While waiting for the EU’s response to the Trump Shock (don’t hold your breath for evidence of intelligent life from Brussels…), those of you who really want to worry about something big, turn your attentions to perhaps the largest threat for the status quo – greater than tariffs, equities, bond prices etc. What is that? The Fed’s swap lines!

What saved capitalism (at least for a little while) after the Crash of 2008? Besides China (yes, China saved the capitalist world’s bacon by boosting magnificently its aggregate investment to take up the massive slack developing in the North Atlantic), the answer is: The Fed’s swap lines (i.e., the fact that, without second thought, the Fed lent the central banks of Europe and Japan something like $600 billion).

Something similar happened in 2020, as the pandemic spread panic and chaos through the West’s financial circuits (on that occasion, the Fed’s swap lines funnelled around $450 billion to a world dependent on the mighty dollar).

In this context, hotheads who think that Europe and Japan can afford to play tough with Washington seem unable to fathom the extent of their dependency. For the time being, Trump does not control the Fed. Or so it seems. But is it not possible that the Fed will not want to antagonise him? Is it, therefore, not possible that the Fed may not be as quick to ‘lubricate’ its swap lines at the drop of a hat (as it did in 2008 and 2020) when they are most needed?

Just the thought that, come the next crunch, a certain reluctance may prevail at the Fed over its use of the swap lines that keep the financial markets liquid is enough to make the tumult of the past week look like a serene walk in the park.

The moral of the story for European, British and Japanese decision-makers, both in the public and in the private sector, is: There is a price to pay for your total dependence on a fickle hegemon. Only now you are beginning to get a whiff of how steep that price is.

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