US-Iran peace agreement discussion, part 4

[RedTagAlan]

Thread 4 for those following and commenting on the above subject.

It’s very simple. Stop with the personal attacks and you won’t get reported.

Thanks @Newbutoldfather. I appreciate your reply and the fact that you are always able to handle disagreements in such a polite and balanced way.
Unlike you, with lots of experience of working in financial markets, I have none and no training in economics, finance, etc either. I do listen to people who do know a thing or two though and am able to understand at least some of what they are saying and form a conclusion based on my knowledge of humans and my general observations of patterns of behaviour, especially of the elites who run things. I mentioned Luke Gromen a few posts back. Do you know of his work? He's a very smart guy. There are lots of other smart people out there too.

Do you mean Warsh's speech at Jackson Hole? I haven't seen it, just a brief clip of him using the word 'hike' a lot! I'm told that a lot of trading is algorithm based and that they respond to key words. If you have a link, I will certainly have a listen. My impression, at least so far, is that he is talking hawkish to try to persuade markets that the Fed take their obligations to lower inflation seriously, particularly in view of the recent rising yields in the US. I could, of course, be far too cynical!

Regarding long vs short term debt, the treasury has been buying back long term debt with short term, as I said above. They appear to be doing this to try to gain greater control of the rates.

Re Trump, I think the US military comment means that they would threaten/sanction and even use military force against countries who don't toe the line wrt their US debt holdings. This is what I was saying before about why the US intervened in the Japanese currency markets and why I don't think the gulf states could just sell their US debt/take their money out of US stocks or whatever.

Re a tax on the super rich, I don't know what the numbers are here but I strongly suspect that they just don't add up in value terms. Then there is the problem of how the wealthy would raise the $$$. They would need to sell assets. Would this collapse the US stock market? Would it be an annual thing or just a one off? The super wealthy are nearly all on the look out for tax avoidance schemes and a lot have already moved to tax havens to avoid their tax obligations. There are lots of unanswered questions here.

We will have to wait and see how things work out (or not!). I am much more cynical than you and see a huge use of the printing press before too long. I think this will end up collapsing the whole system. I'm not sure whether this or all these awful wars are more 'doom and gloom'!

@rainingsnoring ,

‘mentioned Luke Gromen a few posts back. Do you know of his work? He's a very smart guy. There are lots of other smart people out there too.’

I googled him and he isn’t particularly well qualified, but I should still give him a chance and read what he actually says. I will do.

‘Do you mean Warsh's speech at Jackson Hole? I haven't seen it, just a brief clip of him using the word 'hike' a lot! I'm told that a lot of trading is algorithm based and that they respond to key words. If you have a link, I will certainly have a listen. My impression, at least so far, is that he is talking hawkish to try to persuade markets that the Fed take their obligations to lower inflation seriously, particularly in view of the recent rising yields in the US. I could, of course, be far too cynical!’

I do mean that speech. It is both impressive and clear in its intent.

https://www.federalreserve.gov/newsevents/speech/warsh20260828a.htm

The kind of algo trading about is VERY short term. It would recognise a word, make a trade and liquidate it, typically within seconds. The fact that Fund futures are still pricing in a hike shows that, after the speech was parsed by all the experts, this is their (on average) considered conclusion.

Also, and as he actually says, it is not the Fed’s job to throw curve balls at the market. Long term inflation expectations are based on trust. And, if the Fed loses that, it is expensive for everyone.

As for swapping long term debt to short term, that would take decades to accomplish, given the amount of debt outstanding, and that short term debt, by definition, is always maturing. It also means that, unless the Fed REALLY let inflation go, the volatility of debt servicing increases dramatically. And, if they were really to let inflation go, it would be goodbye USD as the reserve currency, and total humiliation for the U.S.

As for the military, I don’t think that is remotely realistic. Do you see the U.S bombing or invading Japan unless they reinvest in the U.S treasury market (for instance). You can’t force people to lend you money.

There are genuine issues with a wealth tax (mainly the rich not hiding money or running away). Some say it is only a successful lobby which has stopped it happening though.

