US intervention shows all isn’t well with the US dollar. 
Yen Intervention and Unintended Consequences
The Wall Street Journal reports Scott Bessent’s Yen Trade Has Unintended Consequences for the Markets
The joint U.S.-Japan support of the yen is unusual. The way it is being financed is unprecedented, and adds liquidity when the punch bowl of the U.S. economy and markets is already overflowing.
So far the scale is small, but Treasury Secretary Scott Bessent wants the Fed to drop its $60 billion cap on the emergency facility being used—or abused, given there’s no emergency—to lend to Japan, and pledged to do “whatever it takes” to help.
Knowing the Correct Price of Things
Not Attractive Reserve Currency
Financial Times
Central banks are accustomed to holding foreign reserves in dollars because markets in US Treasury securities are liquid. Central banks hold US Treasuries because they can be freely bought and sold and used in interventions. But not now, at least not in unlimited quantities. Instead, we see the US Treasury stepping in with euro sales as part of its contribution to the intervention, thus limiting the volume of dollar sales needed by the Japanese authorities.
TINA to the Forefront
The first sentence by Tyson above is flat out wrong.
The US has a trade deficit with most of the world. As a direct function of that trade math foreign governments accumulate US dollar reserves.
Japan has a mountain of US dollar reserves due to trade surpluses with the US over the course of decades.
No country accumulates these massive reserves because they want to or because dollars are liquid. Rather, Central banks primarily hold US dollar reserves because of trade math.
There Is No Alternative
Liquidity, a free floating currency, a large global bond market, and willingness to have massive fiscal and trade deficits are requirements to having the world’s global reserve currency.
The US is the only country that meets all of the requirements.
Dollar Attractiveness
“The dollar is not the attractive reserve currency it once was,” says Tyson.
That is correct. But so what?
T.I.N.A. There is no alternative.
Robin Brooks
I have a long running feud with Brooks over sanctions.
He likes them. I claim they don’t work. Time and time again I have been right.
Regarding currency interventions, I am firmly in Brooks’ camp here.
Financial Stress Hits Lack of Alternatives
To stem the plunge in the Yen, Japan needs to hike interest rates, reduce debt, or take other measures to support its currency.
But fearing recession, Japan does not want to do what it takes.
Instead, Japan (with unprecedented US help) has been selling dollars to buy Yen (its own currency).
Since no fundamentals have changed, it’s absurd to believe intervention will fix anything.
Understanding the Intervention
Normally (not that normal would work) Japan would sell its stockpile of US treasuries for dollars, then use the dollars to buy yen.
Bessent’s fear (rightfully so) is selling huge amounts of US treasuries by Japan would put upward pressure on treasury yields.
Bessent does not want that. So he is using an emergency tool called FIMA, created in the Covid recession for a different reason, to assist Japan.
How the FIMA Repo Facility Works
- Eligible counterparties (foreign official institutions with accounts at the Fed) can enter overnight or up-to-7-day repurchase agreements: they temporarily transfer Treasuries to the Fed’s System Open Market Account in exchange for dollars, then reverse the transaction at maturity (returning the dollars and getting the securities back).
- The Fed’s stated purpose (from its own FAQs, dating to the facility’s creation/expansion around 2020 and made standing thereafter) is to provide “an alternative temporary source of U.S. dollars for approved FIMA account holders of Treasury securities other than sales of the securities in the open market.”
- It is fully collateralized by the Treasuries (with margining similar to the discount window), so the Fed takes no credit or FX risk in the transactions. There are per-counterparty limits (commonly cited around $60 billion).
Japanese authorities have publicly referenced the FIMA facility in this context. Japan’s Ministry of Finance noted access to it as one of the tools for temporary dollar liquidity against Treasuries, and Finance Minister Satsuki Katayama and others indicated plans to utilize it (alongside the coordinated intervention) so that yen-support operations need not involve outright Treasury sales that could pressure U.S. yields.
Bessent has also publicly highlighted/encouraged the facility (and potential upsizing) in connection with supporting Japan’s efforts.
With FIMA, the US sold some Euro reserves to get dollars to lend to Japan rather than
A Bigger Bazooka
Bessent now wants unlimited ability to buy yen. That’s how absurd things now are.
Chris Martenson comments “Bessent thinks he knows the correct prices for things. He does not believe in markets finding authentic clearing prices. This is true for gold, silver, and oil. This will end badly. Plan accordingly.“
Actually, Bessent is just another charlatan who will do or say whatever it takes to support Trump.
