I'm a verifiable Nik Bhatia fan -- obvs, since I worked on his latest book (#836070, #946402).
I also saw some FT article floating by about central bankers standing up for each other. So apparently something happened. Nik chimed in yesterday:
In today’s letter, I’ll tell you exactly how I feel about the Trump/Powell tango (it takes two) and then show you just how dangerous the United States fiscal picture has become under the Fed’s QE regime. It’s fair to say that the hoopla got me fired up.
President Donald Trump has been both the victim of a weaponized justice system and an employer. He was viciously attacked with lawfare during the Biden presidency. His family’s bank accounts were frozen. His name was almost prevented from even appearing on the 2024 ballot in several states. Now, in his efforts to reform the United States, in his eyes, he is going after enemies of the agenda. It’s war, and instead of watching it play out, foreign central bankers and even members of the American establishment, whether Democrat or Republican, are picking a side — the “independence” of central banks.
the silly part is why global central bankers and certain politicians feel the need to defend Powell against legal actions when there is no way they could know the details of the case. In what scenario do foreign central bankers, such as Christine Lagarde (who participated in a joint statement admonishing the DOJ news), have the right to pre-opine on matters of American justice before any official cases or indictments are brought? It reeks of “central bankers are God, don’t mess with us,” and it is honestly a bit disgusting.
"Can we please stop with Europeans telling us to obey banking overlords?""Can we please stop with Europeans telling us to obey banking overlords?"
Even after reading this piece, I still don't know what happened -- something about the DOJ going after Powell, and thus CB independence "threatened" -- which means my no-news, no-scrolling, guard-your-mind New Year's Resolution is somewhat working. (#1400983, #1401093)
My grand point here is that neutral observers must let this play out. Challenging the independence of central banks might sound odd to those firmly set in the status quo, while anybody with a good sense of history takes it as part of the ebb and flow of American history.
Reasonable conclusion. LET THE (CENTRAL BANK) CHIPS FALL WHERE THEY MAY!
On the next story, there are some great graphs about America's disastrous fiscal state, and Nik's undeniable conclusion:
If we want our nation to survive, there is no alternative outside pure Fed monetization and a downstream jubilee, which I would argue would be catastrophic in that it ends modern finance as we know it
On a side note, going away from independent central banks would simply rewind the clock just over 100 years — I’m sure the Treasury department would do just fine without TGA (Treasury General Account, Fed liability) and instead bank with Jamie Dimon and the crew over at Citibank like it used to.
...then Nik sort of squints at a graph and sees hope where there is none:
I strongly favor the direction this nation is going on policy because I can see the red bars and green bars heading, finally—albeit marginally—in the correct direction.
I don't see it.
It's hard not to see a clear negative trend here:
source
don't disagree with that; Nik is saying something else, i.e., that it's turning around. I for one don't see that
Yep. Remove the Covid dip and it's one smooth downward slide.
Correct.
Due to China becoming the dominant productive economy globally.
China has won the trade war and dominates global trade in manufactured goods and commodities.
Trump is fighting back on every front he can including militarily, monetarily and tariffs.
The Jewish Bankers who have owned the US government via debt for over a century are worried.
Trump may be taking them on too?
The bureaucracy is GOD, stop questioning it!
OK, fren. Promize
What Nik is surfacing here cuts to the heart of the recurring tension between political authority and monetary authority in the United States. The episode itself, while clouded in partial information, appears to have prompted an unusual show of solidarity among global central bankers in defense of Jerome Powell. That gesture is revealing in itself because it signals how tightly the idea of central bank independence has become intertwined with elite institutional self preservation.
The deeper point is that independence in monetary policy was never meant to be a shield against public accountability. It was designed to insulate policy decisions from short term political pressures, but history reminds us that the balance between Congress, the Treasury, and the central bank has been periodically renegotiated. Attempts to frame any challenge to the Federal Reserve as a heretical act against economic orthodoxy ignore that context and risk freezing governance into an intellectually brittle form.
Nik’s observations on fiscal deterioration are equally important. The long term trajectory of US debt service costs in an era of normalized higher rates creates structural deficits that cannot be patched over with conventional austerity or growth projections. The mechanics of Fed monetization and any potential jubilee would indeed transform the landscape of finance and investor expectations. The fact that this extreme scenario is entering the discussion underscores the severity of the fiscal imbalance.
The historical note about a pre Fed arrangement where the Treasury simply banked with commercial institutions is not trivial. It reminds us that the current architecture is not inevitable and that monetary governance is a design choice. However returning to such a structure now would involve a complicated unwinding of market operations and sovereign debt management practices that have developed over more than a century.
Where Nik sees mild directional improvement in fiscal charts the reality is that marginal gains in a deeply negative baseline do not yet represent a path to sustainability. If anything they highlight how narrow the runway has become for meaningful corrective action. The conversation therefore should shift toward functional frameworks for coordination between fiscal and monetary arms that can work in periods of extraordinary strain without defaulting to doctrinaire positions about independence or consolidation of power.
yes, Chat.
USA has lost the free trade war with China.
So it has now turned to a military and monetary war, with tariffs on top.
Chinas military proxies are being targeted and picked off one at a time.
There is no such thing as an unbalanced budget, every budget is balanced via taxation and implicity via borrowing and inflation
semantics
Fiat money enables a government and the private bankers empowered by the central bank to create new money via debt considerable in fact unlimited ability to debase the savings of all citizens.
Its a budgetary trick only the bankers and governments enjoy under fiat.