President Trump has been playing games with tariffs in an attempt to level the global playing field as well as isolate China.
He thought he had leverage as the largest economy on earth, but China has leverage too in the form of $750 billion in U.S. debt. And they aren't alone, the EU holds about $2.7 trillion in U.S. debt. Japan holds $1.1 trillion.
All told, foreign countries own about $7.9 trillion of U.S. Treasury securities which account for 22.9% of all U.S. debt.
For context, the total U.S. national debt was approximately $36.2 trillion as of January 2025, with debt held by the public at $29 trillion as of March 6, 2025.
The orange man’s gambit was to raise the specter of tariffs and push down Treasury yields as investors sold risky stocks and bought risk-free T-bills. But it turns out that U.S. debt isn’t risk-free.
It is backed by the full faith and credit of the U.S. government. And when that faith and credit goes down, the price the government must pay for debt goes up.
So we have a scenario where stocks go down, yields go up, and the U.S. dollar is falling. This is the hat trick of hard news.
One chart in particular stands out. Crescat Capital recently tweeted out this chart:
Saying: “The euro is on the verge of breaking out from a 17-year resistance level. We are likely at a turning point for the US dollar — where weakening the USD is starting to look less like a policy objective and more like a policy requirement.”
Brit Ryle, my partner here at Outsider Club, was asking just yesterday when they would start talking about the word “default.”
If the world sells U.S. debt en masse and the U.S. can no longer service the debt, it could lead to a default, which, of course, causes foreign holders of U.S. debt to sell their debt first. This scenario is a bank run writ large.
It is unlikely to happen. There are too many people with too much to lose, but as they say in the memes, the possibility is never zero. We are getting a scare now, and gold is reacting by moving higher. Silver is up today as well.
In a crisis, it is a good idea to hold silver and gold, but beware that when things get really scary, everything gets sold to cover margin calls. We saw this in 2008/2009 during the GFC.
There is a very good chance that a large hedge fund similar to Long-Term Capital Management blew up over the past month, was bailed out and we will discover it in the next few weeks when the news is leaked out.
Something scared Trump into extending the tariffs yesterday.
Fed Cuts
In other news, inflation dropped to 2.4% for the month of March – Lower than the expected 2.5%. And Core CPI inflation fell below 3.0% – The lowest since March 2021.
The Fed now has every reason to cut rates aside from the political. They could easily say that lower inflation numbers and rising unemployment justify a 50 basis point cut. This would send the stock market up much higher.
It is not unprecedented. On January 3, 2001, Fed Chairman Alan Greenspan, put out a surprise 50 basis point cut. This move came outside of a scheduled Federal Open Market Committee (FOMC) meeting.
At the time the U.S. economy was weakening. The dot-com bubble had burst in 2000. The Nasdaq had lost over 50% of its value from its peak in March 2000. Fears of a recession were mounting, with manufacturing activity declining and consumer confidence slipping.
The market response was immediate and positive. The Nasdaq Composite leaped 324.83 points, a 14.2% increase, ending at 2,616.69—the largest single-day percentage gain in its history at that point.
All the best,
Christian DeHaemer
Outsider Club
