Drawing on Henry Thornton’s theory of credit, this piece argues that sovereign credit depends on trust, legal security, and respect for property. Policies aimed at expanding US oil production by pressuring major creditor nations such as Norway, the UAE, and Saudi Arabia risk undermining that trust. A debtor cannot strengthen its credit by threatening the interests of its creditors; doing so weakens confidence and ultimately damages the credibility of the United States itself
Britain’s 1820s debt “coupon recuts” reduced government bond yields after war-driven debt surged, pushing investors into speculative bubbles before a banking panic followed. Today, Fed monetization, distorted inflation metrics, and weakening credit markets are seen as a modern parallel, fueling excess speculation in AI, crypto, fintech, and space stocks. As private credit deteriorates and losses emerge, the risk of a broader liquidation cycle continues to rise.
Rising geopolitical tensions may weaken dollar recycling as Gulf states deepen ties with Beijing, keeping base rates higher. This comes as private credit—now a key absorber of capital—shows growing stress. Higher funding costs, redemption limits, and valuation gaps in BDCs signal the credit cycle is turning. With inflows slowing and capital absorption weakening, the system is entering a late-cycle phase where credit expansion stalls and pricing begins shifting from models to market reality.
Wars are not deflationary, especially for the U.S., where high debt and deficit monetization create inflationary pressures. Bond rallies during crises are often knee-jerk reactions, not true signals. With heavy short-term issuance, repo stress, and structural deficits, markets may misread conditions. If conflict persists, risks shift toward inflation and potential instability in the U.S. bond market.