Today, President Trump’s press secretary, Karoline Leavitt, lashed out at Amazon. The reason? Amazon was considering showing customers how much Trump’s own tariffs have made goods more expensive. This prompted Leavitt to call the initiative a “hostile and political action,” exclaiming:
“Why didn’t Amazon do this when the Biden administration hiked inflation to the highest level in 40 years?”
“What is your message to the American people in terms of getting through this disturbance?” – Reporter
“I would say trust in President Trump.” – Leavitt
I cannot think of a single person on earth that I would trust less.
It’s almost like being back in Zimbabwe in 2007, where central bank chief Gideon Gono threatened shops if they raised prices in line with costs.
The parallels are striking – Leavitt, much like Gono, seems determined to shoot the messenger rather than address the underlying economic reality. Gono blamed shopkeepers; Leavitt blames Amazon. Different continents, same playbook.
Products disappeared in Zimbabwe, shelves stood empty, but the authorities just kept insisting that the price was wrong – not the policy. One wonders if Leavitt has been studying Gono’s press conferences for inspiration.
And here we stand in 2025, where Republicans during the campaign spent countless hours calling Kamala Harris both a socialist and a communist.
But as they say: “The pot calling the kettle black.”
For who is it really that’s behaving like a state-controlling price control fanatic? It’s Trump, with Leavitt as his Gono-esque spokesperson, pointing fingers at retailers instead of policies.
Threats against private companies, state intervention in the market, attempts to hide the real costs from consumers. This isn’t classic capitalism – it’s socialism disguised as patriotism.
And it probably won’t be long before JD Vance – whom Trump himself has appointed as “tariff czar” – starts running around Walmart and Costco threatening store managers to lower prices, completing the transformation to America’s very own Gideon Gono.
PS: Gideon Gono has, by the way, written an unintentionally hilarious book titled “Zimbabwe’s Casino Economy: Extraordinary Measures for Extraordinary Challenges” – perhaps future required reading for the White House press office?
In the past three months, I haven’t written much positive about market developments – especially not regarding American stock and bond markets and the dollar.
BUT the last 24 hours have brought positive news – and this brings some calm to the markets.
I want to highlight two very important statements from Donald Trump himself:
“I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates. This is the perfect time to lower interest rates. If he doesn’t, is it the end? No, it’s not.”
And secondly:
“The tariff on China won’t be as high as 145%. It’ll come down substantially, but it won’t be zero.”
These are two clearly important statements. The first is basically an announcement that Trump says he respects the Federal Reserve’s independence, and he cannot force the Fed to lower interest rates.
And the second is that he is prepared to substantially reduce tariff rates against China.
Both make good sense – and indeed are what any normally thinking economist would have urged Trump to do. And yes, all economists would naturally have told Trump to completely stop his tariff madness, but this is definitely a step in the right direction.
The financial markets reacted quite positively – and unsurprisingly – to yesterday’s announcements.
In fact, I’m a bit surprised that the reaction wasn’t even more positive. For what we’re actually seeing now is that those with some economic sense around Trump – probably primarily Treasury Secretary Scott Bessent – have convinced Trump that what he has been doing could potentially have catastrophic consequences for the American economy – and for Trump’s own ability to survive as president.
I simultaneously interpret this as a certain admission from Trump that he has thrown himself into a multi-front war – illegal deportations, war with the judicial system (including the Supreme Court), war with the Federal Reserve, Pete Hegseth’s total chaos in the Pentagon, etc.
And it’s becoming increasingly clear that investors are simply losing confidence in the USA. And in America’s institutions.
But Trump is backing down now. And this is actually the first time in three months.
And in this connection, it’s worth noting that following Tesla’s catastrophic financial report yesterday, Elon Musk also announced that he was on his way out of the Trump administration and DOGE.
All in all, I think we’re seeing rather clear signs of a retreat from Donald Trump. His own chaotic behaviour has simply defeated him.
