Hitting the roof

The US, NATO, Israel, Palestine, Venezuela, and AI.

The Morning After, Udo Keppler, 1905, illustration in Puck magazine (57:1479), Library of Congress, Washington DC.

The five things you need to know today:

• UNITED STATES. Another deficit will complicate Trump’s honeymoon.

• NATO. America’s partners begin to fret.

• ISRAEL. PALESTINE. The conflict’s epicentre moves to the West Bank.

• VENEZUELA. Amid policy confusion, new risks emerge.

• ARTIFICIAL INTELLIGENCE. An arms race with no alliances begins.

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UNITED STATES. The day after

Another deficit will complicate Trump’s honeymoon.

Washington began extraordinary fiscal measures Tuesday as Donald Trump met congressional leaders to discuss the debt ceiling. Bitcoin fell Wednesday after earlier gains on SEC regulation hopes. Ten-year Treasury yields dipped.

INTELLIGENCE. Fiscal cliffs have become so routine in US politics they’re barely noted. Markets are instead reacting to Trump’s slew of executive orders and hints on tariffs, regulation and inflation. Yet a showdown potentially looms between the White House and Congress’s fiscal hawks (most of whom are Republican), particularly with feelings hurt over Trump’s rule-by-decree and strong-arming on confirmations. This could be his administration’s first real test.

FOR BUSINESS. Trump has said he wants to remove the debt ceiling, an artificial restraint for a government with the world’s reserve currency (for now). But it also serves to spur consensus around spending cuts, particularly those expected to be pushed by the Department of Government Efficiency. DOGE’s co-chair, Vivek Ramaswamy, resigned Monday for state politics. This is a tell. Not only will the cuts be hard, they could transfer fiscal power to the governors.

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NATO. With allies like these

America’s partners begin to fret.

Volodymyr Zelensky said Europe needed to "learn how to take care of itself" in a Tuesday speech at Davos. Trump said the EU had been “very, very bad to us." Olaf Scholz called for "cool heads". Quad foreign ministers met in Washington.

INTELLIGENCE. Trump likes to keep allies on their toes, and recent remarks on Canada and Greenland did the trick. Yet