Drumpf does have a master

But is he aware of it?

I worked in an international bank for thirty years. The latter decades especially informed my respect for the awesome power of financial markets to determine geopolitical outcomes. Simply put, much as Clyde Barrow (of ‘Bonnie and Clyde’) replied, when asked why they robbed banks, he said, ‘Because that’s where the money is’. Multiplied up to a national level, historians use the same explanation for why countries attacked, invaded, took over or colonised other countries. It was usually in pursuit of money, riches, treasure – call it what you will. Sometimes this underlying reason might be masked by claims of ‘Security Concerns’ or even Aid Relief. Either of these give a foothold and an information source as to what’s afoot politically and an excuse to take over or control trade streams.

It’s not as complicated as some might pretend.

Like you, I’ve watched and listened to broadcasts of European leaders and wealthy ‘Masters of the Universe’ (it was Tom Wolfe, who wrote ‘Bonfire of the Vanities’ who coined that term) huddling this week in Davos, Switzerland, fearful of what the US President might do or say in relation to Greenland – a fellow NATO member and autonomous territory belonging to the Kingdom of Denmark. No matter that he frequently muddled up Greenland and Iceland when speaking – they are only 200 miles apart, after all, albeit of vastly different sizes. His expressed desire for wanting to own the island was just that he ‘wanted’ it and was going to have it. His ‘Security’ explanation doesn’t wash – there’s a long-standing agreement for the US to build as many military bases there as it wishes. At first, he suggested he’d use any and all means to achieve this aim of owning it – military solutions included. He caused a collective frothing at the mouth; predictions of the collapse of NATO; furrowed brows among senior military forces – ‘that’s ridiculous’; ‘it’s impossible’; ‘wait – the US supplies our [insert name of weaponry]. How are we going to..?’

I cannot be alone in identifying the trigger which caused the President to climb down from this brinkmanship.

It wasn’t his meeting with the Secretary General of NATO, Mark Rutte. Whatever was discussed, he emerged claiming they’d hashed out the ‘framework of a deal’ and ‘got everything he wanted’. Those details haven’t been made public yet. In this case, I don’t believe it was just the blandishments of the highly competent Secretary General.

Nor was it use of his well-worn approach to negotiation – open with a ridiculous demand and give way to something more workable.

Instead, I believe it was the vulnerability of the US economy to such bombastic rhetoric. Let me explain:

During the last twelve months or so, we have witnessed America’s on again/off again tariff wars – I use the word ‘war’, because that is what it is. Markets have all become sensitised to these manoeuvres. The term ‘T.A.C.O.’ was coined early on when this began. (‘Trump Always Chickens Out’). We know that the US economy is massive, but runs at a 6% deficit – there is a gap between what it spends and what it raises in taxes of more than 6% of GDP. Because Americans do not have enough savings, the US Treasury continues to issue more bonds to cover the deficit. If investors stop buying those bonds, or worse, start to sell down their positions, their existing holdings in long term dollar bond yields go up. So, the US Government has to pay more in interest, but so do all other issuers of dollar bonds – banks, companies, home buyers etc.

The Federal Reserve can pump out more short-term bonds to cover the gap, but that increases inflation. The Market notices this as a sign of weakness. It’s ‘printing money’.

Most indices fell by 2% or more on Tuesday, extinguishing their gains this year. When, yesterday, the President withdrew his threat of force to acquire Greenland, markets bounced up again. However, I notice they haven’t recovered all the ground they lost. His capricious demand has cost investors money.

Will holders of US Government bonds sell? US Secretary of the Treasury, Scott Bessent, urged everyone to ‘calm down’, ‘just relax’; it’s all going to be okay. And well he might: some holders of US debt are indeed shrinking their holdings. It is reported that several Danish pension funds have begun sales, as have some Swedish holders. Bessent’s attempt at reassurance was inept, to be polite. He told the audience that these Danish sales, like Denmark itself, were ‘irrelevant’. It is not recorded how these remarks landed.

It is true that the US economy is vast. But that deficit noted above is its Achilles heel. The President yells about ‘America First’ and nationalism, but seems not to understand that other countries could bring it to its economic knees. For example, his tariff war with Japan did not go well. This is a Bad Thing because Japan is the single largest holder of US Treasury debt. The Japanese economy is under pressure. The country has demonstrated economic and political loyalty to the US for years, but is heavily indebted itself and may need to sell some US bonds to fill the gap. Might they move closer to China? It isn’t unthinkable: if the present administration in America shows favourability to Russia, why not? If they sell, perhaps others will join in.

I pray that there are some in the Finance departments of the US Administration who understand this. But does the President?

Huge Slug waving a machine gun and a wad of dollar bills