The American economy stands at a critical juncture. President Trump’s assault on the Federal Reserve has reached an intensity that threatens the very foundations of independent economic institutions.

Lisa Cook, a Federal Reserve Board member, has become the primary target of Trump’s political pressure. Despite repeated claims of dismissal, Trump has encountered formidable legal barriers.

The Federal Reserve Act’s protective provisions are crystal clear: Board members can only be removed “with cause” – a legal standard requiring documented inefficiency, neglect of duties, or malfeasance in office.

Trump’s rhetoric has been unrelenting. He has repeatedly branded Federal Reserve Chair Jerome Powell a “stubborn MORON” and demanded the Fed Board “ASSUME CONTROL”. These are not mere political utterances, but a calculated strategy to undermine the institution’s credibility and independence.

The nomination of Stephen Miran to the Board represents a strategic manoeuvre. Miran, a key architect of Trump’s protectionist tariff policies and an overt critic of Fed independence, epitomises the administration’s approach to institutional capture.

Equally troubling is the nomination of E.J. Antoni to lead the Bureau of Labour Statistics, revealing a broader pattern of institutional pressure. Antoni’s background is particularly concerning. Present in Washington during the 6 January 2021 events and lacking formal statistical training, he has described BLS methodological changes as “Orwellian tricks”. His predecessor, Erika McEntarfer, was summarily dismissed following a jobs report revealing weak growth and significant downward revisions.

These are not isolated incidents, but a systematic strategy to erode the boundaries between political leadership and independent economic institutions.

The parallels with Turkey’s macroeconomic experience over the past two decades are stark and deeply troubling.

When politicians systematically attempt to control statistical narratives and pressure monetary authorities, the consequences are predictable and potentially catastrophic.

To understand the potential trajectory of these institutional pressures, I turn to an in-depth analysis of Turkey’s economic and financial data.

By examining the structural breaks in Turkey’s exchange rate and consumer price index, we can map the precise mechanisms through which political interference destabilises economic institutions and forecast the potential risks facing the United States.

The Method: Identifying Structural Breaks

To examine how institutional credibility manifests in economic data, I employ piecewise-linear regression on the logarithm of Turkey’s exchange rate (TRY/USD) and consumer prices (CPI):

Breakpoints are identified through a recursive residual minimization algorithm with minimum segment length constraints to prevent overfitting. The fitted model highlights trend accelerations indicative of collapsing policy credibility.

Structural Breaks in the Data

Based on CPI (all-items, 2015=100) and OECD TRY/USD data from 2000 to mid-2025, the model detects the following breakpoints:

ln(CPI, All-Items)

• April 2004
• January 2009
• July 2012
• December 2021

ln(TRY per USD)

• August 2001
• May 2008
• June 2016
• January 2021

The 2021 break is common to both series and corresponds to an inflection point in Turkey’s macroeconomic credibility.

Institutional Context

2001-2004: Turkey enters an IMF-supported stabilization program. Initial credibility gains follow structural reforms.

2008-2009: The global financial crisis provides cover for credit expansion via state banks. The exchange rate trend weakens.

2012-2016: President Erdoğan intensifies public attacks on the central bank, calling interest rates “the mother and father of all evil.”

2016: Following the July coup attempt, massive institutional purges and emergency rule accelerate TRY depreciation.

2021: Multiple central bank governors are fired in rapid succession. Interest rates are cut amid soaring inflation. The head of the statistical agency is replaced following public scrutiny. Both inflation and the exchange rate experience their sharpest accelerations.

The Cumulative Cost

Turkey’s all-items CPI rose from 9.5 in January 2000 to 74.36 in June 2025. The chart below shows the dramatic shift in inflation dynamics after 2021:

Similarly, the Turkish lira depreciated steadily until 2016 and then began to collapse after 2021:

The timing aligns precisely with political interference in core institutions.

Parallels to the United States

The U.S. now faces its own institutional tests:

• Trump has called Powell a “stubborn MORON” and demanded the Fed Board “ASSUME CONTROL.”
• He has threatened lawsuits over Fed building renovation costs.
• Trump claims to have sacked Lisa Cook.
• Stephen Miran, a prominent critic of Fed independence, has been nominated to the Board.
• E.J. Antoni, who lacks formal statistical training, has been tapped to lead the BLS.
• The federal deficit will reach $1.9 trillion in FY2025 (6.2% of GDP), while unemployment is at 4.2%.
• Federal debt held by the public is projected to rise from 100% of GDP in 2025 to 118% by 2035.

