Lourenço Pé D'Arca
14th April 2025
Behind the polished surface of global finance, a silent cold war is intensifying. This conflict is waged through liquidity constraints, bond auctions, exchange rate maneuvers, and shifts in global capital. At the centre of this unfolding drama lies the United States — navigating a precarious strategy of economic survival defined by tariffs, fiscal expansion, monetary brinkmanship, and above all, an overwhelming need to refinance its sovereign debt.
With public debt exceeding $36 trillion, the US Treasury faces a colossal challenge: refinancing $8 to $9 trillion by mid-2025 — roughly a quarter of its total obligations. This must occur amid rising yields and increasingly cautious investors. The 10-year Treasury yield surged from 3.8% to 4.6% within days, reflecting growing discomfort with risk and a demand for higher compensation.
Macroeconomic fundamentals offer little reassurance. The Federal Reserve’s March 2025 projections acknowledge a slowdown: GDP growth for the year has been downgraded from 2.1% to 1.7%, with 2026 and 2027 both forecast at a modest 1.8%. Simultaneously, inflation expectations have edged upward. The PCE index — the Fed’s preferred gauge — is now projected at 2.7% in 2025, while core PCE inflation has been revised to 2.8%, up from 2.5%. These upward adjustments underscore the persistence of inflationary pressures — a challenge that undermines the Fed’s credibility and narrows its room for maneuver.
Markets briefly entertained hope. A flight to safe assets — notably gold, US Treasuries and, among a particular segment, Bitcoin — gained momentum as recession fears grew. While Bitcoin lacks universal recognition as a store of value, some view it as a hedge against systemic fragility. This surge in defensive positioning created the perception that rate cuts might arrive sooner than expected. The Fed, for now, has maintained its trajectory: rates are forecast at 3.9% in 2025, gradually falling to 3.0% over the longer term. However, the inflation revisions have cast doubt over this narrative. The central bank’s resolve is now under scrutiny.
China, meanwhile, has acted with strategic intent. Having absorbed successive rounds of US tariffs in recent years, Beijing responded by offloading large volumes of US Treasuries. The effect was immediate: an expanded secondary market supply drove yields sharply higher.
This was not merely a portfolio adjustment — it was a targeted intervention in the cost of US financing, designed to exert pressure without firing a single shot.
On the energy front, tensions are similarly acute. The US, having exited the Paris Agreement, moved to stimulate domestic oil production, even imposing tariffs on Canadian imports, which are demonstrably cheaper, to protect local producers. In response, OPEC+ — led by Saudi Arabia — increased output strategically, suppressing global prices.
With their unrivaled cost base, the Saudis effectively undercut American producers, rendering many domestic investments unviable. Energy independence, a cornerstone of US strategic rhetoric, begins to resemble an illusion — undermined externally and compromised internally.
Washington’s response has been aggressive: protectionist tariffs, tax relief to sustain consumption, a rhetorical push for reindustrialization, and mounting pressure on the Fed. Yet inherent contradictions persist. Tariffs are, by nature, inflationary. Their costs are typically passed down the supply chain, ultimately reaching the consumer. Over time, they raise the baseline price of imported goods, embedding inflation into the domestic economy. Concurrently, tax cuts erode fiscal revenue precisely when sovereign financing needs are peaking.
Global institutions are adjusting accordingly. Blackrock has seen over $400 billion in inflows across the Americas, driven not by optimism, but by a global search for short-term safety. JPMorgan, meanwhile, has rebalanced heavily into EMEA markets, acquiring significant volumes of European sovereign debt — especially German Bunds — while increasing exposure to Asian monetary systems. This is not a bet on growth abroad, but a repositioning away from American concentration. The message is unmistakable: the dollar’s dominance is no longer assumed.
The United States is now attempting to refinance its mountain of debt under the assumption that global investors will continue underwriting its deficits. But that expectation is fraying. Inflation persists, Beijing is offloading, energy markets are volatile, and confidence is deteriorating. The Fed faces a cruel binary: print and risk a collapse in trust, or hold firm and risk liquidity paralysis.
The original strategy envisioned a controlled downturn, followed by rate cuts, a Treasury flush with capital, and reindustrialisation under a weaker dollar. Instead, inflation is proving obstinate, the dollar remains elevated, the path to energy sovereignty is obstructed, and capital is becoming more selective. The Fed maintains it will reach 2% inflation by 2027 — but the credibility of that target diminishes with every data release.
The only plausible escape appears to be a significant acceleration in nominal GDP growth. Yet such an outcome seems unlikely without tolerating structurally higher inflation. Should the Fed concede, the US risks entering a phase of accelerated monetary deterioration — a weaker dollar, upward pressure on yields, and the gradual retreat of institutional capital.
The implications are severe. The US economy is consumption-driven and heavily reliant on imports. A significantly weaker dollar doesn’t merely dent national pride — it corrodes purchasing power. Imported goods would become prohibitively expensive, household incomes would effectively contract, and the country’s middle class would be eroded. In extreme cases, sustained currency depreciation could trigger effects resembling those observed in Venezuela’s monetary collapse — not due to governance failures, but through similar mechanisms: the erosion of internal value, rampant price instability, and a sharp decline in national purchasing power.
At present, the United States finds itself under siege. China is weaponising debt markets. OPEC+ is undermining energy policy. Market actors are losing faith. The empire needs yields to fall — but the world is preparing for the opposite.
We are living through a monetary cold war. The weapons are no longer kinetic. They are bonds, barrels, basis points and broken confidence. And while the Federal Reserve projects stability, its adversaries are gaining ground without firing a single shot.
The loudest moment of this conflict may not be a crash, but a silence. The silence of an empty Treasury auction. On that day, the world will know that the empire no longer commands the rules — it merely fights not to drown in them.