The Bond Crisis Last Week Was a Global No-Confidence Vote in U. S. President Donald Trump

U.S. President Donald Trump’s reputation for chaos

by Pam Martens and Russ Martens

U.S. President Donald Trump’s reputation for chaos; his longstanding history of thumbing his nose at the rule of law; his unpresidential insults directed at world leaders and willingness to turn his back on longstanding U.S. allies; and his packing of top cabinet posts with preposterously unqualified loyalists – have now delivered the inevitable blow to two of America’s most critical financial assets in domestic and international markets: the U.S. dollar and U.S. Treasury securities. Instead of performing their usual role as safe havens in times of turmoil, they are now indelibly linked to the Trump brand of erratic behavior.

Both the U.S. Dollar and U.S. Treasury securities are in a downtrend, with the 10-year Treasury note taking a wild plunge in value last week.

Mark Blyth, a political economist at Brown University, was quoted in the New York Times today with this unvarnished assessment: “The whole world has decided that the U.S. government has no idea what it’s doing.”

That thinking was echoed in the Canadian press, with Moshe Lander, Professor of Economics at Concordia University in Montreal, being quoted as follows: “The U.S. government is the source of instability … nobody trusts that the White House knows what it’s doing. People are racing away from the source of instability.”

After Trump set off a four-day rout in stock prices from his tariff plans – including a 2200 point plunge in the Dow Jones Industrial Average on Friday, April 4 – Trump did an abrupt flip-flop on Wednesday, April 9, announcing a 90-day pause on his reciprocal tariffs, but keeping his 10 percent baseline duties and 145 percent tariffs on China.

Wall Street On Parade has been warning for some time now that putting a 34-count convicted felon in the Oval Office – with a long, documented history of flouting the law and craving chaos as a personal attention booster – could lead to a dramatic loss of confidence in the U.S. government and attendant negative economic fallout.

Gerald Baker’s latest column in the Wall Street Journal (paywall) notes this:

“America’s reputation, built on its ideals and burnished over centuries, is the greatest geopolitical brand ever created. But as someone put it to me this past week, we may be witnessing the greatest exercise in brand destruction in history. Brands have real value. It isn’t always easy to calculate, but businesses from BlackBerry to Bud Light know when they have lost it. Destroying geopolitical brand value can be devastating too.”

Take a few moments to think about the ramifications of this rapid reappraisal of the U.S. government brand. When investors and allies dump Treasury securities because they no longer have confidence that the U.S. is under sane leadership, it pushes up the yield. That raises mortgage rates (which are benchmarked against the 10-year Treasury note) in an already struggling housing market; it raises credit card interest rates which restrain consumer spending (which represents two-thirds of U.S. GDP); and, critically, it makes it more expensive for the U.S. to issue new debt because it has to offer higher fixed interest rates to compensate for the weaker demand.

According to U.S. Treasury data, as of last month the U.S. is paying $582 billion in interest annually on its outstanding Treasury debt. This represents 16 percent of total federal spending for fiscal year 2025. If the U.S. government is forced to pay higher rates of interest on its debt because Trump undermines confidence in U.S. government functioning, interest costs could exponentially explode and put the credit rating of U.S. debt in jeopardy.

There is already evidence of weakening demand for U.S. debt. Morningstar reported the following regarding last Tuesday’s $58 billion 3-year note auction: “The auction of 3-year Treasuries showed very weak domestic demand, with only 6.2% absorbed by US insurance and pension funds, compared with an average of 19.0%.” According to other sources, Primary Dealers, who are contractually obligated to the U.S. government to bid at Treasury auctions, were stuck with about a quarter of the 3-year notes offered in the auction.

“Primary Dealers” is Fed code for the trading houses on Wall Street – the largest of which are owned by the federally-insured megabanks on Wall Street. Those names include JPMorgan Chase, Citigroup’s Citibank, Bank of America, Morgan Stanley, and Goldman Sachs.

Given that the Federal Reserve has had to engage in bailouts of these Wall Street megabanks four times in the past 17 years, including the worst financial crisis since the Great Depression in 2008, one would think that the leaders of these institutions might find their voice and loudly call for Congress to fulfill its mandate as a co-equal branch of government and stop these wild and confidence-busting machinations from the White House.

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