In a way, this piece is just a response to a simple question a friend asked. Stripped down, it goes something like this:
What’s the actual plan behind the Fed - or, if you prefer, the "deep state", the Trump administration, or whoever you think is really steering the system? Where is all of this supposed to lead?
Implicit in that question is a familiar assumption: that somewhere behind the noise, there must be a clever, coherent plan. One that - at least in theory - allows the U.S. to preserve its current standard of living, its economic weight, and the global role of the dollar, despite everything that’s clearly going wrong.
Here’s the uncomfortable part. Yes, there is a plan. It’s not even particularly hidden - you can read it yourself in the Federal Reserve’s own framework review, Review of Monetary Policy Strategy, Tools, and Communications.
But it’s not a plan for "winning" in the way most people imagine. It’s a plan for managing constraints.
At best, it’s about extracting the maximum possible outcome from the system as it exists today - not restoring some ideal version of it. And that distinction matters.
Because the current configuration, as I see it, simply doesn’t allow for a continuation of the American "golden age" - roughly the period from 1991 to 2020. That era was built on a very specific set of conditions, many of which are no longer in place and aren’t coming back.
What is still plausible is something more modest: the U.S. maintaining a relatively strong position compared to other countries. But being better off than others doesn’t mean you’re doing well.
Compared to where things stand today, the more realistic trajectory looks like a step down - not a collapse, but a clear and noticeable downgrade in living standards. Enough that people will feel it, even if the system itself keeps functioning.
A brief but necessary point:
A reliable sign of genuinely poor analysis is the familiar question you often hear in American commentary: "If not the dollar, then what?" From there, the conclusion usually follows automatically: since there is no equivalent competitor to the U.S. dollar in today’s global financial system - and there isn’t, and won’t be - the dollar system must therefore remain unchanged.
The same logic gets applied at the geopolitical level. "Is there anyone who can replace the United States as the global hegemon? Someone with the same number of aircraft carriers, the same cultural reach, the same currency, the same soft power? No? Then America remains the hegemon - indefinitely."
That’s a deeply flawed way to look at things.
Not everything in the world gets replaced by a direct equivalent or a clean competitor.
The Roman Empire didn’t lose its dominance - and eventually its existence - because a proper substitute for Pax Romana suddenly appeared, or because a rival matched it in "soft power". If anything, Rome’s cultural and symbolic influence remains strong enough that countries as different as the United States and Russia still echo it - in ideas, imagery, and patterns of behavior.
Global hegemons and large empires more broadly, including economic systems - don’t usually disappear because someone replaces them. More often, they run into systemic crises or a shift in the broader environment, and that’s what brings them down. If anything, every potential Rome should worry far less about a hypothetical Carthage, and far more about a sequence of internal crises - and the slow degradation of its own elites.
A small remark about Rome:
Rome, for that matter, didn’t "collapse in a day" - it gradually faded.
Formally, the Western Empire ended in 476. But for a large part of the population, it didn’t feel like the end of a system. The same cities, the same officials, the same taxes (those tend to survive anything). At the same time, the quality of life clearly declined - infrastructure deteriorated, trade weakened, disorder increased.
In parallel, the elites were eroding. The Roman administrative class gradually lost its ability to hold together a complex system. Those who had once been called "barbarians" didn’t destroy it outright - they moved into its positions and operated within its rules.
And the paradox is that even centuries later - and in the East, effectively for another thousand years (see the Byzantine Empire) - people still considered themselves Roman.
The empire disappeared as a system of governance, but not as an idea - which is exactly why its "end" is so difficult to pin down to a specific moment in time.
This applies to the United States and the dollar directly.
For the dollar system to break down, it doesn’t need to be replaced by the yuan, some kind of "BRICS currency", gold, or Bitcoin. It’s enough to see a sequence of decisions that make the dollar system too costly to use for a meaningful share of the world.
And to materially lower the standard of living in the United States, you don’t need to lose a hypothetical "Cold War 2.0". A combination of policy mistakes is sufficient - missteps in monetary policy, layered on top of deglobalization.
A second, more methodological point:
Because of how the media business works - and many prominent international macroeconomists are, whether they admit it or not, part of that business - a large share of forecasting tends to gravitate toward extreme scenarios. In theory, this is framed as an attempt to "follow trends to their logical conclusion", taking the processes economists (accurately or not) identify in the real world and projecting them forward.