That is part of the bargain when one agrees to work for Trump.
Interventions Don’t Work
Robin Brooks understands currency interventions don’t work.
He need to accurately generalize his thought process to “interventions don’t work“.
Sanctions have never worked as intended. Nor can one bomb one’s way to victory.
Russia, Iran, Afghanistan, Vietnam, and Cuba are proof over decades.
Attractiveness Irony
Returning to the Financial Times, Tyson says “The dollar is not the attractive reserve currency it once was. Countries will redouble their search for attractive, readily available alternatives. Reverse diversification is apt to gather steam.”
As long as the US runs trade deficits, mathematically foreign nations must accumulate US dollar denominated assets.
Attractiveness is meaningless.
Yet, the Fed and Treasury are now scared to death of Japan dumping dollars.
For years, we heard people say “Wait until China or Japan dumps treasuries.” But that was always in context of countries getting tired of their losses.
The irony is Japan is sitting on massive gains in its treasury portfolio!
Bessent wants unlimited ability to intervene to prevent a bond market selloff.
People who used to be free market advocates are now cheering this intervention. The mind-twisting to support Trump has been amazing.
US Dollar Dominance
Please recall What Would It Take to End US Dollar Dominance Over Global Transactions?
Questions of the Day
Q: Why does the world accumulate dollars?
A: The US runs a trade deficit with most of the word.As a direct result of huge persistent trade deficits, the world accumulates US dollars.
Q: What does the world do with the dollars?
A: Recycles them into US assets mainly US Treasuries and Agencies.Q: Is this why the US has the world’s biggest bond market?
A: Yes, that plus huge recurring fiscal debt and a mountain of debt held by the public to the tune of $31 trillion, $39 trillion total.Q: Can the US do anything about this?
A: Only superficially, without a complete global financial rework.Trump tried tariffs. Well guess what? Tariffs didn’t work and won’t.
The Fundamental Problems
- There is no brake on deficit spending. Congress can and does keep raising the ceiling and spending more and more.
- There is no brake on trade deficits.
Gold provided those brakes. When Nixon closed the gold redeemability window in 1971, all brakes were removed.
The US consumer became the buyer of last result. Later on, there were no brakes on Chinese exports.
China can fix this but doesn’t want to. Germany does not want to fix its reliance on exports either.
I have been discussing this for decades. And the answers never change.
Sustainability of the Setup
Q: Is this sustainable?
A: No.
Q: When does it end?
A: I have no idea, nor does anyone else.
Q: How does it end?
A: A global currency crisis.
Q: What’s the role of Bitcoin in the crisis?
A: None.
Q: What’s the role of gold following the crisis?
A: I don’t know.
My 2019 post is still accurate.
Flashback September 19, 2019: Nixon Shock, the Reserve Currency Curse, and a Pending Currency Crisis
Forget the Yuan
Many expect China to overtake the US and for the yuan to replace the dollar as the world’s reserve currency.
Such talk is nonsense. The reserve currency holder needs to meet several requirements of which China meets none.
Where’s De-Dollarization?
Is de-dollarization happening? If so, where and how?
On April 30, 2026, I asked Offshore US Dollars Surge Over the $14 Trillion Mark, Where’s De-Dollarization?
King Dollar Top Line View
Record offshore USD liabilities reflect ongoing US deficits + structural global demand for dollars + offshore banks doing what they do best.
King Dollar isn’t strangely dominating despite everything. It’s dominating because of how the system works.
Trump’s Tariffs Didn’t Improve the Deficit
On July 28, 2026, I commented Trump’s Tariffs Didn’t Improve the Deficit but Did Increase Consumer Costs
The undeniable truth is easy to see in pictures.
Yes, there is a desire to change the system, but what is anyone going to do about it?
Five Things China Can Do
- Float the yuan
- End capital controls
- Stop export subsidies
- Be willing to have trade deficits
- Build the world’s largest (or very large) global bond market.
China needs to do those things to increase yuan usage and become an alternate reserve currency.
So, it’s mostly up to China. However, Trump and Bessent are not helping.
Trump has even threatened to put 100 percent tariffs on any nation challenging US reserve currency status.
Not that anyone takes Trump’s threats seriously, but the ultimate irony is the world desperately needs to get off the current dollar dominance treadmill.
