TRUMP MOCKED CANADA LUMBER — BUT JAPAN JUST BROKE AMERICA’S FINANCIAL SPINE | The Wolff Responds

TRUMP MOCKED CANADA LUMBER — BUT JAPAN JUST BROKE AMERICA’S FINANCIAL SPINE | The Wolff Responds

I want you to imagine something with me because it is the only way to understand what actually just happened in the global economy. Imagine you wake up one morning and nothing looks different on the surface. Markets open as usual. Politicians give their routine sound bites. Commentators recycle the same talking points about stability, recovery, growth. Yet beneath all that, a structural beam of the global financial order has quietly cracked. Not shattered with noise, not collapsed in dramatic fashion, but shifted in a way that forces everything else to shift with it. That is the moment we are living in right now. And if you felt like something was changing but couldn’t quite name it, you are not alone. Because the story you were told, the headlines about bond markets and foreign reserves barely scratched the surface of what is unfolding. What actually happened is far more consequential than a simple market adjustment. And I want to walk you through it carefully because it touches your mortgage, your retirement, your job security, and the price of nearly everything in your daily life. What happened in the most official and sanitized telling is that Japan has sharply reduced its purchases of US Treasury debt. You probably saw a headline or two about it, maybe a passing comment on a business show about foreign holders trimming their exposure. But what you were not told is what that move represents economically, politically, and historically. For decades, Japan was not just another buyer of American debt. It was the buyer, the stabilizer, the reliable counterweight. Whenever global demand weakened, Japan absorbed US bonds the same way a foundation absorbs pressure from the structure built on top of it. And when that foundation shifts its weight, the building doesn’t fall immediately, but it does begin to lean. You may not feel the lean today, but you will feel what it does to the hallways you walk down tomorrow. To understand why this matters, you first have to understand what Treasury debt actually is. Not in the abstract way economists often describe it, but in terms of how it shapes your everyday life. When the US issues bonds, it is borrowing money to finance everything from military spending to tax cuts to social programs. The interest rate on those bonds becomes the baseline cost of money for the entire economy. When that rate is low, you feel it in cheaper mortgages, more accessible loans, easier financing for cars, homes, and education. Low rates are the lubricant of American consumer life. They are the quiet subsidy that keeps the system functioning even when wages stagnate. For 40 years, foreign countries like Japan played a decisive role in keeping those rates low by purchasing enormous quantities of US debt. They were the external support beam holding up the American promise of affordability. Now that beam is moving and to pretend that nothing structural has changed would be to deny the basic mechanics of how this system works. If fewer foreign buyers want US bonds or if they demand higher interest rates to buy them, then the cost of borrowing rises. And when the cost of borrowing rises, everything in this economy becomes more expensive for you. The price doesn’t show up on a store shelf. It shows up in your monthly payment, your ability to move, your ability to retire, your ability to breathe financially. Japan’s decision to reduce its exposure didn’t happen in isolation. It wasn’t an impulsive shift or a geopolitical tantrum. It was the result of long building pressures inside Japan’s own economy. Pressures that most American commentary ignores because they seem distant or irrelevant. But what happens in a major creditor nation never stays confined within its borders. Japan is confronting a demographic collapse with a shrinking workforce and exploding social costs. It is facing rising defense obligations in a more uncertain region. Its currency has weakened, making imports more expensive and forcing policy makers to raise interest rates at home. Those higher domestic rates mean Japanese investors suddenly have more attractive opportunities inside their own country than abroad. And when a nation needs cash to defend its currency, support its aging population, and stabilize its domestic economy, that cash has to come from somewhere. Historically, it came from repatriating funds previously invested overseas, including in US debt. So, when Japan withdraws, it isn’t sending a political message. It is making an unavoidable economic choice. But here is the part that should make you pause. For decades, the United States acted as though this support was permanent, guaranteed, almost a natural law of the universe. Politicians built entire fiscal strategies on the assumption that someone abroad would always be ready to buy American debt. They treated deficits as painless and interest payments as a trivial line item. But the reality is that the US was living on an arrangement that depended entirely on trust, stability, and foreign confidence. Now, one of the most important pillars of that arrangement is stepping back. Not out of anger, not out of strategy, but because its own economic survival demands it. When a system depends on constant outside support, and that support begins to weaken, the system must confront its own structural weaknesses. That is where we are now. If you are watching this and thinking, why should I care about Japan’s domestic issues? Let me be very clear. You feel the consequences not in theory but in your monthly bills. A global economy is not a set of isolated islands. It is a set of interlocking gears. When one of the biggest gears slows down or reverses direction, the others grind, tighten, and rattle. The rise in Treasury yields you may have heard about is not random. It is not a temporary market mood swing. It is a reflection of reduced foreign demand for US debt. Higher yields mean higher costs for you and for businesses that employ you. It means