CRACKPOTS #29: HOISTED BY OUR OWN PETARD (Patreon)

Hello everyone, it's Liz. Apologies in advance: this is not a sunny one and it's pretty long. I've been feeling sick, have had terrible anxiety for weeks now and haven't really been sleeping. Since the spectacle of Liberation Day — a name so overtly theatrical it reads Riefenstahl by way of Liberace — I've been up early, screen-glued, pre-market future-scanning, feeling not dread exactly but an embarrassed excitement, a conditioned response to chaos where volatility masquerades as clarity. I do love to watch Mr. Market try to metabolize in real time. Even Jim Cramer was speechless!

Unfortunately (or fortunately) it didn't last. Knowing gave way to understanding and with that, nausea. In the midst of my mania, I rewatched Margin Call, fintwits favorite post-GFC morality play dressed up as late-night workplace thriller. If you haven't seen it, it's great. As a millennialcore mashup of the Bear/Lehman moment, a junior analyst discovers their firm is functionally bankrupt and over the course of one night, leadership quietly arranges to offload toxic assets onto unsuspecting buyers before the market can comprehend what's happening. The firm is revealed to be, essentially, a pyramid scheme operating on borrowed time.

Even this, the high drama of the financial crisis, feels too coherent for our moment. Margin Call was about a single firm realizing, too late, that its models were wrong. What we're living through is the realization that the models never mattered — that the rules were written after the fact and the institutions once seen as anchors are now hollowed out, reduced to interfaces responding to algorithms, influencer cycles and private equity exit strategies. What lingers on rewatch is not the drama of the crash itself, but the social choreography of denial: the desperate insistence, by those with the most to lose, that someone else must still be in control.

That's the feeling now, not just in markets but everywhere, everyone pretending there's a plan while also quietly checking if someone else knows what it is. Oh, the polite horror of it all. This is why every corporate note, central bank presser and earnings call now leans heavily on one word: uncertainty. Risk, volatility, disorder, these things can be modeled. Uncertainty can't because it's epistemological: it's about not knowing how to know anymore. Bridgewater, for their part, put it bluntly:

We are now facing a radically different economic and market environment that threatens the existing world order and monetary system ... this new macroeconomic and geopolitical program is turning past tailwinds into headwinds and reshaping global flows of capital. If you were to list the defining characteristics of recent decades and compare them to today, you'd struggle to find much overlap. We have been through many big economic shifts over Bridgewater's 50-year history, so we don't speak lightly when we say this looks like a once-in-a-generation one.

This has been tweeted about 80 billion times already but what's once more: what did you think return to macro meant? vibes? papers? essays? Bridgewater confirms what everyone already feels but is too afraid to say out loud: the rules have changed and no one has told the players. The shift is already here, not in the form of dramatic collapse but as a fundamental reordering of how power moves through institutions, how liquidity flows and how legitimacy is constructed in the absence of functional liberal governance. The dollar isn't just weakening. The idea of America as a safe, investable structure — as a functional financial superstate capable of stabilizing the system — is slipping.

Ken Griffin, who loves nothing more than to vamp as Most Responsible Capitalist, put it bluntly last week: "the United States is more than just a nation — it's a brand. We're eroding that brand right now." In lieu of hard exports, America has always relied on its soft power, its Brand, the unspeakable but deeply legible promise that our markets are rational, our institutions neutral, our leadership sober. Whatever that ever meant. But for decades this performance held and in moments of real crisis, we made good on our silent promise: the adults — mostly central bankers and global asset managers — always stepped in.

But the coordinates that once anchored the performance are failing. The coherence that allowed markets to function smoothly, to treat America the Brand as the ultimate safe asset — a kind of performative macro-sovereign — is breaking down. And as the dissonance grows between appearance and function, between form and authority, it becomes harder to sustain even the fiction of control. In absence of actual capacity — no credible threat of sanctions, no working diplomacy, no leverage over China beyond press releases and menacing tone — all Trump can do is resort to what remains in reach: the optics of strength, the theatre of volatility and the occasional pump and dump. Sad! The constant reversals in policy aren't mistakes, they're the method. This is what it looks like when headlines substitute for action and fiscal governance collapses into event-driven liquidity management.