In practice, it often turns into something closer to fanboy thinking.
Nuance and complexity get treated as temporary noise - just intermediate stages on the way to some final resolution. Depending on the bias, that "resolution" might look like the Fukuyama's End of History and the Last Man, or a definitive Marxist outcome, or nuclear war, or something equally terminal.
Underneath that is a particular way of looking at the economy.
For this type of analyst, the economy starts to resemble a physical system - a slightly deranged version of what people call "physics envy" - moving toward some stable equilibrium. Their job, as they see it, is to guess where the ball will land: red or black, zero, or off the table entirely.
That’s where you get forecasts like "it’s over for Russia / America / China / everyone" - or, on the other extreme, "everything will soon be back to normal". Reality is more complicated. The economy has less in common with a physical system and more with a biological one. These systems rarely settle into any kind of "final equilibrium" - except in the trivial case where everything is simply dead. What they tend to exhibit instead are dynamic forms of balance - often stretched over long cycles - which, from the outside, can look like persistent, even total, disorder.
In that sense, the economy is closer to a temperate climate with clear seasonality. An unusually warm October in New York City or a prolonged drought in California isn’t a sign that the system has broken and will now behave this way permanently. It’s just a phase of the cycle. From the inside, it can feel like a new normal. In reality, it’s a short-term deviation within a longer cycle.
So, given that this is a quick note, I’ll move straight to the scenario that, in my view, looks the most probable.
It’s not the only possible outcome. But it has a number of advantages over the alternatives - the main one being that it’s the most convenient option for the political class in the United States (as well as the United Kingdom, the European Union, and others).
And in a period where politics is actively shaping markets - and where true market purists have largely disappeared from the global elite, replaced by various forms of state interventionism - the political factor may well end up being decisive.
There’s an important caveat, though.
What follows is not a prediction of what will happen. It’s a description of what they are likely trying - and will likely attempt to do. Whether it actually works is a different question entirely.
Think of it as trying to land a burning aircraft - on one engine - at night - on an icy runway - with air traffic control drunk. On one hand, a smooth landing is unlikely. On the other, any outcome short of "everything explodes and everyone dies" can, with a straight face, be presented as a success.
At first glance, the core problem in the United States looks straightforward - inflation.
The current inflationary pressure is the result of a combination of long-term structural factors, amplified by two shorter-term triggers:
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The first is what’s often referred to as "Bidenomics" - an aggressive effort to sustain demand through direct injections of money into private consumption during the pandemic.
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The second is the emerging energy shock tied to the conflicts in the Middle East and Ukraine.
But in essence it reflects the overlap between years of ESG-driven policy across multiple administrations and chronic underinvestment in global oil production.
The problem is that, in reality, the core issue lies elsewhere.
If you recall a very precise point made by Zoltan Pozsar few years ago - later echoed almost literally at an official level by Josep Borrell - the "prosperity of the West" was built on a fairly simple combination: cheap resources from Russia and cheap labor from China.
Reality, of course, is more complex than that formula suggests. Resources didn’t come exclusively from Russia, and they weren’t exactly "cheap" in a market sense - they were closer to non-market inputs. In a more typical setup, global oil and gas prices would have been shaped by coordinated supply control (what later became OPEC+), rather than by the (temporary, but significant) influence of the Federal Reserve, whose monetary expansion allowed the U.S. shale sector to exist - and to operate at prices that would otherwise have been unsustainable.
But the value of the Pozsar/Borrell framing isn’t in the details - it’s in how accurately it captures the core of the problem now facing the collective West.
China’s demographic dividend has been fully exhausted. Discounted resources are no longer available. And for everyone except the United States, there is the added pressure of a strong dollar - which, for the United States itself, acts as a temporary and limited stabilizing mechanism.
So how to live in this new environment?
It’s not entirely clear. It’s hard to navigate a world where, in essence, the easy gains are gone - and neither of the expected replacements has actually materialized.
There is a widespread assumption in the West - reinforced by things like the iPhone and the work of futurists like Ray Kurzweil - that full-scale automation of production was just around the corner. We’re still a long way from full automation - and when it comes, it will replace the average person rather than reward them.