that governments must spend more just to service their existing debt, leaving fewer resources for public services you rely on. The erosion starts quietly, then accelerates. And what you are witnessing is not just Japan turning inward. It is the exposure of how dependent the American economic model has become on foreign capital. When that dependence is revealed, it raises a question no politician wants to confront. What happens when the world becomes unwilling or unable to finance America’s debt on America’s terms? And when you sit with that question for even a moment, you begin to see why this shift is not merely financial but deeply political. A country that has lived for decades on cheap and abundant credit must now confront the real price of its economic model. For years, policymakers reassured you that deficits did not matter, that the United States was unique, that the world would always line up to lend it money. But those reassurances depended on something they rarely talked about. The willingness of nations like Japan to keep buying year after year without demanding higher compensation for the risk they were taking. When that willingness fades, the entire hierarchy of the American economy has to adjust. from the interest rate on your mortgage to the valuation of the stock market to the stability of the banking system that holds your savings. You may not choose to participate in global finance, but global finance chooses to participate in your life. The easy story would be to frame Japan’s retreat as a betrayal or a sudden shock. But that narrative misses the deeper truth. Japan’s decision is part of a broader pattern of economies turning inward as their own structural pressures intensify. The pandemic exposed supply chain vulnerabilities that wealthy nations had ignored for years. The war in Eastern Europe redefined energy politics. Rising inequality has eroded the trust that underpins global cooperation. We are living in an era where countries are rethinking their economic dependencies. And in that environment, the old assumption that America would always be the gravitational center of global finance is no longer as firm as it once seemed. You may even have sensed this shift intuitively, a feeling that the economic ground beneath you is less predictable, that old certainties have become new questions, that intuition is not unfounded. It is the lived experience of a world slowly reorganizing itself. If you step back and look at the mechanics of what has happened, the picture becomes clearer. For decades, Japan’s zero interest rate policies created a river of cheap capital that flowed across the world. Investors borrowed yen at negligible cost and invested it in higher yielding assets elsewhere, boosting markets and suppressing borrowing costs globally. This was called the carry trade, though the name does not capture the enormous scale or systemic implications of it. When borrowing is virtually free, money behaves differently. It moves quickly, aggressively, often carelessly, searching for returns without fully accounting for the risks. That helped inflate asset prices in the United States from stocks to real estate. And it gave American consumers the illusion of endless affordability. When the underlying source of that cheap money changes direction, the consequences ripple in every direction. Japan is now raising interest rates to defend the yen. And that seemingly technical decision disrupts the entire carry trade mechanism that global finance has relied on. The cheap yen funding disappears. Investors unwind their positions. Liquidity dries up in places that had grown accustomed to a constant flow of external money. If you have ever wondered why a currency movement in Tokyo can trigger a sudden selloff in New York, this is why the system is interconnected in ways that most news headlines never explain. And when one piece moves, the others do not gently glide into new positions. They jerk, they strain, they resist. What I want you to notice is the difference between how these events are explained to the public and what is actually happening beneath the surface. When commentators talk about rising Treasury yields, they often describe it as a natural market adjustment or a response to Federal Reserve policy. But they rarely tell you that a major reason yields rise is because buyers demand higher returns in exchange for lending to the US government. In other words, it is the cost of trust. For decades, that cost was suppressed by foreign demand. Now that demand is weakening and when trust becomes more expensive, the financial system adapts in ways that directly shape your life. Your mortgage rate climbs. Your credit card interest increases. Your employer has a harder time financing expansion. Even the public services your community depends on become more difficult to maintain because state and local governments must pay more to borrow. You might be thinking that this sounds abstract or too big to change anything in your immediate experience. But I want you to recall how quickly rising interest rates have already reshaped your financial reality over the past two years. Perhaps you considered buying a home and discovered that the same monthly payment now buys half the house it would have just a few years ago. Perhaps your credit card bill has become harder to manage. Perhaps your employer has slowed hiring or cut back on raises because financing has become more expensive. These are not coincidences. They are symptoms of an economy that has lost the external support it quietly relied on for decades. And let’s be clear, Japan is not to blame for this. It is responding to its own national challenges just as any country would. But its shift exposes the fragility of a system that has allowed the United States to borrow more, spend more, and promise more without confronting the financial limits that every other country must face. When the largest buyers of US debt step back, the United States must confront a reality it has long preferred to ignore. The world does not owe it unlimited credit. That realization has profound implications not only for government budgets, but for