The Confidence Collapse

By deciding to put our trust in Trump for a second time, the world has lost their trust in us

What happens when you put a mad man in charge of the global economy?

by Jeremy Novak

It’s widely predicted that the sweeping draconian tariffs that Trump is implementing are going to cause a mild recession at best or another global Great Depression at worst. Unless you are a MAGA cultist, you probably expect that whatever results from this policy is likely to be something bad, it’s just a matter of to what degree.

But the focus on the tariffs themselves causes us to miss what the real economic calamity could be, resulting from Trump’s wildly erratic behavior with not only implementing this policy, but across the board in general.

It’s the deterioration of something that ties whole systems together: confidence.

The confidence trick

The hidden glue that holds everything together is confidence. Confidence in our legal system, in our social system, in our infrastructure.

Confidence in law enforcement keeps most of us from breaking the law. You accept a job because you’re confident that the employer will actually pay you. When you think about it, so much of your life depends on being confident that things will simply work, from the electricity being directed to your home to your internet service.

If one or more of these things suddenly stopped working, there would be hardship that might induce panic. If there was no recourse to fix it, your life would change dramatically. Most dystopian fiction is after all based on some aspect of society breaking down and the huge adjustment that follows.

One subsection of U.S. society that relies on confidence perhaps more than any other is our monetary system. We exchange labor and goods for dollars, because we’re confident that the dollars will go towards acquiring sufficient goods and services that we need.

This confidence is partly due to legal tender laws that keep other potential currencies from competing against the dollar. In this way, we are all forced — under threat of imprisonment — to use and accept dollars in our transactions, which helps keep confidence in the dollar high.

But it’s also partly due to the dollar’s history as a stable and reliable currency. Things might get incrementally expensive over time, but in general dollars work as we expect. Our generally safe and stable country is the underlying factor that gives us this confidence.

Other countries feel this way about the dollar as well. We have been the world’s winner for the last 100 years. WWI, WWII, and the Cold War established ourselves as the clear leader of the world militarily and economically. So much so that other countries use the dollar as the world’s reserve currency in their transactions.

Inflation nation

This is where the potential economic calamity comes in.

It's bad enough if people lose confidence in the dollar, but that’s unlikely anytime soon — we’ve been paying dollars for goods and services so reliably for so long that it makes it hard to imagine a shift without some kind of apocalyptic collapse.

But it would be much easier for other countries to simply stop favoring our currency. They could just transfer over to another preferred currency. This is, in fact, already starting to happen to some degree.

But a sharp, steep decline instigated by Trump-related anxiety could exacerbate the issue, resulting in much lower demand for dollars, which would sharply lower the currency’s value. This devaluing of dollars could mean higher inflation.

Any asset or good that declines in value results in more of it being required to achieve the exchange you want. Dollars work in the same way. If dollars are less valuable, more of them will be required to purchase the goods or services we need. This is one of the underlying causes of inflation.

It’s true that higher tariffs will cause higher prices, but the effect of tariffs can be reversed. You can lower the prices back to where they were by lowering the tariffs.

But a loss of confidence in the dollar is much harder to reverse and is likely to have long-lasting effects. Inflation caused by a devalued dollar due to the world’s loss of confidence in us would be much more devastating than some artificial price hikes due to tariffs. It would be like a cancer that spreads throughout the system. It would be hard to pinpoint a solution. It could take generations of reliable and stable behavior from our leaders to gain back the world’s trust.

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Debt becomes us

Same thing with our debt, which the world buys in the form of U.S Treasury bonds. Many countries around the world buy U.S. bonds because they are not worried about not being paid back. U.S bonds are legally backed up by “the full faith and credit of the United States”, which has always been a powerful statement of stability and reliability.

“Faith” is the key word here. Once other countries lose “faith”, or confidence, in our ability or willingness to pay them back, they’ll stop buying our debt. And when they do, our debt will become less valuable.

And as our debt, or bonds, become less valuable, the interest rates they command will go higher. Interest rates reflect the risk involved with the bonds in question. It’s similar to a human borrower. The more creditworthy a borrower is, the lower the risk, and therefore, the lower the interest rate offered to that borrower. Conversely, the less creditworthy a borrower is, the higher the risk, and the higher the rates offered to that borrower.

Basically, as the world loses confidence in our stability and reliability, they will charge us higher interest rates when we borrow money from them. This will cause interest rates across all types of debt to go up in tandem, including very common consumer debt, like auto loans or mortgages.

Deadbeat society

Trump’s erratic behavior and mistreatment of our allies is causing the U.S. to be perceived as a less creditworthy borrower. In other words, America is starting to drink too much, get up late, and miss work.

Will we start missing payments like this deadbeat in the making? It was once unthinkable, but it’s more likely now than ever.

Unlike countries like Brazil, France, or South Korea that hold coup-plotters and corrupt leaders accountable, the U.S. has shown it won’t—or can’t—do the same. After living through one Trump presidency, we’ve chosen to elect him again.

Had we snuffed out the MAGA movement once and for all and moved on, confidence at throughout the world could have been restored. But we didn’t. So now the world has to decide if they can take the risk of relying on our dollars and debt while they make long-term policy decisions, knowing that we are capable of descending into full on fascism.

For a century, America has been buoyed by global trust — trust in our institutions, our stability, and above all, our currency. But that trust is cracking. And once it breaks, the dollar follows.

If the world stops believing in us, the economic fallout won’t be a blip, it’ll be a generational collapse. A self-inflicted crisis we may never fully recover from.

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