The White House’s newly released National Security Strategy resembles less a conventional diplomatic outline and more a push for global economic expansion. For the crypto market, which thrives on the notion of swift interest rate cuts in the U.S. and elsewhere, this appears to be an unwelcome wake-up call.
The essence of the strategy, endorsed by President Donald Trump, firmly supports an “America First” agenda combined with substantial economic and military shifts domestically and internationally.
Take note of the directives: the strategy insists that NATO allies increase their defense spending to 5% of GDP, a significant rise from the previous requirement of 2%. Likewise, Japan and South Korea are also expected to boost their expenditures.
“In light of President Trump’s demand for greater burden-sharing from Japan and South Korea, we must encourage these nations to increase defense budgets, emphasizing the capabilities—including new ones—essential for deterring adversaries and securing the First Island Chain,” the strategy articulates.
Additionally, it states, “We will enhance and fortify our military presence in the Western Pacific, while maintaining our resolute rhetoric on defense spending with Taiwan and Australia.”
This document clearly urges U.S. allies to allocate a larger portion of their national GDP towards their defense, alongside increasing American military investments in the Indo-Pacific to reinforce vigilance in that area.
Financing such a monumental undertaking inevitably entails more government borrowing or bond issuance globally, likely driving up bond yields, capital costs, and inflation, complicating central banks’ efforts to lower rates. In fact, rate reductions may have minimal effects as the swelling bond supply could keep yields high.
Furthermore, increased borrowing from many already heavily indebted advanced economies could heighten the risk of fiscal crises.
If that’s not enough, the strategy underscores that the “era of mass migration is over.” This suggests that the U.S. may not bring in inexpensive labor at the previous rate, potentially leading to wage stickiness and elevated inflation.
All this creates a favorable outlook for assets perceived as inflation hedges and safe havens, such as gold. Bitcoin is also marketed as “digital gold” by its advocates, but it has not met the expectations set for this year.
Gold has risen 60% this year while the U.S. 10-year yield has remained stubbornly above 4%, whereas BTC has declined nearly 5% year-to-date. Only time will determine if it can emerge as digital gold in an increasingly fiscally assertive world.
The Fed is anticipated to reduce rates by 25 basis points next week, lowering the benchmark rate to 3.5%. However, given the security strategy’s call for global expansion, the chances of significant rate cuts seem dim.
