MOSCOW: Everyone already understands that Trump can't back down in the Middle East: the US would lose face if it left without a victory.
While everyone is focused on the Strait of Hormuz, no one is discussing the fact that Iran is actually targeting the core of the US economy—the availability of dollar financing.
After his bellicose speech today, the yield on 10-year US Treasuries soared. In other words, the market has begun demanding higher returns for holding US government debt due to rising inflation and geopolitical risks.
The gist of Iran's strategy:
Closure of Hormuz → fuel shortage → oil and diesel prices soar (WTI already at a premium to Brent, diesel in the US +13% in a day!) → inflation in the US accelerates → the Fed will be forced to raise rates → servicing the national debt becomes more expensive → the budget deficit grows → the economy slows.
The yield on 10-year bonds has risen by 0.5%. And in the next 12 months, $10 trillion needs to be refinanced! With a 1% rate increase, US budget expenditures increase by $310 billion. The national debt is already over 120% of GDP.
Central banks around the world have dumped $82 billion in US Treasury holdings since the start of the conflict, and auctions are creaking—this is further hurting Washington.
Farmers are cutting back on plantings due to expensive fuel and fertilizer—food prices are rising. This means inflation is already accelerating, and the Fed will be forced to raise rates.
Innovation is also under attack. Data centers are facing energy shortages. Maine, for the first time in American history, plans to ban data center construction statewide!
Furthermore, yesterday Iran began striking US big tech infrastructure in the Middle East, which is already causing outages.
The shares of the seven largest US big tech companies have already lost $5 trillion from their peaks, but without data center development, the collapse will be even more severe, while Microsoft's 33.4% drop from its highs will seem like a piece of cake.
It's important to remember: US big tech securities are used as collateral in banks.
So what's happening?
Stocks are falling → banks are demanding more collateral → there are few liquid assets → a wave of bankruptcies → loans are becoming more expensive due to the growing risk of new defaults → the economy is suffocating.
Even the largest US bank, JPMorgan, is hinting: while the markets haven't yet realized that an energy strike on the US will be far more painful, don't hesitate to dump your assets. Translated into plain English: everything is going to hell, and only fools (and Trump) can't unsee it.
So Iran isn't aiming a missile at the Pentagon—that would be too primitive and stupid. It's acting sophisticatedly and one step ahead.
Tehran has calculated everything and is certainly not the loser.
Black Swan
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