It is telling that the figure charged with managing this farce is Treasury Secretary Scott Bessent, a grown man with an unsettling boyishness, who somehow always looks as if he's wandered off the set of a high school production of The Plaza Accords, wearing a suit that doesn't quite fit, like a child rummaging through his father's closet, mouthing James Baker's lines with none of the authority and all of the posture. The financial press keeps calling him the last adult in the room, but the joke writes itself: the last man standing is a failed hedge fund guy whose claim to fame is a single great trade from 1992. This is what remains of American statecraft. Not strategy, not coercion, not even coherence — just a faint memory of power recycled as performance. A Treasury Secretary doing Baker cosplay, a president running memecoin scams in broad daylight and a market that no longer flinches, too desperate to keep the show going.

If you'll allow me the indulgence, I'm going to be that person and bring up Hamlet — not as metaphor or literary dressing but as structure. The play understands the problem of symbolic authority not as something that collapses all at once, but that unravels in gaps, between recognition and action, structure and speech. It's in Act III, after Polonius is killed and the machinery of surveillance starts misfiring, that Hamlet senses the trap tightening and, with premature satisfaction, delivers the oft-quoted

There's letters sealed; and my two schoolfellows,Whom I will trust as I will adders fang'd,They bear the mandate; they must sweep my wayAnd marshal me to knavery. Let it work;For 'tis the sport to have the engineerHoist with his own petard; and 't shall go hardBut I will delve one yard below their mines,And blow them at the moon.

This is often read as a triumph, a declaration of reversal — the schemer outwitting the scheme — but unfortunately for Hamlet it comes too early. Hamlet hasn't reversed the plot yet, he hasn't intercepted the letter or rewritten anything, he's merely anticipating the turn. It's not strategy, it's fantasy.

The genius of the line — and of its misreading — is that it performs mastery while sealing entrapment. Hamlet believes that naming the structure places him outside it, that recognition means control, that to expose the mechanism is to neutralize it. But this is the fatal error: the moment Hamlet believes he's seen through the design, he becomes the final piece that makes it work.

This is where we are now, Act III. We believed — some still believe it seems — that the decline can be managed, rerouted, politically arbitraged. That by identifying the contradictions of the moment, we've created the preconditions for escape. But the machinery isn't broken, it's completing it's arc. The petard is working exactly as designed and Trump isn't the one doing the hoisting, he's what gets launched.

There was a time when global capital was synonymous with dollar liquidity, when every surplus recycled through Treasuries, when geopolitical instability meant a flight into US assets, not away from them. That time may be over, but if it is it didn't end with a single crash or pivot point. It ended with the slow accumulation of unacknowledged choices: the weaponization of payment programs, the inability to sustain domestic investment, the substitution of asset inflation for wage growth and the complete collapse of any credible industrial policy beyond press conferences and subsidies for fabs that still haven't broken ground. Then there was the NFTs.

This shift isn't theoretical, it's already underway. A decade ago, the recycling loops that underwrote US deficits — petrodollars, Chinese export surpluses — began to falter. First the 2014 OPEC breakdown, then the 2015 Chinese monetary regime shift: two events that permanently altered the global account map, even if American mental models refused to update. What papered over the gap was the financialization of the tech sector — the VC-led absorption of global capital into a narrow band of US equities, creating the illusion that the Nasdaq could function as a new organizing logic for accumulation.

As US policy flails between confrontation and capitulation, capital is rerouting. Gulf states are no longer buying bonds, they are investing in infrastructure — sovereign-owned data centers, AI clusters and fiber backbones. China has doubled down on dual circulation, boosting internal demand while tightening outbound flows. And Europe, in a move that would have been unthinkable mere weeks ago, is rediscovering fiscal deficits — not as crisis response, but as state strategy. It's not just that the dollar is no longer the only game in town, it's that its status as neutral arbiter of value has collapsed.

Meanwhile, the deeper architecture is already unraveling. The American premium across assets is eroding as cross-border issuance is quietly diversifying away from the dollar. The "exorbitant privilege" the US once enjoyed was never just about invoicing trade flows; it was about anchoring the denomination of global credit creation itself. Monetary multipolarity doesn't just complicate US dominance, it forecloses the conditions that made it possible. And though Biden accelerated the trajectory set in motion by Trump 1.0 — most obviously the catastrophic miscalculations around chip sanctions and export controls — it's Trump 2.0 that will formalize the break. The optical "trade deals" with South Korea, Japan, India and Israel may generate headlines, but it's still the same: symbolic gestures meant to simulate leverage long after the leverage has been spent.

