Yesterday, we talked about the repricing in the bond market — driven by a Fed regime change, which includes the end of forward guidance and the end of the implicit global backstop (no longer automatic, but ‘conditional’).
Today, we got to see ‘conditional’ materialize.
Scott Bessent was in Paris, delivering the keynote at the No Money for Terror conference. He told the room of global policymakers and financiers this:
“The United States is hardly alone in facing the scourge of terrorism, especially from Iran. Yet, too often, we seem to be alone in our resolve to thwart it.”
He then called on Europe, by name, to take action and expose Iran’s financing networks — unmask shell and front companies, shutter bank branches, dismantle proxies.
And he called on partners in the Middle East and Asia to root out Iran’s shadow banking networks (the China-Iran financial pipeline).
But this “alone in our resolve” statement was clearly aimed at Europe, along with “no room for excuses.”
We’ve talked about the Trump plan to restructure global trade and realign the world (away from China, back toward the U.S.), anchored by “burden sharing” — where allies and trading partners pay for access to safety (U.S. security guarantees), stability (the dollar and U.S. capital markets), and markets (U.S. consumers).
These are all no longer automatic, but conditional — conditional based upon alignment.
And Bessent is making it clear that alignment includes: designate, expose, shutter, and dismantle Iran’s financing.
Or, stay ambiguous, as Europe has to this point, and discover what “conditional” looks like in practice.
And we’ve talked about the levers that Trump, Bessent and the new Fed Chair can pull to force political alignment — through consequence, not argument.
Withdraw all the backstops.
Let the bills come due (i.e. defense). Let the energy shock expose Europe’s energy dependence. Let the European financial system work through stress without the Fed’s dollar liquidity assistance.
Let the political class face the consequences of the costs their voters are no longer willing to pay.
With all of that said, remember, the endgame isn’t Iran. It isn’t Europe. It’s China.
And the China trip has become the trigger for phase two of the Trump administration’s effort to align Europe.
With Europe aligned, the global pressure can be applied to China, in coordination — to economically isolate China, further weaken its global influence, and end its multi-decade predatory economic strategy that nearly ushered in global dominance of the Chinese Communist Party.