These dynamics echo the institutional erosion seen in Turkey during its slide into macroeconomic instability.

The eerie resemblances between Turkey and the US

The structural parallels between Turkey’s economic trajectory and the current United States landscape are far more than academic coincidence. They represent a precise roadmap of institutional decay.

In Turkey, political interference transformed a functioning economic system into a case study of monetary mismanagement. Our data analysis reveals how repeated attacks on central bank independence created predictable, catastrophic outcomes: hyperinflation, currency collapse, and total loss of economic credibility.

The United States is traversing an eerily similar path. Political pressure on the Federal Reserve, repeated attempts to undermine institutional independence, and strategic appointments designed to capture economic institutions mirror the early stages of Turkey’s economic unravelling.

The risk is not hypothetical. Each politically motivated intervention increases the probability of a return to double-digit inflation and challenges the dollar’s global reserve currency status.

The mechanisms of institutional erosion are identically structured: politically controlled statistical agencies, central bank leadership under constant threat, and monetary policy increasingly subordinated to short-term political calculations.

Market signals already indicate growing vulnerability. Dollar weakness, shifting international trading patterns, and increasing institutional uncertainty suggest we are not merely at risk, but already in the initial phases of potential systemic transformation.

The Turkish case study is not a warning, but a blueprint. Without immediate, robust defence of institutional integrity, the United States risks replicating a path from economic stability to monetary chaos with remarkable precision.

Suppose I came to you and said: “I would like to borrow a very large sum of money in order to buy massively overpriced shares. By the way, I am already drowning in debt.” What interest rate would you charge me?

The answer would be either prohibitively high or a flat refusal.

Yet this is precisely the course the United States government has embarked upon.

The Intel Purchase: A Costly First Step

Only days ago Washington acquired around ten per cent of Intel, spending close to nine billion dollars by converting subsidies from the CHIPS and Science Act into equity. The US Treasury now holds more than four hundred million non voting shares at roughly twenty dollars each.

Markets offered a modest applause, with Intel’s share price ticking higher. But the company remains far below its past peaks and management has already warned that government ownership could complicate global sales.

Officials present this move as the foundation of a new American sovereign wealth fund. The difference from Norway is obvious. Norway’s fund is backed by oil revenues. The United States has no such cushion of accumulated wealth, only mounting debt.

Next Target: Defence Contractors

US Commerce Secretary Howard Lutnick has confirmed that the administration is considering taking direct equity stakes in Lockheed Martin, Boeing and Palantir. His rationale is that defence contracting has become a giveaway and that taxpayers deserve equity in return for financing the industrial base.

It sounds like logic. In practice it risks transforming the United States government into both regulator and shareholder of strategic industries. To many observers that is not market capitalism but a slide into state capitalism or what I have called ‘Red hat socialism‘

Palantir’s Extraordinary Valuation

The inclusion of Palantir Technologies makes this strategy especially alarming. Palantir’s price to earnings ratio currently sits somewhere between five hundred and seven hundred times trailing earnings. Even forward estimates remain stratospheric, around two hundred to three hundred times earnings.

To put that in context, the S&P 500 trades at about twenty two times earnings. Palantir is thus one of the most richly valued large cap stocks in the world. For any rational investor it represents significant downside risk. For a government already weighed down by record deficits it borders on financial recklessness.

The Risk Cascade

If the US government continues down this path, the sequence of risks is straightforward. Overvalued markets always correct. When that correction comes, Washington will book enormous losses directly onto the public balance sheet.

A political leader faced with such an outcome may not accept failure. Instead President Trump could choose to double down by buying even more equity, perhaps in weaker or more speculative firms. It would be the gambler’s fallacy applied to fiscal policy.

As this desperation becomes visible, confidence in US Treasuries may fracture. Investors would start to wonder whether the American government is a sovereign borrower or a speculative hedge fund. The response would be simple. Yields would climb as bondholders demanded higher compensation for risk.

Higher borrowing costs would arrive just as debt levels are exploding. Mortgages, corporate credit and municipal borrowing would all become more expensive. Financial conditions would tighten dramatically and growth would stall. Rising interest costs would in turn swell the deficit, fuelling perceptions of fiscal irresponsibility and intensifying the pressure on both equities and bonds.

