A Civic Forum for Free Enterprise and Liberty

The program opened with an invocation from Pastor Rod Chaney, followed by founder's remarks from Brad Taylor on why REC exists and the kind of civic forum we're building for the long run.

Brad then introduced our inaugural speaker, John Hood — President of the John William Pope Foundation and one of North Carolina's most prolific voices on economics and public policy — who presented "Creative Construction: Economic Dynamism and the Carolina Comeback." A lively question-and-answer session followed, with the room clearly engaged well past the scheduled time.

In between, there was a buffet lunch and no shortage of networking — new members meeting steering committee leaders, founding donors comparing notes, and more than a few conversations that ran long after the last question was answered.

None of this happens without the people who backed REC before there was anything to show for it. The founding donors who contributed before September 9 funded the venue, insurance, and operating costs that made this launch possible — our thanks to all of you.

A photo gallery from the day is up on our Inaugural Luncheon page, and the full event video will be added there as soon as it's ready.

Next up: Dr. Carolyn Bourdeaux, Executive Director of the Concord Coalition, joins us Wednesday, October 21 for "Chart Talk: Solving the Federal Debt Crisis." We hope to see you there.

We learned that bond prices and yields move in opposite directions.

We saw how Treasury yields help set borrowing costs throughout the economy.

And we looked at how higher interest rates can make the federal debt problem harder as old debt matures and new borrowing becomes more expensive.

So what is the bond market telling us now?

Not just one thing.

That's important.

When interest rates rise, it's tempting to find one explanation: inflation, the Federal Reserve, government debt, war, or economic growth.

But markets aren't usually that simple.

Recent reporting in The Wall Street Journal points to several forces affecting bond yields at the same time.

Inflation is one. Higher energy prices can increase the cost of producing and transporting goods. Investors may then demand higher yields to compensate for the risk that inflation will reduce the purchasing power of the dollars they are repaid. Recent Journal reporting identifies renewed inflation concerns—particularly those associated with higher energy prices—as a major factor behind the latest increase in yields.

Government borrowing matters too. When governments issue large amounts of debt, they increase the supply of bonds investors are being asked to buy. Concerns about deficits and fiscal sustainability can also affect the return investors demand.

The Federal Reserve matters. Expectations—and uncertainty—about future monetary policy influence what investors are willing to accept on longer-term bonds.

Private borrowing matters. Companies are issuing large amounts of debt as well, including borrowing associated with the build-out of artificial-intelligence infrastructure. Those bonds also compete for investors' money.

And then there's economic growth.

Stronger growth can be good news. But it can also keep demand strong and inflation pressures alive, potentially keeping interest rates higher.

Weak growth presents a different problem. Investors may become more concerned about whether heavily indebted governments can generate enough future economic growth to manage their obligations.

That's why we should be careful about simple statements such as:

"Bond yields are rising because of the federal debt."

Maybe the debt is part of the story. But it isn't necessarily the whole story.

A better question is:

What combination of inflation, growth, monetary policy, government borrowing and private borrowing are investors responding to?

And that's one reason the bond market is worth watching.

Something happening thousands of miles away can raise energy prices, change inflation expectations, move bond yields—and eventually affect borrowing costs faced by households and businesses here in North Carolina.

The bond market can seem remote.

It isn't.

That's the point of this four-part series: not to tell you what conclusion to reach, but to give you enough of the basics to start asking better questions.

Explore the basics. Follow the evidence. Let the reader decide.

Sources

The Wall Street Journal — "There Are Four Forces Pressuring Bonds: War Is No. 1"
wsj.com →

The Wall Street Journal — "Borrowing Isn't the Bond Market's Only Concern—Growth Is Too"
wsj.com →

The Wall Street Journal — "Oil Prices Push Global Bond Market Closer to the Edge"
wsj.com →

The federal government regularly spends more than it collects. That yearly gap is the deficit. To cover the gap, the government borrows money by selling Treasury securities. The accumulated borrowing becomes part of the federal debt.

So what happens when bond yields rise?

Higher yields do not instantly raise the interest rate on every dollar the government already owes. But old debt matures. The government replaces much of it with new debt. It also borrows more to finance new deficits.

