The three-door framework is exactly right but I think it understates why Door Two wins every time. The structural reason central banks always choose the slow death is that its the only option that doesnt require a decision. Door One requires an active, visible, career-ending choice to crush the economy. Door Three requires a surrender attributed to a specific person. Door Two requires nothing except showing up tomorrow and running the same programme you ran yesterday. The slow death wins because its the path of least institutional resistance, the only door you walk through by standing still.
Thats what makes the Morgan contrast so devastating. Morgan could make the hard call because he answered to no one outside that room. He chose who lived and who died in his library because there was no congressional hearing and no press conference forcing him toward consensus. A Fed Chair operates inside a system designed to make Door One politically unsurvivable. The institutional structure doesnt just permit the slow death. it guarantees it, because the accountability framework punishes visible decisions and rewards invisible ones, and Door Two is the only door you can walk through without anyone being able to point to the exact moment you chose it.
Well - it sounds like Volcker did pick Door #1 — so it’s not really that it’s never been picked. And the more farms and other businesses that go BK from interest rates, the more the oligarchs and PE can pick off. Still, fairly unpopular politically — perhaps we might see a mix of #1 and #2 — keep wrecking the economy for the middle class but help out the friends of the administration?
My guess, after some meditation this weekend, is that if the Fed restarts QE then they will become the scapegoat. I think they are going to search for some new dilution mechanism, one that they can keep secret for awhile. But there's a whole lot of us who will be watching for this. It won't take too long before it gets exposed. By the way, smarter players are well aware that Russia, china and Iran all know this stuff too. That is why they have all been holding back in the kinetic war, not using their heavy artillery, but dragging the fighting out as the US dollar bleeds to death. Incidentally the focus will turn to Europe, whose long slow collapse has just accelerated. That will provide some cover for Warsh
speaking of scapegoats.....keep in the back of your mind this memory .....the Germans, when they were in this position, started to blame the inflation on the shopkeepers who kept raising prices.....most of the shopkeepers were jewish ....that did not turn out well.....
Excellent article Jay. Door #2 is baked into the cake as you suggest. The next question is what doors will appear when hyperinflation destroys the dollar anyway? Thanks for your reporting.
I don’t think America’s credibility is a thing anymore; or at least one hopes the world can see the emperor has no clothes.
Great damage has already been done, so to stop heaping on more harm, door 3 seems the “right” option. Right. Not a chance.
What baffles me is why there apparently isn’t a way to rein in the US Administration. Maybe people are trying, and I just haven’t heard about it. One can hope.
There isn't a way to rein in the US Administration because there are zero Republicans in the House or Senate that are willing to do so. Every single one has chosen to, rather than enraging the TrumpMAGA monster, simply sit on their hands and hope Trump dies soon.
Probably the question that the US should be asking itself is what's so difficult about opting for some version of option 3? The US will not stop being a global power just because it concedes some demands to Iran. What the war will show is that it is not possible for the US to force it's will on a few countries in the world, namely Iran, Russia and China. But the rest of the world is pretty fair game. The times call for some sensibility, a willingness to take a step back now in order to take two steps forward tomorrow. Unfortunately pride cannot let the US make the tough decisions it needs to hence it will continue spending a fortune on it's war machine even though the times require the war machine to be scaled down and the money redirected towards more urgent things like infrastructure, education, affordable healthcare, social services....the same things that China has massively invested in for the last 30 years.
But the US is a country with a lust for war and it will continue funding the war machine to the detriment of other areas of the economy
Without the ability to print at will, raging war all over the planet is not possible. And just how ridiculous i it: the ballroom bunker is $1 billion dollars. Interest on the debt is about $3 billion dollars "a day". That is why Trump is just throwing money around. Data centers, quantum, rare earth's. Why not; its going to be worthless anyways.
The hard choice of Door 1 versus Door 2 is accurately explained here, and yes of course, the cowards in government and banking always choose Door #2: keep rates low, let inflation rise high, save the US government bond market.
However, regarding that Door #3 issue... there is an option beyond the US backing down and allowing Iran to set its own terms. I am absolutely not advocating this, but the US (and in this case I mean the US - Israel alliance) can choose the route of absolutely devastating warfare against Iran... which could be either an unprecedented and staggeringly costly non-nuclear blitz that turns Iran into a third world nation within days... or quite literally "the nuclear option" which destroys their nation utterly within minutes.
