The past few months have seen the reflux and the flow of a certain scheme: the American president Donald Trump will take measures objectively harmful to the American economy, and the markets will crash. Seeing this, Trump turned to Jerome Powell, president of the federal reserve, and now requests that he is lowering the rate of federal funds – the rate to which the Fed lends money to banks. And the steel powell will say “no.”
Trump wants to reduce rates because this is an effective cash injection into the economy of the United States, stimulating activity and raising the market. This, he believes, will make him succeed. Powell wants to follow rigorous economic standards to fix rates to carefully balance the Fed double mandates to maximize employment and maintain stable prices.
He also wants to maintain the independence of the Fed against political pressure and, above all, maintain the Fed appearance independence of political pressure. If the markets believe that the independence of the central bank has failed in the United States, it can become more difficult to sell US Treasury bills, the sovereign debt of the United States. This is a fundamental problem that the United States will have to pay more to borrow money, which makes it poorer – but it is a particularly sharp problem NOW Because the United States has A huge pile of debts of $ 30 billion which he must refinance periodically.
If it is forced to refinance at higher rates because the markets no longer trust the US government, then an increasing percentage of GDP will be absorbed by the cost of interest and, as children say, the United States will be cooked.
This dance takes us now. Last week, Trump left several times that he would like to fire Powell, and the market did not love him. Trump on Monday caused a accident By calling Powell a “major loser” on social truth. In response, the Treasury Secretary Scott Bessent would have expressed concerns about the risks of dismissing Powell to Trump, who appears, for the moment, nodded, declaring Tuesday that he was not dismissing his Fed chair.
However, this process looks more like a spiral than anything else, and many market observers are waiting for the next shoe to drop. This forces the question: if Trump goes with his basic instincts and his Powell axes, what will be the result? In particular, what effect will this have on the cryptocurrency industry?
Crack the fed
It should be mentioned that the president is not supposed to be able to dismiss the chair of the Fed at will. Section 10 From the Federal Reserve Act of 1913 stipulates that “each member must take up his duties for a period of fourteen years of the expiration of the duration of his predecessor, unless the president is earlier removed by the president.”
This language may seem ambiguous, but in the case of 1935 Executor of Humphrey c. UNITED STATESThe Supreme Court has ruled that the Constitution does not give the President a “unliminable power of dismissal” and that the president’s power of dismissal is therefore limited by the statutory language.
This decision has ratified the concept of “independent agencies”, which reside in the executive power, but have an independent authority. While a certain number of agencies have this characteristic, including the SEC, the CFTC and the FTC, the Fed is the most important.
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Economists do not think much of the political control of central banks. Politicians have short -term incentives, thinking in years or electoral cycles. This intrinsically pushes them to prefer short -term policies, whose hot cash injections are the purest form. However, budgetary and monetary policy is delicate arts that often animate painful political choices.
In a classic example, Richard Nixon put pressure on the chair at the time, Arthur Burns, to continue Expansionary monetary policy Before the 1972 elections, believing that it would help his re -election ratings. Nixon won this election in a landslide, but quickly followed the catastrophic “stagflation” which paralyzed the economy of the United States for a decade, and indeed can still be felt in the industries that dug during this period.
Compare this to this with the policies of Paul Volcker, who, after this devastating period of stagflation, implemented a vicious series of increased rates between 1979 and 1987, which caused the “Volcker shocks», A series of painful recessions. However, the effect of this policy was finally to strangle inflation and to announce at the time of the 1990s, facilitating the remarkable budgetary policy of Bill Clinton.
No politician could have made these choices, none will do so in the future, and it is friction. Economists – and, above all, markets – deeply believe that the Fed must remain independent, if not the entire economic fabric of American society risks collapsing. It is not a hyperbola – nations with politically controlled central banks such as Weimar Germany, Argentina Peronist and Venezuela experienced paralyzing hyperinflation that it has led in various ways to multigenerational Geopolitical backsage,, reports citizens who die and eat rats, and the Adolph Hitler’s Rise. These are serious things.