And that is, in my opinion, quite positive for the American financial markets.
That said, the following should be emphasised:
It’s difficult to restore confidence once it has been destroyed.
Trump is and remains a “loose cannon” – if we see signs of “recovery” in the markets, Trump can quickly come up with something insane again. He loves tariffs (as he says himself), so he won’t stop talking about them.
Even without the Trump chaos, the American stock market – and partially the dollar – already looked overvalued.
The coming period will be characterised by extremely negative American economic indicators, which will hardly do much to lift the mood in the stock market.
The USA faces massive fiscal policy challenges, and there is nothing to suggest that the Republicans in the House and Senate intend to do anything about it, and Trump has no ideas about what to do (without breaking his promises not to touch pensions and the healthcare system).
The Trump administration is clearly marked by massive internal power struggles – and it could get much worse.
The prospect of rising inflation AND higher unemployment will significantly weaken popular support for Trump.
FINALLY, given the unrest that has been in the markets, something systemic may have been broken, so there is a risk that new news will emerge, for example losses in banks and financial institutions.
All in all, I believe that Trump’s announcement MUST be taken as fundamentally positive, and therefore it’s also possible that the “haemorrhaging” in American stock markets and in the dollar is over, but I find it very difficult to see much “upside”.
Trump has simply created too many problems for himself.
If I am to become more positive – then something of the following must happen:
Trump’s advisor Peter Navarro, Trump’s hyper-protectionist advisor, must be fired, and Treasury Secretary Scott Bessent’s role must be substantially strengthened. It must be clear that it is Bessent who leads economic policy.
Defence Secretary Pete Hegseth must be fired and replaced by a former general or similar, who actually has the experience and insight to be Defence Secretary.
There must quickly be a significant rollback of the tariff madness. Not just in trifles – but in relation to China, the EU, Canada, Japan and Mexico.
The Trump administration must present concrete and radical plans to permanently improve public finances.
The Federal Reserve’s independence must be guaranteed. It would be best if Trump announced that Powell will be reappointed in 2026.
It requires quite a bit, but this is the sort of thing that is needed – otherwise there is a risk that the markets will again go into meltdown mode. But Trump has created so much uncertainty that it now requires a lot to restore confidence.
What do you think? Will Trump go berserk again, or can Bessent control him?
I have always considered myself a non-American American patriot. I grew up with a deep admiration for the United States — for its ideals, its energy, and its global leadership. But after the events of the past few months, I find it increasingly difficult to view the US as a friend of Denmark.
Jay Nordlinger’s piece in National Review — “America Rattles Denmark” — captures this shift with precision and gravity. It’s rare to see an American conservative describe, so clearly, how deeply disillusioned many pro-American Danes now feel.
The Trump administration’s reckless rhetoric about Greenland, the open threats towards an ally, and the abandonment of Ukraine — a country fighting for its survival — have left many of us stunned. But perhaps even worse is the silence. The lack of outrage. The apparent indifference from much of the American public.
What was once an alliance based on shared values now feels transactional, conditional, and hollow.
This is not a policy disagreement. This is a break in trust.
I urge my American friends to read Nordlinger’s article — not defensively, but reflectively. There is still time to repair the damage. But for the first time in my life, I’m no longer sure we’re on the same side.
There are certain moments in economic history where lessons from the past should not merely inform us – they should warn us. We are at such a juncture right now.
Under normal circumstances, I would be reluctant to draw parallels between Turkey’s monetary experiments and American monetary policy. However, in light of Trump’s recent verbal attacks on the Federal Reserve and Jerome Powell – declaring on Truth Social that Powell’s “termination cannot come fast enough” and labelling him as “always TOO LATE AND WRONG” – we are witnessing concerning signs of a politicisation of monetary policy typically associated only with emerging markets.
The Turkish Monetary Collapse – A Case Study in Central Bank Independence
Let us examine the data. The graph below tells a frightening story about the consequences of political interference in monetary policy:
You might notice I’m using the Danish krone – that boring, stable, low-inflation currency – as my reference point rather than the increasingly shaky-looking dollar. One must maintain certain standards in monetary analysis, after all!