the economic ideology that has dominated American politics for half a century. For years, politicians have insisted that deficits do not matter because interest rates were low. But interest rates were low partly because foreign nations kept them low. When that external force fades, the argument collapses. You may start to hear new conversations about fiscal responsibility, not because policymakers suddenly feel responsible, but because they have lost the luxury of pretending that the rest of the world will absorb the consequences of their decisions. And as that shift happens, it will shape debates about social programs, taxes, public investment, defense spending, and every other issue that affects your daily life. Suddenly, what was once described as affordable becomes framed as unsustainable. What was once politically easy becomes politically impossible. The economic story becomes a political story. and both converge on the simple question of who pays. But before we get there, we have to understand the deeper tensions driving all of this. Tensions that have been building beneath the surface of the global economy for decades. Japan’s retreat is not just a reaction to financial pressures. It is a symptom of a larger transformation in how nations think about money, power, and self-preservation. And that transformation is far from over. What we are witnessing now is the return of a truth that global finance managed to obscure for nearly half a century. Countries do not buy each other’s debt out of generosity. They buy it because it serves their interests. For decades, Japan’s interest was to maintain a stable global system, keep its exports competitive, and preserve a cooperative relationship with the United States. But interests evolve when the pressures at home outweigh the benefits abroad. Capital moves back toward the center of gravity. Japan’s domestic reality has changed so dramatically that the old arrangement no longer makes sense. a shrinking workforce, rising social spending, an aging population that needs more government support, and a currency under constant downward pressure all force Japanese policymakers to rethink where their money goes and why. And when a nation starts needing more money at home, it becomes much harder to justify financing the deficits of another nation, even one it considers an ally. This is where the deeper systemic story emerges. The global financial order that took shape after the 1980s was built on a peculiar balance of power. The United States ran large deficits, spent heavily, imported goods, and issued the world’s reserve currency. Other countries, especially Japan and later China, accumulated dollars through trade and invested those dollars back into US debt. This circular flow created the illusion of stability. The US could spend more than it earned, and other countries could export more than their domestic markets could absorb. But like any system held together by mutually reinforcing habits, it was never guaranteed to last indefinitely. It depended on each side continuing to play its role. The United States continued to borrow. Other countries continued to lend. And as long as the cycle continued, politicians could pretend it required no maintenance. But cycles built on unspoken assumptions eventually break when conditions shift. Japan’s retreat signals that the first link in that chain has weakened. And once one link weakens, others begin to loosen as well. You can already see it in how emerging economies are rethinking their reserve strategies, how nations are exploring alternative payment systems, how geopolitical tensions have turned financial alliances into bargaining chips. You may not hear these developments described as part of a single trend, but they are connected by a simple underlying force. The world is no longer willing to structure its financial priorities around America’s deficits. This does not mean that the dollar disappears tomorrow or that the US suddenly loses its global influence. These transitions are slow, uneven, and often confusing. But it does mean that the United States is no longer operating in a world where foreign capital arrives automatically and unquestioningly. It must now compete for capital the same way every other nation does. Competition raises the cost of borrowing. Higher borrowing costs reshape the political landscape. Every budget decision becomes harder. Every policy choice becomes more constrained. And those constraints eventually reach your life as fewer public services, higher taxes or cuts to programs you depend on. When you understand this, the political debates that fill the news take on a different character. You start to see that arguments about taxes, spending, deficits, and inflation are not isolated policy disagreements. They are clashes over who will bear the cost of a system losing its external support. And this is where the story becomes personal because in every economic transition someone pays. When interest rates rise, when credit tightens, when foreign capital recedes, the question becomes, does the burden fall on workers, consumers, small businesses, retirees, or the wealthy and the corporations that benefited most from the previous system. Historically, the burden has been pushed downward. When borrowing became more expensive in the early 1980s, the result was austerity, wage stagnation, and cuts to public programs. When the financial system crashed in 2008, workers lost their jobs and homes while asset owners received bailouts. Each time the system adjusts, the cost is distributed unevenly. And unless people understand the mechanics behind these shifts, they cannot effectively advocate for a different outcome. That is why this moment matters. It is not just about Japan or bond markets. It is about whether the public understands what is happening in time to influence how the burden will be shared. Now consider how Washington has responded so far. Rather than addressing the structural reliance on foreign capital, policymakers continue to behave as though the external support will return on its own. They reassure markets, issue optimistic forecasts and insist that