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.

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Links you should have a look at

PAICE – the AI consultancy I have co-founded

“Globale tanker” – if you want to book me for a keynote speech, a lecture or a workshop