The "butterfly effect" refers to two seemingly unrelated events, but after one thing happens, it is continuously amplified and has a chain reaction, causing the other to change dramatically. Trump recently announced the withdrawal of 5,000 troops from Germany, signaling that forces in Spain and Italy would also be drawn down. On the surface, this looked like straightforward cost-cutting — a lever to pressure Europe into paying its own defense bills. But the shockwaves crossed the globe and landed on Wall Street.
Bridgewater Associates founder Ray Dalio published an essay arguing that as US military bases continue to shrink, allies will begin to doubt America's "protective power" — and their appetite to buy its "debt currency" will follow. That, Dalio warns, could become the flashpoint for a US debt crisis.
Bridgewater's Ray Dalio warns: as US military bases shrink, so does confidence in the dollar.
Make no mistake: this is not empty alarmism. When America scales back its overseas military presence, markets read it as more than a strategic adjustment. It becomes a signal that the very foundations of American financial hegemony are shifting.
Since the war against Iran began, America's military shield in the Gulf has been breached repeatedly. Bases and interception systems have taken hits. The myth of invincibility has shattered. Control of the Strait of Hormuz remains firmly in Iranian hands — and Trump's murmurs that the US "won" ring hollow. Dalio argues that when global leaders begin to question whether America can still win, this reflects a deep underlying anxiety. In his view, if the US appears so overstretched in a localised conflict, the world's willingness to purchase the debt it issues will decline — and a shift in that supply-demand balance is precisely the trigger for a long-term debt crisis.
Trump's incremental troop drawdowns in Germany will also erode confidence in the dollar. Dalio argues that when America's role as the world's policeman comes into question — when its bases and security guarantees are doubted — allies begin to wonder whether American "protective power" can hold up in geopolitical competition. The international order has drifted toward the law of the jungle that "power determines the rules". Under these circumstances, Dalio believes investors should maintain an extremely balanced and diversified portfolio.
Trump pulls 5,000 troops from Germany — a butterfly effect that could shake the dollar's global throne.
The link between dollar dominance and America's global military footprint is intimate. The US currently operates some 750 bases worldwide, with over 220,000 military and civilian support personnel. This is not merely a geopolitical deployment — this "protective umbrella" also underpins the dollar's security as the world's reserve currency. America's display of weakness in the Iran war has already damaged confidence in that umbrella. Further rounds of overseas troop reductions will, over the medium to long term, shake the very foundations of dollar hegemony.
Beyond the troop cuts, Iran's firm grip on the Strait of Hormuz is directly challenging the dollar's status. Dalio earlier cited Kenneth Rogoff — former Chief Economist of the International Monetary Fund — who noted that Iran is enabling China to purchase oil in yuan and pay transit fees in yuan. This will encourage other nations to follow suit, seeking to avoid US financial sanctions. The result: an accelerating pivot toward non-dollar currency systems and diversification strategies that, Dalio argues, will inevitably threaten the dollar's position.
This explains why US Treasury Secretary Scott Bessent recently lashed out, threatening companies contemplating paying Iran's "toll fees" with severe sanctions and zero tolerance. His outburst served two purposes: cut off Iran's financial lifelines, and prevent companies from transacting with Iran in currencies other than the dollar. Once that precedent is set, Bessent knows, there will be endless troubles.
The Trump administration knows the situation is grave and is desperately defending its financial hegemony. But you cannot hold back the rain. In a separate commentary, Dalio pointed out that this year may be the one in which the dollar begins to truly crack. Its safe-haven function is weakening for three reasons: markets are concerned that US debt levels are excessive; American protectionism is eroding trust in the dollar; and Federal Reserve policy has been highly volatile and unpredictable. If those cracks widen, the pressure on American financial hegemony will only intensify.
This does not even account for the outcome of the Iran war. If Dalio's words prove accurate — that the US is overstretched in this conflict and falls well short of Trump's proclaimed "overwhelming victory" — and troop reductions continue apace, global confidence in the dollar will inevitably decline. As Dalio predicts, when the supply-demand balance shifts, that will be the tiipping point of America's long-term debt crisis.
Lai Ting-yiu
What Say You?
