European leaders are considering dumping $2.34 trillion in US debt if Trump abandons Ukraine, potentially triggering an economic crisis worse than 2008
European leaders are considering dumping $2.34 trillion in US debt if Trump abandons Ukraine, potentially triggering an economic crisis worse than 2008
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.
Oh. 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.