đ If Fed Chair Warsh turns into a real inflation hawk, markets may be underestimating the fallout.
Deflating asset prices and shrinking the Fedâs balance sheet would hit a hyper-financialized US economy fast â where ~75% of activity depends on rolling over old debt. A market drawdown wouldnât stay on Wall Street; it would bleed straight into the real economy.
Balance-sheet reduction also raises the hard question: who buys the trillions in new US debt? Any realistic answer points toward financial repression.
Cutting rates to support growth doesnât erase inflation â it shifts it from assets to consumers, a risky political trade-off. In a debt-driven system, stability only holds if the Fed ultimately backstops debt sustainability.
If the full Warsh scenario plays out, the US may be flirting with a systemic stress event, not a soft landing.
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