We are not watching the decline of American hegemony, we are witnessing the recomposition of global governance itself. Enter: the rise of private credit as de facto allocator of global capital. As traditional macro institutions — central banks, multilateral development banks, sovereign treasuries — lost coherence, the function of resource allocation shifted to asset managers, debt funds and non-bank financial intermediaries. This isn't some shadow system, it is the system. State-driven investment has been replaced by portfolio construction. BlackRock, Apollo, KKR, Ares — these funds now decide which infrastructure gets built, which firms survive, which governments receive liquidity. Investment decisions are not contingent on public mandates, but on modeled risk-adjusted yield — often underwritten by leverage, tax optimization and opacity. In a world where states can no longer reliably price their own political liabilities, these entities have quietly become the sovereign of last resort.

All the while, the liberal state — once imagined as a neutral manager of conflicting interests — has been hollowed out and subcontracted. Silicon Valley, long a parasite on DoD subsidies and state-ushered monopolies, has become something more like a privatized planning apparatus. It doesn't govern in the traditional sense: it routes, it tracks, it optimizes. In this schema, the state hasn't disappeared but is patchworked into a network of contractors, venture-funded subsidiaries and defense-aligned firms whose institutional memories are measured in product cycles. The old guard still exists — CIA, NSA, DoD, DHS — but the data that flows through them is increasingly generated by Palantir, Amazon, OpenAI and Microsoft. Sovereignty remains unclear.

This is what 21st century class war looks like: the endgame of the professional managerial class is not obtaining power through ownership but through administration. It is control without responsibility and governance without representation. Even 20th century management shibboleths, things like shareholder rights, will soon look quaint. This is the logic of the post-liberal state: the infrastructure of enforcement remains intact, even as the social base that once legitimized it has disintegrated. The state survives — stronger, more agile, no longer a popular project but a blunt instrument of raw power.

But it's not over until China says it's over. That's the subtext beneath the headlines, though you'd never know it from the coverage. The US media remains committed to the fantasy that Trump is playing hardball — he's erratic, sure, but the goal is recalibrating trade, applying pressure, seeking leverage. Hm, ok, here's a question: what if it's not? What if he isn't doing any of those things? What if China is? What if the President never had leverage to begin with and what we are watching isn't strategy but capitulation?

Just this past week he seemed to fold, without a meeting. lol. There was no negotiation, no summit, no art of the deal. Just a headline and replyguy sycophants declaring "historic trade deal" as if simply saying so could change the score. But the board has shifted. If Carney wins in Canada, the US will find itself boxed in by a ring of actual technocrats with institutional memory. Improvisation, which the media has long spun as strategic genius, will be recognized as drift.

In the meantime, the major players can't afford to stand still — not because they're exposed (though some are), but because the role demands performance. Gesture matters. They have to simulate coordination, mime alignment, sustain the choreography of credibility. Most will simply wait. The calculus is rational: better to sit on cash than gamble on a system that can't remember what it is promising. And anyway, actual negotiation is irrelevant when the right company can extract more from US trade policy than a sovereign government can. Nike doesn't need the Vietnamese state to lobby Washington, but Vietnam might need Nike to. They can get tariffs lifted faster by making a few symbolic purchases of propane, maybe a promise to reroute one supply node back to Ohio. The outcome is the same: headline reads "jobs returning," policy is softened and the illusion of strategic coordination is maintained. The state isn't steering capital, it's chasing the optics of alignment.

