European leaders are considering dumping $2.34 trillion in US debt if Trump abandons Ukraine, potentially triggering an economic crisis worse than 2008
What’s does it mean to dump debt?
I’m no economist and will probably get this wrong, but since there is nobody else here… least I can do is give you enough an answer that someone more knowledgeable will come and correct me.
Basically, governments can print magic slips of paper called “bonds” that people will want to buy for two primary reasons: (1) they get interest when they hold the bonds (interest paid by taxes), and (2) the bond is considered a safe way to store value (like how a house is considered a safe way to store value). The government, in return for selling those magic pieces of paper, gets the money used to buy the bonds. It’s the Treasury Bond market.
Now here’s two important details about the bond market: (1) Bonds have an inverse relationship with cost and interest rates. If stockpiles of bonds get sold, that increases the supply of bonds which causes price to fall — adversely causing interest rates to hike up. (2) Because U.S. Treasury bonds are considered risk-free, all other interest rates in the economy (mortgages, car loans, corporate debt) are built on top of the Treasury yield (Example: If a 10-year Treasury yields 5%, a bank might offer a 10-year mortgage at 5-6%). Basically, Treasury rates set the floor for almost all borrowing costs.
So if a foreign state sells massive quantities of bonds, interest rates everywhere can shoot up. That can make all of our existing debt too difficult to pay back. We’d be stuck with three options if it gets bad enough: (1) default on the debt, (2) debase our currency by printing enough money to push the problem down the road, or (3) balance the governments budget.
From what I understand, we’ve already pushed the limits of option 2 during the Housing Crisis and COVID. Printing more money is talked about as though it’s impossible without causing more harm than good. Honestly, I don’t know what happens if the bond market cracks at this point… a depression comparable to TGD?
Thank you.
From what I understand, we’ve already pushed the limits of option 2 during the Housing Crisis and COVID. Printing more money is talked about as though it’s impossible without causing more harm than good.
The neoliberal claim that the amount of money printed directly influenced inflation has been tested and couldn’t be proven so far.
Hyperinflation is either caused by too much demand or too little supply of goods, or by greedy fucking billionaires price fixing.They still keep making that claim and neoliberal governments (pretty much all of them) still act on it because it makes rich people richer. Nations sell their public infrastructure or make other bad deals to beg private actors for money, those earn interest and dividends.
As long as the USD is the de facto world currency it also seems highly unlikely that any amount of money printing would hit it’s value too hard. There’s always demand for dollars. On the other hand, Trump is working hard on incentivizing the world to use different currencies.
That they would sell or let their holding of US bonds expire and take the principal.
So like calling in the loan?
You could look at it that way. Broad strokes yes. The thing is it is probably a bluff.
The problem is the US dollar is the world reserve currency and the Euro Dollar market is massive. So even if a country doesn’t transact directly with the US it still is using dollars for transactions. The US is also the only world super power with a military to back that up.
When Russia started up in Ukraine again the Biden administration booted them from the settlement system and froze their funds in western institutions. Seeing that happen China and Russia are heading up a new BRICS settlement system. That is a direct threat to US interests in remaining the reserve currency.
The US response to this is to go after some of those countries joining BRICS with revolutions and stuff. And at home to pass the Genius Act. An attempt to keep US Treasuries relevant by requiring crypto stable coins to hold them as collateral.
What I think is happening is the US is going after all the other transactions for the people in countries with less stable currencies. Brent Johnson the Dollar Milkshake theory guy has his Orlando Investor conference talk on this theory up for free on youtube if you are interested.
TLDR: Some nations aren’t happy with the US and how it is acting and are threatening to de-dollarize. Except the US Navy is why much of the trade happens.
I don’t think exactly. As I understand: let’s say Italy is holding US debt. This debt has a certain value as long as the US economy is good because then there is a chance of repayment. So as long as Italy holds US debt, it’s interested in having trade with the US or generally being invested in the US economy to keep up the value of their debt.
If they let go of the debt they would have less interest in keeping the US economy up. They would pr stop encouraging their Italian companies to buy American machines/goods/services.
Something like that.
But how do they “let go” of US debt?
Using the phrase “nuclear option” metaphorically is pretty dumb when we’re talking about a war where parties have threatened to use actual nuclear weapons.
Id argue its still valid. Given that the people in charge (US perspective) dont give a shit about us beyond our productivity, $2tril of economic damage is probably exactly the same to them as being hit by a nuke. Honestly it might even hurt the parasite class more than a nuke because at least with a nuke they’d have pretense to go to war over it
I was thinking that too.
its clickbait all the way down
Yaah, I hit some of the other stories on that site. It’s a low-grade copy of some NewsCorp rag, that’s got a right wing bent. Not impressed.
That too.
Potential for a nightmare scenario:
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Trump dumps Ukraine for Russia.
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EU dumps $2.34 trillion in US debt
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Trump pulls out of NATO.
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Russia invades Poland or some other NATO country.
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US Dollar is worthless so we couldn’t do anything if we wanted to, and Trump is on Russia’s side anyway.
Its not a nightmare scenario … it is trumps roadmap.