Perhaps this is my Danish heritage showing through, but when tracking monetary disasters, it helps to use a measuring stick that isn’t itself beginning to resemble a piece of uncooked spaghetti.
From 2000 to approximately 2016, Turkey experienced relatively moderate developments in both inflation and exchange rates. The blue line shows the price level, whilst the red line shows the TRY/DKK rate. Note that when the red curve rises, it means one must pay more Turkish lira for one Danish krone – effectively a weakening of the lira.
The drastic deterioration begins around 2016 (first dotted line), precisely coinciding with Erdogan’s initial interference in central bank independence. The subsequent red dotted lines mark further interventions in the central bank’s independence – particularly the dismissal of governors who attempted to combat inflation with interest rate increases.
The result has been catastrophic: The Turkish lira has collapsed from approximately 1 TRY/DKK to over 5 TRY/DKK. Simultaneously, the Turkish price level has increased eightfold in just eight years.
Market Mechanisms Do Not Respect Nationality
The fundamental mechanism is simple, yet often overlooked by politicians: For monetary policy to work, the central bank must have credibility. Without credibility, even correct monetary policy decisions become ineffective because the market anticipates future politicisation. And the market prices in not only current policy but also expected future interventions.
Particularly alarming is the development after 2020 (fourth dotted line), where the graph shows an almost vertical increase in both inflation and currency depreciation. This illustrates how a breakdown in confidence can become self-reinforcing.
The American Parallel
Trump’s signals are creating precisely this dynamic in the US. He needn’t even sack Powell – the threat alone is sufficient to influence market expectations. The US appears to be moving down the Turkish path – a route characterised by eroding central bank independence, rising inflation expectations, and gradual pressure on the currency.
This is not an exaggeration. The most frightening aspect of the graph is how clearly it demonstrates that economic mechanisms do not respond to nationality or tradition – they respond to incentives and expectations.
America’s economic strength might create a false sense of immunity to such dynamics, but the data from Turkey clearly shows that no economy is immune to the consequences of politicised monetary policy.
Combating inflation requires an independent central bank with the mandate to act, even when unpopular. Undermining this institution invites precisely the problems it was designed to prevent – and the speed at which matters can deteriorate once confidence is broken is evident from the last five years of the graph.
The Practical Implications
It is worth noting that Trump actually faces significant difficulties in firing Jerome Powell, but he doesn’t even need to sack Powell.
He can simply tell the world that he will appoint some reckless candidate who will do as instructed when Powell’s term expires in 2026. And every time this Trump lackey speaks, it will effectively ease US monetary policy.
Powell will be increasingly powerless – gradually losing control over monetary policy despite officially remaining Fed chairman.
Given these developments, I certainly wouldn’t wish to be “long” dollars right now… Perhaps it’s time to reconsider the virtues of the humble Danish krone or Swiss franc.
Just months ago, Vice President J.D. Vance – then a senatorial Cassandra – sat down with Tucker Carlson to warn the world of a looming “bond-market death spiral.”
“I really worry about the bond markets. Do the international investors, the people who are getting rich off globalization, the people who have gotten rich from shipping our manufacturing base to China, the people who have gotten rich from a lot of wars — do they try to take down the Trump presidency by spiking bond rates?” Vance told Carlson.
The scenario he described was dire: interest rates rising so rapidly that debt service would crowd out everything else – infrastructure, defence, even Social Security.
At the time, he suggested Wall Street might be behind such an assault, out to sabotage a second Trump presidency.
Well, Mr. Vice President, congratulations: the spiral has arrived. But it didn’t come from the shadows of globalist boardrooms or the bowels of Davos.
It came from exactly where everyone with a basic grasp of macroeconomics said it would — the Resolute Desk.
