(How) Trump Just Signed America's Economic Death Warrant

We’ve been talking about how America collapsed. What it means for at a civilizational level. How you can’t build a society on nothing. I’m going to interrupt this series of essays to give you a warning.

We’re going to talk about international finance and economics, because right now, I need to teach you a little bit about them. These are subjects Americans are almost never taught: they’re kept in the dark, and treated like children. I’m not going to do that. I recommend that you read the following carefully.

Trump just did the dumbest thing he’s ever done, and you’re going to be paying the price for it for the rest of your life. I don’t like speaking in severe terms. But in this case, I have to. I think it’s perhaps the dumbest thing you can do when it comes to finance and economics.

Trump just released his national security strategy. It’s going to cause shockwaves, which will reshape the world, financially, geopolitically, and macroeconomically, and their consequences will be severely bleak and dire for Americans. It’s so bizarre, specious, and delusional, that it makes America’s new chief enemy out to be Europe.

Here’s a brief summary.

“The new National Security Strategy, posted on the White House website overnight Thursday-to-Friday, denounced the European Union as anti-democratic, and said the goal of the U.S. should be “to help Europe correct its current trajectory”.

It accused European governments of “the subversion of democratic processes”, including to thwart what it said was a demand from the European public to end the war in Ukraine.

“Over the long term, it is more than plausible that within a few decades at the latest, certain NATO members will become majority non-European,” the document said.

“It’s language that one otherwise only finds coming out of some bizarre minds of the Kremlin,” Former Swedish Prime Minister Carl Bildt said on X, describing the document as “to the right of the extreme right in Europe”.

You might say, so what? Just par for the course with Trump. This trainwreck of a document is going to have catastrophic consequences for the US economy. Here’s how.

America is the world’s largest debtor.

Now. Who are its creditors? You might have heard that America owes money to Japan, and to China. That’s correct. In terms of individual countries, these are America’s top two creditors—America owes Japan about $1 trillion, and China a little less, though that’s murky, because we don’t quite know how much China really has, given its opacity.

But in fact, America’s largest creditor isn’t Japan or China.

It’s the EU.

Together, the EU countries hold more US debt that Japan and China put together. By quite some ways. Over $2 trillion of it, in fact.

So Trump just declared the EU to be America’s new enemy number one, and in a kind of typically Trumpian move, he gaslit it, too, calling it anti-democratic, and uncivilized (which no doubt makes you chuckle if you’re European.) Those would just be schoolyard insults, but for the crucial macroeconomic fact above: America is the world’s largest debtor, and its biggest creditor is the EU.

Are you beginning to see how astonishingly foolish this really is?

Trump just did the dumbest thing he’s ever done.

Because what happens if you decide to make enemies of the people who are bankrolling you? There’s a pretty good chance they won’t.

What would you do if you were bankrolling your broke cousin, and he…went MAGA…on you? He decided to call you names. He railed against you being the enemy of civilization. He said that you were anti-democratic, when you worried about Gestapos, and so forth. And then he began to threaten you. The first thing you’d probably do is stop bankrolling him. And the second thing you’d probably do would be to call in your debts. Where would your cousin be next?

Perhaps you’re getting my drift a little bit: the dumbest thing he’s ever done.

Trump fundamentally misunderstands how the global economy really works, and in particular, international finance. America doesn’t hold the cards. Its creditors do.

The US economy works—in reality, once you drop the capitalist hype and spin—like this. America’s the world’s largest debtor, but it’s also the world’s largest consumer. Consumption makes up 80% of the US economy, and if that sounds unhealthy, it is. It’s a number so high that it has to be bankrolled by debt. So: America borrows from the world, to overconsume.

It’s been allowed to do that for a reason: it was the guarantor of the post-war international order. People and nations both held its currency and its bonds, aka T-bills, as the world’s risk free assets. This allowed Americans to enjoy an “exorbitant privilege,” which meant that they could borrow to consume, from the world. But now all of that has changed—really finally changed, dramatically and irrevocably.

Trump just drove a knife through America’s place in the world, financially, economically, and politically.

What happens now? Now, Europe, the biggest investor in America, America’s largest creditor, is likely to stop bankrolling America. Who in their right mind would keep lending to a country that says the things Trump just did to Europe? And as it does that, a grim set of consequences will follow for America. America’s economy is based on consumption, but that consumption is fueled by debt. As the dice come up empty, and Europe rethinks its relationship with America, limiting and reducing the credit it’s been happy to extend to a friend and ally, America’s consumption must decline and fall—and that way lies depression.

Let’s zoom in for a moment, so that you really understand how international finance works, and how the world is losing confidence in America already.

Already, Trump’s minions are manipulating America’s massive debt. They’re doing what’s called “yield curve control,” in formal terms. That means: they’re propping up the price of America’s bonds, T-bills. They’re doing that by selling more short term debt, only in order to buy back long term debt. And they’re doing that because they have to: there are fewer and fewer buyers for America’s long term debt, as the world loses faith in it, its economy, its institutions, and its future. But they don’t want that to show, so they’re propping up the system, more and more each month.

