Michael: I am cutting Doug’s article in half to cover the main point. He starts with France is in trouble – bond yields higher than Greece – and then gets to the following. This take is spot on from what I have been seeing and hearing and Project 2025. We must see the political to understand not only what will happen to the economy but the markets…
This week, the administration’s intentions were more clearly revealed. In previous analysis, I’ve espoused analysis that the Trump folks have a well-designed plan. They are essentially following Viktor Orbán’s autocratic (breakneck) assault on democratic institutions and the legal system, the dismantling of checks and balances, stifling the media, a major crackdown on immigration, attacks on academia and rivals, electoral system manipulation…
Not only is the Federal Reserve not off limits, it’s fundamental to implementing the administration’s radical right-wing agenda. What has been achieved in seven months is nothing short of shocking. Things would be different today, however, had April’s fledgling de-risking/deleveraging turned serious. Market dislocation (aka “crash”) would have immediately stymied – if not jeopardized – the radical MAGA makeover. A deep recession would undoubtedly trigger a major backlash.
Fourteen months – November 3, 2026. I doubt top administration officials and advisors envisage too far out into the future. Sure, the ballooning debt load is unsustainable. Of course, leaning on T-bill issuance to finance massive deficit spending is policy negligence. The confluence of massive deficits, tariffs and lower interest rates surely raises intermediate-term inflation risks. But what matters is maintaining Republican dominance through 2028, ensuring four years of historic restructuring that would be close to irreversible. For 14 months, pull out all the stops – no stone unturned – all hands on deck – exhaust each and every option. And control over monetary policy is mission critical.
“The great financial crisis” illuminated Bubble peril. Fundamental to Bubble Analysis is that of the various inflationary manifestations, asset inflation and Bubbles are much more pernicious than consumer price inflation. Various constituencies will demand policy responses to counter surging goods and services prices. There is essentially no pushback against higher asset prices and speculative Bubbles.
We’re at such a precarious Bubble juncture, an incredible extended “terminal phase” that ensures acute market, financial, economic, social, political, and geopolitical fragilities. Decades of central bank mismanagement stoked ever greater Bubbles, reflationary policy responses, and structural maladjustment. And the more egregious the market interventions, manipulation, and bailouts, the more outrageous the scope of speculative leverage and manic financial excess. Responding with ever larger market liquidity backstops, the Fed and global central bank community became the essential lifeline for highly levered global speculative Bubbles.
Sure, the President prefers lower rates. But the administration craves much more. They need control over the levers backstopping fragile Bubble markets – more specifically, QE and the Fed’s balance sheet. They are fixated on ensuring Bubble inflation continues through the midterms. Lower rates are only the initial gambit. To ensure things don’t blow up before the next red sweep, they need to ensure that their central bankers are ready to move quickly and forcefully to counter fledgling market instability.
Essentially, the objective is to meld the expeditious “Trump put” with the formidable open-ended “Fed put.” The freakish lovechild would (“on paper”) be the most powerful market, financial, and economic expedient in the long and sordid history of inflationism: The “MAGA Fed Put.”
Before dismissing my little “MAGA Fed Put” hypothesis, contemplate current financial structure. Runaway Bubbles have degraded into a monumental financial scheme. Debt growth is out of control, with unsustainable deficit spending significantly financed through leveraged speculation. Seemingly endless liquidity is available to finance even the wildest ideas, including tens of Trillions for the craziest ever AI arms race.
With out-of-control over-issuance of non-productive debt as far as the eye can see, stable bond prices are necessary to hold destabilizing deleveraging at bay. Ever-rising stock prices are required to sustain an epic mania and speculative Bubble. And this fragile structure now requires uninterrupted massive system Credit growth, which is somehow supposed to equate with “price stability.” “House of cards” does not do justice. Meanwhile, the Scourge of Inflationism has worked decades of black magic on a deeply troubled and divided society, with political parties these days essentially in civil war. All hell breaks loose when Bubbles burst.
Whether they appreciate the details and nuance, top Trump officials recognize the imperative of maintaining market confidence. It’s a cast of characters assembled to star in the social media and reality TV drama, “Confidence Game”. Replace Cook with a loyalist, and then get to work on February regional Fed President reappointments. Keep the narrative on lower policy rates, while preparing Fed officials to unleash early QE in the event of a spike in 10-year yields and/or marketplace liquidity issues. Convince the hedge funds of the potency of “MAGA Fed put,” and it won’t be necessary to resort to it. Frame it all in terms of supporting housing and American families, while working tirelessly to accommodate the demands of leveraged speculators.
Stoking further Bubble excess is an unmitigated disaster. And that’s precisely what the administration will be hell bent on doing for the next 14 months. Little wonder gold was up another $76 this week to a record $3,447.95.
August 29 – Bloomberg (Erik Larson, Zoe Tillman, Bob Van Voris, and Greg Stohr): “Most of President Donald Trump’s global tariffs were ruled illegal by a federal appeals court that found he exceeded his authority by imposing them through an emergency law, but the judges let the levies stay in place while the case proceeds. The US Court of Appeals for the Federal Circuit on Friday upheld an earlier ruling by the Court of International Trade that Trump wrongfully invoked the law to hit nations across the globe with steep tariffs. But the appellate judges said the lower court should revisit its decision to block the tariffs for everyone, rather than just the parties in the case. ‘The statute bestows significant authority on the President to undertake a number of actions in response to a declared national emergency, but none of these actions explicitly include the power to impose tariffs, duties, or the like, or the power to tax,’ the court said.”
I doubt the administration pulls off its Perilous Bubble Scheme. It’s just gotten too crazy. Perhaps checks and balances have a pulse. As the US Court of Appeals reminds, the judicial branch at least holds some cards. How aligned is SCOTUS with MAGA? And to see the global bond vigilantes so focusing their attention on spendthrift governments raises serious issues. Treasuries, AI and crypto all appear vulnerable. It’s worth noting that this week’s Gallup poll had the President’s job approval at 31% with independents.
Original Post 30 August 2025
Categories: Doug Noland