The next chairman of the Federal Reserve may be the most influential – and perhaps the most dangerous – in the institution's 112-year history.
The Federal Reserve was established in 1913, but its first real test came with the Great Depression in 1929. At that time, it was unable to expand its balance sheet or rescue the financial system, because the dollar was pegged to gold at $20 an ounce. The gold standard crippled monetary policy, resulting in a historic collapse.
The second test came during World War II. The U.S. government needed massive financing at a low cost. The Fed intervened, took control of the yield curve, and printed huge amounts of money to finance the war. That was an exception imposed by existential circumstances.
In the 1970s, after abandoning the gold standard, America faced significant inflation. This is when Paul Volcker appeared and raised interest rates to 15–16%. He was able to do this because government debt was low. Today, this option is no longer possible.
Then we entered the era of 'perpetual rescue'. Alan Greenspan laid the groundwork for what later became known as the 'Greenspan Put', where markets became confident that the Fed would always intervene to rescue assets. Then came Ben Bernanke, who initiated the largest monetary expansion in modern history, printing trillions of dollars within months to bail out banks and speculators. Losses were nationalized and profits were privatized.
Janet Yellen came, then Jerome Powell. During the COVID pandemic alone, Powell expanded the Fed's balance sheet by more than $5 trillion in less than 18 months.
The result: an explosion in asset prices, rising living costs, the erosion of the middle class, and the disappearance of thousands of small businesses.
Today, about 50% of growth in the U.S. economy comes from the spending of just 7 companies on artificial intelligence data centers. These companies represent nearly 40% of the market value of U.S. stocks. They are growing rapidly, but without a clear path to profitability in the next five years. Their downfall means the economy's downfall as well.
Artificial intelligence requires energy, power grids, infrastructure, and logistics costing tens of trillions of dollars. Funding this will only be possible through a model similar to World War II: complete harmony between the Treasury and the Fed, managing the yield curve, and extensive monetary financing.
Trump called this trend the 'New Manhattan Project', but this time for artificial intelligence, and it will be funded through the printing press.
Today, the Fed holds about 10% of U.S. government debt. In 10 to 15 years, it could hold 30%. By comparison, the Bank of Japan holds about 50% of Japan's debt, and its economy is suffering from a long-term recession.
We will see growth in numbers, a rise in stocks and crypto, but purchasing power will erode. The weekly grocery bill could become $1000.
Today, one in ten Americans is a millionaire. Soon, nine out of ten may become 'millionaires' nominally.
Zimbabwe also had trillionaires.
Real value is not created by printing money, but by production, innovation, and sustainability.