If the new borrowing carries higher interest rates, the government's interest bill rises over time.

That matters because interest itself is federal spending.

The Congressional Budget Office projects that net federal interest costs will exceed $1 trillion in 2026 and rise to about $2.1 trillion in 2036 under its current-law projections.

That money has to come from somewhere. Higher interest costs can mean more borrowing, higher taxes, less room for other federal spending—or some combination of those choices.

And that brings us back to the bond market.

Investors buying Treasury securities care about inflation, economic growth, government borrowing and the likelihood that they will be repaid in dollars that retain their purchasing power. Those forces can affect the interest rates investors demand.

So the relationship can begin to feed on itself:

Large deficits → more borrowing → pressure on the bond market → potentially higher interest costs → larger federal spending obligations.

That does not mean deficits mechanically cause every increase in Treasury yields. Interest rates move for many reasons. That's an important distinction.

But when a government already owes a great deal of money, higher borrowing costs make the fiscal arithmetic harder.

That is why what happens in the bond market matters far beyond Wall Street.

On October 21, the Raleigh Economics Club will continue this discussion with Dr. Carolyn Bourdeaux and the Concord Coalition, looking directly at America's federal debt and fiscal challenge.

Explore the basics. Follow the evidence. Let the reader decide.

Sources

The Wall Street Journal — "Bond Yields Around the World Soar in Challenge to Government Borrowing"
wsj.com →

Congressional Budget Office — "The Budget and Economic Outlook: 2026 to 2036"
cbo.gov →

Here is one reason.

U.S. Treasury yields are an important benchmark for many other kinds of borrowing.

That does not mean mortgage lenders simply copy the 10-year Treasury yield.

They do not.

Mortgage rates also include other costs and risks. The gap between Treasury yields and mortgage rates can change.

But when Treasury yields rise, mortgage rates often rise too.

So the direction matters:

A higher mortgage rate does not cause the bond selloff.

The connection usually runs more like this:

Bond prices fall → Treasury yields rise → borrowing benchmarks rise → mortgage rates can rise.

The Wall Street Journal reported this week that the classic 30-year fixed mortgage rate was again approaching 7%.

That matters in the Triangle for the same reason it matters everywhere else.

A Raleigh-area family buying a home may face a higher monthly payment.

A builder or apartment developer may face a higher financing cost.

A small business may pay more to borrow.

That does not mean Treasury yields alone determine Raleigh home prices, rents, or construction. Local supply and demand, land, zoning, wages, materials, and many other factors matter.

It simply means the cost of money is one real part of the picture.

Tomorrow: What happens when higher borrowing costs hit the biggest borrower in the country—the federal government?

We'll explore the basics, show some evidence, ask the questions, and let you decide what you think.

Sources and further listening

The Wall Street Journal — "What Does a Bond Selloff Mean for American Consumers?"
wsj.com →

The Journal — "How the Bond Market Will Affect Your Wallet" — September 4, 2026
wsj.com →

Why?

Because government bond yields have jumped in the United States and in other major economies. That can affect borrowing costs far beyond Wall Street.

Let's start with the simplest part.

A bond is basically an IOU. An investor lends money to a government or company, and the borrower promises payments and repayment later.

Now imagine you own a bond that pays less interest than similar new bonds being issued today.

Would another investor pay you the same price for your older bond?

Probably not.

You may have to sell it for less.

That gives us one of the most important bond-market relationships:

Bond prices down → bond yields up.

A "bond selloff" means bond prices are falling broadly as investors sell, buyers become less eager to buy at current prices, or investors demand a higher return before lending their money.

Why is the selloff "global"?

Because government bond yields have risen in several major countries at the same time.

And why is this happening now?

There is no single answer.

Recent Wall Street Journal reporting points to several pressures: higher energy prices and renewed inflation fears, worries about government borrowing, uncertainty about central-bank policy, a large supply of new bonds, and questions about future economic growth.

The Journal's coverage this week has generally treated these forces as intertwined rather than pretending one explanation settles the matter.

That is how REC wants to approach it too.

We'll explore the basics, show some evidence, ask the questions, and let you decide what you think.

