The Economic World Order Is Cracking up and Taking the Dollar Down with it

This Deeper Dive will lay out the fault lines that have appeared throughout the US economy. They reveal major tectonic plates that are shifting global economics, which I’ll present with hard facts, not just conjecture to show what is erupting beneath the surface and how dangerous the crumbling world will be as we move through the next ninety days of sustained Trump tariffs (with threat of a return to worse tariffs after ninety days) as the global tariff war continues to rile all global markets. I’ll lay out where the deepest cracks are forming.

I’m also going to demonstrate that what you can expect to see in the days ahead in terms of empty shelves and soaring prices is truly horrendous based on what is already happening due to the economic war China just declared on Friday. I warned this was likely coming from tariffs. It just began overnight, and the velocity will grow exponentially if Trump does not fully retreat in a hurry. I’ll lay out the current proofs that collapse is already happening in multiple domains.

Call it the “fourth turning” as some do or “the dollar collapse” as others fine-tune their focus to the area of critical mass or “the end of US hegemony” or even “death of an empire.” All those terms capture aspects of what is now tearing up the nation. My words sound hyperbolic, but I will demonstrate they are quite realistic.

The biggest eruption just happened overnight. China decoupled itself completely from US trade, raising its tariffs on US goods to 125%. While it said it will stop going any further in matching Trump’s games of escalating tariffs that is only, it said, because any tariffs as high as China and the US have now reached effectively stop ALL trade. Any tariff increases above this level are, according to China, just showing off what you can do with numbers, but can have almost no additional impact on trade.

Contrary to Trump’s claims, China has shown zero interest in bartering tariffs back down with Trump and actually “declared war” in its final tariff-rate retaliation last night, saying that, having effectively ended all trade with the US, it will now take other actions beyond tariffs and trade to damage the US economically. (I’ll prove with China’s own statements about what it has been doing over the past week that they were never close to negotiating with Trump. I’ll cover all the details of their “disengagement” more in the part of this Deeper Dive for paying subscribers.)

Zero Hedge is calling this “one of the most fatiguing weeks for traders in our lifetime” and saying the “sell-America” trade is accelerating because American assets are no longer in the driver’s seat, whether those assets are stocks or Treasuries.

Barron’s says the US came close to a financial disaster" and could go there again soon, in spite of the 90-day reprieve on a good part of Trump’s tariffs. (I’ll dig deeper into what kind of financial crisis we came close to tipping into in the section of this Deeper Dive for paying subscribers.)

The bond market’s reaction to the tariffs has alarmed investors and sparked fears of an incipient financial crisis as the tariffs went into effect. The immediate crisis may have eased, but with long-term Treasury yields still elevated, the problems that forced the administration to alter its plans on Wednesday could easily recur….

To people both inside and outside the administration, a dangerous situation appeared to have nearly gotten out of hand.

We’re talking a nuclear reactor in finance that nearly went into a critical meltdown, which is what forced Trump to dial back his extraordinary tariffs midweek on the same day he applied them!

Trump’s tariff policy—the centerpiece of his economic strategy—now has a counterweight that will be difficult for the president to ignore. The market knows it, and so does China, with its hundreds of billions worth of Treasury holdings.

The selloff in bonds—which move inversely to yields—amounts to a decline in confidence in the U.S. itself.

(That is truly a sea change, and, again, I’ll talk about China’s nuclear options in detail below.)

Tariffs went into effect the morning of April 9. Former Treasury Secretary and Harvard Economist Larry Summers warned of the potential for a “serious financial crisis wholly induced by U.S. government tariff policy.”

(I’ll lay out the stress lines that indicate where the first rupture is likely to occur based on where the first cracks started to show. It’s big stuff that has gone critical in our past financial crises.)

Some of the rumbling of that nuclear reaction in Treasuries was felt in some mighty-swift dollar trading. That is entirely new! Having risen as high this year of 110 relative to a neutral value of 100 against its major competitor currencies in the basket of currencies traced by the US Dollar Index, the dollar has rapidly plunged to where it fell briefly below par for the first time in about three years, touching down to a diminished 99 today (Friday), which it hasn’t touched since it climbed out of its Covidcrisis slump.