Remember: on April 7, 2026, President Trump posted on Truth Social that "A whole civilization will die tonight, never to be brought back again" regarding Iran. Let those words sit with you a moment. For a nation and a civilization the size of Iran to die "tonight" (in a matter of hours)... that is nuclear threat, as nothing else can act that fast. It would be foolish and naive to think that option is somehow not still on the table as the US and Israeli warlords consider their next move.
When an industrialist makes enough money, they create a bank which can take advantage of the fractional reserve scam. What J.P. Morgan did in 1907 could be looked at as an attempt to squeeze out those banks he considered to be undesirable. Something similar tends to happen after every major financial shock, including the one in 2008.
When banks lend money to individuals and businesses, the economy is able to prosper. When banks restrict their lending, there is less money available to purchase products or expand businesses. In the late 1920s, the Federal Reserve withdrew 34% of the dollars in circulation. This made the Great Depression inevitable, with people like J.P. Morgan deciding which banks should be allowed to fail. The favoured banks can buy up the failed bank's accounts for a fraction of their value, which multiplies their wealth. A good example of this can be found in the Stanley Kubric classic, It's a Wonderful Life, where the wealthy Mr Potter offers to purchase Bailey's Savings and Loan accounts for 50 cents on the dollar. Rinsing and repeating the same process allows a shrinking number of individuals to acquire more and more of the global wealth...
Considering that the administration has their sights on much of the western hemisphere and a commitment to protecting Israel I foresee a draft and boots on the ground during the next years. I also think that the dollar will be converted into stable coins (CBDC) in the not to distant future because it will require a programmable solution to attempt to prevent hyperinflation. I would imagine Door number #4 would be created by some kind of an event that will make people beg for a solution. Even a CBDC one.
Jay, in 1913, "[w]hen banks ran short of cash, the Fed could create new cash and lend it to them." How would this be possible under a gold standard? Does one not have to purchase the gold to print the money? At that time, Americans could redeem their dollars for gold.
"We have not had another 1907. And the panics of 1987, 1998, 2008, and 2020 have been met with the same medicine." Somehow, you missed the Great Depression when the Fed was worse than useless.
"The patient stabilizes." The problem is the patient has to stay on life support because real interest rates would kill it. Thus, it has to be fed low interest rates, like applesauce, lest the patient be given real interest rates like real food and kill the patient.
The Fed's policies have made the rich, richer and the poor, poorer. They have rewarded reckless indebtedness and punished savers. Is that the way to a prosperous future? You get more of what you subsidize. If you subsidize debtors, expect more debtors.
President Woodrow Wilson is remembered for 3 disasters to America: Running for his second term, his slogan was "He kept us out of the war!" and as soon as he was elected, the Lusitania was used as an excuse to send thousands of American boys to a European war and their deaths or dismemberments. Wilson gave us the income tax, which they swore would only affect the top 2% of Americans. Then there was the Federal Reserve after President Andrew Jackson had gotten rid of the Second National Bank. Remember, the Constitution gives only the Treasury the right to mint money, so the Federal Reserve Notes we use are unconstitutional. Not that the Constitution has ever bothered anyone inside the Beltway in the last 100+ years.
I do truly appreciate what you wrote, Jay, but you asked what you might have missed. I always enjoy when your column comes in, because I know I will learn something!
The three-door framework is exactly right but I think it understates why Door Two wins every time. The structural reason central banks always choose the slow death is that its the only option that doesnt require a decision. Door One requires an active, visible, career-ending choice to crush the economy. Door Three requires a surrender attributed to a specific person. Door Two requires nothing except showing up tomorrow and running the same programme you ran yesterday. The slow death wins because its the path of least institutional resistance, the only door you walk through by standing still.
Thats what makes the Morgan contrast so devastating. Morgan could make the hard call because he answered to no one outside that room. He chose who lived and who died in his library because there was no congressional hearing and no press conference forcing him toward consensus. A Fed Chair operates inside a system designed to make Door One politically unsurvivable. The institutional structure doesnt just permit the slow death. it guarantees it, because the accountability framework punishes visible decisions and rewards invisible ones, and Door Two is the only door you can walk through without anyone being able to point to the exact moment you chose it.
