{"id":2954,"date":"2025-07-31T18:26:44","date_gmt":"2025-07-31T18:26:44","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=2954"},"modified":"2025-07-31T18:26:44","modified_gmt":"2025-07-31T18:26:44","slug":"hybrid-economic-warfare-scenarios-for-a-massive-sell-off-in-american-assets-and-the-nuclear-solution","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2025\/07\/31\/hybrid-economic-warfare-scenarios-for-a-massive-sell-off-in-american-assets-and-the-nuclear-solution\/","title":{"rendered":"Hybrid economic warfare: Scenarios for a massive sell-off in American assets and the “nuclear solution”"},"content":{"rendered":"\r\n\r\nUS bond yields are rising amid concerns about inflation and monetary policy, putting significant pressure on the US\u2019s already tight fiscal position. If President Donald Trump fails to secure sufficient revenue from retaliatory tariffs and a surge in inflationary pressures is not averted, the world\u2019s largest economy risks a sudden death.\r\n\r\n \r\n\r\nOn Tuesday (22\/7), US Treasury yields rose after the release of June inflation data. The Consumer Price Index (CPI) rose 0.3% month-on-month, with annual inflation at 2.7%. Core inflation, which excludes food and fuel, rose 0.2% month-on-month and 2.9% year-on-year. The data significantly reduces expectations that the US Federal Reserve (Fed) will cut interest rates at this month’s meeting – despite Donald Trump’s suffocating pressure on Chairman Jerome Powell.\r\n\r\n \r\n\r\nAs a result, bond investors demanded higher yields on both short- and long-term Treasury bonds.\r\n\r\n \r\n\r\nThe 10-year yield rose 6 basis points to 4.485%, while the 30-year yield rose 4 basis points to 5.015%. The 2-year yield rose nearly 6 basis points to 3.954%.\r\n\r\n \r\n\r\nDespite the recent rise, yields on 10-year and 30-year bonds remain well below their historic highs in 1981, when the 10-year reached 15.82% and the 30-year 15.19% – but that doesn’t mean there aren’t signs of alarm.\r\n\r\n
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\"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n
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\"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nThe Bond Market Punishers<\/strong>\r\n\r\n \r\n\r\nThe global bond market is larger than the stock market, with a total value of more than $140 trillion. The U.S. Treasury market is worth more than $51 trillion, making it the largest in the world.\r\n\r\n \r\n\r\nInvestors closely monitor U.S. bond yields because they are key indicators of the direction of the global economy.\r\n\r\n \r\n\r\nRising yields usually indicate greater confidence in growth prospects, but they can also mean increased inflation expectations. Conversely, low yields can signal reduced growth expectations or low inflation.\r\n\r\n \r\n\r\nDuring times of economic uncertainty or quantitative easing by the Fed, yields fall (i.e. a country borrows more cheaply) as investors turn to safe havens, such as government bonds.\r\n\r\n \r\n\r\nPolitical Influence on the Bond Market<\/strong>\r\n\r\n \r\n\r\nBond vigilantes are investors who sell government bonds in response to policies they consider inflationary or fiscally irresponsible, thereby increasing the cost of borrowing for governments. The term was coined by economist Ed Yardeni in the 1980s. Historical examples of this practice include:\r\n\r\n \r\n
    \r\n \t
  • The \u201cGreat Bond Slump\u201d in the early 1990s under President Clinton.<\/li>\r\n \r\n \t
  • The sharp rise in yields after Trump\u2019s election in 2024.<\/li>\r\n \r\n \t
  • The dramatic bond crisis in Britain in 2022, under Prime Minister Liz Truss, which led to the collapse of the currency and her resignation.<\/li>\r\n \r\n \t
  • Similarly, in the US, Donald Trump’s announcement of tariffs on “Liberation Day” (April 2, 2025) led to massive sales of US bonds \u2014 even from China and Japan, the largest holders of US debt.<\/li>\r\n<\/ul>\r\n
    \r\n
    \"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nRisks to the US economy and global stability\r\n\r\n \r\n\r\nAnalysts warn that Donald Trump\u2019s policies \u2014 retaliatory\/punitive tariffs, tax cuts and pressure on the Fed \u2014 could lead to a fiscal crisis.\r\n\r\n \r\n\r\nMarkets are already reacting nervously, but without reaching critical levels yet. The legislation signed on July 4, 2025 (\u201cBig Beautiful Bill\u201d) is expected to reduce tax revenues by $5 trillion by 2034, while according to the Committee for a Responsible Federal Budget, the debt-to-GDP ratio could exceed 140%.\r\n\r\n \r\n\r\nIf Trump fires Fed Chairman Jerome Powell, as he has suggested, it could trigger a massive capital flight, a collapse in the dollar, and a sharp rise in yields, creating a vicious cycle:\r\n\r\n \r\n
      \r\n \t
    • Falling trust in institutions<\/li>\r\n \r\n \t
    • Rising inflation expectations<\/li>\r\n \r\n \t
    • Massive bond sell-off<\/li>\r\n \r\n \t
    • Pressure on stocks and the banking system<\/li>\r\n<\/ul>\r\n \r\n\r\nThe \u201cbond watchdogs\u201d are back, putting pressure on governments with the power of the markets. The Liz Truss episode is typical of what can happen when the market loses confidence. If the US continues on a path of increasing debt and decreasing revenues, it could face a similar crisis. In such an event, the only safe havens left are precious metals and commodities.\r\n\r\n \r\n
