategic and long term (like his fake orange tan and haircut), not change every day.

by Palmtree08 | 23rd Aug 26, 11:59am 1787443168

Trump loves tariffs. Always has. As most of his wealth was generated through vice and property. I doubt the concept of tariffs personally disadvantaging him crossed his mind?

"He has pushed a tariff strategy since he first toyed with the idea of running for president in the late 1980s"

https://www.pbs.org/wgbh/frontline/article/trumps-tariff-strategy-can-b…

by Let me be Frank | 23rd Aug 26, 12:42pm 1787445772

Trump dreams of a US of old where income tax didnt exist and a small government was funded by tariffs.

by Let me be Frank | 22nd Aug 26, 4:11pm 1787371882

WASHINGTON, Aug 21 (Reuters) - The United States and Canada failed to reach a trade deal late on Friday, both sides said, and the U.S. will impose 50% tariffs on some imports from Canada.

https://lufkindailynews.com/news_reuters/top_news/us-canada-fail-to-rea…

by Phoenix (FKA JC) | 22nd Aug 26, 5:17pm 1787375869

The dispute is centered on how much relief Canada would receive from existing U.S. Section 232 tariffs, especially those on steel, aluminum, and autos. Canada sought broader relief; the U.S. was unwilling to provide it. Canada declined to finalize the previously discussed terms, while Prime Minister Mark Carney said progress had not met Canada’s objectives.

by Let me be Frank | 22nd Aug 26, 7:03pm 1787382222

Think you may find the dispute is a little more visceral than that.

by bulls hit | 22nd Aug 26, 5:56pm 1787378184

Rather than Canada imposing countervailing tariffs in response to Trump, wouldn't be better for them to impose export duties on crude oil for example? Many American refineries rely on a steady stream of Canadian crude

by JimboJones | 23rd Aug 26, 9:11am 1787433090

It ends up being like a couple of kids squabbling. Retaliatory tarrifs will just make it worse.

by interesting1234 | 24th Aug 26, 9:47am 1787521644

Surely Canada still relies, in part, on the refined product coming back across the border, as otherwise they would have built out their own refining capacity years ago.

by Nigel Ritson | 22nd Aug 26, 6:04pm 1787378652

A solid take on USA financial position imo https://www.youtube.com/watch?v=bi95w_V4bGU Investors "should be on alert" as US financial risks mount, says market expert | The Business