In last week’s market chaos, traders turned their backs on US government bonds. Is Donald Trump destroying America’s “exorbitant privilege”?\u00a0<\/p>\n
JP Morgan chief Jamie Dimon, once a vocal Trump supporter, has shifted stance and called for the US to engage with China, concerned the trade war has begun to chip away at America’s credibility.<\/p>\n
The US investment banking giant now puts the odds of a US recession at 60 per cent.<\/p>\n
Mike Wilson, the influential US stock analyst from rival firm Morgan Stanley, fears further upheaval while investors remain exposed to Mr Trump’s unpredictability, and the confusing and chaotic policy shifts.<\/p>\n
Tariff impositions<\/a>, repeated backflips<\/a>, conflicting messages<\/a>, temporary reprieves<\/a>, retaliatory tariff lifts in response to retaliation from China<\/a>, backdowns on repeated assurances<\/a>, and clearly amateurish arithmetic to justify the blanket protectionism<\/a> have shattered investor confidence.<\/p>\n It’s also unleashed a growing global feeling of distrust in the very country that controls international finance through its global reserve currency, which, ironically, features the word ‘Trust’ on its banknotes.<\/p>\n Currency traders haven’t been treating the US greenback as a safe haven as they typically do in times of crisis. (Reuters: Shannon Stapleton)<\/p>\n America dials up the danger<\/p>\n Many rapidly are coming to the same conclusion: this is a pivotal moment in history that could go horribly wrong.<\/p>\n “To be honest, we haven’t seen a reordering of the global economic system on this scale since the 1930s,” Satyajit Das, one of Australia’s foremost minds on financial and economic history, tells The Business..<\/p>\n “That was the Smoot Hawley tariffs, which certainly didn’t cause the Great Depression, but were contributors to that.<\/p>\n “Also on the other side, on the financial side, the excesses that have built up over the last 20 years are far greater than I’ve ever seen before.”<\/p>\n Satyajit Das is a former banker and financial risk analyst. (ABC News)<\/p>\n It’s a combination that deeply concerns Mr Das.<\/p>\n “I don’t know how bad it could be, but all I know, looking at history, is it could be very bad,” he says.<\/p>\n Last week, the upheaval spread to the US bond market<\/a>, normally a safe haven for troubled investors.<\/p>\n Instead of cash flooding into the system, as it ordinarily would in times of a stock market meltdown, it began departing.<\/p>\n And rather than the US dollar strengthening, it began to decline as investors abandoned US debt markets and took their cash out of the country, a deeply disturbing turn of events.<\/p>\n Donald Trump met his match. It’s called the bond market<\/a><\/p>\n The US president was confronted by a force far greater than his own and the office he now holds overnight. The bond market, an arena where brutality knows no bounds and where the participants take no prisoners.<\/p>\n Luke Yeaman, former deputy secretary of the Australian treasury and now the Commonwealth Bank’s chief economist, believes the US president will persist with his tariff policies and argues there are genuine underlying problems the new administration is trying to address.<\/p>\n Mr Yeaman says Mr Trump sees tariffs as the balm for a range of American economic ailments: fixing the budget and trade deficits, on-shoring industry and jobs, and improving national security.<\/p>\n “Is it going to work? I think it’s going to be very challenging,” he tells The Business.<\/p>\n “Achieving those goals is not easy, and the global economy is quite good at adjusting to changes in tariffs.<\/p>\n “That said, the US is a huge market. It’s still the largest consumer market globally, accounting for around 25 to 30 per cent of global demand.<\/p>\n “So, opportunities to avoid these tariffs are going to be quite limited compared to previous trade wars, but it’s clearly doing significant damage to the US economy in the meantime.”<\/p>\n Luke Yeaman is the new chief economist at the Commonwealth Bank, joining from the federal Treasury. (Supplied: Treasury)<\/p>\n Clouds building on the horizon<\/p>\n Mr Yeaman sees clouds ahead for the US and global economies.<\/p>\n The speed and extent of the changes to the global system will impact the economy and markets for quite some time, he argues. And there’s no guarantee that Mr Trump’s goals will be achieved.<\/p>\n Mr Das agrees that the US president appears to be attempting to address serious holes that have emerged in the American economy, its financial system and its place in the world.<\/p>\n But he is stunned at the methods.<\/p>\n<\/p>\n
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