A proposal to levy a 2% tax in the U.S on anyone over $50 million would apparently bring in $4 trillion!

I can link to the proposal if you like. It would entail some asset sales, but the government could pay down an awful lot of debt and free up money for other spending.

And yields are up again on a strong U.S non-farm payrolls report, which posted at +162,000.

A strong economy means more demand and more future inflation. I’m kind of guessing this is based on the AI build out, but I haven’t read it in detail yet.

AP report that the U.S. Treasury has imposed sanctions on a Turkish financial institution as part of its latest effort to sever “critical financial lifelines” for the Iranian government.

The actions against Golden Global Yatirim Bankasi Anonim Sirketi come nearly a week after Treasury Secretary Scott Bessent announced “Operation Economic Outcast, ” Washington’s new effort to get Tehran to capitulate to its demands after more than six months of war.

The department accused the bank and its entities of being established to enable Iran’s efforts to transfer oil revenues from China to Turkey, where they could then be converted to cash and gold. It also said the institution “knowingly offered” banking services to Iranian financial entities, including those already sanctioned by the U.S. government in 2022 for funneling Tehran’s oil sales.

https://apnews.com/article/sanctions-turkish-bank-iran-dde8b5408b85115f79b7351c8e882815

I've been away for a few days and catching up with the thread has given me a different perspective from actually engaging in real time, in the 'debate'. It's like being an observer looking on at the cut and thrusts of battle and being able to analyse the action better.
@Newbutoldfather I think one of the unintended consequences of the Not-War with Iran (according to Vance) and US Treasury sanctions of banks and financial institutions is an acceleration of de-dollarisation in global financial systems. I'm not talking a dollar collapse, but a move away from holding so much US debt. It remains to be seen whether a single fiat currency benefits, or a combination of CNY, Euros and gold, for example, is the solution to a financial system fragmentation.
But I'm getting beyond myself as so much will depend on the outcome of this war and who is elected as #48.

I don't know about Gromen's academic qualifications but he clearly understands financial plumbing and maths. Russell Napier is also worth listening to amongst others.
Thanks for the link to the speech. I'll find it on YT so that I can listen as I do other things!
Overall, as I have said on MN several times, I think we will be faced with a period of much higher inflation in essentials, not in the short term but over the years and decades. Yes, I also think the currencies will be massively devalued (they never tax the truly wealthy properly, they screw those who work hard for a living) and are at risk. I have no idea what system will arise though.
I agree that the threat of military action is probably unrealistic. To me, it showed that Trump at least understood the vital importance of protecting the US bond market. Having said that, as I have also said before, I think we are in for a lot more ongoing wars. I just hope they don't continue to escalate and get out of control. That is something that frightens me.

Exactly. Countries have already been trying to find alternative systems for years and not buying US dollar debt net. The US are clearly fighting this. Time will tell what happens!

The economy isn't strong. It might appear strong to the people running the show because they are already wealthy and have been doing marvellously at the expense of everyone else. The recent the figures may look good because, apart from the fact that they are adjusted to make them look better, there is ongoing massive deficit spending and the 'AI boom'. Government spending and debt increase GDP figures. Meanwhile, on main street, people are losing their jobs and have seen a fall in their QOL for 20 years. This is why Trump was voted in and why Brexit happened and why there is so much anti immigrant sentiment everywhere, all at the same time.
The NFP numbers are regularly been downgraded but that doesn't make the headlines.

I've managed to listen to Warsh's speech now. He's talking hawkish and trying to calm the markets, which didn't work. Do I believe him? No, not really. I don't think their priority is to 'tame inflation'.

By the way, the comments I've been making about reducing the debt terms were referring to Bessant at the treasury, and Yellen before him, not to the Fed.

@rainingsnoring,

My point, which I maybe didn’t put clearly enough, was that NFP number indicated a stronger-than-expected economy, which drove yields upwards. You are right, it is a very unreliable market data point, but it still gets traded off, although with each number, the revisions of the previous two are also released. And there are also annual revisions, which can be substantial.

The economy is moderately strong, though, with GDP increasing at 1.5% per annum, unemployment at around 4.5% and PCE up 3.2%.

