Note: this essay was distributed via my newsletter and should not be construed as investment, legal, or tax advice.

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If lawmakers had their way with monetary policy, we would all be swimming in money. And it would be worthless. 

You would have to fill up a wheelbarrow of dollars, push it to the store, and unload it for one loaf of bread.

I’m exaggerating a little, but not really. This was how Germans purchased bread following World War I after the collapse of the German Papiermark. The billions of Papiermarks inside a wheelbarrow were worth less than the wheelbarrow itself.

And then you wonder how the Nazis were able to rise to power. 

There’s a reason why practically every capitalist democracy globally maintains independence for their central banking system. And there’s a reason we have maintained Federal Reserve independence since our American central bank was created by an act of Congress in 1913.

Inflation. 

If lawmakers (from any party) had it their way, they would almost always seek to lower interest rates to juice the economy in the short term so their political party (and themselves) look better in the next election.

And that’s exactly what our current President is trying to do. He sees the midterms on the horizon and is trying to find any way to juice the economy, whether with lower interest rates or caps on credit card rates (another bad decision for another essay). 

Previously, his actions were limited to veiled threats and complaints, but with the now real possibility that Fed Chair Jerome Powell could be criminally indicted, the President has crossed the rubicon.

Federal Reserve independence is no longer a given. 

The Department of Justice, which has made a habit of investigating the President’s enemies from New York Attorney General Letitia James to former National Security Advisor John Bolton, has now set its sights on Powell. This is the same person the President has complained about for over a year, despite having nominated him during his first term (note: Powell is a Republican). 

The allegations against him are frivolous. As of now, the public has seen no evidence that Powell made false statements regarding the renovations to the Federal Reserve building. Keep in mind — false statement cases are tough. Prosecutors must show criminal intent of whether someone meant to lie and that those statements were material.

Former Fox News host, Jeanine Pirro, may be able to convict people on television for such crimes, but now as the U.S. Attorney for the District of Columbia she’ll have to meet a burden of proof — beyond a reasonable doubt — to win a conviction. 

Load up your favorite prediction market for me and guess which way I’m betting. 

All of this comes just months after Trump attempted to fire Fed Governor Lisa Cook without any investigation. As I wrote at the time: 

It’s like firing an employee you hired because they checked the wrong box on an employment form. Why did they do it? Would you fire them outright without understanding the facts or their intent?

I also recognized the larger risk:

Executive power aside, the real danger with Lisa Cook’s firing may be in financial markets. The entire value of U.S. Treasuries, the U.S. Dollar, and America’s financial sector rests on the assumption that the Federal Reserve is independent, apolitical, and therefore credible.

With the latest attempts to criminally prosecute Jerome Powell, thereby putting any future Fed Chair on notice, this risk is more acute than it has been since 1970s America. 

So let’s briefly return to the 1970s, walk down the rocky road of stagflation, and then discuss how one might defend a portfolio against central bank capture.

The Arthur Burns era of 1970s America

We’ve had a “captured” Federal Reserve chair before in the United States of America. His name was Arthur Burns. He was the Fed Chair who infamously buckled under President Richard Nixon’s pressure campaign to keep interest rates low before the 1972 election. 

And how do we know this? 

It was all recorded in the Nixon tapes! 

Burns may have been a brilliant economist, but he cherished his relationship with President Nixon more than he did with a healthy U.S. dollar. The two had been friends prior to Nixon appointing Burns as Fed Chair in 1970. 

To keep his buddy happy, Burns attempted what later became known as “Stop-and-Go” monetary policy. Basically, the Fed “goes” when unemployment rises, flooding markets with dollars to keep voters happy. When inflation inevitably spikes, the Fed “stops” and hikes interest rates. 

The problem is that political pressure haunts this strategy, especially near an important election, prompting a captured Fed Chair to “go” again before conclusively defeating inflation. 

This type of inconsistent monetary policy destroys institutional credibility. Instead of markets expecting the Fed to fight inflation, they started to expect that it wouldn’t. Because remember — the Fed only has so many tools in its toolkit, the primary one being the interest rate hammer. 

Markets can fight back, however, and render that hammer worthless, like trying to hammer away at an oncoming tank. 

And in the 1970s this created a vicious cycle of businesses raising prices while workers demanded higher wages to keep up with inflation and the anticipated collapse of the dollar. It created a toxic mix of high prices and high unemployment, also known as “stagflation.” 

The Consumer Price Index peaked at over 12% by 1974. 

It took the next Fed Chair, Paul Volcker, to hike interest rates to a staggering 20% to beat down the monster that Arthur Burns had created (which Burns later admitted he created in this speech). 

The lesson for markets, investors, and voters in 2026 is that while the loss of Fed independence may not unleash a monster overnight, it will in time. The private conversations on the Nixon tapes are being played in public today with criminal threats against the Fed Chair and demands of loyalty by the President on his successor. 

The fear of criminal prosecution may already be sufficient to capture the next Fed Chair. Which is why we can no longer assume the Fed is independent from political pressure. 

The only question is whether it will lead to 1970s-style “soft” inflation or something far worse — wheelbarrows filled with billions of German Papiermarks to purchase one loaf of bread.

So what can you do? 

Under these circumstances, if you have a portfolio like I do that’s very U.S. equity-heavy, you’re exposed to three primary risks: currency debasement, inflationary unanchoring, and a higher equity risk premium. Let’s address how one might defend against all of these. 

