An era without good answers: Understanding Vosh, Trump, and the next four years of the new era

Author: Iron Pillar Brother on CRYPTO

Many years later, facing the newly appointed Kevin Waugh and the ongoing public pressure from Trump, Powell might recall the morning he first stepped into the Federal Reserve Chair’s office.

It was an era that seemed still under control. Although the world’s rightward shift was already inevitable.

At that time, 64-year-old Powell did not know that he would become the longest-serving Chairman in Federal Reserve history during an abnormal period: confronting a pandemic, unprecedented fiscal expansion, runaway inflation, asset bubbles, geopolitical fractures, and being repeatedly pushed to the forefront of crises, forcing the Fed into the spotlight.

1. Redefining the Fed: Farewell to the Safety Net—Dove or Hawk?

For a long time, the Federal Reserve was no longer just a central bank. It became the market’s last buyer, a shadow ally of fiscal policy, the final lender and safety net for banks.

And Powell gradually transformed from a technically skilled bureaucrat known for stability and expectation management into the guardian of this large, bloated system shaped by the times.

Powell’s eight years in office have seen dramatic swings in interest rates

Up to today.

When Kevin Waugh’s name is about to become the next Fed Chair, the real change isn’t just a label of hawkish or dovish, but a redefinition of the Fed’s role in this era.

Waugh is neither a traditional hawk obsessed with balance sheet reduction nor a dove solely easing to protect markets, nor simply an anti-establishment figure.

He truly represents a response to a market increasingly skeptical of the sustainability of massive national debt: as we enter a new era, the Fed must answer: Should it still bear the responsibility of backstopping all debt issues?

Waugh’s advocacy repeatedly emphasizes thorough reform, which involves not only interest rate path changes or adjustments to the balance sheet but also a systemic reflection on the monetary policy logic of the past fifteen years. This extreme form of deforming Keynesianism is approaching its end.

An era centered on demand management, covering up stagnant productivity with asset price booms, has reached a dead end.

For Trump, Waugh is a controllable reformer: willing to cut rates, understanding debt realities, and unlike Hasset, not carrying strong political baggage, maintaining the necessary independence and dignity of the central bank.

For Wall Street, Waugh is a rule-oriented person: emphasizing monetary and fiscal discipline, opposing unconditional QE, and preferring market management through institutional adjustments rather than monetary policy interventions.

As I shared in a previous Space talk, in the next four years, perhaps the Fed Put will disappear. Replacing it may be a more restrained central bank, clearer responsibilities, and more frequent, genuine market volatility. All of this will bring an uncomfortable adaptation period for market participants.

2. The Gravity of Reality: How Long Until a True Return, and Is It Possible?

Before Waugh took office, most people were pessimistic. After all, Waugh’s philosophy involves large-scale balance sheet reduction and strong anti-inflation measures.

However, the current US economy is in a highly fragile state yet heavily reliant on stable narratives: high fiscal deficits, debt interest payments nearing uncontrollable levels, real estate and medium-to-long-term financing highly dependent on long-term rates, and capital markets long accustomed to policy backstops.

Waugh’s proposed path—rate cuts + balance sheet reduction + a small central bank—means: demanding fiscal authorities face costs again, enforce discipline; requiring markets to bear risks independently; and asking the Fed to relinquish the safety net accumulated over the past fifteen years.

This path isn’t impossible, logically sound, or common sense. But in reality, Waugh’s margin for error is limited, and it highly tests timing control.

If balance sheet reduction pushes up term premiums and raises medium- and long-term rates, it could suppress housing, investment, and employment;

If markets experience violent fluctuations as the central bank no longer backstops; or if voters feel the real costs of so-called discipline returning.

Political pressure on the Fed will quickly revert to familiar demands: stop balance sheet reduction, slow reform, prioritize stable growth.

Over the past years, both voters and capital markets have developed strong path dependence through crises. This inertia cannot be completely broken by personnel changes.

A more realistic judgment is: Waugh might push for a change in direction, but a full return to the old ways is unlikely to happen overnight.

3. From Trump’s Perspective: An Alternative Approach to Waugh’s Rise

It’s well known that Trump has always needed low interest rates.

But at the same time, early in his term, he launched a Musk-style efficiency reform, attempting to drastically cut government spending and reshape fiscal discipline. These two goals—low rates and spending cuts—are inherently conflicting within traditional frameworks.

So, a more interesting question arises: if Trump is unwilling to fully rely on a dovish central bank safety net, and is aware that fiscal conditions are nearing a breaking point, then choosing Waugh—could that itself be a non-traditional solution?

At this stage, the US fiscal deficit and debt levels are approaching a critical inflection point. Continuing the dovish path of the past fifteen years—more aggressive rate cuts, direct central bank interventions, and blurred boundaries between monetary and fiscal policy—may seem to stabilize markets temporarily but actually risks further depleting dollar credibility and fueling inflation.

This path offers a very short political comfort zone and carries a high risk of failure. Once inflation rebounds or long-term rates spiral out of control, responsibility will almost certainly fall back on the White House itself.

We must always understand: Trump has been a master strategist. Waugh’s value lies precisely in his ability to leverage his position to pressure Congress.

If the Fed, under Waugh’s leadership, clearly refuses to continue backstopping fiscal policy and rejects unconditional suppression of term premiums, then rising interest rates, exposed financing costs, and mounting fiscal pressures will no longer be direct political consequences but natural market discipline.

What could this bring? For Congress, unchecked spending expansion will quickly become unsustainable; for the fiscal system, cuts to welfare and deep budget reductions will create a forced reality; rather than relying on Musk-style patchwork solutions.

Even if this path doesn’t work out, or if markets react excessively and reform slows, Waugh remains a perfect scapegoat.

Or, Waugh doesn’t even need reform to succeed; he only needs to fully expose the problems, enough to change the current game between Trump, Congress, and the Democrats.

This may be the most realistic and brutal political significance of Waugh’s rise.

4. The Future of Debt: Time for Space, No Perfect Solution

If we elevate our perspective, we see that whether it’s Waugh’s reform vision or Trump’s political strategy, they both revolve around a single fundamental constraint: the US has entered a debt-led era.

Debt levels determine a harsh reality: the US no longer has the policy freedom to fully correct itself; it only has choices of delaying or shifting problems.

That’s why “time for space” becomes the only feasible, yet least dignified, path. Rate cuts are a trade-off—using future inflation risks to ease current interest burdens; balance sheet reduction is an attempt to restore credibility through institutional discipline; fiscal reform involves political conflict and electoral costs to temporarily smooth the debt curve.

But these choices conflict with each other and hinder one another; none can independently complete a full cycle.

Waugh’s real challenge isn’t whether to reform or not, but: in a highly financialized, politically polarized, debt-expanding system, how much can reforms bear the actual costs?

From this perspective, no matter who comes to power, they cannot provide a one-size-fits-all, permanent solution.

This also means that in the next four years, markets will need to adapt not to a single policy shift but to a longer-term, more cyclical state. Interest rates won’t return to zero comfortably, but they also won’t stay high forever; the central bank won’t unconditionally backstop, but it also can’t fully let go; crises won’t be entirely avoided, only postponed or fragmented.

In such a world, macro policies no longer solve problems—they only manage them.

And perhaps this is the ultimate insight into Kevin Waugh’s and Trump’s strategies: they aren’t competing for a better answer but fighting over who gets to decide how the past costs are allocated in this no-good era.

This isn’t a story about prosperity.

It’s simply the beginning of an era where reality, debt, and supply constraints are becoming more explicit again.