On more than one occasion over the past two days, I’ve written to colleagues: “You can’t make this stuff up.”
Such is life in the Trump Great Reset extravaganza.
On August 25, Trump signed an executive order citing Article II of the Constitution and the Federal Reserve Act, attempting to fire Fed Governor Lisa Cook “for cause.”
The “cause” is a criminal referral alleging false statements on mortgage documents — a charge her lawyers reject outright – although Cook, oddly, isn’t denying it.
Why does this matter?
If Trump succeeds, he will cement a majority on the seven-member Board of Governors. That would tilt the Fed toward his preferred policy: immediate rate cuts, regardless of inflation.
“This is high drama and there’s a lot at stake for the Fed,” Jon Hilsenrath of StoneX said on Yahoo Finance. If Trump’s allies gain control, “then all of a sudden the president has remade the Fed in his image.”
And the fight won’t stop with Cook. Early next year, the five-year terms of all 12 regional Fed presidents expire.
Historically, these renewals are routine. However, they might not be under a Trump-majority board. Brookings’ David Wessel noted the law could even allow dismissal of a regional president “at pleasure.”
If that door opens, the very structure of Fed independence will change.
In short, events are setting up for Trump to get his way and considerably lower interest rates. That’s why we see a “terrifying bull market” ahead – and why our Grey Swan Trading Fraternity has been eying opportunities in commodities such as copper and gold – which look ready to break higher.
Fiscal Dominance, American-Style
Economists have a term for what happens when monetary policy is bent to serve fiscal needs: fiscal dominance.
It’s a feature more common in emerging markets than in the U.S. — but Trump’s moves put us on that path.
America’s debt service bill is now $1.2 trillion a year. Trump has made no secret of his goal: lower rates to ease the burden.
He admitted yesterday he looks forward to having a majority on the Fed board, which would “save the country hundreds of billions.”
Yet most economists agree the real fix is fiscal discipline — less borrowing, lower spending. The bond market would adjust to those conditions by needing a lower yield for the risk of lending.
Leaning on the Fed to make the cost of debt cheaper is like asking your doctor for whiskey to cure high blood pressure.
And yet, as Eric Leeper of the University of Virginia put it bluntly: “We’re already there.”
The President’s Portfolio
Fun fact: Trump himself has been buying bonds — over $100 million worth since taking office, according to ethics filings. State, municipal, corporate — all across the spectrum.
White House officials insist the purchases are managed independently. Still, no president in over half a century has personally traded financial markets without a blind trust.
If – or at this point most likely when – the Fed cuts rates, those bonds rise in value. Trump wins twice: politically and personally.
Crypto v. Wall Street
Banks are panicking over another of the Trump Great Reset’s agenda items: the new Genius Act regulating stablecoins. The law prohibits issuers from paying interest, but crypto exchanges may still offer indirect yield.
That’s a threat significant enough to spook the banking lobby.
The American Bankers Association warned of “greater deposit flight risk… that will undermine credit creation throughout the economy.”
Citi’s Ronit Ghose compared the danger to the rise of money market funds in the 1980s — except this time, the outflows could hit trillions.
The White House, for its part, cheers the crypto industry. For banks, it’s another battlefield in the war over who gets to control the financial future.
Or rather, banks have enjoyed cartel pricing over money, interest and fees for so long that they need the government to keep competition at bay; otherwise, their jig is up.
Commanding Heights, Part III
Trump’s Commerce Secretary Howard Lutnick hinted this week that the government may buy stakes in defense companies. “We use Palantir services,” he said. “We’d like a piece of Palantir.”
Combined with Intel’s “golden share” deal, the U.S. government is creeping toward Lenin’s famous ambition: state control of the “commanding heights” of the economy.
The White House overtures toward private enterprise and the banking system are giving libertarians of all stripes fits.
This morning on X, Peter Schiff fumed: “Let me get this straight: the Republican Party now favors concentrating power in one individual to impose protectionist tariffs, centrally plan the economy, nationalize stakes in private businesses, and use the Fed to create massive inflation.”
“Inflation can be pursued only so long as the public still does not believe it will continue,” we quoted Mises yesterday, but it bears repeating today. “Once the people generally realize that the value of the monetary unit will decline more and more, then the fate of the money is sealed.”
The fate of free markets may not be far behind.
Tariffs: The Hidden Tax
Customs duties have quietly crossed a historic milestone.
U.S. revenue from tariffs has surpassed $100 billion for the first time in a fiscal year, hitting $113 billion so far. June alone brought in $27 billion, helping the Treasury report a 13% jump in total revenue year-over-year. (Source: U.S. Treasury Department)
“Is there a free lunch here? Who is paying the most significant tax hike in U.S. history?” asks Lawrence Macdonald on X, pointing to rising “prices paid” tracked by both the Dallas and Richmond Fed.
The various Fed banks track “prices paid” by producers… in this case, the cost of tariffs to manufacturers before goods make it to the consumer market. (Source: Federal Reserve.)
Who’s paying for this free lunch? Businesses first, consumers next.
Goldman Sachs estimates that while companies are still absorbing 64% of the costs today, by October, consumers will shoulder two-thirds. That means higher prices at the checkout counter just as Powell prepares to cut rates into resurgent inflation.
The Market’s Warning Signal
All this political drama plays out while stocks balance on a knife’s edge. The S&P 500’s Shiller P/E ratio now stands at 39x — the highest in 25 years.
Add to that the cost of carrying margin debt — money borrowed to buy stocks — which is at an all-time high:
Leverage fuels rallies, but it also accelerates crashes when selling begins.
In short, U.S. stocks have been this expensive less than 5% of the time in financial history. That’s where the market currently stands: at the edge of euphoria, overlooking the abyss.
Ah yes, a rate cut. That’s just what we need.
~ Addison
P.S.: Tomorrow at 11 a.m. ET, join me for Grey Swan Live! with Bloomberg’s #1 labor market analyst Andrew Zatlin.
We’ll dive into the weak jobs data Powell referred to in his Jackson Hole speech last Friday, and why it sets up the most terrifying bull market in history, and how to position before it tips from euphoria to panic.
Join our fully-paid Fraternity members so you can get our top-level contacts and their insights.
P.P.S. Then, on Friday, we have another Zoom event for Grey Swan members:
Grey Swan sponsored Free Tax Strategy Seminar
Friday, August 29 at 1 p.m. ET
We’ll introduce you to a gentleman who’ll walk through a legal, IRS-compliant strategy that unlocks 250+ deductions most traders miss — the kind of structure that could keep thousands (or more) in your account each year instead of the IRS’s.
The second seminar is personal. Twice in my career, I’ve realized — too late — that I left money on the table. The wins weren’t as big as they looked, and I still kick myself for not acting when I had the chance. Don’t make that mistake. Register for Friday’s free seminar right here.
Your thoughts? Please send them here: addison@greyswanfraternity.com