We’ve already witnessed significant currency debasement over the past year as threats to the Fed’s independence have continued to escalate (although multiple other factors like tariffs are at play too). 

A good way to defend against further currency debasement is to shift at least a portion of your equity allocation to regions with more stable institutional frameworks. The Eurozone. Japan. These markets provide decent hedges against a declining dollar. 

And if you can stomach a riskier hedge, emerging market equities often outperform when the dollar weakens. Countries with strong current account surpluses could become big winners. 

There are also the traditional anti-fiat plays like gold and silver, which have been on huge bull runs over the past year. Look at the price of gold, for example: 

Almost 70% up in the past year!? Bonkers. 

The fact gold has appreciated so much demonstrates how real some of these institutional credibility concerns actually are. 

Bitcoin and crypto is always an option too, but I’m not a true believer given its volatility, purely digital nature, and the fact it’s not backed by anything. 

Commodities like energy and industrial metals also provide direct hedges against cost-push inflation that often follows politically motivated interest rate cuts. 

And once the public and markets believe that interest rate cuts are politically motivated, inflationary unanchoringarrives. This is the point of no return for a central bank like the one Arthur Burns oversaw in 1970s America. Markets start to believe that higher inflation is the new normal, not a temporary price spike. 

In this environment, if you’re a consumer debating whether to buy that new car, you might fear it could cost 10% more in a month. You start demanding a 10% raise at work, not because you worked harder, but because you fear the car dealership, the grocery store, and the gas station. 

Watch for the following check engine lights on the U.S. economy car. I haven’t made drastic moves in my own portfolio yet, but should more of these lights go off, I plan to act. 

• If the 10 year “breakeven” rate rises to 3%, 4%, or higher. This is the difference between yields on the 10-year Treasury and TIPS (Treasury Inflation Protected Securities). It should normally be around 2%, and it’s currently around 2.29% as of this writing. If it goes closer to 3%, that means the “smart money” (institutional investors) has concluded that 2% is dead and they’re pricing in a decade of failed monetary policy.
• If consumer sentiment surveys start to anticipate significantly higher inflation rates above 2%, such as 5%, 10%, or even 20%. Those chaotic responses are usually a good signal of unanchoring. 
• If the gold/oil ratio (how much oil you can buy with a single ounce of gold) skyrockets like it has today. Historically, this ratio is around 15, which means calm weather. At 30, storms are coming. In the 70s (where it is at this writing), we’re in an institutional credibility hurricane. Investors are already saying they’ll pay a premium for gold protection instead of purchasing cheap oil. In other words, “Let’s get the hell out of U.S. dollars to avoid the fallout from the Fed’s political printing press.” 

This is where the value of real, tangible things increases. In this environment, it’s usually a good time to invest in real estate as the real value of a mortgage shrinks (you’re effectively paying back the bank in “cheaper” dollars). Precious metals, commodities, and anything of tangible value will likely perform better than paper assets like stocks and bonds. 

Another big reason for this is the equity risk premium. While many focus on inflation risk with a politicized Fed, the equity risk premium is more generally about fear and uncertainty. It’s the extra return investors demand for holding riskier assets.

This means that any stocks with messier stories or who were previously growing on “vibes” are basically done. It becomes a dangerous time to be heavy in those S&P 500 index funds that everyone loves. Because so many of the heavily weighted index stocks are best categorized as “growth” given high price-to-earning ratios and overall leverage. 

In a politicized Fed environment, you must shift your portfolio towards quality and income strategies that pay you to wait patiently while the institutional drama unfolds and vigilantes appear. 

The revenge of the vigilantes 

Think of central bank independence as a pressure valve. If lawmakers weld the valve shut, as we saw President Richard Nixon do with Arthur Burns in the 1970s, the pressure doesn’t disappear.

It finds another way out. 

We saw this with the German Reichsbank in 1920s Germany. The central bank was captured and became a printing press for a government that refused to make hard choices. But the pressure found its way out in the form of a wheelbarrow. In the end, it was cheaper to burn German money for heat than it was to use that money to buy firewood or coal. Hitler came next. 

We saw this again with Arthur Burns in 1970s America. Nixon’s reelection goals overrode Burns’s Federal Reserve mandate. But the pressure still found its way out in the form of stagflation and brutal 20% interest rate “exorcisms” of the Paul Volcker years. 

Now in 2026 we find ourselves at a similar crossroads. If the DOJ’s pressure and executive branch overreach succeed in turning the Fed Chair into a Burns-style yes-man for the administration, don’t expect markets to watch idly. 

The bond vigilantes will seek their revenge. 

Should investors conclude the Fed has been “captured” by the administration, they could very well stop waiting for the Fed to hike rates to temper inflation. They could hike rates themselves.

This is done by massive selling of Treasuries. And it sends the message to the Fed, “If you won’t protect the dollar, I’m done with the dollar.” 

I did a video about this back in April 2025 in the context of tariffs, but the same principles hold true in the context of Fed capture. A massive treasury selloff would lead to higher yields, borrowing costs, and a politicized Fed forced into a corner. 

As an investor — and if you’re American, a voter — you cannot wait for history to confirm “capture.” 

Watch the economy’s check engine lights. The breakeven rates and gold/oil ratios. 

And don’t underestimate the bond vigilantes holding U.S. Treasuries. 

You don’t want to be the one left pushing a wheelbarrow of promises.