Would you bet on an America that can repay you in 30 years, given what Trump’s doing? You’d be pretty foolish not to demand a steep haircut, at least, and that’s what the world’s already doing.

So the world is already pulling back from bankrolling America. So far, it’s just a consequence of what Trump did this year—the tariffs and trade wars, which shook confidence in America. This redefinition will shatter what’s left of that confidence. It will make every single one of America’s top creditors lose faith in America, period. And depending on how fast and hard the EU pulls back—remember, it’s the world’s largest investor in America, aka, its top creditor—America’s economy is going to be affected severely, catastrophically, and permanently. No, I’m not kidding about that.

If you doubt me, think it through. If you were the EU, and you heard this delusional, dangerous, claptrap coming from Trump—basically, Russian propaganda in disguise—declaring you the enemy of civilization…what would you do? Would you happily keep lending money to a country like that? You’d be foolish to. Because of course who wants to invest in…not just idiocy…nor even fruitless idiocy…but hostile idiocy?

Now. Europe is nice. It’s not like America. And so the process will be slow, and it’ll be subtle. Europe’s in shock right now, and has been this year. It’s not used to being trapped in between a warmongering Russia and a fascist America. So it will take it some time to really grasp the above. But in the end, the conclusion is foregone, because, like I said, the alternative is that you lend money to a fascist country that hates you. Sound smart to you?

Let’s take that a step further. Europe isn’t likely to use the nuclear option tomorrow—dumping its US holdings. It’ll go more like this. Already, it’s limiting investment in America, slowing it down, not adding to its holdings. Now, it will shrink them, almost certainly, gently and then faster and harder.

America’s the only country in the world foolish enough to have pissed off its largest creditor. Who is in fact its longest-standing ally. But it can’t be those things now. And in that respect, the future is now certain: Europe won’t call in the tremendous debts America owes it overnight—at least probably not—but it will now be forced not to invest in America.

Formally, I think that smart minds will see this as the prelude to a debt default. It is almost one by any other name. If you really believe that a country or set of them is the enemy, the antithesis of democracy, and so on—you’re one tiny step away from saying: and so we won’t pay you back, either. Markets will be forced to reckon with this, whether they like it or not.

What will that mean for Americans? It’ll have a range of dramatic consequences. For a country like America, where money is everything, but which is based on debt to begin with, the party is now coming to a swift, brutal end. America will have to spend much more now servicing its debt, which means less for everything else, bills will rise, prices will soar, and in the end, consumption must now fall, probably sharply, which means growth will, too. America’s already in stagflation–and now, what Trump just did is going to push it past the brink.

And this is for good, by the way. It’s irrevocable. Is Europe ever going to trust America again? Would you? Even those are the wrong questions. The right one is: who in their right minds is going to keep lending money to a society that doesn’t want them to exist? What do you do then? This is a death warrant for the American economy, which is based on that lending.

Trump doesn’t understand any of this. He imagines that he can insult and intimidate the EU into doing his bidding. He doesn’t seem to grasp in any way that the EU holds all the cards. If it begins dumping American assets tomorrow, which it could, but won’t, because again, it’s not hostile, like America, the American economy would go into a depression overnight, its entire banking system would seize up, the stock market would crash harder than it ever has, and all that would last until the EU stopped dumping.

And that’s the nice scenario, by the way. The bad one is if the EU called in its debts to America, overnight, which would bankrupt America in five seconds flat. This is how serious these stakes are.

I’d guess that all this is way, way over the heads of your finance guys. That’s why I said: please read it carefully. Understand the depth of what you’re facing now. If you’re American, Trump just destroyed a significant portion of your wealth, though you might not know it yet, because he just made America’s currency, stocks, and bonds, everything in the economy, worth far less, for good.

Let’s put that in a simpler way. If you were the EU, and you still reluctantly wanted to buy America’s debt…you’d undoubtedly ask a higher price for it, because now, well, will a country that hates you pay you back, or more to the point…

Should you be financially and economically supporting an unstable, highly-indebted, fascist country whose new official policy is that you’re now among its chief enemies?

When I put it that way, you might even chuckle. Before you shudder, maybe.

I’m reluctant to use words like ‘economic death warrant.” But there is no other way, at least thoughtful, adult, and responsible way, for me to educate you about what just happened. I’ve reflected on it for the last several days, in fact. How else am I to describe something so astonishingly foolish, yet also inevitably catastrophic?

Trump just permanently altered America’s place in the world. By making Europe America’s new enemy, he’s bit the hand that feeds him, and it’s highly unlikely that we’ll ever go back to the old world now, where not just China, as the story goes, lent money to America, to consume—Europe did most. That era is over now. But without that investment, what will be left of America?

And in that sense, by the way—we’ll discuss this more—Trump is making America uninvestable.

Read, think, and reflect, my friends. This is as real as it gets.

Love,

Umair (and Snowy!)