[The Iran conflict updates are ongoing, with this post being an initial draft. Please revisit or refresh this page at 8:30 AM EDT for a complete version.]
As tensions in the Iranian standoff escalate, the media and various commentators are amplifying inaccurate and exaggerated reports. A significant concern regarding market dynamics is that many so-called experts in finance are primarily asset managers without a deep understanding of banking operations or the intricacies of economic systems. Most of these individuals adhere to the orthodox views of financial management, such as the belief that government spending should be restricted, akin to how a household manages its budget. I once held similar views, as my earlier writings indicate, but my perspective has shifted.
A recent example illustrating this misconception is the misinterpretation surrounding Bessent’s intervention in the long-term Treasury market.1 High interest rates, while detrimental because they can indicate genuine inflation expectations, should not be conflated with overall economic stability. Unproductive expenditures, such as excessive military spending or inflated healthcare costs, are indeed burdensome. Although the Federal Reserve may resort to “printing” money, as seen in Japan, this does not inherently spur inflation. Historical evidence from Japan indicates that prolonged monetary expansion can persist even in deflationary environments. Inflation emerges instead when government deficit spending fails to enhance productive capacity.
The dollar’s prominence is also likely to wane as the relative weight of the U.S. economy diminishes. Trump appears to be hastening this trend through actions that jeopardize the American economy. In contrast, Europe faces dire economic challenges due to the withdrawal from affordable Russian energy sources while simultaneously committing resources to support Ukraine. This situation may worsen, especially if climate-related issues continue to affect the region. Similarly, China’s economy struggles, needing external demand to boost its performance while remaining hesitant to undertake the necessary reforms to establish itself as a credible reserve currency.
Rather than a cataclysmic dollar collapse, more probable dire scenarios include a meltdown in financial markets, triggered potentially by the inflationary pressure from AI-related debt and equity bubbles. The rampant rise of private debt, outstripping GDP growth, could lead to contagion across various debt types, while an alternative path might resemble Japanification—sustaining economic paralysis to avoid overt debt defaults. Richard Koo discussed this extensively in his seminal work, Balance Sheet Recession: Japan’s Struggle with Uncharted Economics and its Global Implications.
We’ll further explore this trending topic when we delve into the nuances of Treasury intervention later in the post.
Next, let’s examine Trump’s recent economic strategy concerning Iran:
This situation is disheartening. Trump’s economic threats against Iran lack credibility compared to his prior aggressive posturing, during which military resources were visibly prepared to inflict significant damage. Both Trump and Bessent previously indicated their commitment to impose economic sanctions designed to cripple Iran. However, no actionable measures have emerged, leaving behind an aura of mere bravado.
In contrast, the swift implementation of sanctions against Russia after its military operations exemplifies a different approach. The U.S., U.K., and EU enacted severe sanctions even before any kinetic action began, effectively pulling the trigger the moment they had a pretext.
Naturally, Iran and impartial observers are unimpressed, as highlighted by reports from Aljazeera regarding Trump’s latest claims:
The Iranian Foreign Minister, Abbas Araghchi, rejected Trump’s sanctions threats, stating they were merely a distraction from America’s own issues: “unprecedented debt & surging interest costs.” Additionally, state media dismissed the announcement as a repeat of past threats.
State broadcaster IRIB explained it was an aftermath of prior failures in military aggression, while the semi-official Tasnim news agency asserted the announcement reflected nothing new. They claimed that the U.S. had long attempted to fracture economic relations with Iran, but Tehran had adeptly navigated such restrictions.
Similarly, the Fars news agency criticized Trump’s assertions as “delusional,” highlighting that prior claims regarding Iran’s impending collapse had failed to materialize.
Al Jazeera’s Mike Hanna observed that Trump’s latest move reflected frustration over stagnation in the ongoing conflict.
Larry Johnson noted that this renewed focus on economic sanctions reveals military impotence. According to him, Trump’s claims represent a clash of contradictions:
Trump asserts Iran is “being very badly defeated,” while simultaneously claiming total control over the Strait of Hormuz and announcing an unprecedented sanctions strategy. However, if Iran has already been defeated, there shouldn’t be a need for further sanctions or threats of military action. This contradiction signals a lack of genuine success.