Liberation Day… From Market Confidence
On April 2, 2025, Donald Trum at the White House, declared “Liberation Day.” With a flourish befitting an empire in decline, he imposed a 10% universal tariff on all imports, rising to as much as 145% on goods from China. This was not a policy tweak. It was a policy grenade.
Within hours, the global financial system reacted — not because it “hates Trump” or wishes to undermine American sovereignty, but because it functions on trust, rules, and predictability. And Trump had just dynamited all three.
Global equities tanked. Wall Street suffered one of its sharpest drops in over a decade. But more tellingly — and more dangerously — U.S. Treasury yields has surged.
And the dollar? Instead of rallying as it usually does in a crisis, it fell. Investors, for the first time in living memory, were bailing on both the greenback and U.S. debt simultaneously.
This is not a normal market correction. This is a crisis of credibility.
Markets Aren’t Political. They’re Rational.
Vance’s original “death spiral” concern was that the bond market might be used as a political weapon against Trump.
But this reflects a fundamental misunderstanding of how markets operate.
Markets aren’t partisan. They don’t care about your slogans or rallies. They care about risk. And what Trump has introduced — with Vance cheering him on — is unprecedented policy risk.
Trump’s tariff barrage has not only upended trade flows; it has also jeopardised the foundational belief that U.S. institutions are stable, policy is predictable, and debts will be honoured under a rules-based system.
When you threaten to default “as a negotiating tactic,” when you undermine the Fed, when you launch economic nationalism at full throttle, markets take notice. And they raise bond yields accordingly.
To be clear: this is not the bond market punishing Trump. This is the bond market pricing him in.
A Trussonomics Encore, but Bigger and Louder
Vance drew a parallel with Liz Truss — the UK Prime Minister whose tenure was shorter than a head of lettuce. It’s an apt comparison, but not quite in the way he meant.
Like Truss, the Trump-Vance administration announced sweeping fiscal policies with no credible framework for institutional support. Like Truss, they blindsided markets. And like Truss, they watched in real time as yields exploded and confidence evaporated.
The key difference? Britain has a smaller economy and a flexible, politically independent central bank. It also has the IMF, the EU, and institutional partners ready to step in.
The US has none of these luxuries when the credibility of its leadership collapses. What it has is the world’s reserve currency — and now even that is starting to look less like an anchor and more like a liability.
The Spiral in Motion
Let’s revisit the mechanics of the spiral, not in theory, but now in practice:
Tariffs trigger market uncertainty.
Bond yields rise sharply as investors demand a premium for holding U.S. debt.
The dollar falls, as confidence in U.S. institutions wanes.
Debt servicing costs explode, making fiscal management nearly impossible.
Further policy responses (like more tariffs or capital controls) exacerbate the panic.
And just like that, the United States — the issuer of the safest asset in the world — begins to look, act, and smell like an emerging market in crisis.
Even the temporary suspension of some tariffs has done little to soothe markets. Investors, once burned, are not easily coaxed back. The trust deficit is growing faster than the fiscal one.
Vance’s Prophecy Fulfilled — By His Own Administration
The greatest irony is that Vance was right — just not in the way he hoped.
The “death spiral” is here, but it wasn’t orchestrated by Wall Street. It was summoned into being by the reckless, chaotic, and deeply unserious governance of the very administration he now serves.
In February, I warned on this blog that if trust in U.S. governance breaks, interest rates will explode.
I called it “The Trump Superspike.” And now, here we are.
Yields are soaring. The dollar is sliding. Risk premiums are rising. The world is beginning to price in the possibility that the United States is not a safe place to park capital.
And that’s what a real “death spiral” looks like.
The End of the Illusion
For years, populist-nationalists like Trump and Vance have promised that they could tear down the old order and build something new — stronger, more independent, more free.
But they forgot that the scaffolding they’re destroying is the very system that gives the U.S. financial credibility. Take away the scaffolding, and all you’re left with is a façade.
