The Debt Controls the Fed

Monday, October 26th, 2026

Bill Bonner, from Ardmore, Ireland

“If he loses, I’m f----ed...how long do you think my prison sentence is going to be?”

—Elon Musk

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The betting markets are forecasting a Democratic sweep in November.

Assuming they are right, so what?

One of the effects could be a constitutional crisis...leading to who-knows-where. The voting results could be tainted by fraud or loud accusations of diddling the ballot counts. Newly elected representatives could be told to cool their heels until the alleged election interference is investigated. But who will do the investigating? Well, Congress...including the members the voters just turned out. Truth Out:

Poll: 7 in 10 Americans Doubt Trump Will Accept Midterm Results

The president has said that he will only accept the results of the midterms if he deems them to be “honest.”

Consensual democracies only work when people trust their opponents to play fair. But when they think the other side is not just ‘wrong,’ but ‘evil,’ a whole new dynamic is set in motion. People of good faith tolerate the opinions and policies of other people of good faith. But they won’t make a deal with the devil. If you’re up against the Wicked One, you should do all you can to stop him; at least, that’s how the thinking goes.

And it was just that kind of thinking — similar to what happened in America in the 1850s, and many ‘revolutions’ gone sour — that gets resolved, as Mao put it, “out of the barrel of a gun.”

So what happens if Trump refuses to accept the verdict of the elections? Democrats would rush to the Supreme Court for judgement.

But by that time, it wouldn’t be at all surprising if the rabble were already in the streets...setting fires...running out through smashed windows with armloads of loot. Maybe New York or Los Angeles would look a bit like Paris.

It probably wouldn’t last too long; America’s gendarmes are nowhere near as restrained as those in France. And Republicans control the guns – at least, most of them. But even if the Supreme Court rules against him, Trump — facing hostile investigations in a hostile Congress — may decide to ignore the court.

This may not be as villainous as it sounds. A lot of money is at stake. It wouldn’t be too surprising if one side or the other resorted to some hanky-panky to get at it. Holding things in abeyance while they get to the bottom of it may seem not only justified, but essential to an honest Republic. Financial Times:

Donald Trump moves to block certification of Alaska Senate result if Republican loses. Candidates’ similar names could ‘taint’ the result, argues US Justice Department

People don’t intend to have a ‘civil’ war. They don’t set out to have hyperinflation, either. Like prudent drivers, they make logical, reasonable choices — carefully staying below the legal limit — and then, screech...the car is sliding sideways on the gravel.

In the chaos and bloodshed following a contested election, most Americans would welcome a strong leader...one who would insist on law and order, first and foremost. “Elections can wait until order is restored,” he would say. Many people, alarmed by the lawlessness, would nod in agreement.

Possible? Certainly. Probable? Who knows?

And then, even if the transition to a ‘blue’ Congress happens peacefully, what then? Washington Post:

As Republicans brace for election losses, Musk prepares for war

A host of Democrats have said they are eager to wield the power of their office to investigate the tech titan and his ventures should they win either chamber in the midterms.

The newly-seated, bright-eyed and bushy-tailed representatives, eager to get on nationwide TV, will use the Congressional subpoena — against Trump, the Trump family, its associates...its deals...and its backers. The biggest and boldest of them has already said that he won’t go gently into that good night.

“Those who pick fights with me should understand that I will find out who is really pulling the strings and come for them, not just their puppets,” said the world’s richest man. “There is a large graveyard filled with my enemies,” he once posted.

One of the few amusing things about this election is that both parties are running on false pretenses.

The Republicans claim this is a ‘Golden Age’ for the US economy.

But inflation just completed its 67th consecutive month above the Fed’s 2% target. And for the last six months, real wages have been falling. The Trump Team collected $5.4 trillion in taxes in FY 2026. But it spent $7.4 trillion. What did they think was going to happen?

The national debt rose over $40 trillion. Trump and Biden, together, added half of the total just in the last ten years. And now, the Fed can no longer control the debt. Instead, the debt controls the Fed...which is forced to raise rates to avoid more inflation and higher interest charges.

Democratic candidates, meanwhile, claim they will slay the ‘affordability’ dragon. But they, along with their Republican colleagues, created the monster. They joined Republicans to support both military and non-discretionary domestic budgets — with bi-partisan support for every foolish boondoggle that came down the pike.

And now, yes, Democrats are licking their lips and rubbing their hands. They hope to regain power in Washington. But not one of them has come up with a reasonable plan to reduce deficits or protect the dollar.

We have no idea how this election will shake out.

But there’s already a whole lot of shakin’ going on. And in the coming financial storm, rocking the boat even more is sure to be disastrous.

Democrat? Republican? Either way, we’re ‘f----d.’

Regards,

Bill Bonner