The House of Representatives has rebuked the former president, but the damage to America’s political fabric may already be done. Donald Trump, never one to shy from a rhetorical grenade, has branded the censure motion as 'unpatriotic'. In the City, we watch these convulsions with a mixture of fascination and dread. The dollar index has barely flinched, but the long bond yield is starting to price in a risk premium that no amount of quantitative easing can smooth over.
The censure itself was a procedural slap. A formal disapproval of Trump’s conduct during the Capitol riot, passed along party lines. But the real story is the market for political loyalty. Trump’s base is a deeply illiquid asset: highly concentrated, volatile, and resistant to diversification. The House Democrats have effectively shorted that asset. The question is whether they can cover their position without a margin call.
Let’s examine the fundamentals. The US political system is experiencing a structural deficit of trust. The two parties are no longer counterparties in a functioning market; they are parallel states with their own information flows and media currencies. Trump’s accusation of ‘unpatriotic’ behaviour is not just name-calling. It is a deliberate attempt to make the censure non-performing. If your opponent labels you a traitor, you cannot simply offer a settlement; you must restructure the entire relationship.
Meanwhile, the macroeconomic indicators are blinking amber. Inflation is stickier than last year’s gum on a London pavement. The Fed’s forward guidance is about as reliable as a politician’s promise. And gilt yields? They are pricing in a UK that is equally hostage to populist narratives. The British pension fund manager might look across the Atlantic and think, ‘there but for the grace of God…’ But we are not immune. The contagion of political instability is a commodity that trades at a discount during crises.
The real risk for investors is the erosion of the ‘safe haven’ premium. For decades, US treasuries were the AAA-rated anchor of global portfolios. But when a former president can command 70% of his party’s primary voters while facing 91 felony counts, the concept of ‘risk-free’ becomes a historical artefact. The House censure is a symptom, not a cure. It fails to address the underlying leverage: the media echo chamber that gyrates each talking point into a market-moving event.
Let’s be clear: the markets are not pricing in a civil war. They are pricing in a long-term deterioration of governance quality. This is a slow bleed, not a heart attack. But for the long-only pension fund with a 30-year horizon, the cumulative effect is like compound interest in reverse. Every populist outburst, every partisan investigation, every executive order overturning the last one, adds to the transaction costs of doing business in America.
What would a rational market participant do? Hedge. Diversify. Move some allocation to emerging markets, perhaps. But that is easier said than done when the emerging markets have their own populist demons. The capital flight we might see is not into other currencies but into real assets: gold, infrastructure, and perhaps even that old standby, cash under the mattress.
The bottom line is this: Trump’s ‘unpatriotic’ charge is a put option on American institutions. The House rebuke is a call option with a very distant strike price. Neither side is covering their positions; they are doubling down. The market will eventually force a settlement, but the timing and terms are deeply uncertain. In the meantime, watch the bond market. It is the only honest broker left.