** 博客文章文責自負,不代表本公司立場 **
Trump has been full of strange ideas lately, and people are starting to wonder if something has short-circuited upstairs. The latest example: the White House posted a video on social media of Trump repeating the word "winning" for a full, unbroken hour, captioned "President Trump saying 'WINNING' for one hour. Can't stop, won't stop." Friends laugh every time they watch it. They see it for exactly what it is — another tired roll-out of the old trick: repeat a lie often enough until it sounds like truth.
Trump is heading to China — and trotting out the Jimmy Lai line again. He has said it N times. It is a broken record, no different from his recent hour-long loop of "winning".
That stunt maps almost perfectly onto his latest round of Jimmy Lai talk. In an interview with a right-wing outlet yesterday, Trump said he would raise the Jimmy Lai case again when he meets President Xi. Anyone paying attention will recall he has given virtually the same answer N times over. It is no different from his hour-long loop of "winning" — hollow repetition to tick a box. Only a fool would believe he genuinely intends to save Lai.
Trump has been tied up in knots over the Iran war situation lately. When he meets President Xi, there will likely be no good news from the front to offer. He and his aides are almost certainly preoccupied with that headache. A trivial matter like the "Jimmy Lai case" is naturally the last thing on his mind. Yet having pledged multiple times to raise it — whether sincerely or not — he needs some kind of cover.
So yesterday he told a right-wing influencer from The Salem News that he had already raised the Jimmy Lai case before and would bring it up again with President Xi. He immediately followed that with a caveat: "Hong Kong was not as easy." Translation — it is too complicated, there is not much that can be done. Raise it? Sure. Expect action? Do not bother asking.
This is nearly 90% identical to his response last October when a Fox News host asked him about it. Back then, he similarly said he would raise the Jimmy Lai case with President Xi at the G20 summit in Busan. Then he pivoted immediately, saying he "understood that President Xi would not be willing to release Jimmy Lai." The script was identical: a fleeting mention, a box ticked, and then a quiet retreat.
And that is exactly what happened at the meeting with President Xi. Trump raised the "Jimmy Lai case" for just a few minutes. There was no discussion. There was no follow-up request. American officials went silent afterwards, neither confirming anything nor issuing any statement. Only days later did a vague, informal tip-off reach Reuters. The whole affair was handled with extreme discretion from start to finish — signalling that Trump had no intention of letting this “mosquito-sized matter” get in the way of a bigger deal with Beijing.
Jimmy Lai once believed Trump would ultimately come to his rescue — like a victim of an online romance scam, he is surely beginning to understand that what he received was never genuine affection, only scripted performance.
Then, at the end of last year, when Jimmy Lai was convicted, Trump went through the motions once more. He said he had asked President Xi to release Lai. He put on a show of sympathy, declaring "I feel so badly" by the verdict. Then he promptly moved on.
A pattern emerges from Trump's "linguistic artistry": when he keeps repeating something over and over, he simply wants it lodged in the listener's head. Take it seriously at your peril. Recently, Jimmy Lai's children — seizing on Trump's imminent China visit — ran a heartstring-pulling piece in The Times of London, painting a picture of their father's bleak existence behind bars. That script has also been recited N times already. Readers are numb to it, and its impact on Trump is precisely zero. Their father has, after all, reportedly transferred wealth running into the hundreds of millions to his wife and children — they have their own reasons to put on a good performance for the cameras.
While everyone plays their part, the one who may be hurting most is Jimmy Lai himself. He once firmly believed Trump would eventually ride to his rescue. So even after the National Security Law came into force, he pressed ahead bravely as America's point man — going so far as to smear Biden in a last-ditch effort to help Trump win. The dream has now shattered completely. By the time Trump returned to power in 2025, the international landscape had shifted entirely. Jimmy Lai, that small pawn, has no further value on the board. Whether he lives or dies is of no consequence to Trump.
A friend who looked through the court records of the Lai case came across a passage that is almost darkly funny. The judge asked: "What promises did Trump make to you?" Jimmy Lai replied: "I can't quite remember! But my impression is that he promised to take the Hong Kong issue seriously." Trump's promises are worth less than a lettuce leaf — and even Jimmy Lai himself can barely recall what was said. Yet he gave everything for the man. Like a romance scam victim who has finally understood that the sweet words were never real.
Lai Ting-yiu
