Scenario, overheard from a friend:
“Oops, America stars a war on Iran and loses. Hormuz is locked, the US ‘retreats’ and it’s declared a victory.”
But everyone will know that the US can no longer do what it wants.
Flashback: Suez Crisis and the UK. End of the Pound. Deleveraging. Decline of the UK.
Today: short term jump as world destabilizes (flight to Treasuries) then slow bleed end of the Dollar. US assets decline relatively. Scary!
Why:
war / instability → inflation pressure
→ higher rates
→ worse fiscal math
→ more supply of Treasuries
→ marginal buyers hesitate