American debt is still the safest investment in the world and it may very well remain among the safest. But safety is not the same as cheapness. Investors may still buy American bonds, but they will buy them at higher interest rates. That means the US will pay more to borrow the same amount of money it borrowed before. And higher borrowing costs compound over time, adding pressure to a debt load that is already historically large. What makes this moment uniquely dangerous is that the United States faces rising financial obligations. At the same time, it is losing the external support that once made those obligations manageable. Defense spending is climbing. Health care costs are growing. Social Security and Medicare face long-term funding challenges. Infrastructure requires renewal. Climate adaptation demands investment. None of these are optional and yet all of them depend on the government’s ability to borrow at affordable rates. When those rates rise, the political system has to choose between raising taxes, cutting spending, or allowing the deficits to grow and risk further erosion of investor confidence. This is the crossroads Japan’s retreat has revealed. For years, the United States stretched the band of financial flexibility, assuming it would never snap. Now, it is discovering that the band was held in place by foreign support that is no longer guaranteed. And as that realization spreads, you will notice a subtle shift in the political language used to justify economic decisions. Politicians will begin to frame cuts as necessary, not ideological. They will warn that programs are unsustainable, not because the economy lacks resources, but because the cost of borrowing those resources has risen. They will insist that fiscal discipline is unavoidable, even though it was avoidable for decades when interest rates were suppressed by foreign demand. You will hear these arguments growing louder. And if you do not understand their origins, they may seem persuasive. But once you see the deeper economic logic, the conversation changes. You begin to ask different questions. Why should the cost of adjustment fall on ordinary people rather than on those who benefited most from decades of cheap capital? Why should workers pay for a system that favored asset owners? Why is the solution always framed as cuts rather than structural reform? These questions do not have simple answers. But they are necessary if we want to understand what comes next. Because what comes next is not just a financial adjustment. It is a global rebalancing of power, influence, and economic priorities. And the United States, for the first time in generations, must navigate that rebalancing without the automatic support it once relied on. As we follow this thread outward, it becomes clear that what is happening with Japan is only one piece of a much larger mosaic. When a major creditor nation shifts its financial posture, it signals to others that the old assumptions are no longer reliable. Countries that once treated US debt as the unquestioned anchor of global finance are now asking the same question Japan has been forced to confront. Is this still the best use of our national resources? And once that question is asked, even quietly, even cautiously, the psychological foundation of the financial order begins to crack. Markets do not run on numbers alone. They run on confidence. They run on shared beliefs about future stability. They run on the widespread assumption that the world’s biggest economy will always be able to borrow on favorable terms. When that assumption weakens even slightly, its effects cascade in every direction. This is where geopolitics enters the picture, not as a separate domain, but as an extension of the same economic tensions. A country that depends heavily on foreign capital must maintain influence, alliances, and global credibility to reassure lenders. But the United States today faces multiple challenges to that credibility. Domestic political polarization has made long-term fiscal planning all but impossible. Economic inequality has reached levels that strain the social fabric. Internationally, rival powers are building parallel financial systems, weakening the global reliance on the dollar. None of these developments are decisive on their own, but together they create an environment where foreign investors feel more cautious, more hesitant, more willing to diversify away from US assets. If you think about it from the perspective of a government or central bank abroad, the calculation becomes straightforward. Why place an ever growing share of your national wealth in the debt of a country that appears increasingly divided, increasingly unpredictable, and increasingly dependent on borrowing to sustain its basic functions. Japan is not the only nation reconsidering this equation. It is simply the one whose changes are most visible right now because its financial relationship with the United States has been so large and so longstanding.

While the mainstream media obsesses over Donald Trump’s 25% tariff threats on Canadian lumber, a much deadlier economic catastrophe has just gone unnoticed. In this episode of The Wolff Responds, Prof. Richard Wolff breaks down the massive financial shockwave coming from Japan that could officially break America’s financial spine.

Japan, historically the largest foreign holder of US debt, is dumping US Treasuries at a historic rate. Prof. Wolff explains why this “silent sell-off” is infinitely more dangerous to the US dollar and your savings than the trade war with Canada. Is this the end of US financial dominance?

In this video, Richard Wolff covers:

The Canada Distraction: Why Trump’s lumber tariffs are a sideshow to the real economic collapse.

Japan’s Bond Sell-Off: The data behind Japan liquidating US Treasury bonds and what it means for interest rates.

The Debt Spiral: How the US faces a “sovereign debt crisis” if foreign nations stop buying American debt.

Inflation vs. Deflation: What these geopolitical moves mean for the cost of living in 2025.

The End of the Dollar? Are we witnessing the acceleration of de-dollarization in real-time?