Brilliant, thank you
Well - it sounds like Volcker did pick Door #1 — so it’s not really that it’s never been picked. And the more farms and other businesses that go BK from interest rates, the more the oligarchs and PE can pick off. Still, fairly unpopular politically — perhaps we might see a mix of #1 and #2 — keep wrecking the economy for the middle class but help out the friends of the administration?
Nicely said.
My guess, after some meditation this weekend, is that if the Fed restarts QE then they will become the scapegoat. I think they are going to search for some new dilution mechanism, one that they can keep secret for awhile. But there's a whole lot of us who will be watching for this. It won't take too long before it gets exposed. By the way, smarter players are well aware that Russia, china and Iran all know this stuff too. That is why they have all been holding back in the kinetic war, not using their heavy artillery, but dragging the fighting out as the US dollar bleeds to death. Incidentally the focus will turn to Europe, whose long slow collapse has just accelerated. That will provide some cover for Warsh
speaking of scapegoats.....keep in the back of your mind this memory .....the Germans, when they were in this position, started to blame the inflation on the shopkeepers who kept raising prices.....most of the shopkeepers were jewish ....that did not turn out well.....
They have already started qe. They announced $40 billion a month, I believe, last fall.
Thank you for the info....it shifts the picture a little bit.....
Excellent article Jay. Door #2 is baked into the cake as you suggest. The next question is what doors will appear when hyperinflation destroys the dollar anyway? Thanks for your reporting.
Fascinating and insightful writing as always Jay.
Do you think there could be a door 4 somehow via stable coins?
Maybe - will cover that this month
Exactly my thought. And it’s a genius invention (pun intended). The private market will backstop the treasury instead of sovereign wealth.
This idea mystifies me. "Stablecoins" are stable with respect to what exactly? The USD??
It is still money printing. Stable coins buy treasuries. How is the stable coin created? A keyboard.
Article seems well reasoned and appears we should be planning for the debasement trade...
More likely the "basement trade", because that's what the doors open to, slowly or rapidly, and where we're ineluctably heading.
The “basement trade” - I love that
Moral hazard – it’s been in play for too long.
I don’t think America’s credibility is a thing anymore; or at least one hopes the world can see the emperor has no clothes.
Great damage has already been done, so to stop heaping on more harm, door 3 seems the “right” option. Right. Not a chance.
What baffles me is why there apparently isn’t a way to rein in the US Administration. Maybe people are trying, and I just haven’t heard about it. One can hope.
Excellent article, Jay. Thanks!
There isn't a way to rein in the US Administration because there are zero Republicans in the House or Senate that are willing to do so. Every single one has chosen to, rather than enraging the TrumpMAGA monster, simply sit on their hands and hope Trump dies soon.
Probably the question that the US should be asking itself is what's so difficult about opting for some version of option 3? The US will not stop being a global power just because it concedes some demands to Iran. What the war will show is that it is not possible for the US to force it's will on a few countries in the world, namely Iran, Russia and China. But the rest of the world is pretty fair game. The times call for some sensibility, a willingness to take a step back now in order to take two steps forward tomorrow. Unfortunately pride cannot let the US make the tough decisions it needs to hence it will continue spending a fortune on it's war machine even though the times require the war machine to be scaled down and the money redirected towards more urgent things like infrastructure, education, affordable healthcare, social services....the same things that China has massively invested in for the last 30 years.
But the US is a country with a lust for war and it will continue funding the war machine to the detriment of other areas of the economy
Without the ability to print at will, raging war all over the planet is not possible. And just how ridiculous i it: the ballroom bunker is $1 billion dollars. Interest on the debt is about $3 billion dollars "a day". That is why Trump is just throwing money around. Data centers, quantum, rare earth's. Why not; its going to be worthless anyways.
Whichever way it goes, the middle class and the poor always pay more….
4 the US and Israel resort to nuclear weapons.
The hard choice of Door 1 versus Door 2 is accurately explained here, and yes of course, the cowards in government and banking always choose Door #2: keep rates low, let inflation rise high, save the US government bond market.
However, regarding that Door #3 issue... there is an option beyond the US backing down and allowing Iran to set its own terms. I am absolutely not advocating this, but the US (and in this case I mean the US - Israel alliance) can choose the route of absolutely devastating warfare against Iran... which could be either an unprecedented and staggeringly costly non-nuclear blitz that turns Iran into a third world nation within days... or quite literally "the nuclear option" which destroys their nation utterly within minutes.