Are the rewards evenly felt? Definitely not. Wealth inequality is a major issue and it is growing. But AI is a part of the economy as is deficit spending. You can argue that it isn’t sustainable, and I would tend to agree, but you can’t say it isn’t a part of the economy.

We can debate endlessly about what caused Trump and Brexit (some causes the same and some different). Wealth inequality is definitely a large part of it as was large uncontrolled immigration, which also feeds wealth inequality. The bottom quarter of the economy hardly felt the rewards of economic growth. Wokeness was also a factor. Populist politicians spoke about subjects which hadn’t been allowed to be aired for years due to a political consensus, even though the populist politicians lied.
They also understood the new media landscape better than traditional politicians.

It wasn’t really economic weakness though. We have had serious recessions with no ‘Trump or Brexit’.

I have to say that you are a little strange about Warsh! The Fed have a dual mandate (unlike many central banks), growth and inflation. They tend to look at landing on their 2% inflation target at about a 24 month time horizon. What I found convincing about his speech is that he said exactly what indicators he was looking it. That means he can be held to account easily if he doesn’t respond to them. As I have said many times, long term inflation expectations are held in check by a trustworthy Fed. And these are what long bonds and equities are priced off. Before the ‘modern’ Fed in the 1980s, we saw long bond yields in the mid teens!! We couldn’t afford to go back there.

Re interest rate hikes and inflation fears, UK man in the street related, but Santander is offering 8% on a savings account! I didn't check the details, but wow!

Always a catch with these headline high rates ... it's only for the first 12 months do you get a 5.00% AER/gross (variable) bonus.

Still, thanks for the tip!

I do agree with a lot of what you say @Newbutoldfather and I did understand your point. I was just suggesting that the figures are not too reliable and are being consistently over estimated.

One of the points I was trying to make is that the growth figures are not really valid and that things are worse than they appear-see where 'main street' are at. They are also not per capita figures-see recent immigration levels. I agree that deficit spending and the AI spending form part of GDP but I'm saying that it is the debt based spending, which is what it is, artificially inflates the GDP figure. If the government stopped increasing the debt exponentially, GDP figures would be negative. That's before you even think about what the US government (or other government) is actually spending on, whether it is productive or positive in any way (killing people in wars) AND what is GDP actually measuring as it's clearly not QOL.

I hear you on Warsh. Let's see how the next few years develop. The Fed have massively missed this 24 month 2% inflation target. Didn't it rise above 2% in late 2021? Lots of people were quite convinced that rates would continue to fall in 2025 and ongoing and that house prices would start to recover. That hasn't happened at all. The SM has continued to boom though but, at some point, there is likely to be a big correction.

It seems to be only on £200/month. I might tell my DC!

Interesting article from Zineb Riboua - I forgot who mentioned her name on here but I have been following her with interest ever since.

https://www.zinebriboua.com/p/the-west-faces-two-islams?r=jdg8r&utm_medium=ios&triedRedirect=true

@rainingsnoring ,

‘Didn't it rise above 2% in late 2021? Lots of people were quite convinced that rates would continue to fall in 2025 and ongoing and that house prices would start to recover. That hasn't happened at all. The SM has continued to boom though but, at some point, there is likely to be a big correction.’

Yes, the Fed have failed to do their job for 5 years, and that is quite dangerous!

As I said, the Fed try to see through short term inflation spikes to hit their 2% target on a two year time horizon. They produce charts with error bands and form policy based on that. The Fed has what is called a symmetric target. They get criticised just as much for inflation being under 2% as over it. That is because if inflation measured at a mean level is much under 2%, certain areas are likely to be in deflation, which is dangerously pernicious, as it discourages investment in real assets.

The reason that the Fed keep missing is that ‘short term’ factors keep spiking up, such as food and energy. However, the market isn’t convinced they are short term, hence long term inflation expectations being about 0.5% higher than they ought to be. This is really the key point of Warsh’s speech. He was saying that he wanted to look at more specific inflation factors and that he thought they were stickier than they were projected to be. That is really quite hawkish.

