The most serious crashes are those that threaten to damage the financial system, the nervous system that runs through most major world economies.

No market crash — and that is what, thanks to Donald Trump’s tariff increases, we and much of the world are experiencing — is a comfortable experience. But the most serious crashes are those that threaten to damage the financial system, the nervous system that runs through most major world economies.

And there are now unmistakable signs that the crisis set off by the tariff hikes has reached a level so serious that it may pose a systemic threat to the U.S.  financial system. Writing in the Financial Times on Monday, Katie Martin noted how when  “liberation day” was announced to underwhelming enthusiasm, the price of stocks fell and, after a pause, the price of Treasuries rose (which is to say that interest rates fell). That’s normal enough. Investors flee stocks and put their money into safer havens when something unsettles financial markets. Traditionally, treasuries fulfill that role.

But then the markets went off script, and when traditional correlations stop correlating, it’s worth paying attention. That’s what’s been happening. Treasuries rose, but then they fell.

Martin:

This suggests investors are dumping what they can sell, not necessarily what they want to sell, to try to plug leaks elsewhere in their portfolios. The same goes for gold. Everyone loves gold in a crisis. But its price fell sharply in the final hours of last week — another sign that investors are selling the good stuff to make up for the horror show elsewhere.

When risky assets fall in price, that’s one thing. But when the safe assets take a hit, you really are in trouble. That was the turning point in the Covid crisis five years ago — the abrupt slide in Treasuries then was on a much bigger scale than what we have seen in 2025 (so far). But when it happened, it was clear that intervention was required.

The mechanism here is two-fold. One is that end investors seek to yank their money out of investment funds, leaving fund managers scrambling to meet redemption demands and selling what they can so they can hand money back as promised. The other is margin calls — demands from banks that hedge funds stump up cash, and fast, to plug the gap on failing trades. As we reported on Friday, these demands are now flooding in at the fastest pace since the depths of the pandemic.

There is, needless to say, plenty of speculation that something may start to go really wrong somewhere (one area of focus at the moment has been on treasury “basis trades”). More on that to come, but the administration is in no position to complain about irresponsible financial markets. Donald Trump, after all, likes to present himself as someone with a lot of Wall Street savvy. If he genuinely fits that description, then it underlines the extent of his irresponsibility. He was well aware that the scale and the speed of what he was proposing would shake the markets, and shake them badly. Nevertheless, he went ahead.