      \"\"<\/figure>\r\n \r\n\r\n \r\n\r\n \r\n\r\nWhy does divestment from U.S. debt matter?<\/strong>\r\n\r\n \r\n\r\nThe U.S. Treasury relies heavily on foreign capital to finance the federal government\u2019s massive (about $2 trillion) deficits. So if foreigners\u2019 appetite for buying U.S. government debt wanes\u2014at a time when federal deficits are skyrocketing\u2014where will the Treasury get the money?\r\n\r\n \r\n\r\nThere are essentially two answers:\r\n\r\n \r\n
        \r\n \t
      • Either (1) the Federal Reserve will \u201cprint\u201d money,<\/li>\r\n \r\n \t
      • or (2) domestic investors within the U.S. economy will buy government bonds and finance the deficit. But both options come at significant costs.<\/li>\r\n<\/ul>\r\n \r\n\r\nScenario 1: The Fed Buys Bonds<\/em>\r\n\r\n \r\n\r\nIn order for the Federal Reserve to buy U.S. government bonds (and essentially finance the government\u2019s annual budget deficit), the Fed must first expand the money supply. We often refer to this as \u201cprinting money,\u201d even though it all happens electronically.\r\n\r\n \r\n\r\nThe Fed calls it \u201cquantitative easing,\u201d but it\u2019s the same thing.\r\n\r\n \r\n\r\nThe consequence of QE is inflation\u2026 high inflation\u2014that is, a spike in the prices of goods and services. Think about it\u2014during the pandemic, the Fed\u2019s QE created about $5 trillion in new money\u2026 resulting in 9% inflation.\r\n\r\n \r\n\r\nCreating enough money to finance federal budget deficits over the next decade could lead to the Fed being forced to print $15+ trillion. So, it is likely that this will lead to a massive inflationary crisis.\r\n\r\n \r\n\r\nScenario 2: Financing Government Deficits from the U.S. Economy<\/em>\r\n\r\n \r\n\r\nAmerican investors, i.e. banks, funds, corporate trusts, etc., could also buy more U.S. government bonds to offset falling foreign demand. However, this capital comes at a large opportunity cost.\r\n\r\n \r\n\r\nEvery private capital entering the Treasury bond market means less money available to buy stocks, finance venture capital, or finance mortgages.\r\n\r\n \r\n\r\nThe net result is lower stock prices, higher mortgage rates, and more innovation.\r\n\r\n
        \r\n
        \"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nWhy is China the First to Dump US Treasuries?<\/strong>\r\n\r\n \r\n\r\nAfter the sanctions against Russia, which included freezing their holdings of Treasury bonds, other countries were spooked \u2013 especially China. China is likely afraid of becoming the next target of the use of the financial system as a geopolitical weapon. So China is hedging: they are selling US Treasuries and buying literally metric tons of physical gold \u2013 driving gold prices to record levels.\r\n\r\n \r\n\r\nThe dwindling foreign appetite for US debt is a glaring red flag. It signals waning confidence in the US fiscal credibility and could lead to capital pressures at home \u2013 or a nasty inflationary spiral if the Fed fills the gap. Many Americans may cheer the idea of being less dependent on Chinese or other foreign money. But in reality, foreign investment in government debt is the closest thing to a \u201cfree lunch\u201d the economy has ever come to.\r\n\r\n \r\n\r\nIt means foreigners are financing federal deficits, which means less inflation at home, and it allows private capital to invest directly in the U.S. economy.\r\n\r\n
        \r\n
        \"\"<\/figure>\r\n<\/div> \r\n\r\n \r\n\r\n \r\n\r\nThe plan to create a market for U.S. debt through stablecoins, bring in tariff revenue, and curb inflationary pressures will determine the outcome of President Donald Trump\u2019s bid to regain economic sovereignty.\r\n\r\n","protected":false},"excerpt":{"rendered":"

        US bond yields are rising amid concerns about inflation and monetary policy, putting significant pressure on the US\u2019s already tight fiscal position. If President Donald Trump fails to secure sufficient revenue from retaliatory tariffs and a surge in inflationary pressures is not averted, the world\u2019s largest economy risks a sudden death. On Tuesday (22\/7), US … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17,391],"tags":[138,482,998,44,121,747,180,141,29],"class_list":["post-2954","post","type-post","status-publish","format-standard","hentry","category-financial-markets","category-market-analyses","tag-bonds","tag-budget-deficits","tag-hybrid-economic-warfare","tag-inflation","tag-public-debt","tag-tariffs","tag-trade-war","tag-usa","tag-yields"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2954","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2954"}],"version-history":[{"count":1,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2954\/revisions"}],"predecessor-version":[{"id":2955,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2954\/revisions\/2955"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2954"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2954"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2954"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}