By confirming his threats regarding Greenland, US President Donald Trump is shaking one of the pillars that have ensured American economic and financial dominance, which is that the US is no longer considered safe, the French portal Mediapar assessed today.
"The market is perhaps the only force that can force Donald Trump to change his stance and curb his intoxication with power. Unlike last year in April, when the US president launched his global trade war, markets at the beginning of this year appear indifferent to the growing instability of the world," reports Mediapar.
However, geopolitical and financial tensions have reached unprecedented levels.
Trump has struck on various fronts in less than three weeks, adopting almost as many aggressive measures as during his entire first year in office, the French portal states, pointing to the kidnapping and arrest of Nicolas Maduro, the seizure of oil production in Venezuela, the initiation of legal proceedings against Federal Reserve Chairman Jerome Powell (and the proposal to annex the Danish autonomous province of Greenland).
All markets plunged into the red, but the US more so than elsewhere. On Wall Street, the major stock indexes erased all the gains recorded since the beginning of the year. The Dow Jones fell 1,8 percent, the S&P 500 2,1 percent, and the Nasdaq 2,4 percent.
The hits were much harder for high-tech and digital companies. Global chip giant Nvidia fell 4,3 percent, Apple fell 3,46 percent, and computer maker Dell lost more than 7 percent.
The real warning came from the other side — with US Treasury bonds. The yield on the 30-year US Treasury bond rose above 4,95 percent, and the yield on the 10-year Treasury bond rose above 4,3 percent.
Unlike short-term interest rates set by the Federal Reserve, these bond yields indicate a palpable level of distrust. US interest rates are now among the highest in Western countries.
Meanwhile, the dollar has continued to lose value against other currencies — it is now worth 1,17 euros — while gold has continued its meteoric rise. An ounce is now worth $4.864, up from $2.770 just a year ago.
Trump's announcement in his highly anticipated Davos speech on Wednesday that the US would not resort to force, but wanted to immediately begin negotiations on the takeover of Greenland, barely reversed the trend. At the opening of Wall Street, the S&P 500 rose 0,3 percent, the Nasdaq 0,2 percent, and gold continued to rise.
The Trump administration refuses to see this as a signal, much less as a warning to the financial world. In Davos, US Treasury Secretary Scott Besant dismissed all criticism and questioning of Donald Trump's policies and his territorial claims towards Greenland.
For Besant, the decline in US Treasury bonds is in no way related to the White House's decisions, but rather to the massive sell-off that occurred in the Japanese market.
Observers and analysts have a different interpretation.
"I think when we look back on this moment, we will consider it a turning point," Adam Posen, president of the Peterson Institute, told The Wall Street Journal, Mediapar reports.
Long considered undisputed, the monetary, financial and economic dominance of the United States is no longer taken for granted. China, especially through the BRICS, has been challenging the dollar's supremacy for several years. However, no one expected the US president to deliver the hardest and most dangerous blow to US financial and economic dominance.
A real crisis of confidence began with Trump's return to power. His trade wars with former allies, his unilateral decisions to extort and appropriate, and his questioning of previous alliances, starting with NATO, have created a sense of unease.
The US is no longer as safe as it once was. The slow decline in US bonds over the past year, previously considered the world's safest asset, as well as the decline in dollar reserves in central banks, illustrate this growing distrust.
Rising tensions with the European Union (EU) could further accelerate this trend of distrust. An unnamed analyst believes there is a risk that Europeans will use their assets in the US as a means of retaliation.
"In a context where the geoeconomic stability of the Western alliance is being severely tested, it is not clear why Europeans would be so willing to invest in the US," the analyst added.
Since the US government needs money more than ever to finance its deficit and investment, the threat of withdrawing European savings would be disastrous for the Trump administration.
The US Treasury Secretary dismissed that scenario. "There is no concern. We are witnessing record levels of foreign investment," Besant said.
Observers are far less optimistic. While everyone rules out a quick sell-off of European assets, they imagine a more or less rapid separation, as US dominance has become a threat to all allies.
"We are in the midst of a breakup, not a transition," said Canadian Prime Minister Mark Carney, a former governor of the Bank of England, who received a standing ovation at the end of his speech Tuesday in Davos, at the World Economic Forum.
For the US, this breakup risks being at least as devastating as it is for its allies.
For decades, in exchange for economic and financial stability, these allies agreed to contribute their savings, invest in the United States, finance American deficits, and support the dollar. No country has ever enjoyed such privileges.
Although the status of the USA has declined with the emergence of a multipolar world, the country has remained important, but since last year Trump has begun to undermine that importance, the French portal concludes.
Bonus video:
