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What_Happens_if_Everyone_Starts_Selling_US_Debt....
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00:00The USA is the biggest economy in the world. It has by far the strongest army of any nation
00:05and accounts for roughly half of the world's entire stock market. But this seemingly impenetrable
00:11defense has a hidden weakness, one which is only now starting to be exploited. In his first year
00:17back, Trump has used his strength to bully not just America's traditional enemies, but most
00:22importantly, their long-standing allies. Europe, Japan, even Canada have all felt the weaponization
00:29of tariffs, all the way to real military threats against them. And up until now, there hasn't
00:34been much they can do about it. But that could all be changing. China sold a record amount
00:40of stocks, $5.1 billion. The bond market, and particularly U.S. treasuries, which were seen
00:46as a haven for so long, are no longer as safe. Government bonds sold off dramatically. There's
00:51a few countries over the last five years or so that have sold 100-year bonds. The money
00:56moving around in the investments, you know, this is stocks, bonds, corporates, governments,
00:59derivatives, credit, you name it. You are going to see a crack in the bond market.
01:06America is $38 trillion in debt, and now it's being used against them. Since 2021, China,
01:14formerly the world's biggest holder of U.S. debt, has sold over $340 billion worth of U.S.
01:20bonds. And it's not just them. America's long-standing allies are also trying to sell
01:26them too. And some European hedge funds have even gone as far as dumping all of their U.S.
01:31equities in retaliation. For the last year, governments across the continent have been
01:35desperately scrambling to pump money into defense budgets. But what if their greatest weapon
01:40wasn't missiles or planes, but debt and equities? So, is selling U.S. debt the only way to control
01:46Trump? And has the age of financial warfare finally begun?
01:52Before we look at how countries could weaponize debt, it's worth showing just how impactful
01:57this could actually be. Debt, treasuries and bonds are terms that get thrown around a lot,
02:03but often without any real context. For nearly the last 100 years, the United States has been
02:09the bank of the world. Whenever they needed money, all they had to do was issue debt, and
02:15almost every major country around the world would be queuing to take it. Japan, China and
02:20the United Kingdom all hold hundreds of billions of dollars of U.S. debt, entrusting their savings
02:26to the U.S. government. For them, this is kind of like an investment. The U.S. government
02:31pays them on average 2% back every year, which compared to the return on U.S. stocks may seem
02:36like nothing. But there is a difference. While companies may, and often do go bust, a country
02:42is far less likely to. People lend to the U.S. because it's the ultimate safe haven, a place
02:48where money is almost guaranteed to come back. It's a reputation built thanks to decades of
02:53political stability, deep financial markets and economic growth, something that took generations
02:59to build, but may be unravelling faster than anybody could have expected. The U.S. government
03:05now owes a total of $38 trillion, roughly 110,000 for every single citizen of the U.S. For almost
03:13any other country, managing this level of debt would be completely impossible. But because
03:18the U.S. is seen as the world's most trusted economy, investors were willing to lend at extremely
03:23low interest rates, as at the time, there was basically no risk involved. That trust is what
03:29has allowed America to accumulate such enormous debts without the system breaking. But as America
03:35is starting to find out, all of this debt comes with some major risks. At current rates, the U.S.
03:41government already spends around a trillion dollars every year paying back interest to people who have
03:47lent them money. For context, that is more than their entire military budget. That means that even a
03:52small 0.1% rise in these treasury yield numbers translates into tens of billions of dollars,
03:59which the government would have to pay extra in maintaining the loan. Now, these markets are of
04:04course complicated, but there's a few things which cause this cost of borrowing to rise.
