The new Fed chairman prefers a "trimmed mean" inflation gauge which currently reads lower than traditional measures. By excluding items like energy, this change provides political cover to cut interest rates before an election, even if underlying inflation remains high, effectively moving the goalposts to suit a policy objective.
Instead of the Fed openly buying government debt (QE), new regulations compel private entities to do it. Loosened bank reserve requirements and laws forcing stablecoins to be backed by Treasuries create a massive, captive market for US debt. This hides money printing one layer deeper, making it harder for the public to track.
The administration's ability to inflate away debt hinges on cutting interest rates, which is only politically viable if inflation appears low. A prolonged Iran conflict keeps oil prices high, driving up headline inflation and preventing the Fed from acting. Therefore, ending the war is a critical domestic economic priority, not just a foreign policy goal.
A new law mandates that compliant stablecoins must be backed by cash or short-term US Treasuries. This transforms the entire multi-hundred-billion-dollar (and growing) stablecoin market into a forced buyer of government debt. It's a key mechanism in the 'invisible money printer' strategy to fund the government without direct Fed intervention.
The strategy to manage debt involves holding interest rates below the true rate of inflation. This slowly erodes the value of the debt—and any cash savings. In this environment, holding dollars is a guaranteed way to lose purchasing power, while assets like stocks, real estate, and crypto are likely to climb in nominal value.
The U.S. faces a massive debt problem with only two politically tenable exits: massive economic growth fueled by AI, or devaluing the debt through inflation. With the AI boom proving slower than hoped, the government is being forced down the path of inflation, using covert methods to avoid public backlash against austerity or default.