Remember: on April 7, 2026, President Trump posted on Truth Social that "A whole civilization will die tonight, never to be brought back again" regarding Iran. Let those words sit with you a moment. For a nation and a civilization the size of Iran to die "tonight" (in a matter of hours)... that is nuclear threat, as nothing else can act that fast. It would be foolish and naive to think that option is somehow not still on the table as the US and Israeli warlords consider their next move.
When an industrialist makes enough money, they create a bank which can take advantage of the fractional reserve scam. What J.P. Morgan did in 1907 could be looked at as an attempt to squeeze out those banks he considered to be undesirable. Something similar tends to happen after every major financial shock, including the one in 2008.
When banks lend money to individuals and businesses, the economy is able to prosper. When banks restrict their lending, there is less money available to purchase products or expand businesses. In the late 1920s, the Federal Reserve withdrew 34% of the dollars in circulation. This made the Great Depression inevitable, with people like J.P. Morgan deciding which banks should be allowed to fail. The favoured banks can buy up the failed bank's accounts for a fraction of their value, which multiplies their wealth. A good example of this can be found in the Stanley Kubric classic, It's a Wonderful Life, where the wealthy Mr Potter offers to purchase Bailey's Savings and Loan accounts for 50 cents on the dollar. Rinsing and repeating the same process allows a shrinking number of individuals to acquire more and more of the global wealth...
https://www.hoover.org/research/feds-depression-and-birth-new-deal
The Great Crash of 1929 by John Kenneth Galbraith
https://www.federalreserve.gov/boarddocs/speeches/2002/20021108/default.htm
Considering that the administration has their sights on much of the western hemisphere and a commitment to protecting Israel I foresee a draft and boots on the ground during the next years. I also think that the dollar will be converted into stable coins (CBDC) in the not to distant future because it will require a programmable solution to attempt to prevent hyperinflation. I would imagine Door number #4 would be created by some kind of an event that will make people beg for a solution. Even a CBDC one.
Jay, in 1913, "[w]hen banks ran short of cash, the Fed could create new cash and lend it to them." How would this be possible under a gold standard? Does one not have to purchase the gold to print the money? At that time, Americans could redeem their dollars for gold.
"We have not had another 1907. And the panics of 1987, 1998, 2008, and 2020 have been met with the same medicine." Somehow, you missed the Great Depression when the Fed was worse than useless.
"The patient stabilizes." The problem is the patient has to stay on life support because real interest rates would kill it. Thus, it has to be fed low interest rates, like applesauce, lest the patient be given real interest rates like real food and kill the patient.
The Fed's policies have made the rich, richer and the poor, poorer. They have rewarded reckless indebtedness and punished savers. Is that the way to a prosperous future? You get more of what you subsidize. If you subsidize debtors, expect more debtors.
President Woodrow Wilson is remembered for 3 disasters to America: Running for his second term, his slogan was "He kept us out of the war!" and as soon as he was elected, the Lusitania was used as an excuse to send thousands of American boys to a European war and their deaths or dismemberments. Wilson gave us the income tax, which they swore would only affect the top 2% of Americans. Then there was the Federal Reserve after President Andrew Jackson had gotten rid of the Second National Bank. Remember, the Constitution gives only the Treasury the right to mint money, so the Federal Reserve Notes we use are unconstitutional. Not that the Constitution has ever bothered anyone inside the Beltway in the last 100+ years.
I do truly appreciate what you wrote, Jay, but you asked what you might have missed. I always enjoy when your column comes in, because I know I will learn something!
Door one.
We become the source of global energy, raising demand for dollars.
Energy is cheap here, so corporations relocate onshore.
The parasitic elite gobbles up the farmers and businesses that fail. Everyone loses wealth.
In four years time, The Great Reset is complete.
Few people's wealth will have survived. The 1% will own 99% of everything.
Mass enslavement accomplished. The human Gods can do as they please.
DOOR 5 IRAN'S ECONOMY COLLAPSES ...IRAN DOES NOT GET SWAPS ...IRAN IMPLODES
Wishful thinking.
Iran is like North Korea or the Vietcong, China will do everything it can for the US to fail.
Possible. The question is whether US political will is sufficient to achieving that outcome. 🧐