Tomorrow: If bond yields rise, why can that make a mortgage in Raleigh more expensive?

Sources and further reading

The Wall Street Journal — "There Are Four Forces Pressuring Bonds: War Is No. 1"
wsj.com →

The Wall Street Journal — "Bond Yields Around the World Soar in Challenge to Government Borrowing"
wsj.com →

WSJ What's News in Markets — "Bond Selloff, Big Nvidia Deals, Apple's New CEO" — September 5, 2026
wsj.com →

Finance ministers and central bank governors from the G20 meet in Asheville August 31 through September 1, following meetings of their deputies over the weekend.

The original Plaza Accord was reached in 1985, when the United States, Japan, West Germany, France, and the United Kingdom coordinated action to bring down an overvalued U.S. dollar. Ip argues that today's problem runs in the opposite direction: China's currency is undervalued, giving Chinese producers a significant price advantage in world markets.

Why should anyone in Raleigh, Asheville, Charlotte, or elsewhere in North Carolina care? Because this is not an abstract debate about foreign-exchange markets. In 2025, North Carolina sold about $6.7 billion in goods to China. That means decisions about currencies, tariffs, and trade made in Beijing and Washington can have very real consequences for businesses, workers, and consumers in our state.

Why the Value of the Yuan Matters

China does not allow its currency to float as freely as the U.S. dollar. The Chinese government manages the yuan and maintains significant controls over capital moving into and out of the country. When the yuan is relatively weak against the dollar, Chinese products tend, all else equal, to become less expensive for American purchasers. The reverse is also true: American goods become relatively more expensive for Chinese purchasers.

Imagine a North Carolina company selling machinery, chemicals, pharmaceuticals, agricultural products, or other goods into China. If the yuan appreciates against the dollar, a Chinese customer needs fewer yuan to purchase the same dollar-priced North Carolina product. A stronger yuan can therefore make North Carolina exports more competitive in China while making Chinese exports relatively more expensive in the United States.

The scale of the issue is remarkable. China recorded a goods trade surplus of nearly $1.2 trillion in 2025, and the Wall Street Journal reports that Goldman Sachs projects a surplus of roughly $1.2 trillion again this year. Economists disagree about exactly how undervalued the yuan is — the Journal cites Goldman Sachs at about 19 percent and economist Brad Setser at about 35 percent. The International Monetary Fund's estimate is more conservative, placing the undervaluation of China's 2025 real effective exchange rate roughly between 12 and 21 percent, with a midpoint around 16 percent. Different methodologies produce different answers, but they point toward the same underlying issue: China's exchange rate and broader economic imbalances have made Chinese production unusually competitive in world markets.

Is China "Cheating" — or Just Playing a Different Game?

It is tempting simply to call this currency manipulation. But precision matters. The U.S. Treasury does not currently formally designate China a "currency manipulator." China does, however, remain on Treasury's Monitoring List. Treasury has specifically criticized China's lack of transparency concerning its foreign-exchange policies and warned that attempts to resist yuan appreciation through formal or informal intervention could support a future manipulation designation.

The broader problem also extends beyond direct currency intervention. China combines very high savings, weak household consumption, enormous manufacturing capacity, extensive industrial policy, and a financial system in which the government exercises considerably more control than governments in most market economies. The IMF itself has concluded that China's external position is stronger than would be justified by economic fundamentals and desirable policies.

So the real question is larger than whether Beijing is literally buying or selling currency on a particular day. How should market economies respond when another major trading nation operates an economic system that can systematically distort international prices? Ignoring those distortions is not necessarily free trade. But neither is permanent protectionism.

Could Tariffs Be Used as Leverage?

This is where the Wall Street Journal argument becomes particularly interesting. Tariffs are often discussed as though we must decide whether they are simply "good" or "bad." The real question should include how they are being used.

Permanent tariffs are a dangerous economic instrument. They can raise costs for American consumers, increase costs for American manufacturers using imported components, invite retaliation against American exporters, disrupt supply chains, and protect politically favored industries from competition.