You can bully NATO, fire Fed chairs, and raise tariffs until the cows come home. But you can’t bluff the bond market. You can’t impose your will on investors with press conferences and slogans.
Markets aren’t woke. They’re just sober. And right now, they are sober and fleeing.
If the Trump-Vance administration wants to avoid full-blown financial crisis, it will need to do something it’s shown little talent for: restore trust. That means real fiscal frameworks. That means independent institutions. That means talking less and instead respecting institutions, rules and norms – domestic and international.
Until then, the death spiral will continue. And J.D. Vance will have no one to blame but the man whose shadow he walks in — and himself.
In 2022, then-British Prime Minister Liz Truss announced an unfunded plan for tax cuts, convinced that the markets would welcome her “pro-growth” policies.
Instead, the markets panicked.
The pound plummeted, UK government bond yields surged, and the Bank of England was forced to intervene to prevent a complete financial meltdown.
Truss remained in office for just 44 days.
Back in February, I warned in an article on this blog that we risked a “superspike” in US interest rates if markets lost confidence in American institutions (see the article here).
My point was that Trump’s behaviour could undermine investor trust in the US government’s willingness to meet its obligations.
If Trump refuses to honour defence commitments or international trade agreements, then why should anyone believe he will respect America’s debt obligations?
Right now, we’re seeing a sharp rise in US Treasury yields – at the same time, equity markets are falling and the dollar is weakening.
THIS IS A VERY CLEAR SIGN OF A COLLAPSE IN CONFIDENCE.
If this continues to accelerate, the US government will rapidly find itself in a position where it simply cannot service its debt – and then there is only one option left: to rely on the Federal Reserve to start printing money to finance the ongoing budget deficit.
We may well be witnessing the beginning of something very, very serious.
There are also unconfirmed reports circulating in financial markets that the Chinese may be behind the sharp rise in US bond yields, at least in part. China holds a significant portion of the outstanding US government debt, and if they are now beginning to offload that holding on a larger scale, it will further accelerate the rise in US bond yields.
The question is: where will investors flee to? The most obvious destination is Europe – and specifically towards safe and liquid government bond markets. Switzerland and Germany stand out as the most likely havens.
So, as US interest rates soar and the dollar falls, capital inflows into Europe will help keep European bond yields down, while strengthening the euro and the Swiss franc.
All of this has been triggered by Donald Trump’s erratic behaviour over the past three months – and particularly his full-on assault on global trade just a week ago, which sent shockwaves through the global economic and financial system.
And yes, it is easy to see why the Chinese are especially angry – with a 104% US tariff on all imports from China, virtually all trade between the two countries comes to a halt. If China wants to retaliate further, there’s really only one path: begin offloading US government bonds.
Unfortunately, this is far from over – and it’s likely to get worse from here.
As of 04:00 European time, in the early hours of Monday, we are witnessing the very real and devastating financial consequences of what can only be described as an American collective brain haemorrhage.
Let’s be clear: this is not a crisis caused by macroeconomic fundamentals or an external shock. This is man-made. And the man in question is Donald J. Trump.
On Sunday evening U.S. time, President Trump poured petrol on an already burning fire by declaring, “I don’t want stocks to go down, but sometimes you have to take medicine.” In other words – the president is clinging stubbornly to his economically destructive trade war policies.
The reaction has been immediate and brutal.
Asian equity markets are in full-blown meltdown mode, with Japan’s stock market plunging 8% overnight and stocks in Hong Kong are down 10%. We are now staring down the barrel of a massive global sell-off when markets open in Europe and the United States later today.
But this is no longer just about equities. The contagion is spreading.
Credit markets are showing signs of strain, and the risk of a liquidity crunch is rising sharply. The entire global financial system is under threat – and we are only at the beginning of this phase of the crisis.
Oil prices have taken yet another hit, falling below $60 a barrel – down an additional 3%. This reflects not just uncertainty, but genuine fears of a steep drop in global demand.
Recession, inflation, and confusion
At this point, a U.S. recession appears almost inevitable. We should expect a marked increase in American unemployment in the coming months.
