June 11, 2025

Macrofinancial Outlook for the Day

Big Beautiful Bill

Negative Consequences

June 2025: The Data Center Coalition Warned That The Clean-Energy Subsidies The Bill Does Away With Protect Against Rising Prices And Power Shortages. According to the Wall Street Journal, “The tech industry is fighting to save clean-energy subsidies in the tax-and-spending bill working its way through Congress, a sign that access to power is a priority for the biggest artificial-intelligence companies. The Data Center Coalition, a group that includes Microsoft, Alphabet’s Google, Amazon.com and Meta Platforms, recently made its pitch in a letter to Senate Majority Leader John Thune (R., S.D.), according to a copy viewed by The Wall Street Journal. The group asked him to preserve tax credits and loan funding that would be aggressively phased out in the version of the bill passed by the House of Representatives last month. The bill is fueling industry concerns about rising prices and power shortages if planned investments don’t materialize. But garnering enough Republican support to preserve the tax credits could prove difficult because of the party’s slim majorities in both chambers.” [the Wall Street Journal, 2025-06-10]

• With A Five Year Backlog For Natural-Gas Power-Plants, Renewables Have Accounted For Most Of The Growth In Near-Term Energy Generation. According to the Wall Street Journal, “Renewables account for most of the near-term electricity generation expected to be added across the U.S. There is a backlog of about four to five years for natural-gas power-plant equipment, making it difficult to build many more of those plants rapidly.” [the Wall Street Journal, 2025-06-10]

Capital Flight

June 2025: Hong Kong’s Pension Fund Managers Formed A Plan To Wind Down Their Treasury Holdings If The United States Is Downgraded Again. According to Bloomberg, “Hong Kong’s pension fund managers have formed a preliminary plan to sell down their Treasury holdings within as soon as three months if the US loses its last recognized top credit rating, according to people familiar with the matter. Industry groups including the Hong Kong Investment Funds Association and the Hong Kong Trustees” Association discussed the proposal with the pensions regulator on Wednesday, the people said, asking not to be identified as the meeting was private. Under local regulations, managers of the city’s HK$1.3 trillion ($166 billion) Mandatory Provident Fund system can only invest more than 10% of their funds in Treasuries if the US has a AAA or equivalent rating from an approved agency. The downgrade of US sovereign debt by Moody’s Ratings last month left Japan’s Rating & Investment Information Inc. as the only remaining approved firm with the highest score. While R&I has said it isn’t considering cutting its US rating, the Mandatory Provident Fund Schemes Authority last month urged pension fund managers to draw up ‘contingency plans’ in case of a downgrade.” [Bloomberg, 2025-06-11]

• Under The Plan, The Weighting Of Treasuries Would Fall From 46.37 Percent To Around 9 Percent. According to Bloomberg, “Under the plan, the weighting of Treasuries in FTSE Russell’s bond index would need to fall considerably if R&I downgrades US debt. US government bonds make up the biggest portion at 46.37%, followed by China, France, Japan and Germany. To provide a buffer against market fluctuations, Treasuries would need to be kept at around 9% of the benchmark to avoid breaching the 10% limit, the people said.” [Bloomberg, 2025-06-11]

Misleading Claims

Kevin Hassett: BBB’s Increasing Real Output Growth To 3 Percent Per Year Would Lead To More Revenue Than The CBO Estimated Costs. According to Brad DeLong, “Kevin Hassett: ‘If we get 3% [per year real output] growth, then that increases revenue by $4T, which is WAY more than the deficit increase that CBO estimates for the cost of the bill. So, this bill by itself is going to reduce the deficit, but we’re also coming after spending BIG with rescissions packages…’” [Brad DeLong, 2025-06-10]

• Brad DeLong: Trump’s Immigration Policies, Attacks On Global Value Chains, And Attacks On Foundations On Basic Research Could Set An Upper Bound Of 0.2 Percent Per Year On Potential Output. According to Brad DeLong, “How about Kevin Hassett’s 3% per year growth forecast? He is lying about that too. Under Joe Biden U.S. population growth was 0.8% per year, with 0.6%-points per year of that coming from net immigration. Under Joe Biden potential output growth—potential labor productivity growth (due to technology, investment, and deepening of the division-of-labor benefits of global economic integration) growth plus population growth—was 1.8% per year. Trump’s war on immigration is sending U.S. population growth negative. TRUMPXIT—chaos-monkey tariffs and sanctions throwing large amounts of sand in the gears of globalized value chains—is going to apply a headwind of perhaps 1% per year to U.S. economic growth, but it could be half that, and it could be double. The war on universities is going to curb technology growth. Chaos-monkey policy uncertainty is going to reduce investment as well. Thus we have a potential output growth rate of 0.2% per year as an upper bound for the United States over the next decade if Trumpist policies continue.” [Brad DeLong, 2025-06-10]