But tariffs can also potentially serve as negotiating leverage. The United States and other major economies could effectively tell China: allow meaningful appreciation of the yuan and begin correcting the underlying economic imbalance, and the tariffs come down. That is fundamentally different from saying tariffs themselves are the objective. The ultimate goal would be fewer distortions and freer trade.

The Trump Dilemma

There is an important problem with that strategy. President Trump has embraced tariffs for purposes extending beyond negotiating concessions from China. He has promoted them as tools for protecting American industry, encouraging domestic production, raising revenue, and obtaining leverage over trading partners.

That creates an interesting negotiating dilemma. If tariffs themselves become a desired permanent policy, can they still be traded away for something potentially more valuable? Suppose China were considering a significant appreciation of the yuan. Beijing would reasonably ask: if we undertake this difficult adjustment, will Washington actually remove the tariffs? If China believes the tariffs will remain regardless of what it does with its currency, its incentive to make the deal diminishes substantially. Negotiating leverage is most valuable when you are willing to exchange it for what you actually want. That is precisely one of the obstacles Greg Ip identifies.

Why America Probably Cannot Solve This Alone

The Plaza Accord provides another lesson: the United States did not act alone in 1985. Five major economies coordinated their policies. China today sells enormous quantities of manufactured goods not only to America but also to Europe, Japan, and much of the rest of the world, and those economies increasingly confront the same underlying imbalance.

Collectively, the United States, Europe, Japan, and other advanced market economies represent an enormous share of China's foreign customers. Working together could therefore provide much greater leverage over Beijing than unilateral American action. But that produces another irony: if the United States imposes tariffs on its allies as well as China, those governments may become less willing to cooperate with Washington in a coordinated effort toward China. Tariffs can therefore create leverage while simultaneously making it harder to assemble the international coalition needed to use that leverage most effectively.

Why North Carolina Should Care

North Carolina is deeply connected to international commerce. In 2025, our state sold approximately $8.6 billion in goods to Canada, $6.7 billion to China, $5.3 billion to Mexico, $2.0 billion to France, and $1.2 billion to Germany. Altogether, North Carolina exported a record $43.8 billion in goods worldwide in 2025. Manufactured products accounted for $41.5 billion of those exports — chemicals alone accounted for $17.7 billion, followed by machinery, transportation equipment, computers and electronics, and electrical equipment.

Those numbers represent businesses, jobs, investment, and communities. So when economists debate China's exchange rate, the consequences eventually reach North Carolina. They can affect whether a North Carolina manufacturer wins an overseas contract. They can affect what a Raleigh business pays for imported components. They can affect farmers and exporters. They can affect consumers. And they can influence where companies decide to invest and manufacture.

The Bigger Question

The debate over China should not be reduced to two slogans: "Tariffs are good." Or: "Free trade means doing nothing." Neither is adequate.

The more important question is whether international commerce is actually occurring under reasonably competitive market conditions. If China's currency and economic policies contribute to a substantially undervalued exchange rate and enormous export surpluses, simply ignoring those distortions does not necessarily produce free trade. But replacing Chinese distortions with permanent American tariffs creates a different set of distortions.

The challenge is to find the least damaging tools capable of restoring more genuinely competitive markets. One possibility is targeted, temporary tariffs used as negotiating leverage, preferably in cooperation with other major market economies, in exchange for meaningful currency appreciation and broader economic rebalancing. And then the tariffs should come down.

Making Economics Understandable — and Relevant to North Carolina

This issue illustrates exactly why we created the Raleigh Economics Club. Economics connects the local with the global. A currency decision made in Beijing can affect a manufacturer in North Carolina. A tariff imposed in Washington can affect a business in Raleigh. A meeting of finance ministers in Asheville can address economic forces affecting companies and consumers throughout our state.

The Raleigh Economics Club wants to make those connections understandable. Our purpose is not merely to repeat economic slogans. We want business people, entrepreneurs, academics, students, policymakers, professionals, and interested citizens examining important questions together: What actually produces prosperity? How do markets work — and what happens when governments distort them? How should America defend free enterprise when other countries operate under different economic rules? And how do international economic policies ultimately affect North Carolina?

Economics can be complicated. It should not be incomprehensible. Those are the kinds of issues and conversations the Raleigh Economics Club exists to explore.