This is how a misguided equity gamble could spill over into a sovereign debt crisis made in America.

Argentina, Not Norway

A genuine sovereign wealth fund requires wealth. Norway built its fund on decades of oil revenues. The US by contrast is building what amounts to a sovereign kamikaze fund, financed not by surpluses but by debt and managed not with prudence but with political bravado.

In this sense the US increasingly resembles Argentina under Juan Perón, where populism, intervention and debt blended into a destructive mix.

The real danger is not only that Washington loses taxpayer money on overpriced equities. The greater risk is that such policies undermine trust in US Treasuries, the bedrock of the global financial system. If desperation drives the administration into doubling down on failed bets, America could face spiralling bond yields, collapsing market confidence and a fiscal crisis of its own making.

Donald Trump calls it a win for American industry. Trump’s economic advisor (or what ever it is he is doing) Kevin Hassett calls it the first step towards a sovereign wealth fund. I call it Red Hat Socialism.

The United States government has just taken a near ten per cent stake in Intel. Officially it is about safeguarding domestic chip production. In reality it is subsidies converted into equity in a company that continues to lose ground to TSMC and Nvidia. The deal gives Washington no real control but leaves American taxpayers exposed when the share price falls.

And it does not stop there. Only a month ago the Pentagon bought into MP Materials, the United States’ only rare earths miner. The state is now the largest shareholder and has promised a minimum price for output at nearly double the Chinese market rate. In Washington this is described as national security. From abroad it looks like state-sponsored market distortion.

The US stock market is, by most measures, massively overvalued. At the same time, the US federal government is running a massive deficit. These two things cannot coexist for long: buying overvalued US companies financed by government debt issuance.

A sovereign wealth fund works when you invest fiscal surpluses into undervalued assets. Norway is the textbook example. What the United States is building is the polar opposite. Overvalued assets financed by record deficits.

The arithmetic is brutal. When the market reprices lower and it will be taxpayers who will take the hit. At the same time bond investors will wake up to the reality of ever-expanding debt and rising issuance.

I suggest you sell your US Treasury bonds before the double-whammy hits – a massive sell-off in the US stock market combined with skyrocketing US bond yields.

If you’re a heavy user of language models, as I am, you’ll have undoubtedly noticed that the various AI models, such as ChatGPT and Claude, aren’t behaving quite as they used to.

This has particularly come into focus since OpenAI launched ChatGPT 5.0 a fortnight ago.

One must say that the reception has been anything but favourable. It’s been difficult to spot the improvements (unless one uses ChatGPT for coding…), and criticism has indeed rained down upon OpenAI for failing to live up to the hype surrounding 5.0, which OpenAI’s CEO Sam Altman had particularly attempted to create.

The Symptoms of Strain

Some of the problems surrounding ChatGPT have been shorter responses and poorer answers. A feeling that communication is different and, in some cases, longer response times as well.

And it’s not only ChatGPT that has had problems. Similarly, Claude has increasingly shown signs of “sycophantic” behaviour – that is, the model telling users what they want to hear. And sometimes this contradicts the facts.

It’s even the case that I have anecdotal stories that Google Maps and iPhone navigation have begun behaving strangely. But that’s my observation and to a lesser extent something others have written about.

The Root Cause: Capacity Pressure

But what’s happening?

In my view, it’s about massive capacity pressure. Demand for computing power has exploded, and this is particularly in step with the use of language models for IT development and coding driving this development – so-called “vibe coding”.

And this is where code tools like Lovable and especially Cursor come into play – these are the tools that have truly created the possibilities for effectively using AI in coding.

The first chart below shows an index for the number of Google searches for precisely “vibe coding”. If we compare this with the price of computing power in the USA, we see there’s a rather close correlation – more on that below.

The Economics of Computing Power

As the graph below shows we took the first jump in computing prices in December-January, after which it flattened somewhat, but the last couple of months it has risen further.

From December last year to the end of July, the price of “data processing, hosting and IT infrastructure” rose by over 11%.

And it has accelerated dramatically recently. In July alone, the price of computing power in the USA rose by over 5%.

And this is, in my opinion, the reason why users of AI models are now experiencing a poor product.

Thus, companies like OpenAI (ChatGPT) and Anthropic (Claude) are FORCED to do something to ensure their profitability, now they see their costs rising sharply. And therefore they’re attempting through the back door to reduce the performance delivered to customers.