Now, regarding factual accuracy, both media and influencers have circulated the notion that the UAE has completely severed economic ties with Iran. For example, an assertion from Bloomberg:
This notion is misleading and better described as “Sanctions with Middle Eastern characteristics.” Previous examples, such as Erdogan’s claim to halt trade with Israel that went unfulfilled, reflect this pattern.
Compounding the confusion, the UAE had previously announced a cessation of trade with Iran while failing to adhere to it. Observations from Esfandyar Batmanghelidj further debunk the idea of a policy shift:
There hasn’t been an overnight change in UAE policy toward Iran. Iranian flights continue at DXB, and vessel traffic remains steady. The announcement is merely a reiteration of an established policy, not a shift. The situation involves a complex assessment, but any shifts reported are likely exaggerated with little connection to the missile incident.
Currently, there’s no substantiated evidence indicating that these public statements signify a genuine policy change. Rather, they serve to align with U.S. interests while allowing the administration to portray a narrative of successful sanctions:
I spoke to @ismaeelrn about the optics of UAE-Iran trade relations, emphasizing that the UAE prioritizes its national interests over U.S. dictates. https://t.co/WFpu8BbIuO
— Esfandyar Batmanghelidj (@yarbatman) August 19, 2026
Shifting focus to the recent Israeli airstrike on Turkey’s military operations in Syria, Douglas Macgregor provided insightful commentary. As a seasoned military historian, Macgregor highlighted that the Israeli strikes served as a caution rather than a full-scale assault, indicating Turkey’s military readiness is a significant deterrent to further action. He raised concerns that such reckless moves by Israel, especially during its current overextended state, could escalate into broader regional confrontation.
As we discuss potential outcomes for economic pressures stemming from the Bessent intervention, we note that Bessent appears uninformed regarding the U.S. government’s ability to spend in its own currency. This raises concerns about inflation, as previous military expenditures have not typically faced funding scrutiny.
As summarized in a recent Financial Times article:
The U.S. Treasury announced plans to “at least double” its purchases of long-term government debt in response to recent turmoil in the bond market.
This increased buyback initiative, focused on Treasury securities maturing in 10 to 30 years, aims to stabilize soaring borrowing costs affecting the world’s most significant bond market.
Daniel Murray, deputy chief investment officer at EFG International, noted that this action signals growing concern at the long end of the yield curve, while Robert Tipp, chief investment strategist at PGIM, called it a crucial indication that the Treasury is anxious about the ongoing market sell-off.
However, the Treasury’s recent auction of 20-year bonds indicated only moderate demand, raising questions about the efficiency of control measures over market perceptions. Notably, the selling yield at the auction closely mirrored secondary market rates, indicating a lack of strong investor confidence.
Despite the Treasury’s efforts, it appears difficult to discern Bessent’s long-term objectives, suggesting a potential alignment with Trump without addressing the Fed’s stance, which is inclined toward higher rates rather than curtailing them.
Furthermore, while the recent Treasury announcements may bring short-term relief to certain economic sectors, they do not resolve the overarching issues tied to the national debt, which has surpassed the $40 trillion mark. This rising fiscal burden coupled with persistent deficits only compounds long-term challenges, particularly if investors grow wary of measures seen as merely managing long-term borrowing costs rather than addressing fiscal realities.
As one commentator noted, “Never fight the Fed,” emphasizing that the central bank, not the Treasury, fundamentally controls monetary supply.
[More updates to follow, please check back later for the final launch.]
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1 This development is pertinent to the Iran conflict, as inflationary pressures globally—exacerbated by the closure of the Strait of Hormuz—are increasing Treasury yields. Additional costs associated with the war further contribute to this economic strain.
2 The federal government is responsible for financing approximately 30% of overall healthcare expenditures, with some estimates suggesting a significantly higher proportion.