The same goes for cheap "green" energy. If you look at the projections from many official Western institutions, it was supposed to begin displacing traditional energy sources a couple of years ago - without subsidies, driven purely by exponential technological progress and the steady decline in the cost of each "green" (and supposedly independent from Russia, OPEC, or Texas) joule or megawatt-hour. That one didn’t happen. It's no wonder no one talks about it.
If you reduce the situation to its simplest form, there are essentially two broad paths. One is aggressively capitalist. The other is formally capitalist, but in practice state-directed:
- The hardline capitalist option is straightforward: do nothing - and/or push dollar rates high enough (Volcker-style) to force a system-wide reset. Bankrupt inefficient zombie companies, crash the equity market, and drive a large share of American workers into poverty. In the more extreme version, you also default on social obligations - a quiet version of "we owe everyone, so we’re paying no one".
On paper, this approach has no shortage of upside. First, debts have a way of disappearing if you’re willing to stop honoring them - which, historically, has often been one of the fastest ways to clean up a balance sheet (assuming your creditors don’t come after you in a meaningful way).
Second, and more importantly: a poorer population is, by definition, cheaper labor. In the case of the United States, that still means a relatively productive workforce - at least among older cohorts.
It also resolves the issue of public expectations. Social benefits, pensions, a high standard of living - all of that becomes irrelevant once it’s no longer available.
But the downsides are just as obvious.
Large parts of the business empires tied to the so-called "deep state" - especially in tech and finance - simply wouldn’t survive Volcker-level rates. The eurodollar system would likely unravel: first, dollar borrowers outside the United States default; then their creditors follow; and eventually the dollar loses its role as the primary funding currency for global trade - if only because those left standing would be reluctant to rely on it again.
And on top of that, you’d need a lineup of scapegoats to put in charge - the presidency, the Fed, and so on - because after a hard reset like that, whatever authority is left won’t have any legitimacy, which becomes a problem when you need internal consolidation to deal with countries like China and Russia.
- The second option - which many see as quite realistic, largely because it’s familiar - is a return to QE, low dollar rates to stimulate the economy, the introduction of a universal basic income, and, more broadly, "fighting" inflation by effectively "throwing dollars from helicopters".
This approach also comes with a whole set of upsides.
Yes, you end up with potentially monstrous inflation (anywhere from 15% to 150% - depending on how things play out). But ordinary Americans savings get burned through very quickly. Inflation, after all, is essentially a regressive tax on the poor - the less you have, the harder it hits.
At the same time, with even a minimally "creative" approach to official statistics, social obligations start to "burn off" at an impressive pace - and more importantly, so does U.S. government debt, along with the liabilities of a large number of well-connected players whose businesses are leveraged to the limit.
A poorer population becomes willing to work for much lower real wages. The cost of maintaining social programs and living standards declines. Meanwhile, the assets held by the right people - from Bill Gates' farmland to equities and real estate tied to donors of both major parties - are relatively well protected from inflation, and in many cases can rise not just nominally, but in real terms.
At first glance, it starts to look like an elegant way out. But there are problems too.
Extremely high inflation effectively wipes out any planning horizon - for both businesses and households. Everything collapses into one objective: extract as much return as possible right now, at any cost.
That’s a terrible setup for a country that expects to fight - and win - something like a "Cold War 2.0".
High inflation also destroys the eurodollar system, just from a different angle. There’s no point pricing long-term credit - or even basic trade finance instruments - in a currency that steadily loses value. There’s no reason to hold foreign exchange reserves in it either (unless you’re doing it at gunpoint - which drastically limits the number of willing holders).
And the worst part: there’s no real incentive to conduct trade in that currency at all. Even if runaway dollar inflation pulls other currencies up with it - and it will - that doesn’t fix the problem. Trade will shift anyway, out of necessity, into whatever works: barrels of oil, gold, Bitcoin, livestock, or something that looks like bottle caps out of Fallout(hopefully not).
The logic is simple and unforgiving. If a form of money can’t perform one of its core functions - storing value over time - it gets replaced. Not necessarily by something perfect, but by something that does the job even slightly better.
