Blain’s Morning Porridge April 1^st 2025: I almost feel sorry for Scott Bessent.

“Just because it’s a bad job doesn’t mean I need to do it badly..”

US Treasury Secretary Scott Bessent has the most difficult job in the world. How do you explain to a cabinet of financial imbeciles the USA is on course for a stock market crash, recession, inflation and a possible collapse in the US Treasury Market? It’s high risk – Trump is a “shoot-the-messenger” kind of guy.

Overnight news Alaska has petitioned King Charles to join Canada, and the ECB, Bank of England, Bank of China and Bank of Canada have multilaterally determined US Treasuries are no longer eligible as collateral….. would send markets and the US economy into an irrecoverable flat-spin. But its April 1^s, and no one thinks such a multilateral rejection of US credit is ever likely to happen…

But could it?

This year the US Treasury has to refinance $9.2 trillion of its outstanding $36.7 trillion debt. That debt current carries an average weighted interest rates of around 2.8%, but to refinance at today’s rates will cost around 4.5% – meaning $1.7 trillion in interest payments per annum. That number could spike – dramatically. To finance its’ debt mountain the US has one outstanding advantage: around the globe every commodity, good and service is effectively priced in dollars. When global corporates and entrepreneurs receive dollar payments and profits, they invest, or deposit them into banks who invest, these dollars into the safe-haven of the US treasury market; bills (short-term debt) or bonds (medium to long-term debt.)

If that funding conduit was to be closed, or changed, if the unique strength of the US dollar was to “wobble” and be questioned, and buyers failed to turn up for US Treasury auctions…. then that is when you make sure your hard-hard is close at hand. It would spell global financial crisis on a scale we haven’t seen the 1930s. And the thing is… it could happen at frightening speed. The dollar’s decline from its place as the guinea stamp of global relative value is already happening. China buys oil from Saudi priced in Renminbi.

In 2007 the Global Financial Crisis was triggered when banks suddenly found their access to short-term Commercial Paper funding markets was becoming difficult due to consumer mortgage lending concerns. The old adage about bank’s dying fast when liquidity is a problem was swiftly proved. In the 2007 we saw the lines form outside Northern Rock – the first run on a UK Bank in a century, all because liquidity dried up. It was nearly a year before the crisis climaxed in the collapse of Lehman. It was a frightening time.

What would happen if the largest economy on the planet suffered a similar liquidity-heart-attack? That’s what potentially will happen if the US Treasury holds a bond funding party and no one turns up. US Treasuries are the really big risk in markets today.

Based on what I was hearing y’day, I suspect US Treasury Secretary Scott Bessent spent yesterday anxiously speaking to his friends on Wall Street – asking them about the mood on the streets, and how the markets are likely to react to the ongoing financial instability and uncertainty that will likely follow Donald Trump’s “Liberation Day” causing further Tariff Tantrums on the global markets tomorrow.

Bessent is one of Trump’s good soldiers, standing attentively behind the Resolute Desk, nodding his head at every economic utterance the Great Leader makes. (I am surprised Trump’s minions aren’t all running around with notebooks in the hands, like North Korean Generals, ready to note down every gem of wisdom the leader pronounces.) But he is also an experienced financier – he was the man who orchestrated George Soros’ takedown of Sterling in October 1992. He knows how market works.

And, I bet he is a very worried man. He needs to know the mood, probabilities and outcomes in current markets. I’d be surprised if he wasn’t traumatised by what he was told y’day.

I’m not sure how much good his questions will have done him. Can you imagine Bessent, the financial grown-up in the room with Vance, Hegseth, Musk et al, trying to explain bond market risks to Trump? Oh, I would pay good money to watch them pummel the crap out of him… It would be like the Zelensky ambush on steroids. They will be telling him nothing can undo the mighty dollar or US exceptionalism. MAGA, MAGA, MAGA! There are none so deaf as those who will not listen and think they know best.

If there is a crisis in funding the Treasury market, the US would have no choice but to print money, (inflationary and further undermining the dollar) to meet repayments of interest and principal on US debt, and raise interest rates to attract buyers to levels where the economy and consumers will be squeezed. Higher interest rates, and people buying dollars to fund purchases would rocket the dollar – making US exports unaffordable. The US economy would be squeezed by crippling rates, recession and inflation till the pips literally explode. One confidence in a nation and its currency wobbles – it will take decades to reestablish.

Personally… I am sticking to gold. US Treasuries are off my safe-list.

Yesterday global stock markets avoided a total meltdown, bouncing back late on the day, propelled by hopes and “buy the dip” mentality. Hope is never a good investment strategy, and “buying the dip” completely misses the point about how substantive the underlying changes in market basis have been since November 4^th 2025.

Trump’s outstanding “success” in these first 70 days has been unravelling 70 years of profitable globalisation and concurrent growth that he sees as unfairly benefitting America’s competitors. It’s a pretty fundamental re-ordering of the Global Markets and Economy. And he has been taking a sledge-hammer to relationships with the USA’s global allies and partners – blaming their free-loading off America’s largesse for the scale of the national debt and shuttered manufacturing. MAGA loves it. Zerohedge is full of comments praising the brilliance of the plan to get rich by pissing off the rest of the World. USA! USA! USA! yeah, right.

My Republican chums say cracking the current global order and relationships is creative destruction and a better America-First economy will emerge. No. It won’t. The rest of the world is not going to stand around, being insulted by Trump as the chaos consumes America.

Instead, it’s more likely a new stronger global trade economy will emerge – probably linking America’s former allies and friends into new power plays, including Europe and the Middle East forming a new Tokyo-to-Dublin (plus everything North of the 49^th parallel) free-trade zone. New wealth and new relationships will be likely be formed. The new world won’t be perfect, and it will have inherent tensions – but globalisation has been proved to work.

Shaking the foundations of the global economy is bound to impact Sovereigns and credit metrics around the globe as corporate investments and plans are overturned, and consumers hunker down for recession/depression. It’s going to be painful, but will be a time of enormous opportunity as the new economy emerges.

This week is a pivotal one for markets. Speaking to clients I reckon there is a small chance markets rise 1-2% if Trump dials back the threats. There is a 10-15% further downside slide in prospect if he doesn’t. When the dollar, the stock market and the US treasury market are all falling together – that’s when fears and the risks of a global collapse in confidence in the USA will seize markets. At that point market crashes oft become self-fulfilling prophesies.

At some point in the next few months, someone is likely to ask the US Senate and Congress the equivalent of the famous “aside from that Mrs Lincoln, did you enjoy the show..?”  question. It will be a difficult one to answer – especially for the Republican members who have enabled it.

Finally… DON’T PANIC. Remember Mantra No 2: “Things are seldom as bad as we fear, but never as good as we hope.”

Out of time and back to the day job….

Bill Blain

Author the Morning Porridge

Founder Windshift Capital

Partner Shard Capital