The deeper risk isn't that Trump makes bad deals, but that he tries to engineer a pump and dump and the market doesn't bite. What happens when Mr. Market stops bouncing on headlines? What happens when the S&P ignores the spectacle? What is becoming increasingly clear is that there is too much fraud in the market and zero prospect of any kind of government enforcement. The premise of stocks as long-horizon savings vehicles — the backbone of retirement planning and middle-class aspiration — is compromised. What we have now is liquidity pumps, hype and insider trading. And now Trump has introduced a new and avoidable problem: the promise of de-escalation. This is what the market expects, and quickly. And not just in headlines but in concrete terms with reciprocal confirmation from China. The risk is that markets go in show-me mode and Trump's got nothing. Look, this isn't just about trade: crackdowns on higher education, erratic and arbitrary customs enforcement, whispers of international boycotts — this risks massive amounts of tourism and all the activity that generates. Even FIFA is rumored to be voicing concern over planned US World Cup events. And we haven't even talked about what the cascading effects look like from a pullback in consumption thanks to a mixture of fear and empty shelves. Then think about all how these factors reinforce each other as things spin out of control. Does anyone seriously think the market has priced any of this in?

This is a familiar phase in systemic unraveling — a moment not unlike the spring and summer of 2008 in the lull between Bear and Lehman. "Sell it all. Today," is how they put it in Margin Call. After Bear collapsed in March, the market rallied on the assumption that the worst had been contained. For a time, this was taken as confirmation: the system, though shaken, was absorbing the shock. In reality, the damage had already been done. Major players were simply attempting to exit quietly. Risk was being redistributed — from Wall Street to Main street — none of it resolved.

I think it is instructive to look at 2008, but inexact. What we are facing now is qualitatively different: it's structural — not just economic but institutional, political and symbolic. The more accurate historical echo may in fact be the early weeks of COVID, when systems dislocated faster than they could interpret and when the inertia of normalcy prevented an adequate response to events already underway.

But unlike COVID, this dislocation isn't confined to logistics or public health. It reaches into the architecture of belief — even the assumption that US equities will always rise, that the market is the economy and that long-run returns can substitute for political cohesion. But what happens when you can no longer guarantee 6% annualized? When the promise of passive growth — the core mythology of American middle-class stability — no longer holds? Retirement portfolios aren't federally insured, equity holders don't get bailouts. It is difficult to model but easy to feel: consumption contracts, risk appetite disappears, political anger intensifies. And the American capital class — so thoroughly solipsistic, so certain the Fed exists to validate its positioning — suddenly finds itself without a floor.

That's why Trump is pressing Powell. Not because there is a monetary crisis, but because there is a political one. But it's just another trap: by pressuring the Fed, he is accelerating the crisis his pressure is meant to forestall. In a system built on confidence, even the appearance of central bank independence is non-negotiable. Once that's gone, the market begins to reprice. The only lever left is liquidity and a slew of capital controls to stave off flight. But liquidity can't restore faith and what we are watching isn't fiscal mismanagement: it's the emergence of political risk premium at the core of US sovereign credibility.

Markets are continuing to behave as if the underlying conditions remain intact. They do not. What remains is reflexive disbelief — a refusal, in effect, to reprice power. For decades, the US has been able to anchor global capacity precisely because it appeared immune to the type of political risk that defined emerging markets. That appearance is no longer credible. But acknowledging that shift would require confronting a much deeper problem: the extent to which the market itself has become dependent on illusions of stability it can no longer generate.

Markets aren't pricing discipline, they are evacuating trust — quietly, politically, algorithmically. What happens when a political system becomes too incoherent to function as a guarantor of its own monetary instruments? What happens when the underlying assumption — that US financial assets are a proxy for global order — breaks? We may already be living through that answer. The role of the dollar as reserve currency no longer rests on unipolar credibility but on a set of inertial holdings that persist largely because no alternative yet commands institutional consensus.

But that consensus is eroding. Slowly, and then — as always — all at once. Gaza and Ukraine may mark the visible edge of a broader reordering, the first of many theatres in what will eventually be called WWIII. The deeper moves are occurring elsewhere: in commodity settlement agreements, in cross-border payment systems, in energy infrastructure and sovereign fund allocations. Balance sheets are rotating. Projects are being shelved. Weapons manufacturers are going online. The architecture is shifting underfoot.

When this is written in retrospect, the timeline will condense. We will argue over pivot points, over speeches and policy failures and missed signals. We will say: there, that was the moment. But by then the trap had already closed. What we are witnessing now is simply the lag between fracture and acknowledgement, the illusion of distance when the final turn has already been made. What remains is movement without narrative — liquidation, rotation, the slow abandonment of belief. We may not know the timing, but we know how this ends.

Until next month,

Liz.