Meanwhile, stress builds and Bessent wants unlimited ability prop this mess up.
Chris Martinson: Bessent thinks he knows the correct prices for things. He does not believe in markets finding authentic clearing prices. This is true for gold, silver, and oil. This will end badly.
It’s going to end badly, anyway. A boom always ends in a bust. Intervention just delays the outcome. I remember Clinton saying in the late 90’s that, “we can’t afford a recession.” Politicians are always trying to push recession off into the future, as politicians always pay the price when one occurs, as the voting public is unhappy about being in a recession.
Mish, The algo that screens your users’ comments needs some fine tuning. I tried twice to submit a comment about Yankee dollar hegemony and the algo remarked that the content was inappropriate.
There was nothing offensive about it. It wasn’t ad hominem. It wasn’t inaccurate. In fact it was almost all fact based.
The commentary that was added at the end was uncomplimentary about the PRC due to their autocratic nature but that was it.
FDR
“If you have a bazooka in your pocket and people know you have it, you probably don’t have to take it out” – Hank Paulson, 2008
In order for that bazooka to have any effect, others have to know that you will use it.
This is why Russia’s nuclear weapons are not stopping NATO attacks, because NATO has learned that the Russian leadership does not want war, while NATO is slavering for blood.
Putin has a tactical and strategic brain unlike the nuclear rocket rattlers in the US, W. Europe and Israel.
He actually thinks before he acts….and considers how the other party or parties may react given their history, culture, political structure, and the makeup of the populace.
If only we had a president that also did this before going to war in Iran.
Bessent is a hedge fund guy.
Hedgies first thoughts are about how you can manipulate markets in some way that leaves you more and others less. When they organize leveraged buy outs or private equity take-overs, they are not thinking about manufacturing innovation. They are thinking about how to generate a surplus somewhere that shows up elsewhere as extra debt burdening the same underlying cash flow.
For hedge funds to exist, there needs to be a difference between apparent value and fundamentals. The last thing on their minds is price discovery, free of financial razzle dazzle to move the perceived value away from straightforward valuation.
For a lot of people everything is psychological and PR manipulation … it doesn’t even occur to them to try another approach, be it war or productive competition.
The problem with free-market ideology is that those who profess, like big corporations, never actually mean real competition or price discovery. They are always hard at work in every way they can to hinder and subvert free-market competition.
Adam Smith stated that in a perfectly free market, it is almost impossible to generate a profit. Any earnings above input costs are your meager reward, and as soon as the reward is much better than meager, there will be others who enter the fray.
There never has been nor will there ever be any such thing as a free market in the recorded history of capitalism assuming Adam Smith was the father of modern capitalism.
I would say this statement should be changed to: People who used to be free market advocates are now cheering this intervention. The mind-twisting to support
Trumptheir own and everyone they know’s portfolios has been amazing…..That’s all this is. Trump, doesn’t matter. Everything has been captured by an incented, co-conspiratorial group that has been pushed into the market so TPTB are doing what servers their interest and 60% of the population that own equities. It’s a disgusting thing but per the recent blog post of the government outright owning equity stakes in 30 companies, the Government is now financially interested in the markets rise as part of some economic mandate. Bleck.
But Bessent and Trump are as up front about it as Paulson, Bush, Geithner and Obama.
Bessent is nursing the stock market not to collapse from over valuation, weak foundation.
To prevent massive forest fire like in France you might need to create controlled
small multiple fires. Bessent is now removing these small controlled fires which can lead to uncontrollable market bubble later.
Area. . . . . . . . . . . . . . . United States. . . . . – . . . . . China
AI investment (2025 ) . .~US$286 billion. . . . . . . . . ~US$12 billion
Leading companies . . . .OpenAI, Google, Anthropic, .Alibaba, DeepSeek,
. . . . . . . . . . . . . . . . . . ..Meta, Microsoft, xAI . . . . . . Baidu, Tencent, Z.ai
Model quality . . . . . . . . Still leads on the most . . . . .Very close on many benchmark
. . . . . . . . . . . . . . . . . . advanced frontier models. . . gap has narrowed significantly
AI pricing. . . . . . . . . . . Generally higher . . . . . . . . Often significantly cheaper Open-source models. . .Mix of open and closed . . . Mainly open-weight
Do you see the bubble Bessent is nursing to make bigger?
Five Stages of a Bubble
We are now from Boom to Euphoric phase.
Can Bessent tell investors not to make profit taking?