04:09At its core, the treasury market works like any other market, supply and demand. The U.S. supplies more
04:16debt every year, and demand comes from whoever is willing to fund it. For decades, that demand has come
04:22from a small group of massive buyers. U.S. institutions, the Federal Reserve, and crucially,
04:28foreign governments. But when those foreign buyers start stepping back, or worse, start selling,
04:34the balance shifts. When demand weakens, the U.S. has to offer a higher yield to keep the money flowing,
04:40making the cost of all the debt go up. And if a country were to sell their debt, then this
04:45would
04:45also have the similar effect, pushing supply up. Okay, you may be wondering how this all links back to
04:51Trump's, shall we say, chaotic foreign policy. Since returning to office, Trump has lurched from
04:57one international crisis to the next. Massive tariffs imposed on allies, threats against
05:02long-standing trade partners, the arrest of the Venezuelan president, and now a sudden fixation
05:08on taking control of Greenland and breaching Article 5 of NATO. And up until now, there has been very
05:14little the rest of the world has been able to do in response. European leaders have largely been reduced
05:19to carefully worded statements about monitoring the situation, and calling for dialogue while
05:25avoiding any action that might escalate tensions further. This has left the world, and particularly
05:30Western developed nations, scrambling to find some way of imposing limits on behaviour they have no
05:35direct power to stop. Which is where America's ballooning debt comes into play. Because while the
05:41U.S. might have the strongest military in the world, its government's addiction to borrowing
05:46has left it dangerously exposed to what's becoming known as capital warfare.
05:51But for $38 trillion that the U.S. now owns, about 25% of it is held by foreign investors.
05:58Of that,
05:59the vast majority is held by a relatively small group of countries, primarily in Europe, East Asia,
06:05and Canada. And these happen to be exactly the countries that Trump has spent the last year antagonising.
06:11Even for the world's largest and most powerful economy, it's a pretty risky position to put
06:16yourself in. U.S. Treasury yields, which is the amount the U.S. government needs to pay back in
06:21interest to people who have lent it money, has risen by 0.2% in the last few months. Now,
06:27that might not
06:27sound like a lot, but that shift alone is estimated to cost the government an extra $50 billion every year.
06:34And we are just beginning to see the earliest, most cautious signs of countries using this as leverage.
06:40A major Danish pension fund has announced its plans to divest its entire U.S. Treasury holdings,
06:45worth around $100 million by the end of the month. Now, on its own, this really is just a drop
06:51in the
06:51ocean in a market worth tens of trillions of dollars. But it's started to signal that we're closer to
06:57bigger players doing the same thing than you might expect. While China has sold nearly hundreds of
07:02billions in U.S. debt, it's now also Western nations who are reconsidering. France and Germany have
07:07already repeatedly pushed for strengthening the euro's role as an alternative reserve currency,
07:12explicitly arguing that Europe should not be overly dependent on the U.S. financial system.
07:17And Japan has now warned that U.S. trade policy and sanctions risk destabilizing global capital
07:23markets and their investment in the U.S. market. If even just one major holder of the U.S. debt,
07:29like Canada or Japan, began aggressively selling, it would put an immediate strain on the market.
07:34Large volumes of debt hitting the market at once would force interest rates higher as the government
07:40tried to attract new buyers. But that would mean hundreds of billions of dollars in additional
07:44interest payments every year. It's hard to overstate just how serious this weakness is.
07:50Even without a foreign sell-off, U.S. government interest payments are projected to climb to around
07:55$1.7 trillion a year by 2035, more than a third of what the federal government is currently raising in
08:02tax revenue. That alone will place enormous strain on public finances. But if foreign governments were
08:08also to start using their holdings of U.S. debt as leverage, that already fragile situation would
08:14worsen quickly. And the consequences wouldn't stop at the doors of the U.S. government. There's a very
08:20real risk that a shock like this could tip the entire U.S. economy into a full-blown recession.
08:25Interest rates sit at the center of almost every part of economic life,
08:29from credit cards and mortgages to major corporate borrowing. And while those rates aren't directly
08:35set by U.S. treasury yields, they are heavily influenced by them. When treasury yields rise,
08:40they suddenly become a much more attractive investment, especially for domestic investors.
08:44So they end up selling other investments to move them into treasuries. And that might end up helping
08:50the government, providing them with some much-needed cash to continue funding their operations.
08:54But for everyone else, it means there is simply less money available elsewhere in the economy,
08:59pushing up the mortgage rates, student loan interest, and the cost of business loans.
09:04In many ways, this is an even bigger vulnerability than the U.S. debt.
09:08Last year, U.S. consumer debt hit a record high of $18 trillion, an increase of around two and a
09:14half
09:14times since 2003. If interest rates were to rise sharply, it would trigger a cost-of-living squeeze,
09:20as larger and larger portions of people's paychecks were swallowed up just keeping up with repayments.