The End of Free AI and possibly the end of the tech stock market boom

But I think it’s obvious – one way or another, this bill must be paid – and therefore we must also expect that the time when AI models were free or nearly free is over.

Finally, we must see whether the rapidly rising prices of computing power will affect earnings expectations in the large American tech giants, which have largely driven the massive share price increases we’ve seen in recent years on the American stock market.
In recent days we have seen a bit of weakness in the US tech stocks and I think we might be heading for more bad news going forward as tech companies struggle to maintain profitability as computing power prices continue to rise and capacity problems in the sector become a lot more obvious to investors.

Inflationary Pressures Mounting

This computing power crisis brings another inflationary pressure “out in the open” that comes on top of the negative supply shock arising from Trump’s immigration crackdown and his massive tariff increases.

Trump’s immigration policies have created a significant labour supply shock. Net immigration has fallen by over 90% compared to previous years, equivalent to a slowdown in labour force growth of more than 2 million people and this in fact in my view might be a far more sustained negative supply shock for the economy than Trump’s tariffs.

Simultaneously, Trump’s tariff regime has imposed duties averaging close to 20% – the highest level since 1933.

The combination creates a perfect storm: reduced labour supply pushing up wages, higher import costs from tariffs, and now spiralling computing infrastructure costs all feeding into broader price pressures.

So overall it is clear that US inflation already is in the process of heading higher.

The New Economic Reality

And that’s why I now say that the price of computing power is probably the most important price in the global economy right now.

The implications extend far beyond AI companies. As computing power becomes more expensive, it affects everything from financial services to manufacturing, from entertainment to logistics. Every industry now depends on computational capacity, and this bottleneck threatens to constrain economic growth whilst simultaneously driving up costs.

For investors and policymakers, monitoring computing power prices may prove more crucial than traditional indicators. We’re witnessing the emergence of a new economic paradigm where computational capacity, rather than traditional factors of production, becomes the binding constraint on growth and prosperity.

The most important lesson is that computing is getting rapidly more expensive and that will very soon show up in prices across the wider economy.

In my three decades as an economist—including 15 years as Chief Analyst for Emerging Markets at Danske Bank—I’ve seen some truly bizarre economic episodes.

I’ve watched Argentina default on its debt. I’ve analysed Turkey’s monetary policy madness under Erdoğan. I’ve observed Venezuela’s descent into hyperinflation. But what happened today in the United States might top them all.

This morning (US time), President Donald Trump fired the Commissioner of the Bureau of Labor Statistics, Erika McEntarfer, because he didn’t like the jobs numbers. Let that sink in. The leader of the world’s largest economy, the issuer of the global reserve currency, just sacked his top statistician for doing her job.

This is one of the most insane thing I’ve witnessed in my entire career.

The Numbers That Should Have Set Off Alarm Bells

The U.S. employment report for July 2025 should indeed be setting off alarm bells in the White House—but for entirely different reasons than Trump imagines.

The BLS delivered numbers that not only show weak job creation but revealed that for months we’ve been living under an illusion about the labour market’s strength.

July brought only 73,000 new non-farm jobs, with the private sector contributing a meagre 52,000. Unemployment rose to 4.2 percent. But what’s truly striking are the massive revisions: May was slashed from +144,000 to +19,000 jobs. June from +147,000 to +14,000 jobs.

These are NOT minor adjustments. We’re talking about 258,000 fewer jobs than initially reported. The BLS itself calls the revisions “larger than normal”—a rare admission from an agency that typically uses understated language.

Within hours of this sobering report, Trump took to Truth Social with a deranged rant, accusing McEntarfer of having “faked the Jobs Numbers before the Election to try and boost Kamala’s chances of Victory.” He ordered her immediate termination, declaring she would be “replaced with someone much more competent and qualified.”

America’s Authoritarian Turn

This isn’t just about economic statistics. It’s about the systematic dismantling of American democracy’s checks and balances. One by one, the institutions that have safeguarded American democracy are being shot down.

We’ve watched Trump attack the judiciary when rulings go against him. We’ve seen him undermine the intelligence community when their assessments contradict his worldview. He’s waged war on the media as “enemies of the people.” And now he’s destroying the credibility of federal statistics because they don’t support his narrative.