You've probably read about I, Pencil before. But it's worth revisiting. In 1958, Leonard E. Read published his now-famous essay observing that no single person on earth knows how to make a pencil — yet millions of strangers, coordinated by nothing but prices and voluntary exchange, deliver one to you for pennies. It's one of the clearest illustrations ever written of Adam Smith's invisible hand and Friedrich Hayek's insight about dispersed knowledge — and exactly the kind of idea the Raleigh Economics Club exists to explore.

I'm not a marine biologist, and I'm not an economist either — I'm a lawyer who spends a lot of time thinking about how free people coordinate their affairs without anyone in charge. But watching that reef, I kept seeing the same principle Smith described 250 years ago: individuals pursuing their own narrow interest, with no plan and no planner, somehow producing an order that benefits everyone involved.

The clownfish and the anemone. The anemone's sting is lethal to most fish. The clownfish is immune to it, and in exchange for the anemone's protection, it drives off the anemone's predators and cleans up its debris. Neither party is being generous. The anemone doesn't "decide" to shelter the clownfish out of kindness, and the clownfish doesn't defend its host out of loyalty. Each is simply better off for the arrangement than it would be alone. That's the whole of Smith's insight in miniature: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

The cleaner shrimp and the moray eel. This one is the most striking, because of the power imbalance. A moray eel could swallow a cleaner shrimp without effort. Instead, it opens its mouth and holds still while the shrimp picks parasites from its teeth and gills. The eel gets cleaned; the shrimp gets fed and, notably, doesn't get eaten on the way out. There's no contract and no enforcement mechanism — just a pattern of exchange that has proven, over time, more valuable to both parties than the alternative. It's a small case study in why trust and repeated exchange, not force, are what make trade durable.

The pistol shrimp and the goby. This is my favorite, because it's really a story about specialization. The pistol shrimp is a skilled excavator but nearly blind. It digs and maintains a burrow that both animals shelter in. The goby, which has good eyesight, stands guard at the entrance and flicks its tail to warn the shrimp of approaching predators. Neither animal is equipped to do the other's job well. But paired together, each contributing what it does best, they're both safer than either would be alone. That's comparative advantage and division of labor, playing out on the sea floor.

The coral and its algae. Coral polyps host algae called zooxanthellae inside their own tissue. The algae photosynthesize and share the resulting sugars with the coral, which is the coral's main food source. In return, the coral provides shelter and compounds the algae need, and — this is the part that caught me — the coral's tissue also keeps the surface clear of other, parasitic algae that would otherwise crowd in and choke off the exchange entirely. It's a relationship that has to actively maintain its own conditions for trade to keep functioning. Left unmanaged, the reef can be overrun by exactly the kind of freeloading growth the coral evolved to keep out.

None of this means a reef is a marketplace, or that fish are rational economic actors. It's a metaphor, and metaphors break down if you push them too hard. But I think it holds up better than most: an ecosystem with no CEO, no regulator, and no five-year plan, where thousands of species pursuing nothing but their own survival produce something that looks remarkably like order. Smith didn't need coral reefs to make his case for the invisible hand — but I suspect he'd have enjoyed the company.

Two hundred fifty years ago today, fifty-six delegates in Philadelphia pledged their lives, fortunes, and sacred honor to the proposition that liberty is the birthright of every person. The prosperity that followed — in this country and wherever its example took root — was not an accident. It flowed from the ideas declared that day: self-government, the rule of law, and the freedom of individuals to work, trade, build, and flourish. Those ideas are an inheritance, and every generation must decide whether to steward it. This club is our small contribution to that stewardship.

Our Inaugural Event on September 9 features John Hood — one of North Carolina's most prolific and thoughtful commentators on public policy and economic life. John brings a depth of knowledge about both the theory and practice of limited government that makes him an ideal first speaker.

We believe Raleigh is ready for this kind of club. The Triangle is home to world-class universities, innovative companies, a growing professional class, and a tradition of civic engagement. What has been missing is a dedicated forum — independent of any institution, open to the public, and unafraid of serious ideas.

The Raleigh Economics Club intends to fill that gap. We hope you'll join us.