America recently joined Japan in supporting the yen after the currency plunged toward 40-year lows.
At first glance, that's a Japanese problem, but David Lin says Washington had a very American reason to intervene.
The yen sits at the heart of one of the biggest trades in global finance.
For years, investors have borrowed cheaply in Japan and poured that money into higher-yielding U.S assets.
But if Japanese rates keep rising, that enormous carry trade starts to unwind.
Investors sell U.S assets, Treasuries get dumped, U.S yields surge, and that's where things get dangerous, because America today cannot tolerate interest rates the way it could 40 years ago.
David points out that U.S debt-to-GDP was around 31% in the early 1980s; today it's above 120%.
So when people say America survived 15% interest rates in the 1980s, they're missing the point; the U.S had a fraction of today's debt.
David warns that if the 10-year Treasury yield were allowed to spiral dramatically higher now, the effects would rip through virtually everything:
Mortgages, credit cards, corporate borrowing, housing, equities, and even the enormous AI infrastructure boom, which depends on companies being able to finance staggering amounts of CapEx.
And there's another problem making all of this worse: Iran.
Japan imports huge quantities of energy through the Strait of Hormuz, which puts more pressure on inflation and the yen, so it may be forced to raise interest rates further.
And higher Japanese rates make the carry trade even more vulnerable.
So you get a potentially vicious cycle: Hormuz squeezes Japan, it raises rates, the carry trade unwinds, U.S assets get sold, Treasury yields rise, and America's borrowing costs explode.
Which helps explain why Washington stepped in.
But here's the problem: the U.S intervention barely lasted; the yen began weakening again within days.
And David doesn't think the amount Washington deployed was remotely large enough to solve the underlying problem.
His theory is that this may have been a teaser.
A signal to markets that the gloves are coming off and Washington is prepared to intervene much more aggressively if necessary.
And if this doesn't work, the next steps become much bigger.
@davidlin_TV