Consequences of Financial Deregulation

Crypto ETFs

June 2025: Trump’s SEC Took Steps Indicating The Approval Of A Solana ETF Could Be Imminent. According to Bloomberg, “US regulators have asked Wall Street firms racing to launch Solana exchange-traded funds to revise their paperwork, a sign that the novel crypto investment products may be available to investors soon. At least three asset managers have been asked to amend their US Securities and Exchange Commission filings to address two key features of the funds that track the world’s sixth-largest cryptocurrency. At issue are how funds will handle crypto redemptions and whether they plan to allow investors to earn rewards by pledging Solana tokens to help validate blockchain transactions, a process known as staking. The outreach suggests the Wall Street watchdog may be poised to give the next wave of ETFs its blessing, months after giving the green light to funds tied to Bitcoin and Ether.” [Bloomberg, 2025-06-11]

• Questions Around In-Kind Redemption And Staking Could Bring Forward Issues Of What Is A Security. According to Bloomberg, “Complicating the process is how far Solana fund issuers can go in replicating the structure of traditional ETFs while dealing in speculative tokens that operate differently from stocks and bonds. It’s unclear whether the funds will be allowed to redeem shares using the underlying crypto asset rather than cash, also known as in-kind redemptions. While this mechanism is relatively straightforward in traditional asset classes, it’s far more complex in crypto products due to challenges around custody, security and settlement. Another flashpoint is staking — a core feature of so-called proof-of-stake blockchains like Ethereum and Solana — which allows holders to earn returns. Staking raises questions about whether such tokens should be treated as securities.” [Bloomberg, 2025-06-11]

Staking and the question of what is a security

Under the Supreme Court’s Howey Test, something qualifies as a security if it involves an investment of money in a common enterprise with expectation of profits derived from the efforts of others. A basic Solana ETF that simply tracks token prices might argue it’s just providing exposure to a commodity—investors buy for potential price appreciation, period. To be clear, I would argue that Solana is a security, but the Trump administration’s definitions are likely much more crypto-friendly than mine are.

With staking, however, the staked tokens are clearly engaged in a common enterprise looking to profit from the efforts of others (those borrowing from the stake). If this is allowed, the SEC will have effectively waived the white flag on regulating cryptocurrenceis that are clearly securities, and that is a problem for the same reason it was a problem when a bunch of companies tried to raise capital through ICOs rather than IPOs in 2017. Securities have a lot more requirements, and the existing bodies of securities regulation provide methods for individuals to be compensated when they are mistreated by issuers. Without that category, investors will be at much greater risk, and if the Trump administration opens the floodgates for regulated money (the type that can buy ETFs) to flow into those unregulated markets, bad things could happen.

Private Markets

Moodys: The Push To Sell Private Markets Products To Retail Investors Could “Stress The Financial System.” According to the Wall Street Journal, “Wall Street’s push to sell private-equity and private-debt funds to individual investors risks overheating financial markets and backfiring on firms launching the funds, according to Moody’s Ratings. Private-fund managers have turned to individual, or retail, investors to offset a decline in money raised from traditional clients such as pensions and endowments. But in a report viewed by The Wall Street Journal, Moody’s warned that selling funds to retail clients will introduce new risks to private-asset managers, including ‘reputation loss, heightened regulatory scrutiny and higher costs.’ What is more, the Moody’s analysts wrote, the coming surge might even stress the financial system. ‘If growth outpaces the industry’s ability to manage such complexities, such challenges could have systemic consequences,’ the analysts said. ‘Private asset managers also face reputational risk if—in a scramble to grow share—credit standards slip or risk management falter [sic].’ The report is a response to the wave of new partnerships and mergers between mutual fund and exchange-traded fund companies and their private-fund counterparts.” [the Wall Street Journal, 2025-06-10]

Trade War

June 2025: The US Court Of Appeals For The Federal Circuit Extended Its Stay On An Order Blocking Trump’s “Liberation Day” Tariffs. According to Bloomberg, “Donald Trump can continue to enforce his global tariffs for now, a federal appeals court held in a win for the president on one of his signature economic policies. The order Tuesday by the US Court of Appeals for the Federal Circuit extends an earlier, short-term reprieve for the administration as it presses a challenge to a lower court ruling last month that blocked the tariffs. The Justice Department had argued that US officials” concerns about ongoing trade negotiations outweighed the economic harm claimed by the small businesses that sued. The Washington-based court put the case on an expedited track, citing the ‘issues of exceptional importance’ at stake, and scheduled arguments for July 31. The court didn’t offer a detailed reason for siding with the administration at this stage, indicating in the order that the government had met its burden for showing that keeping the lower court’s injunction on hold was ‘warranted.’ No judge noted a dissent.” [Bloomberg, 2025-06-11]

• In Arguing For The Stay, Trump’s Justice Department Argued Concerns Around Ongoing Negotiations Were More Important Than The Economic Harm Suffered By American Small Businesses. According to Bloomberg, “The order Tuesday by the US Court of Appeals for the Federal Circuit extends an earlier, short-term reprieve for the administration as it presses a challenge to a lower court ruling last month that blocked the tariffs. The Justice Department had argued that US officials’ concerns about ongoing trade negotiations outweighed the economic harm claimed by the small businesses that sued.” [Bloomberg, 2025-06-11]