09:25Now, the idea that such a crisis could simply be inflicted on the U.S., not through an actual
09:31conflict, but through what is effectively moving numbers around on a computer, might seem a little
09:35far-fetched. After all, the U.S. is by far the most dominant economy in the world, accounting for
09:41roughly a quarter of global economic output, and around half of all global stock market value.
09:47At the same time, to maintain this system, the U.S. is hugely reliant on the confidence
09:52and trust of other countries. The second that leaves, or worse, gets weaponized, the entire
09:58system would fall apart. And right now, Donald Trump is giving people every possible reason
10:02to do that. Nowhere is this clearer than with Greenland.
10:06What began as rhetoric quickly escalated into repeated suggestions that the United States
10:11might take control of the island by force. According to NATO terms, this would be considered
10:16an act of war, putting Europe in a previously unthinkable situation. Europe's initial response
10:22was framed in the language of hard power. Denmark moved to reinforce its presence in the Arctic,
10:27and NATO allies signaled their readiness to defend member territory if required. But confronting
10:33the U.S. states militarily was never a realistic option. In a scenario where diplomatic pressure
10:38failed and military options were off the table, it's not difficult to imagine European governments
10:43looking instead to financial pressure, including their vast holdings of U.S. debt, as a way of
10:48crippling the U.S. without having to fire a single shot. At the same time, there would also be huge
10:53costs to Europe and the rest of the world if they were to do this. For starters, most U.S.
10:58debt held by
10:59foreign countries is owned by private investors, meaning that to force a coordinated sell-off,
11:04governments would need to coerce domestic financial institutions, a use of state power,
11:08unlike anything seen in generations, at least in the Western world. And even if a country were willing
11:14to cross that line, the problems don't just end there. Because starting an American debt crisis
11:18wouldn't just be costly for the United States, it would be catastrophically expensive for everyone
11:23involved. If a coalition of countries did agree to simultaneously sell U.S. debt, they would need to
11:29sell the bonds at a massive discount, simply because there wouldn't be enough people to buy them
11:33at their regular prices. Investments that governments had made years back would be sold for big losses,
11:39costing them billions in the process. But the issues wouldn't end there. Banks, pension funds,
11:44and sovereign wealth funds all rely on U.S. treasuries as collateral, simply because they are
11:49treated as the safest asset in the global financial system. They're used as a kind of universal guarantee,
11:55something lenders trust will still hold value tomorrow, no matter what happens today.
12:00But if the value of that collateral starts to fall, banks are suddenly asked to post more of it to
12:05secure the same loans. And if they can't, those loans end up being pulled, putting the banks
12:10themselves at risk of bankruptcy. It's the exact same mechanism that we saw during the 2008 crisis.
12:16What started as a financial market panic in the U.S. quickly spread to the rest of the world. And
12:21the
12:21same dynamic would be at play if the world were ever to trigger a coordinated sell-off of U.S.
12:26government bonds in an attempt to rein in the president. That shared dependence does admittedly
12:31make ever using this option in practice very unlikely. But the fact that it exists still
12:36matters. No matter how powerful a U.S. president might be, if things ever went far enough, the rest
12:41of the world still does have a lever to pull. You could arguably see a glimpse of that reality when
12:46Trump quietly softened his position on Greenland at the World Economic Forum, a place where global
12:51political leaders meet with the heads of major banks, asset managers, and sovereign wealth
12:56funds. At this meeting, Ray Dalio, an investor worth billions, warned Trump of potential capital
13:01wars following his promise to invade Greenland, stating that his aggressive political direction
13:07could spark a new phase of global financial conflict. Not long after, Trump publicly clarified
13:12that he would not use military force to take control of the island, a significant walk back
13:17from his earlier stance. The whole saga reveals an important fact. The United States sits at the
13:22center of the global financial system, not because it can compel the rest of the world to lend to it,
13:27but because for decades it has been as stable, predictable, and ultimately reliable.
13:32That perception is what allows the U.S. government to borrow trillions of dollars at a relatively low
13:37interest rate, to run persistent budget deficits, and to finance what's become the largest military
13:42budget in human history. But that position is not guaranteed forever. It depends on confidence,
13:47and confidence can be eroded far more easily than it can be rebuilt. It's a subtle paradox at the
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