Blain’s Morning Porridge August 24^th, 2026 – Crisis Week for US Markets

“Change before you have to…”

This week is going to be… “interesting”. Confidence in the US financial markets and system is under pressure. The US owes more than $40 trillion. Bessent’s intervention in bond markets has backfired, the market is waiting to judge new Fed Head Kevin Warsh, and Trump has kicked off a new trade war with Canada. The USA’s Virtuous Sovereign Trinity of the Dollar, the Treasury Market, and Political Competency looks well-wobbly. Meanwhile, the latest documentary on Boeing shows how the myth of US exceptionalism is under pressure.

LINK TO PODCAST

Key Takeaways:

• This could become a confidence and liquidity crisis if markets continue to pressure Treasuries.
• Bessent’s attempt to manipulate the US yield curve is seen as political interference in the Fed’s role – and has backfired.
• QE worked in 2010-2022 because inflation wasn’t a threat, debt quantum’s were manageable, there was consensus, and the dollar’s dominance was not in question. Today, the situation is very different. What happens to market confidence if the Fed Put no longer works?
• Kevin Warsh’s credibility is the main question to be answered at Jackson Hole. Will he try to please the president, equivocate, or please markets? He could trigger a Treasury breakout. A bond market sell-off is manageable – but only if the Fed retains credibility!
• A treasury crisis could impact all US assets. The new documentary on Boeing “Freefall”, is a case study on how the financialisation of US firms enabled by the depth of US capital markets may be about to unravel.

This is shaping up to be a very dangerous week for markets and the US financial system. Treasury Secretary Scotty Bessant’s attempt to flatten the US Yield Curve appears to have backfired – I’ll explain why below. The market is now focused primarily on what shocks may now follow from a stressed bond market in an increasingly febrile market. Later this week we have the US Fed Chairman explaining himself at the Jackson Hole symposium… and no one is quite sure what to expect. His credibility and independence are on the line. On top of that, global market conviction in the dollar and the exceptionalism of the US economy is declining at speed.

As I wrote last week playing with the shape of the yield curve, and trying to manipulate the economy’s risk-free rate, has consequences. It kind of worked from 2010-2023 for a number of reasons. Bessent’s problem is that using a tried and tested stratagem from 2010 to attempt to control the bond market simply doesn’t work in the current market environment.

In 2010, when the independent US Federal Reserve embarked on Quantitative Easing (manipulating bond yields by buying bonds), core US inflation stood at 0.6% in the wake of the 2008 Global Financial Crisis (then a record low for the post WW2 era.) The market’s fear was a long period of destabilisation from deflation.

• Today, the market fears inflation is the new normal. US CPI stands at 3.5% and the market fears the War in Iran is essentially unsolvable, Trade Wars, including the new Canada Tarriff impacting the US asymmetrically, and from external shocks like the expectation Climate Change (like the new record El Nino) will trigger massive agricultural price shocks. There is also growing concern that governments may see keeping inflation high to “inflate” away borrowing as an option.

In 2010 the US government debt stood at $14 trillion.

• Last week, US government debt crashed through $40 trillion, and is set to soar higher on the back of the naked $4 trillion tax-give aways in the Big Beautiful Bill, and spending requests such as the $1.5 trillion demand for US defence spending next year. There is a growing sense that US government borrowing is out of control.

In 2010 there was general trust, even admiration, for the way in which global and national financial authorities had pulled together to agree on bank bailouts, interest rate suppression and policies. There was clear alignment between Governments, National Treasuries and Independent Central Banks. QE was not perfect – it created massive financial asset inflation – but it worked. The market was convinced. And a primary reason was the financial and political competency that was on display.

• Today… The close alignment of the Western Democracies (including Canada, Europe, Korea, Japan and Australasia) has been shattered by the Trump administration. Tariffs and military alliance pullback have diminished common purpose. The close working relationships that characterised the work-out of the 2008 crisis between banks, central banks and national Treasuries has fractured within the USA. The Federal Reserve’s reputation for independence has been damaged, the Treasury is seen to be interfering in interest rates (Bessent’s failed Operation Twist last week), and President Trump’s repeated attempts to bully allied nations with trade and tariff threats is backfiring on the economy and confidence.