To dismiss Powell, Trump will first have to defeat the precedent of the executor of Humphrey, a perspective that many legal researchers probably believe In light of the current composition of the Supreme Court. It is a Rubicon which, once crossed, marks a point of no return. Not only Trump, but each president who follows will have a plenary legal power to direct all the members of the senior management – the president of the Fed included – on their will. Most believe that this will lead to ruin.
But disaster or not, it will be a test For cryptocurrency. The original White Bitcoin paper aimed to disintegrate the financial transactions of “financial institutions serving as trusted third parties”. If the Fed falls and the American monetary policy is not moored by a good judgment, the thesis of the first years of the cryptocurrency will be subject to a blow.
As Trump has caused Capital Flight in recent weeks, investors have requested security in various assets. Traditionally, whenever there has been a crisis, sophisticated parties fled risk assets in American treasurers. Thought was that they were risk -free assets. Well, these days can be done. Ten years Leap approached 5% during the peak of the tariff crisis and has not yet been completely returned to the previous downs. If Trump breaks the Fed, these outings will be a drop in a bucket in a river, and this money could move in cryptocurrencies.
Historically, the price of Bitcoin closely followed the Nasdaq (although with a multiplier). However, since the tariff crisis, while the prices of American titles have remained largely depressed, Bitcoin has miraculously started to pump. This has led some to speculate that we are witnessing the long-term “decoupling”, in which crypto-actives achieve their original objective and will move independently of centralized assets.
It is impossible to say whether it will happen or not, but if Trump gives Powell the boot, we will know with certainty.
Out of the pan and in the fire
Of course, the historical collapse of the world cannot be good for crypto, and there will also be significant pain in a variety of surfaces of this crisis. In a first case, the stablecoins will feel disastrous consequences almost immediately.
Over the past decade, two stablecoins labeled in USD – USDC and USDT – have dominated the market. Their transmitters, Circle and Tether, are both important systemic institutions and the main American treasury buyers, who stick to the majority of their stablecoin obligations.
An immediate result of a Fed crisis could be a cash failure. Economist Noah Smith has extended That Trump could try to write the sovereign debt of the United States:
“I suspect that Trump will do something more like what he was doing as a businessman when his debt turned badly – look for cheap bailout, and if you don’t emerge, declare bankruptcy.”
Indeed, the President hinted darkly at this perspective himself, in February suggesting That they could count on the pretension to mark the invoices:
“There could be a problem – you have read on this subject, with treasury bills and that could be an interesting problem … It may be that many of these things do not count. In other words, that some of these things we find are very fraudulent, so maybe we have fewer debts than we thought.”
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A sovereign defect would immediately affect the circle and attach it by marking the value of their guarantee. This, in turn, could leave the stablecoins underlyingWhich could cause a bank race. The markets can finally stabilize, but events could easily turn in the other direction, leading to the collapse of major stables.
In turn, this would have many second order effects, because the smart contracts holding stables while the guarantees began to liquidate the positions, and the contagion swept the rest of the market.
Interestingly, these mechanical consequences can be less disastrous than the political costs of an Fed crisis, because treasury bills are not the only asset that has systemic importance for crypto. The US dollar has been global reserve currency for many years. There are many good reasons for that; It is relatively strong and stable, it is therefore good to settle the trade with it. But if the government supporting the support ceases to be strong and stable, this paradigm will probably change.
And as more trade is executed in accounts in euros or in Yuan, the regulators of the EU and China will, in turn, have much more control of the flow of fiduciary currency through the cryptocurrency. An eminent cryptocurrency lawyer, who chose not to be appointed for fear of political reprisals, assumed exactly this:
“I think China will fill a large part of the void and the EU will fill most of the others. The two would not be good for the crypto generally between the CCP and the EU too regulating in different ways for different objectives. It sounds bad. “
This could cause a flight to non-polled crypto-primitive assets, but there is essentially no precedent for these assets to be used on a large scale for real world transactions. It is just as likely that a stablecoin crisis could simply slow the industry for years because it catches its stride.
In the end, nobody knows if Trump will pull Powell, or even if he can. No one knows what consequences could flow downstream from his decisions. But if a butterfly beating its wings in Argentina can cause a tornado in Prague, then Donald Trump mumpering incantations in the west wing could justify or destabilize the blockchain forever.
Like it or not, we are throughout the ride.