Controlled Demolition Warning: Tokenization

The global markets are about to experience a controlled demolition. Get ready for the Boom. President Trump and Secretary of the Treasury, Scott Bessent, now got all the requisite components in place to finally deal with the broken assets from the Global Financial Crisis that were never properly dealt with or written off. Now that the Big Beautiful Bill has passed, we are going to find out that it isn’t so beautiful for some very important reasons. Here is the strategy—and I credit Izabella Kaminska of The Blind Spot for spotting this ages ago. Her journalistic colleagues in Main Stream Media can’t and won’t cover this story because they can’t believe that Trump and Bessent have a Grand Strategy. But, they do. It’s shock therapy, perhaps rather like the shock therapy that transformed the Soviet Union after the fall of Communism. But, the journalists assume that the US won the Cold War. Capitalism was the winner. So, there’s no need to transform or change it. They aren’t understanding that capitalism, as it is currently configured in the US, is also failing. They are not understanding that the Trump team is now readying to transform the American financial system completely. This story is simply too incredible and too complex a story to believe or explain to the public. But, it is happening and it needs explaining.

Here’s what is underway. It’s nothing short of a controlled demolition warning. This is a cleanup operation of the mess left over from the Global Financial Crisis (GFC). The Federal Reserve Bank and interest rate policy are no longer able to address the core problem. The losses from that time are still festering and slowing down the pace of growth in the US. For Trump and Bessent, now is the time to reverse the windfall gains that the bankers and asset holders made during the crisis at the expense of the little guy. They intend to hit the pension fund companies, the insurers, and corporations that have been paying themselves all too well as a result of the GFC windfall. In addition, any companies that served as fronts or revenue-generating sources for the Deep State or the opposition will no longer have the privilege of state sponsorship, protection, or plausible deniability. They are likely to go bust. Imagine if the USAID problem is deeply embedded in publicly listed firms. These firms might even start declaring bankruptcy now in anticipation of the events I am describing. Markets are extremely vulnerable to this course correction, this rewriting of the social contract, because they are not comprehending the magnitude of the grand strategy. I have called this process the digital redenomination of your entire life. We must get ready for it.

Let’s go back in time. During the GFC, bankers made some very large bets that resulted in losses so huge that they threatened the viability of every bank, every household, and the financial system as a whole. Normally, that kind of mistake would land a person, a bank CEO, in jail. Instead, the policymakers decided to save the system - thank you, Ben Bernanke, who has a Nobel Prize to show for that. This bailout strategy could only be done by handing the very people who made the bad bets and massive losses a very, very big blank check – at $700b it was larger than a wartime budget. What did the financial market experts do with the windfall? They bet it again on the riskiest stuff they could find. After all, that’s what you do with free money, right? It’s riskless. So, asset prices went up, and bankers and asset owners made out like bandits while regular folks were forced to face inflation. After all, somebody had to pay.

As Kaminska says, “we borrowed from the future to cover the losses”, which is why she says a recalibration is now necessary. We socialized the losses through inflation. The pain fell on the regular person. I wrote a book about this, Signals. arguing that policymakers abandoned their usual efforts to balance the needs of speculators versus savers. Price stability as a policy goal aims to keep these two roughly in balance. Instead, the decision was made to bail out the speculators at the expense of savers and the regular person who had no assets. So, the cost of living would rise, though not by enough to actually fix the problem and fill the financial hole. The strategy was to buy time so that speculators could bet again, make substantial profits, and recirculate them back into the economy. They made money. However, instead of launching businesses and creating jobs in the US, they simply sat on their ever-appreciating assets and relocated their companies offshore. They hired Chinese workers for a song (abusively underpaying them) and then charged American consumers eye-watering prices (abusively overcharging them), while dodging American taxes by keeping all their profits offshore (abusively). As a result, many of the bad assets were never properly written down, written off, sold, or rationalized.

Trump aims to rationalize and repair all that now. After all, Trump came to power as a result of the pain caused by this process. He and his team see themselves as the caped crusaders that are going to rescue America from these voracious oligarchs who don’t care about the price of eggs and who will never share their wealth with anybody. Their supporters agree. It’s Robin Hood time.

Here's how to think about it.

The world faces a debt burden that’s three times global GDP. The US and the rest of the world have a debt that simply cannot be paid off. Remember the various options available to policymakers: outright default (Russian style – hard to recover from), reschedule (Greek style, hard for the US to retain trust), default on the citizens by making people retire later, pay more tax, and providing fewer public services. Think bigger potholes, fewer police, and failing public schools. These options are all huge voter losers among voters. Then there’s inflation. That worked for a while but eventually people clock that the price of eggs (and everything else essential to life, including the American Dream of homeownership) is rising and threw the politicians out, as President Biden and his team just found out. Also, you can’t really inflate enough to deal with the debt overall. This strategy just buys time. That leaves the final option. You walk away from the system of money and accounting and start again. In other words, you use technology, financial innovation, to rewrite the social contract. That’s the Bessent Plan, which can be described as a series of lifelines that are being prepared for those who do not yet realize that the Titanic they are currently eating tea and crumpets on is already halfway underwater.

The first lifeline is called stablecoins. These are, as Kaminska says, “A slow pathway