In August 2025, Scott Bessent issued a stark warning: the U.S. dollar faces its deepest crisis since the 1970s. For decades, the dollar anchored global trade, but cracks are widening as capital flees American markets. In July alone, investors withdrew $13.6 billion from U.S. equity funds—the largest outflow in over four years—redirecting money to Europe, Asia, and emerging markets.

Investor sentiment underscores this retreat. A Bank of America survey of nearly 200 fund managers, overseeing about $500 billion, revealed that 91% believe U.S. stocks are overvalued and 70% expect stagflation. Inflation unexpectedly ticked up in July to 3.1%, while manufacturing slowed, highlighting the mix of high prices and weak growth. Trump’s tariff strategy—sometimes adding effective import surcharges above 80%, then partially suspending and reinstating them—has created instability, raising costs for producers and households alike.

The Federal Reserve is cornered. Cutting rates risks fueling inflation, while holding them high risks triggering a market collapse as borrowing costs rise. Employment is already cooling, but inflation persists, leaving the Fed trapped between recessionary and inflationary pressures. Investors are hedging with gold and bonds as confidence erodes. Stock markets hover near record highs, but strength is concentrated in a handful of tech giants.

Artificial demand from tariff-related import rushes has distorted data, masking underlying weakness. If corrections come abruptly, trillions in paper wealth could vanish, hitting pensions, retirement accounts, and consumer spending—which drives 70% of U.S. GDP. Meanwhile, China is exploiting America’s weakness. In 2025, Chinese exports rose 6.1%, with July alone up 7%. Its trade surplus hit $683 billion, up 32% year-on-year.

Through local-currency trade agreements, China is steadily displacing the dollar in deals with Brazil, Russia, India, and others. Each transaction settled in yuan erodes U.S. financial dominance. This leaves Treasury Secretary Bessent with one tool: a weaker dollar. But depreciation makes U.S. assets less attractive, accelerates dedollarization, and fuels inflation. Already, major funds are cutting exposure.

Canada’s Ontario Teachers’ Pension Plan slashed its dollar-denominated holdings by 56%, selling over $50 billion. Across Europe and Asia, investors are doing the same. The systemic risk is vast. Foreign investors hold nearly $80 trillion in U.S. assets. A 10% dollar drop wipes out $8 trillion in value.

If panic spreads, a wave of capital flight could destabilize global finance. What looks like isolated tremors may be the opening phase of a larger collapse—one capable of reshaping both Wall Street and the world economy.