Yes, that's the scary headline if Trump brokers a peace deal.
Spoiler alert, media claiming this is a doom loop for the administration probably haven't thought it through/don't understand how it could play out. It's a tad more complicated in reality.
Bond markets are too complex for me to really comprehend, but I don't think the Euro's are in much better fiscal shape than us, really, and likely wouldn't want to risk this set of possible ramifications. Plus, to the extent our 'allies' in the EU really just want to keep the war going, they need to keep buying US weapons/bombs/missiles for quite some time, which this clearly wouldn't facilitate either.
Rod Dreher had a great piece this weekend about "Euroclericalism and the Trump NSS." Their clericalists really do think they are always the smartest kids in class, imho, and they're often wrong.
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Insiders informed the WSJ that European leaders are weighing severe countermeasures in response, calculated to trigger economic turmoil across the United States. The proposed strategy includes liquidating trillions in American government bonds held by European governments.
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The political fallout could be catastrophic for Trump and the Republicans as the midterm elections loom next year. The EU and the UK, being among the largest holders of US Treasury securities (US debt), wield considerable potential economic leverage.
As of December 2024, the United Kingdom holds an estimated $722.7 billion in US debt.
The European Union member countries collectively hold an estimated $1.62 trillion.
Combined, this amounts to approximately $2.34 trillion, making the EU/UK bloc one of the single largest foreign holders of US debt.
Spoiler alert, media claiming this is a doom loop for the administration probably haven't thought it through/don't understand how it could play out. It's a tad more complicated in reality.
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But here's what European leaders don't want to admit: they'd probably suffer worse.
The UK's vulnerability got exposed during the 2022 Mini-Budget crisis. UK pension funds use strategies that are wildly sensitive to yield spikes. A lot of these involve US assets or derivatives tied to global rates. When US yields jump, UK Gilt yields follow.
The collateral backing UK pensions loses value. Margin calls hit. To meet them, pensions have to sell assets, usually Gilts, which drives yields higher, triggering more margin calls. Doom loop.
In 2022, the Bank of England had to step in to prevent pension fund insolvency. A US-triggered crash would be orders of magnitude larger. By attacking the US bond market, the UK would be setting off a bomb in its own pension system.
European banks have a similar problem: they're structurally short dollars. They hold massive dollar-denominated assets and fund them with short-term dollar borrowing. US Treasuries are what they use as collateral to get those dollars in the repo market.
If the EU forces banks to sell Treasuries, it strips away the collateral they need to operate.
The result: a massive dollar funding squeeze across Europe. Banks can't roll over their debts. They turn to the ECB for dollars. The ECB can't print dollars. The ECB has to ask the Fed for swap lines.
In the middle of a financial war, Trump says no.
The EU and UK hold about $2.5 trillion in US assets. By selling aggressively, they drive down prices on the very thing they're trying to exit. That crystalizes hundreds of billions in losses for European taxpayers and pensioners.
Bond markets are too complex for me to really comprehend, but I don't think the Euro's are in much better fiscal shape than us, really, and likely wouldn't want to risk this set of possible ramifications. Plus, to the extent our 'allies' in the EU really just want to keep the war going, they need to keep buying US weapons/bombs/missiles for quite some time, which this clearly wouldn't facilitate either.
Rod Dreher had a great piece this weekend about "Euroclericalism and the Trump NSS." Their clericalists really do think they are always the smartest kids in class, imho, and they're often wrong.