This is how democracies die – not in dramatic coups, but through the gradual erosion of institutional independence.

Each fired official, each attacked institution, each norm violated moves America further down an authoritarian path. Today’s firing isn’t an isolated incident; it’s part of a pattern that should terrify anyone who values democratic governance.

The Real Story: A Labour Market in Clear Deceleration

Looking at the actual data that triggered Trump’s rage, the pattern is undeniable: The U.S. labour market has slowed substantially. We now have enough data points to conclude this isn’t a statistical fluke.

Most concerning is the trend in private employment. Job growth in the sector that actually drives the economy has practically stalled throughout 2025. Government jobs don’t create American prosperity. When the private sector stops creating jobs, it’s a clear warning sign.

The numbers don’t necessarily indicate recession. But they tell of an economy that has lost its breath. Most worrying is the timing—the slowdown is occurring before the full effects of Trump’s tariff increases have hit. When businesses truly feel those effects, we should expect further weakening.

But instead of addressing these legitimate economic concerns, Trump shoots the messenger.

Why This Is Worse Than Any Emerging Market Crisis

During my years at Danske Bank analysing emerging markets, I became intimately familiar with data manipulation and authoritarian interference. I remember when Christina Kirchner’s government in Argentina essentially hijacked INDEC, the national statistics institute, because they didn’t like the inflation numbers.

But here’s the crucial difference: everyone expected this from Argentina. It was a country with weak institutions and a history of authoritarian interruptions to democracy. The United States is—or was—different. The US’s checks and balances were supposed to prevent exactly this kind of abuse.

That’s what makes today’s events so shocking. We’re watching the world’s oldest continuous democracy adopt the playbook of tin-pot dictatorships. The guardrails that were supposed to protect American institutions from political interference have failed.

The Banana Republic Playbook

What’s most disturbing is how familiar this feels. In my years covering emerging markets, I’ve seen this movie before. Economic data turns negative, populist leader blames the messenger, independent officials get fired.

During my time analysing Turkey, I watched Erdoğan systematically dismantle every institution that challenged his authority. Central bank governors, statisticians, judges—anyone who wouldn’t bend to his will was purged. Each firing moved Turkey further from democracy and deeper into authoritarianism.

Now we’re watching the same drama in Washington. Trump’s simultaneous attack on Fed Chair Jerome Powell—saying he should be “put out to pasture”—shows this isn’t about one bad jobs report. It’s about crushing any institution that maintains independence from presidential control.

The Death of Checks and Balances

The American founders understood that concentrating power in one person’s hands leads to tyranny. That’s why they created a system of checks and balances – independent institutions that could constrain executive power.

But what happens when those institutions are systematically attacked and undermined? When inspectors general are fired for investigating corruption? When the Justice Department becomes a tool of presidential vengeance? When federal statistics become subject to political approval?

You get authoritarianism with American characteristics. Not the crude military dictatorship of a banana republic, but a sophisticated dismantling of democratic norms while maintaining the facade of constitutional government.

The Mechanics of Statistical Credibility

The accusation that McEntarfer “faked” the numbers is preposterous to anyone who understands how the BLS operates. This is a career civil servant with over 20 years in government, confirmed by the Senate 86-8 just last year.

The Bureau employs hundreds of economists and statisticians who follow rigorous methodologies developed over decades. This isn’t some black box where numbers can be manipulated at will. It’s a professional statistical agency operating according to international best practices.

But in Trump’s authoritarian worldview, expertise is subordinate to loyalty. Professional integrity is less important than political convenience. Truth itself becomes negotiable when it conflicts with the leader’s narrative.

A Personal Reflection

I’ve spent my career analysing the economic consequences of institutional failure. I’ve seen how quickly things can unravel when democratic norms erode and authoritarian tendencies take hold. But I never imagined I’d see it happen in the United States.

In 30 years of watching economies and institutions evolve, nothing has been more surreal than witnessing American democracy’s checks and balances fail in real time. Each norm violated, each institution corrupted, each official fired for doing their job – it all adds up to a fundamental transformation of American governance.

The foundation of both democracy and capitalism is trust. Trust in institutions. Trust in data. Trust in the rule of law. Today, another pillar of that trust was demolished.

We’re watching the United States transform from the world’s leading democracy into something darker, more authoritarian, more arbitrary. And the most insane part? It’s all happening in plain sight, one fired official at a time.