Or not to be panic when collapse?
Beware:
Stop loss selling
Algorithmic selling
Ai selling.
Lightning fast is too slow!
I laughed when Bessent left “by accident on paper” that they would give Japan only 5 or 10 billion in support. The latest H.1 report that came out at 4:30 today showed that foreign loans jumped to 58.6 billion this week. Looks like they may have loaned Japan 10 times that amount and why Bessent wants to expand the Fima repo facility. No wonder gold has jumped this week.
Here’s an amusing item … the country’s largest wholesale mortgage lender just eliminated its dividend:
MarketButActually on X: “A textbook crisis in corporate risk management just hit the mortgage market: $UWMC shares plunged ~41% after a $450M+ net loss and a sudden dividend freeze. 🧠 The largest wholesale mortgage lender in the U.S. saw its stock collapse after exposing severe balance sheet pressure” / X
Now, given that financial stress is back on the menu, we should expect more of this. I am still waiting for massive bankruptcies of CRE lenders, especially anyone tied to offices or office REITs. REIT wrecks, dead ahead, mate!
Can anyone explain why natural gas cost next to nothing? Is it drillers for oil hitting too many pockets of gas?
It’s captive, and it is somewhat seasonal. president Carter said we were almost out of conventional natural gas, which was true. He then played a roll in developing the technology to extract non-conventional gas. The known reserves of non-conventional gas are now enormous. Shipping gas is very expensive. Gas is basically trapped in North America. In the 1980s, even though they could see the end, gas remained cheap. Oil companies used to scream in agony when a well came in with gas.
Natural gas is not per se a a world commodity and traded on world volume nor exchanges like Texas Tea is another example.
1/ Intervention to smooth a rise (or fall) can be effective. As you note, it won’t change the overall trend
2/ Countries can always turn around and dump their trade surplus dollars immediately and buy other currencies or hard assets. To this point the currency side hasn’t really been worthwhile. Buying other assets though… had Japan been steadily selling dollars and buying gold the past three decades they’d be much happier today.
The Crisis has begun . . . Bessent can only delay the eventual total collapse . . .
If we had a normal treasury secretary in a normal administration I”d say the next step is that Japan will start selling its hoard of US treasury bonds. I haven’t read anything anywhere that suggests Japan shouldn’t be hiking interest rates.
But Bessant is a player (aka a trader at heart) and I gather he is allowing the US to buy Yen because he knows they will soon hike and those Yen will appreciate. Japan will probably hike if oil spikes and sends the Yen further down. Every oil analyst I read says oil will continue up from restocking alone.
Given the complexity here, Iran war, US mid-terms coming, possible yen-carry trade spill-over to equities and internal Japanese politics I don’t know if the time frame is days or months.
Cash is probably the best way to profit from the turmoil. Although fiat of any flavor is rapidly losing its absolute value.
Buying a store of Ramen noodles is also suggested.
The US are a state planned Potemkin Village.
“Liquidity, a free floating currency, a large global bond market, and willingness to have massive fiscal and trade deficits are requirements to having the world’s global reserve currency.”
You will have to explain to me why a fiscal deficit is a requirement to having the world’s global reserve currency. I understand the trade deficit requirement. The United States could have avoided the continuing fiscal deficit by either (or both) not cutting taxes or cutting spending.
Because if the currency issuer is not spending more than it is taking in, nobody will have the currency to hold as reserves or use in trade.
That isn’t a valid answer. Our spending is mostly domestic. It doesn’t have to go abroad. And if we had higher taxes that wouldn’t affect the trade deficit but it would affect the fiscal deficit. I see no linkage between the fiscal deficit and the trade deficit. My AI inquiries produced no linkage either (not that AI is always correct).
If you had higher taxes you would have less money to pay for imports.
The trade deficit inflates the global amount of dollars since those imports are not paid by value in kind but by conjured dollars. The conjured dollars are created with deficit spending. Fiscal and trade deficits/inflation are balance sheets. Trade deficits export inflation.
Countries pay in currency. They don’t pay with value in kind.
Dollars are not conjured unless the Federal Reserve “prints” those dollars and literally gives them to the importer, which I have never heard of. If you can cite an example, I’d luv to read it.
Yes, fiscal and trade deficits are balance sheet items but just because it is an accounting identity does not necessarily mean that the trade and federal deficits are one and the same. A country can run a trade surplus and run a fiscal deficit at the same time.
