r/investingMay 3, 05:22 PM
Is the US externalizing its debt burden through geopolitical conflict?
Look, I’ve been thinking about why U.S. Treasury yields keep climbing even with all this U.S.-Iran tension. Traditionally you’d expect a flight to safety into Treasuries, but that’s not really happening this time. The common media take is that it’s negative: war pushes up oil, oil pushes up inflation, and inflation is bad for bonds. On top of that, being in a conflict lowers the world’s risk assessment of the U.S., especially when the deficit and debt pile are still growing. And then there’s the big one: in the past, whenever there was a major financial shock, money ran into Treasuries because the market was deep, liquid, and considered the ultimate safe haven. That reflexive move didn’t really kick in this time, which is troubling for the U.S., because a safe-haven asset, especially a long-duration one, relies entirely on consensus. Gold works because everyone agrees it works. The moment that consensus cracks, the thing becomes just a shiny rock. The same fragility applies to any asset. If an asset stops behaving the way it’s supposed to for too long, the market reprices it. What we might be seeing is a quiet erosion of faith in the dollar itself.
The whole system rests on whether a sovereign can keep rolling its debt, and that depends on trust, on whether the world is willing to hold and pledge against that country’s liabilities. U.S. Treasuries are not like other government debts. They’re not just an IOU from the American government; they’re the risk-free benchmark for global capital markets, the pricing anchor for other securities, and the reserve asset for countless countries. The real difficulty for the U.S. right now isn’t some specific bond maturity coming due. It’s that they need to do four things at once and they can’t: raise taxes at home, cut people’s benefits, slash all kinds of government spending, and still maintain military bases all over the world to uphold its role as the global safe asset. Given their political structure and economic position, pulling off that kind of internal squeeze is nearly impossible. If you need resources to get things done, they either come from inside or outside. For a country like the U.S., the path of least resistance is to push the cost outward. Tariffs, sanctions, making allies share the burden, or cooking up a geopolitical risk premium. Hard domestic austerity is just not in the cards, they’re not North Korea. The inward-facing knife is too blunt.
The deeper I go with this, the more it looks like a debt issue at its core. Modern money is debt. Wealthy people are essentially holding society’s IOUs, the richer they are, the more the system owes them. Nobody likes their creditors, and no one really wants to pay them back. The U.S. is the world’s biggest nominal sovereign debtor, so naturally it’s going to be irritable and prone to lashing out. Debt has to be resolved eventually, that’s a law of nature. You either resolve the debt, or you resolve the creditor. Weak countries have to swallow the debt;