I’ve pointed out already this week in these extensive writings that the very thing the BRICS nations never even attempted to do, the Trump Tariffs have mastered, plunging the dollar into what could be the start of the actual “dollar collapse” that has been long talked about by others. As my readers know, I have not been one to predict the dollar’s demise. I’ve said no nation has the power to take the dollar down on its own by out-competing with its own currency.

However, the US does have the power to do it, itself, if it goes truly shot-in-the-head crazy. Now that Trump chose to take on the whole world, putting the dollar directly in harms way with the most intense tariff war of all time by taking the world’s two economic superpowers (itself and China) into what is, in economic terms, now a nuclear conflict, we could very well do that to ourselves. (Again, the details of how that reaction began and how easily it can go critical from here will be laid out below as well as some assessment of whether we really have begun the dollar’s collapse.)

The stresses that have mounted are now equal to what people were feeling during the worst part of the Covidcrash, and I’ll lay out the particular measures of how bad that level of stress is and give a sense of just how many people are feeling it. While CPI today looked muted in its headline numbers due to recessionary crises in oil prices offsetting inflationary changes in other prices, some items on the list started reporting crippling inflation in the past week due to tariffs. (I’ll lay out below what items were hit and how intense the first hits of inflation directly due to tariffs were. Two major items/categories were extraordinary, even though the total Chinese severance of trade only started last night after those hits were reported. So, there is worse to come.)

One writer below joins me in what I’ve said for the past couple of weeks by affirming that the only way to fight a tariff war with a nation as sizable economically as China has become and win it would have been to have some allies in the fight, rather than turn the entire world into an economic ring of foes while taking on the world’s only other economic superpower.

BlackRock’s Larry Fink reiterated in the news stories today his claim that the US is likely already in recession, as I’ve been saying since the end of last year; and he stated that the US has now become the world’s greatest destabilizing force. (I’ll lay into the kinds of details that look/feel like recession is here since we don’t yet have the official GDP numbers when I get to the parts of this Deeper Dive provided for those who support my writing to make all of the free stuff I gave to everyone possible.)

Some economic data actually looks to have improved in today’s news, but Fink and another writer point out that is most likely because consumers and businesses are rushing to front-run the tariffs by stocking up now. (I’ll give the details of how stocking up right now looks like it did at the start of the Covidcrisis when Trump locked down the US economy as China did, too, just like both are doing now.)

Other pieces of economic data like job growth and retail sales have held up better. Fink said consumers may have been stocking up on goods ahead of the threatened tariffs, which could be masking some underlying economic weakness….

May can be read as are; so can could. Some of the big reactions in retail in the last few days that I’ll lay out in the latter part of this Deeper Dive that is for paying subscribers (because I have given a lot of deep content away in a torrent of writing this week, but I cannot give away the farm) will prove that what Fink says may be happening is actually happening in droves! Trump’s tariff pause, Fink says, means longer uncertainty for all markets and businesses.

At an event for the Economic Club of New York on Monday, Fink said that other CEOs also think the U.S. is “probably in a recession….”

In a press release Friday morning, the CEO commented that “uncertainty and anxiety about the future of markets and the economy are dominating client conversations.”

In another article below, Fink is reported as exclaiming,

“The sweeping US tariff announcements went beyond anything I could have imagined in my 49 years in finance.”

They were earth-shattering, and the cracks appeared so immediately around the globe for US finance that they scared Trump into backing down a lot from the positions he staked at the very start of the day.

"This isn't Wall Street versus Main Street," Fink emphasized, adding, "The market downturn impacts millions of ordinary people's retirement savings."

Fink manages most of those savings, so he ought to know; and he knows the millions of accounts that are filled with his managed funds have owners who are going to be extremely upset by what just happened to their retirement funds.

Elsewhere, in the carefully measured terms that can be expected from the world’s biggest banker who has the closest connection with the Fed of anyone other than Fink, JPMorgan’s CEO, Jamie Dimon, said in his quarterly report today that “the economy is facing considerable turbulence.” Bankers don’t like to scare their millions of clients with news that indicates banks could be at risk; but in a quarterly report, he has to say enough to claim he did what was required of him.

Dimon has his finger on all turbulence news more than any man in America because JPMorgan Chase is always at the heart of every Fed rescue, ready to snap up the fire sales. Saying, “You'll see more credit problems,” Dimon also reported the bank has nearly doubled its provisions for failed loans this year over last.