US and Russia and OPEC (whoever refuses gets liberated) create a true oil and gas cartel, EU capitulates. China can’t compete with US+USSR. This is 100% the strategy in play right now.
Script is too old to be effective anymore. China is balls deep in renewables and by the time the final act plays out they’ll be even less dependent on those resources. They also play the generational long game and not a 4-year election cycle. US is in fuck around and find out territory.
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Finally, the EU grows a pair of cojones.
The problem with Trump is that these kinds of threats make him fly into a rage and escalate further. It could widen the relationship between EU and US because of that.
I’m happy EU is biting back for once, but I hate to think how Trump will respond.
Maybe. Let’s see if they follow through.
God let’s hope so. America has proven they are not leaders so, another country needs to step up and this would definitely do that.
As someone from the US, do it, rip the bandaid off, this is going to get much much worse before things have the chance to get better and good people here have all been rejected from having meaningful power.
edit this news source is questionable
Anything we can do to hurt the billionaires is a win.
The problem is that whenever billionaires are about to get hit by a bus … government usually throws a bunch of poor people in front of them to cushion or even stop the bus from hurting anyone with money.
But if the bus going fast enough…
…then we all die to save them.
I just love to see Trump’s balls in a vice no matter the context.
Do they make vises that small?
One thing is certain: NATO members threatening to collapse the US economy if they collaborate with Russia is nothing short of surreal. I must have drifted in some sort of weird alternate reality without realizing it at some point. I wish I could return to the portal where this happened…
The world actually ended in 2012. This is Hell.
Ah, that makes sense.
Holy mother forking shirt balls…
Yes. We are definitely in the bad place.
You need a small vice for the taco in chief
Haven’t they threatened this already? I say do it. Dump the debt and watch Trump go mad. The real fuck stick though is Miller. Trump is just lettings him fucking Nazi all over the place.
Miller is less dangerous than Vance: the former is an obvious nutjob while the latter, as much the Nazi as Miller, masquerades as a somewhat reasonable - if slightly creepy - human being
Miller is one of the writers of project 2025. Vance is a dumbass mouth piece that follows directions. He’s like the little kid behind the large bully.
The Express? Really? Get me a better source
I’ve seen other articles floating this idea but is this something that’s confirmed? This article refers to the Wall Street Journal but is there a concrete source in which EU representatives are quoted or a written proposal that would suggest such a course of action for me to look up?
Not that I have been able to find. This news source is also considered to typically not be credible.
I was going to ask the same. Also how come a US outlet has this and I haven’t seen anything on Europe-centric channels.
Sometimes one just has to wait a day or so.
I’m also unclear about what “dumping” those trillions actually means? If we truly had the USA by the balls like that I’m sure I’d have heard about this sooner.
Everyone has the US by the balls, that’s what the USD being reserve currency means.
Everyone owns a lot of USD, both cash and securities, so when the US prints money, inflation hits all the world.
Dumping basically means saying “hey, I’ve got the entire US GDP here in cash USD, I’m selling it for 100 EUR”, and watching the US go hyperinflating.
The catch is that it would crash the world economy.
Dumping basically means saying “hey, I’ve got the entire US GDP here in cash USD, I’m selling it for 100 EUR”, and watching the US go hyperinflating.
Oh. That sounds like a lose-lose situation.
That sounds like a lose-lose situation.
It’s also absurd. No holder of that much paper would take that write-down on their balance sheet, and even if they did, whoever bought that debt for EU100 could sell it for far more and earn a fortune. Equilibrium would almost instantaneously be restored.
And the thinking about the risk of USD’s status as a reserve currency is largely magical. It’s a reserve currency because of the stability and strength of the economy that backs it. But most of the disaster scenarios are based on that causality being reversed.
If, for some reason, USD was no longer used as a reserve currency, that would introduce friction to trade with the US, since there would need to be currency exchange done. For high volumes, that might add a fraction of a percent to transaction costs. That’s not enough to lead to massive changes in trade flows. And the liquidity of US government debt markets might be lessened, but liquidity is more a threshold phenomenon than a continuous one: 20% less liquidity in a market makes no difference, unless that means there’s not enough liquidity remaining to clear that market.
That’s why for once, the press’ nuke metaphors are apt.
Right wing media company saying false (based on what I’ve read) information. Typical, references that the wall street journal got information from European intelligence agencies. Yet, I haven’t seen anything to corroborate that from the WSJ itself. Intelligence agencies aren’t typically known for posting and explaining their plans. If the US economy crashes, the world’s economy crashes. It would be economic mutually assured destruction.
If it was any other paper, including weekly world news and the national enquirer, I might take notice. It’s the express. I personally have never read anything accurate or correct in that paper.
The Express isn’t even good for lining bird cages.
Wouldn’t they just be shooting themselves in the foot here? Even with all the talk about decoupling and tariffs, the European and American economy are still heavily intertwined and a recession in the US will almost certainly spread to the EU.
Look at what happened in 2008, some wall street crooks made some stupid bets on mortgages and then the euro-zone got sent into a debt crisis.
If they actually do it it will be great news.
