Trump's Global Credit Card: Time to Sever Financial Ties

Has the moment of dysepiphany arrived with Trump’s text message to Norway’s prime minister, complaining that since he did not win the Nobel Peace Prize for “having stopped eight wars plus”, he was now free to take the gloves off? Can we not all finally see the evidence of a seriously diseased mind? But perhaps we should treat the outrages of the last two weeks as a single package, starting with the deployment of a US naval armada to steal Venezuela’s oil on the high seas, to sell it on the open market, and then to transfer the first $500m (£370m) to a slush fund in Qatar beyond Congressional oversight. Let us not pretend that this escapade has anything to do with either democracy or fentanyl. Trump has shut out the democratic opposition and entered into a cynical joint venture with the Chavista police-state regime, newly headed by a woman deemed a “priority target” by the US Drug Enforcement Agency but now nonchalantly whitewashed as a “terrific person” after she agreed to hand over Venezuela’s oil industry and minerals. The latest assaults on decency include the attempt to evict Jerome Powell from the US Federal Reserve on bogus criminal charges, patently to debauch monetary policy and pump-prime the economy before the mid-term elections. They include the unpunished murder of Renee Good, a Presbyterian poet, ex-missionary and civic protester in Minneapolis, and then the shameless attempt to frame her and her family as terrorist extremists – leading to the resignation of six federal prosecutors in Minnesota, disgusted at such political abuse of the judicial apparatus. Immigration and Customs Enforcement (Ice) has become Trump’s personal paramilitary force and secret police in all but name – not so different from the Nazi Sturmabteilung in the first year of Hitler’s reign – with a budget second only to the Pentagon. It is now invading American cities with the clear purpose of provoking civil unrest and justifying recourse to the Insurrection Act, a precursor to suspending future elections if need be. There must be a high risk that Trump will escalate further across all fronts, and many other fronts that I have not even mentioned. Will he order the destruction of every solar panel and wind turbine in America, peeved that renewables made up 91pc of extra power added in the US last year? Neuropsychologist Ian Robertson says Trump has succumbed to “power addiction”. It is a disorder that works through the same dopamine reward circuits as drug addiction, requiring ever greater doses, and leading to hyperactive rage when thwarted. If US democracy were still functioning properly, it would be time to invoke the 25th Amendment and remove Trump for insanity, before he completely smashes both America’s institutions and what is left of Pax Americana abroad (still worth saving). But that requires a high-minded vice-president, cabinet and majority party in Congress. So far, they have been complicit or too frightened to act. JD Vance, the vice-president, came close to stating that the point-blank triple shooting of Renee Good was OK because she was a “deranged Leftist”. How does one become a fascist? Slowly, then suddenly, to borrow from Hemingway. China can take care of itself and profit from this unfolding disgrace. It has the weaponised deterrent of critical minerals. Trump’s capitulation has been total: China has won access to advanced H200 Invidia chips needed for artificial intelligence, and won a green light to take Taiwan – “it’s up to Xi”, said Trump. Europe and much of the world are not so well prepared. They are close to defenceless. The only constraint on Trump Unleashed is the global bond market. If you have a structural fiscal deficit of 6-7pc of GDP, a savings rate near zero and a reliance on the goodwill of foreigners to fund an explosive increase in debt issuance, you might wish to treat global creditors with a little care. The US treasury sold $654bn of federal debt over the four days from Jan 12-15, about the same in one week as the annual GDP of Argentina or the United Arab Emirates. It did not go well. The market yields on long-term bonds are refusing to come down as the Fed cuts rates, and it is the long end that sets the borrowing cost for mortgage debt, car loans, student loans and corporate debt securities. The yield spread between three-month Treasury bills and 10-year bonds has widened by some 0.6 percentage points since early November. “The Fed may want lower interest rates, but the market ain’t buying it,” said Willian Adler, an Elliott Wave technical analyst. He warns that the conditions are in place for a serious sell-off across risk assets. It could be similar to the bond rout that spooked Trump after the “liberation day” tariffs. This rising spread may simply reflect fears of resurgent inflation as front-loaded stimulus from the “one big beautiful bill” juices the economy over the coming months, with the risk of full-blown overheating if Trump hands out $2,000 a head as a pre-electoral bribe. But it may also be the first sign that America is starting to pay a price for the collapse of political credibility. The US treasury had to sell $30tn of federal debt last year, either in the form of rollovers on old debt or in new issuance. This is 100pc of GDP or five times the normal “danger line” monitored by rating agencies. The comparable figure is 31pc for Japan, 19pc for France, 16pc for Italy and 10pc for the UK – the latter reflecting the uniquely long maturity of gilts. Yes, the role of the US dollar as the world’s reserve currency distorts the picture. Companies and funds all over the world use US Treasury bills as quasi-cash, a liquid safe asset for parking money. Which makes you wonder what would happen if they started to use digital tokens linked to gold or a basket of commodities and global currencies as alternatives. Scott Bessent, the treasury secretary, is disguising the fragility of the bond market with “activist treasury issuance”. He is raising money through short-term bills to take the strain off long bonds, lifting the share of bills to 40-50pc of the monthly issuance, against the advice of the treasury watchdog that it should not exceed 20pc. Michael Gray, from Gray Capital Management, says this is a perilous game. The longer it goes on, the greater the accumulating rollover risk. He has accused Bessent of running the treasury like a hedge fund. The way to hold Trump’s feet to the fire is for the whole world – Europe, China, Japan, Brazil, central banks, sovereign wealth funds, pension funds, insurance companies and banks – to sit out the next auction by the US treasury and see how easy it is for US domestic capital markets to cover debt sales running at $2.5tn a month. Impossible to coordinate? Yes, of course. But it is time to start floating such ideas in public. The only language Trump understands is money, so let us cut off his global credit card.