He also subtly implied that the Fed hadn’t been doing its job in combatting inflation. This is really quite something for Trump’s appointee to say, it is not a small thing! Because he said it in subtle terms as part of a technical interest rate setting piece, it wasn’t picked up in the way I thought it might be. It was really two fingers in the face of Trump and Bessent who thought they had put a tame poodle in place at the Fed.

As for the stock market, it does have a tech bubble feel about it and, if AI isn’t the miracle some say it will become, we are in for a scary collapse.

It's not quite the 'Major Financial Institute' that was announced.

Golden Global is a privately held sharia-compliant investment bank, with a market share of less than 0.1 per cent of Turkish banking assets, according to Fitch Ratings

I think the 2% target is a rather arbitrary one. The Fed and TPTB are definitely more frightened of deflation than deflation, as you hinted.
I don't think food and energy inflation are short term factors at all. The opposite, in fact.
I'm sorry but I'm not buying this good cop/bad cop thing that you think is going on. The Fed needs to maintain at least the illusion of independence and Warsh understands this. Let's see what happens in a week or two and the next few months. I think we will hit a big recession anyway, helped along by Trump's war.

@rainingsnoring ,

‘I think the 2% target is a rather arbitrary one’

Nearly all the central banks have adopted 2%. I think if had been quite carefully chosen as a level that protects the value of money while avoiding deflationary spirals, which are very hard to correct once they start. I am sure you could argue for 1.5% say or 2.5%, but I don’t think you could make a sound economic argument for much higher or lower.

’ I don't think food and energy inflation are short term factors at all’

That’s hard to know but, if we persist with wars, they won’t be. Ultimately as the global population declines and we switch to cheap alternative energy sources, energy should decline in price. But that is a way off.

As for Warsh, I think we will have to agree to disagree. Our first clue will be in about 10 days at the September Fed meeting.

BBC report that the US military says it has hit three Iran-linked oil tankers after ballistic missiles were launched towards two of its warships in the region.

US Central Command (Centcom) said on Saturday it had "permanently disabled" a tanker near Kharg Island and another near the Strait of Hormuz, and "completely destroyed" a third in the Gulf of Oman. Also that it "successfully evaded" multiple attacks from the IRGC targeting a US aircraft carrier and guided-missile destroyer.

Iranian state media earlier reported that one of its tankers had been struck off the coast of Kharg Island.

Tehran did not immediately acknowledge attacks on US ships.

Admiral Brad Cooper, Centcom's commander, said in a statement on Saturday: "Let the message to the IRGC be clear: If you shoot at two of our ships, we will impose an even higher economic cost - taking out three of yours."

"We will not hesitate to defend American forces, and if necessary, destroy Iran's limited and exposed oil fleet."

Centcom, which oversees US military operations in the Middle East, claimed that the three Iranian oil tankers were "part of a multibillion-dollar shadow network that funds the IRGC and its regional proxies".

www.bbc.com/news/articles/cj64rrne643o

It seems the Iranians fired some ballistic missiles af the aircraft carrier and the Americans responded by taking out 3 oil tankers.

That’s quite a significant escalation.

No idea what the Iranians were thinking. Of course, hitting it would be a huge coup, but I suspect the protection around a U.S aircraft carrier is pretty impregnable.

A More Confident Iran Emerges After Six Months of War With the U.S.

New intelligence reports have assessed that Iran now has a far better understanding of its capabilities and the limits of U.S. power.

https://www.nytimes.com/2026/09/04/us/politics/iran-war-intelligence-reports.html?smid=nytcore-ios-share

I don't think they are behaving logically.

Logical would have been to do what they could to make the MoU work and claim it as an Iranian victory. Plenty in the West would have agreed with that interpretation. But the way things unfolded, they sabotaged the deal and will probably end up accepting a worse outcome in the end.

Wishful thinking from the New York Times who hate Trump to the extent they seem to prefer the idea of the IRGC growing stronger if it makes him look bad.

And so it continues

Iran’s IRGC Navy says it retaliated against U.S. strikes by targeting three tankers accused of using unauthorized routes and three additional U.S.-linked vessels, after U.S. forces struck three Iranian oil tankers near the Strait of Hormuz.