Earlier in the week,

Dimon warned shareholders that trade wars could have lasting negative consequences including persistent inflation and high fiscal deficits.

Dimon also said he expects “a kerfuffle” in the US Treasury market that prompts a Federal Reserve intervention. We know what kind of “kerfuffle” merits FED intervention, and we know what the muted word “intervention” means, having seen a few of those, and Dimon would be the first to know (and possibly already does know) exactly where that breakage will occur, because Dimon will be the first, as always, to be asked by the Fed and the FDIC to step into the rescue. He gets very little time in those opportunities for due diligence in understanding all the liabilities his bank will be taking on. So, he is deeply involved in knowing all he can right now. He said, however, the Fed will hold off on stepping in until “they start to panic a little bit.” The Fed doesn’t panic unless something systemic happens.

Become a supporter of my work and gain access to all Deeper Dives and see all the particulars in this Deeper Dive about how badly things blew apart this week and what kind of “kerfuffle” the master-buyer of fire sales is likely hinting about. The shuddering of something big breaking ran deep through financial markets this week, and that kind of breakage is almost always resolved over the weekend when markets are closed and then announced when the details of the transaction have already been completed.

“When you have a lot of volatile markets and very wide spreads and low liquidity in Treasuries, it affects all other capital markets,” Dimon said. “That’s the reason [for the Fed] to do it, not as a favor to the banks.”

I.e., they only react when the problem will be systemic if they do not.

That moment is apparently near, according to Dimon who believes it will happen; but he wouldn’t want to tell anyone anything specific because he wants to do his due diligence now in order to be first to hose up the bargain for ten cents on the dollar when the next Lehman or Bear Stearns crumbles into pieces. He wants to make sure his bank gets the savory chunks and leaves the rotting offal behind. Because that is what he does … every time.

So, I’ll try to sniff out what dead body we’ll likely soon find lying in the rubble when this vulture capitalist drags its bones into the open as will someday soon enough be announced by the Fed or FDIC because that is how these big breaks happen in every crash cycle. (At least, I’ll try to sniff out what species of beast is dying.)

One of the speculated changes that regulators under Trump may pursue is exempting Treasuries from the US banks’ supplementary leverage ratio, allowing firms to buy up more of the debt without a hit to their key capital ratios.

Dimon said the issue is not just with the SLR, and listed a slew of regulations with “deep flaws” that he said required reforms so banks could become more active intermediaries in markets….

What he’s really saying is regulatory changes need to happen first if he’s going to find anything he’s willing to snarf up in a New York minute!

“If they don’t, the Fed will have to intermediate, which I think is just a bad policy idea.”

He’d far rather it be him collecting another one of the many bargains that have made his bank the biggest too-big-to-fail beneficiary in the United States.

The selloff in Treasuries intensified Friday as investors continued to retreat, with the yield on 10-year notes—a benchmark for the cost of everything from corporate bonds to mortgages—rising as much as 16 basis points to nearly 4.6%, before paring the jump. The 30-year rate climbed as much as 12 basis points to nearly 5% before also paring that move….

“These rules effectively discourage banks from acting as intermediaries in the financial markets—and this would be particularly painful at precisely the wrong time: when markets get volatile.”

While the week ended with stocks rising, the footnotes for the week were troubling from three sources:

Despite President Trump’s pause on broad tariffs, investors are still looking to shun US assets in favor of Europe and other developed markets, according to the latest MLIV Pulse survey.

The world's hot new trade is "sell America."

President Trump's whiplash tariffs may have inadvertently achieved his goal of reordering the global economy by inspiring investors to sell U.S. assets and move their money elsewhere.

Volatility shows little signs of easing as concerns that President Donald Trump’s fast-evolving trade policy is not only shaking the global economy, but threatening the US status as the world’s safe haven.

I will particularly lay out the severe threat to that safe-haven status the US has long benefited from that solidified today in China’s move to economic warfare. So, with that direction in mind, let’s take a deeper look now at all the market volatility this week, China’s outright declaration of economic war, and at the many headlines laying out the particulars of the past week’s crash to see where the ruptures in the US economy are forming.

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