Trump’s $5,000 pledge and the bond market revolt shows it’s a voter bribe — costing every American $8,000

In February 1993, James Carville famously suggested that he would prefer to be reincarnated as the bond market rather than the president, the pope, or a .400 baseball hitter. The reason behind this comparison lies in the fact that the U.S. government runs massive deficits every year, which it finances by issuing bonds to attract the necessary funding.

The bond market's willingness to buy these bonds ultimately determines the country's financial health, much like a healthy country would avoid cannibalization to fund spending. When the bond market loses interest in purchasing these bonds, bond yields rise, causing debt servicing costs to increase. This situation led to Clinton having to abandon his new spending plans when faced with a bond market revolt.

President Donald Trump is now experiencing the same predicament, as bond markets are in active revolt over what they perceive as excessive spending. In response, Trump has pledged to issue a $5,000 dividend to every adult citizen in the United States if Republicans retain control of Congress in the upcoming elections. This claim is misleading, as companies typically pay dividends from their profits and often suspend dividends when they need to reduce debt, which is precisely the situation the U.S. government is in, with a nearly $1.8 trillion deficit last year and over $40 trillion in debt.

What is even more concerning is that bond markets have reacted negatively to Trump's announcement, with 30-year bond yields surging to a fresh 30-year high of 5.35%, up 6 basis points in a single day, and 10-year bond yields rising by 9 basis points to 4.92%. The bond market's response indicates that they are aware of the potential consequences of sending $5,000 to every adult citizen, which could ultimately cost U.S. taxpayers far more than $5,000 per person due to the elevated interest rates required to fund such payments.