The US does not and has not run consistent trade deficits?
Read Michael Pettis’ book or books and he can explain how fiscal and trade deficits as well as unemployment work hand in hand.
Also found this. https://www.crfb.org/blogs/did-trade-deficit-cause-20-trillion-debt
Nobody said that trade deficits were responsible for the national debt.
The article’s assessment as false is 100% spot on !
The US didn’t run a trade deficit until sometime in the 70s.. We had a surplus until then. We also were the reserve currency. So it’s incorrect to state we need to run a trade deficit to have a reserve currency. Don’t understand where that idea comes from
Before the 1970s, most reserves were in gold, not dollars.
they are still majority in gold by a very long shot. go look. make sure to price gold in current value and not at 40USD per ounce as stated
Link to that?
But they were diminishing rapidly. Nixon could read a balance sheet!
I remember reading a ‘Time Magazine’ essay some time in the l960s or l970s in which the comment was made that the U.S.A. ran a trade surplus, but the balance of payments was consistently tipped by the cost of occupation troops in Europe and Japan. That was how other countries obtained their surplus in dollars in the days before America became a trade deficit nation.
The answer as always is BUY BUY BUY
If oil prices surge (strategic reserves empty, Hormuz remains constrained), big oil-importer Japan will face mounting pressure to increase its interest rates and sell US Treasuries. If oil goes high enough, that could be the trigger for a precipitous unwind of the vaunted and massive Yen carry trade. If so, Katie bar the door.
the carry trade was wonderful for so many years trading FX. i prefer gold in times like this.
Why isnt the bond market having a stronger reaction. Seems muted, maybe happy that there seems some progress on the strait. Even if it is just BS, desperate for good news.
The stock market surged after the intervention, viewing it as their beloved “liquidity.”
yes the real news regarding the strait is not good here is an example Sailors on USS Lincoln outside Iran are exhausted and suffering from poor morale on ship, families warn‘Apparently, the ship’s doctor or therapist said they need to hit port soon or people are going to start, you know, losing their minds,’ says Bonnie York, whose stepson serves on the carrier
https://www.independent.co.uk/news/world/americas/us-politics/us-sailors-marines-iran-war-uss-lincoln-food-shortage-b3028371.html
China wants to be able to sell things and make money and hopes that the Americans will turn on them last.
Why does the world actually need a single reserve currency?
It doesn’t need and it doesn’t have. It escapes me why the dollar is popularly and here referred to as the one and only reserve currency.
Countries have reserves in a mix of currencies used by their trade partners. That is the dollar, the euro primarily, but also with those countries whose trade is in each other’s currency, like the RMB, rubles and rupees. Countries may want to get some return on the reserves and then buy sovereign bonds in several currencies.
the largest position by a long shot, is gold. dwarfs dollar positions. same is true for many reserve banks around the globe. gold is the true and time tested reserve money.
Hey Mish,what’s the best thing to do, to protect yourself from this…
All I can do is tell you what I am doing. I have been long gold and miners.
Buying dips in energy may be a good idea. Perhaps Papa Dave or others will post some ideas.
I do not like Bitcoin. And I think technology is a bubble,
Thanks Mish
Not to worry. We have taco and pissant to take care of everything. After all, consider their track record on other issues.
I don’t think Bessent is doing this to “please” Trump. I think as you stated he doesn’t know what else to do. He is a smart guy and I think that he like most of Trumps advisors despise him for the fucking idiot he is.
My definition of “smart” does not include going to work for a guy like Trump.
If you go with AI, everything is hunky-dory, “Scott Bessent enjoys a close, influential working relationship with Donald Trump built on honest economic analysis, shared strategic goals, and mutual trust.”
But hey, AI is impartial, right?
How does anyone partake in “mutual trust” with Donald Trump? One could scarcely come up with a more butter-smooth, anodyne piece of AI slop.
These guys join the cabinet so they can cash out their investment holdings for free, federal law if u serve in admin
Huge payday for some like bessent
Knowledge is Power!
You fellers aren’t as smart as J. D. Vance, who started out by disliking Trump, and then realized that he was, in his own way, a genius. I don’t know how Trump will sort this one out, but I certainly am glad that someone like him is in charge. Can you imagine what would have happened if there had been this sort of crisis on poor old Joe Biden’s watch? Either there would have been disaster, or whoever was really in charge (if there was anyone) would have had to step out of the shadows.