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One of the questions rarely asked regarding the ongoing American crisis is whether we have passed the point where reform is possible. Few want to consider that possibility for obvious reasons. If reform through the regular political process is no longer possible, then only unpleasant alternatives remain. One of those alternatives is some form of collapse. Like Gorbachev’s Soviet Union, America may be headed over the cliff with nothing to prevent it.

Last week, we caught a possible glimpse of the answer. Trump rolled out his tariff regime, and the stock markets went wild. It was not just a global selloff; volatility was off the charts, which is worse than the decline itself. A steady selloff occurs during a correction when markets are overbought. A chaotic, erratic decline signals panic setting in among the algorithms. It means their code cannot interpret the conditions they are programmed to use for trading.

Just as things began to stabilize, the bond market started to “get the yips”, as Trump noted on Thursday. No one in the mass media understands this, so they kept claiming the bond market crashed, which is far from accurate. The issue was that market players were dumping treasuries. It is unclear why, for instance, the Japanese central bank was selling treasuries. This uncertainty is just as worrisome as the actual dumping, so everyone was spooked.

Typically, the reason for dumping treasuries is a liquidity issue, either in the system as a whole or in a segment of it. In this case, the consensus is that hedge funds were raising cash due to the market decline. That could be true, but it is also possible the basis trade was unraveling. This is when hedge funds bet on tiny changes in treasury yields—a major way they generate profits within the system.

Here is how it works: Imagine you believe the value of an asset like a treasury will decline over the next six months. You hold this asset, but it is collateral for another transaction. You cannot sell it now, so you agree to sell it in the future at the current price rather than the market price at that time. If the price surges, you lose potential profits when the contract expires, but if the price drops as expected, you are protected from those losses.

There is much more to it, but that is the gist, and this happens across markets for everything, even treasuries, which have been very stable. Even earning a tiny percentage on these transactions can net millions for a fund handling tens of billions in trades. In fact, the financial system relies on clever quants coding models to exploit these small discrepancies between current and future prices to generate wealth.

When Trump’s tariffs caused this system to go haywire, triggering a panicked demand for cash, he had no choice but to back off. It was not that the bond market revolted due to a philosophical disagreement with the policy. Rather, this massive system is a house of cards that cannot tolerate even minor disruptions. Trump’s tariff regime should not have caused chaos, but the fact that it did suggests even small changes are no longer viable.

That is not the end of it. The central bank could mitigate this by injecting enough cash to resolve the liquidity issue. In fact, it can inject enough to counter deliberate revolts. You cannot beat the Fed. This should have happened last week, but Jerome Powell either refused to act or was too inept to grasp the situation. He has been the worst Fed chair since Arthur Burns, so incompetence is a strong possibility.

That said, the Fed held an emergency meeting just before Trump announced his tariff plan last week, likely in response to it. Given the Federal Reserve’s composition and its attitudes toward the American public, it is possible they intended to undermine the process. The Bank of England toppled Liz Truss’s Tory government, so it is not unthinkable. The head of the Bank of England at the time was Mark Carney, who is now the dictator of Canada.

This would imply that normalizing the American economy is no longer possible, at least not through standard political processes, because the entrenched interests profiting from the system will not allow it. That is what we will discover in the next ninety days as the Trump team navigates this challenge. Bessent has suggested they will use this time to strike individual deals with countries rather than unilaterally imposing a tariff schedule.

Of course, they could also have Jerome Powell killed, thus sending a message to the parasite class that they must fall in line or else. They never take no for an answer, so this approach never works. The Russians had to execute a lot of oligarchs before the rest finally fell in line with the new program. Falling in line usually meant fleeing the country with their cash. Maybe it does not have to come to that with the bankers, but last week was not a positive sign.

What the events of last week show is that normalizing American economic policy is not going to be easy within the current process. It also suggests it may not be possible without radical approaches to implementation. We may have reached the point where even with enough coercion, the system cannot be reformed. We may have blown past the point of no return as far as the political and economic order, so what lies ahead is chaos no matter what is done.

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