Thus far we know little about what new Fed Head Kevin Warsh actually thinks. Is he Trump’s yes-man at the Fed? Will he stand up and demonstrate his independence? Or will he equivocate and seek to balance market and president? (In which case he will most definitely loose the confidence of markets.)

Thus far Warsh has said little of consequence to guide markets. He is a blank slate – unclear if he leans Trumpwisetowards easing, or towards tightening. It’s unclear what is hot buttons are in terms of inflation/growth signals. With rising energy prices, stubborn inflation, soaring Treasury yields, and now The US Treasury trying to manipulate bond yields… we simply don’t know where Warsh stands.

Many market watchers expect him to equivocate – and mumbleswerve about AI improving productivity and therefore growth as a reason the hold… hoping it won’t overly upset the president. If he is seen to back Bessent playing games to control the yield curve, the market will also see it a sign that Trump is pulling his strings. If Warsh says a lot but fails to establish credibility at Jackson Hole – then that’s very bad news for Treasuries.

Blain’s Virtuous Sovereign Trinity theory is a very simple way to look at economies. It states that a nation with a stable currency, a sustainable bond market and political competency will tend to do well. The US looks to be on course to struggle on all three of these metrics. The bond market is under pressure, and US political competency is now a major issue for markets.

Additionally, it’s clear the third leg, the US dollar, is on the slide. It doesn’t need anyone to attack it, just for it to become less relevant for the USA to lose the exorbitant privilege the dollar affords it. When every global commodity or financial transaction is priced in dollars, these dollars are then placed into international banks to be reinvested in Treasuries, or on-lent in the Euro/Global dollar markets. Now, global trade is increasingly de-dollarising – meaning fewer international dollars funding the USA. It might take years, but the trend is being established and markets are reacting.

There is another, even more insidious, trend at work – the end of American exceptionalism.

For decades US markets have outperformed all other global markets. It’s been the strength and the ability of the US capital markets to finance and fund the extraordinary valuations of US companies that has underlain this success, and no doubt allowed the USA to dominate in markets such as evolved Technologies. It was seen as a virtuous loop. But now the consequences of capital markets founded on a mispriced risk-free rate, are increasingly seen as distortion.

One example of this is the new Netflix documentary on Boeing; “Freefall: A Reckoning for Boeing”, which continues from where the 2022 documentary “Downfall: the case against Boeing” left off. Nothing has changed. Boeing is still making dangerous planes, is still riven by a management culture of dishonesty, non-transparency, and the silencing of whistle-blowers (even unto death) continues.

The film highlights the roots of Boeing’s multiple management failures: how the firm’s engineers were replaced by slavish clones of GECC CEO Jack Welch and Financialisation – the business mantra that nothing matters except cost cutting and returns.  The last 4 Boeing CEO’s (none of whom were aviation experts) have walked away from the clusterf8ck they created with over $500 million in salary, bonuses, and pensions – despite being where the buck should have stopped for the 346 deaths caused by the two B-737 Max crashes. Through a serious of dodgy legal agreements, the families of these 346 dead passengers have been denied justice for the corporate manslaughter of their loved ones.

Over the past 10-years I’ve often written about how Boeing is one of the worst companies in the World. Its corporate behaviours are simply shocking. It sacked its management engineers and replaced them with cost accountants. The product got progressively worse. Imagine if the investing world was to wake up to the reality that it’s not just Boeing. What if every other US firm that’s bought into financialisation, sacking truth-sayers, rewarding duplicity, and promoting hatchet-wielding scum is just as bad, as shallow and mis-managed as Boeing – but gets away with it because they aren’t so visible?

When a crisis comes… it may envelop far more than just bonds… Financial storms have a habit of blowing away more than just cobwebs.

Finally… Free Advice to All Readers:

If you have young grandchildren, God-children, nephews or nieces, under no circumstance ever buy them Lego as a present. I made this mistake regarding a Godchild over the weekend. I spend the whole of Saturday engrossed in the construction of a Lego JCB – fiddley, difficult, frustrating, yet I was completely engrossed. I missed the other kids having a wonderful time and barely talked to other adults. I have established God-like engineering status in the mind of the young chap. I am eyeing up something even more complex for his Christmas.

Out of time, and back to the day job..

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

Meanwhile, don’t forget about my new book: The Battle for Hamble

You can read a review on the Society of Professional Economist’s website here.