The US government already faces a funding crisis which has been concealed by US hedge funds and others round-tripping from the yen to the dollar in a carry-trade. It has concealed the seriousness of the US debt problem which is now being unmasked. Additionally, the current administration seems to go out of its way to upset its genuine creditors.
This is not the way to win friends and influence people, serving only to strike fear into the dwindling number of sycophantic governments, most of which have debt problems of their own. And Scott Bessent, the Treasury Secretary deliberately set off a bear squeeze in the yen, against the interests of the carry traders upon which he depends, with as yet unknown consequences.
As the chart below of the yen/US$ rate shows, over the last month the yen has rallied by nearly 5% wiping out carry trade profits for hedge funds and others borrowing yen. The annual return on the round trip is about 2%, so to lose 5% in one month is bad news.
There are two significant considerations. The first is that the carry-traders don’t fully