Previously, I argued that Trump’s tariff policies would drive U.S. inflation above 5% – a prediction grounded in the expected negative supply shock from trade barriers. That may no longer hold. We are now facing a massive demand shock as well – triggered by financial turmoil. These shocks pull inflation in opposite directions, but they both weigh heavily on global growth.
Regardless of how inflation evolves, the result is clear: we are heading for an economic downturn, and it’s one made in Washington.
A one-man-made disaster
There should be no doubt in anyone’s mind – this was triggered by one man: President Donald Trump. His popularity is likely to plummet in the coming days and weeks. This feels like a Nixon moment – a turning point where the political tide may finally turn against him in earnest.
The Trump administration however keeps on telling everybody that the tariffs are great while global markets are in a free fall.
This leaves the responsibility to act squarely on the shoulders of the Federal Reserve and its global peers. I expect that we will see coordinated central bank intervention very soon – perhaps as early as today Monday – to stabilise markets and ensure global liquidity, similar to what we witnessed during the COVID-19 lockdown crisis in 2020.
The need for restraint – and rebellion
I can only hope that the EU resists the urge to escalate. Any talk of retaliatory tariffs against the U.S. must be shelved for now. If Europe retaliates, the situation will worsen dramatically.
Back in February, in a moment of sheer frustration, I wrote that Donald Trump would no longer be president within three months. That possibility is looking increasingly plausible.
We may soon see a bipartisan revolt in Congress – with Republican lawmakers joining Democrats to strip Trump of his ability to implement further tariff increases. At this stage, it may be the only viable political route to contain the damage.
Moreover, I believe there’s an increasing likelihood of defections from within Trump’s own cabinet. Secretary of State Marco Rubio and Treasury Secretary Scott Bessent may choose to resign and publicly break ranks.
Will Trump back down? Unlikely. He will almost certainly blame the “globalists” – the banks and the media – for the chaos. That means we should brace for more erratic and desperate actions from the president. But such moves will only serve to further erode his support within the Republican Party.
The graph below shows the relationship between the federal budget situation (% of GDP) in the USA and American unemployment.
Blue dots represent years with Democratic presidents, red dots show years with Republican presidents, and green dots indicate years when Trump was president. Until around 2008, we observe a clear inverse relationship between unemployment and public budgets – when unemployment rises, public finances deteriorate. This follows textbook economics and is unsurprising.
An inverse relationship also exists from 2008 to 2014, but with a steeper gradient. This reflects a more aggressive fiscal response to economic downturns than historically seen. One may have various opinions about this, but it demonstrates a higher tolerance in the American political system for budget deterioration, or perhaps a lower tolerance for unemployment.
Around 2015, during Obama’s final presidential year, things began to go seriously wrong, worsening during Trump’s first presidential term.
From 2016 – Trump’s first presidential year – while unemployment was falling, the budget situation WORSENED. The situation deteriorated dramatically in the pandemic year of 2020. Unemployment rose to an average of 8% – an increase of about 3 percentage points. Given the historical relationship between the budget and unemployment, we should have seen a budget deterioration of around 2.5 percentage points. The actual budget deterioration was a massive 10% of GDP.
As for Biden, he did clean up somewhat – the budget situation improved markedly in 2021, though this was primarily due to falling unemployment.
Biden does not receive high marks for his handling of the budget situation, but Trump clearly failed. The graph below demonstrates this very, very clearly.
In fact, during every year of Trump’s presidency, the budget deficit grew – regardless of whether unemployment rose or fell. Therefore, it is reasonable to be very skeptical of Trump when he talks about addressing the enormous American national debt. Sooner or later, this will also impact American government financing costs.
Lars Christensen
Mail:
lacsen@gmail.com
Phone:
+45 52 50 25 06
Speaker agency:
See my page at my Speaker Agency Youandx here:
https://www.youandx.com/speakers/lars-christensen