There’s another issue, and "experts" in charge are fully aware of it. Runaway inflation eats through socio-political stability like acid. Planning horizons collapse. Inequality expands to extreme levels. In a world of uncontested American dominance, you might be able to ignore that. In a world closer to "Cold War 2.0" - that’s a very bad idea.
Now, if you look at the situation from a political angle - and from the perspective of the moneyed crowd, the people who need to keep their businesses intact and their assets from dropping in value (ideally pushing them higher), while also working to reduce people to obedient labor and make them grind like China in the 80's and 90's - and, at the same time, preserving at least part of the eurodollar system.
Naturally, you start looking for some kind of workable compromise. Or, if you want to dress it up, a "synthesis of opposites".
At that point, any politician - and any well-connected economist who spends time around the political class and the usual big-money players behind the scenes - arrives at a fairly simple idea. Combine both approaches in a way that captures most of the upside while avoiding the worst of the downside. In short: what you need is stagflation.
If you can push the system into a state where:
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Unemployment is high - which means people value any job and are willing to work for less
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Inflation is high, but not catastrophic - so social obligations and public (and corporate) debt get quietly inflated away
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Rates for the state (and the “too big to fail” entities quietly selected through targeted QE programs) stay low - preserving access to cheap money for policymakers and their friends
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Rates for everyone else - businesses, households, and the rest - stay high, helping to contain inflation at that "manageable" level
This way, you can fight a "Cold War 2.0", avoid a collapse of the eurodollar system, stop worrying about social obligations - and, overall, everything looks just great. Even social and economic stability would only take a limited hit, since the problems would unfold in a "boiling the frog slowly" fashion, and large-scale defaults could likely be avoided.
There are just two serious problems with this setup.
The first: it requires near-perfect execution to prevent the system from sliding into one of the "shock" scenarios described earlier - which, in turn, demands genuinely exceptional control over the economy, monetary policy, and financial markets.
The second: all the benefits of this strategy are effectively bought with time. Unlike the "shock" options, this approach takes years to play out - and it’s unclear whether the U.S. has that time.
I may be wrong, but it increasingly looks like the American public has been gradually prepared for exactly this scenario - going back at least to the previous Donald Trump administration.
Consider a couple of statements:
Gary Cohn - former chief economic advisor to President Trump and now vice chairman at IBM - warned that bringing inflation under control would likely require a meaningful increase in unemployment. "We’re going to have to face job losses if we actually want to reduce inflation", he said in an interview during the Yahoo Finance All Markets Summit. link Bank of America has pointed out that high inflation doesn’t just erode purchasing power - it also implies that Federal Reserve policy will remain hawkish. And that’s not exactly supportive for equity markets. "Historically, it takes a developed economy around 10 years on average to get back to 2% inflation after crossing the 5% threshold". link
As things stand, rates are still elevated, inflation is still an issue, and unemployment - along with layoffs justified in the name of "efficiency" (no need to cite examples - everyone’s seen the headlines) - has exceeded even fairly aggressive expectations. At this point, it looks less like a crisis and more like policy.
Which brings us back to the likely outcome: a stagflationary mix along the lines of "money printing for insiders, high rates and unemployment for everyone else". As one well-known "stakeholder" of his time put it: "For friends, everything; for others, the law".
By the way, this is a fairly typical Latin American approach to economic policy. And, most likely, it’s the one the broader Western world is drifting toward - with all the usual long-term consequences that come with it. And probably not just the West. Both Russia and China have every chance of ending up on the same path. At the very least, no one will be alone.
That’s it for today.
A reminder: a mix of fatalism, pragmatism, and a certain degree of hedonism - combined with basic decency toward those who are clearly worse off than you - is probably the most reasonable response to the current environment.
One more thing worth stressing - take care of yourself, in the most literal, physical sense. You need sleep. This isn’t optional. It’s not a luxury, not a reward for good behavior, not something you earn, and definitely not something to postpone until the day when the news cycle finally calms down. Take care of yourself. No one else is going to do it for you. Support your body, and it will support you.
And try to keep some perspective. We’re in the middle of a major reshaping of global power structures - and yet we still have electricity, running water, and the ability to earn a living without doing it by candlelight. That’s already more than enough to work with. It’ll be fine.