Found myself with a bit of extra time today, and been hashing over this idea that just sort of came up organically while chatting. Figured it's worth sharing here.
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What if, the reason the banks are so opposed to the Clarity Act is that the plan is to end the Fed?
Not in a "we just killed fiat" sort of way. That should be obvious given that the part of the act they've taken issue with has repeatedly pertained to stablecoins, rather than Bitcoin.
More in a "rip out the banking system" way to make room for what essentially amounts to a de facto CBDC. Or even multiple controlled digital currencies -- as long as they're all forced to hold treasuries and subject to asking "how high?" when the state tells them to jump, I'm not sure it actually matters.
This seems to offer an explanation to why they'd be so opposed to stablecoin yield, despite it not on the surface really looking any different than money market funds -- surely the banks can't actually be expecting that they're where anyone parks their money just for the yield with the interest they pay, right?
But then, why would the government be looking at removing the Fed -- they form a great foil to blame things on, and they're a domestic entity. And, the banking system creates more dollars the treasury doesn't have to borrow to keep the system liquid. Is that not a worthwhile arrangement to keep around?
This is where I think it's worth remembering that the Fed is owned by the member banks. Who, in turn, interface with foreign banks. Perhaps most famously, foreign banks either in London, or directly tied to London interests. If you didn't find that famous, perhaps LIBOR rings a bell? It was the benchmark used for decades for floating rate debt. Had a credit card up until very recently? That rate was based on LIBOR. Small business loan, personal loan, or really any other floating rate debt? All LIBOR. Which, hopefully many recognize, is an acronym for London Inter-Bank Offer Rate. Curious that the dollar system, even onshore in the US, had its benchmark set in London. That's a whole rabbit hole to go down, and if it's news to you, I encourage you to do so.
Anyway, after a bit of scandalous price fixing among the banks that participated in LIBOR (even more scandalous than the fact that it was just a rate that was determined by a handful of banks saying what they expected to pay for debt), LIBOR was finally phased out over the last few years for most intents and purposes, replaced by SOFR (the Secure Overnight Financing Rate). One of the things that SOFR has been touted for is bringing objectivity to the interest rate system. It is set by looking at the average of a particular subset of activity within the repo market (that is, the money market banks use to access collateralized funding for short term financing through repurchase agreements). One of the less spoken of things it did, though, was bring the benchmark for dollar denominated debt back on shore in the US.
Now, I'm not trying to go full Tom Luongo here and say "it's all London." Especially because, in 2026, even London isn't all London. As Simon Dixon points out, the FIC (Financial Industrial Complex) is somewhat global in nature, and those powers within it move about freely to whichever jurisdictions allow them the degree of control they're after.
Rather, I'm looking at this more in the sense of, banks stand between the productive players in the economy and the Treasury -- nominally, the one who ACTUALLY prints the dollars. That's right; after all we've heard about Fed money printing, I'm calling out the fact that while they may be called Federal Reserve Notes, and while the Fed may be the ones who issues bank reserves, the ones who ACTUALLY print the paper bills that some still carry in their pockets (wrongfully called "cash") is the US Treasury. Anyone other than them who prints money, be they the Fed or anyone else, can only be rightfully called a counterfeiter. At the end of the day, the Fed's profits accrue to the Treasury, and it's the Treasury who issues the collateral the Fed arranges auctions for, and assigns primary dealers for from the banking system. By all rights, these Treasury securities, be they Bills, Notes, or Bonds, ARE the dollar -- they're just transformed by the banking system, who the Treasury pays interest, into immediate term deposits, but only after the bankers take their cut (termed "Net Interest Margin") by borrowing short (it doesn't get much more short term than a checking account deposit) and lending long (in the form of Treasury securities held on their balance sheets), and pocketing the difference.
The Treasury has, for whatever reason, been okay with this arrangement for the last ~100 years. Perhaps because FDR, one of the most anti-American presidents in history, perhaps second only to Wilson, played a major part in reforming the Federal Reserve Act amid the Great Depression and arranging financing for WWII with pegged interest rates. Perhaps because those who considered questioning this arrangement found themselves on the wrong end of an assassin's bullet. Or perhaps they were just focused on funding the endless wars, and as long as the money kept flowing, it wasn't questioned too much. Especially since, up until the last decade, the Fed did hand over profits, fairly reliably, to the Treasury. What did they care if the bankers happened to make some money while it happened? Just a cost of doing business.
It's worth noting, though, that these profits did indeed stop. Starting in 2022, a new sort of quirky asset started to appear on the Fed's balance sheet. It was called a "deferred asset." What it meant was, "money we don't have, but plan to in the future. Because apparently, writing "bankrupt" or "negative equity" (which they are) on the sheet was deemed politically unpalatable. Since then, the Treasury has not been receiving profits, and the Fed has gone from a relatively modest $2.1 Billion to a current listing of $240 Billion in 2026. It would seem that while the banking system, by way of their privileged proxy, the Fed, is still paying itself handsomely, the terms of the arrangement are no longer being met.
And let us not think it ends solely with the domestic banking system. For as LIBOR has indeed been knocked off of its privileged position, there are still offshore banks around the globe, some of whose names are indeed household ones: HSBC, UBS, Deutschebank, Societe General (to say nothing of the shadow banks) who are still freely lending Eurodollars (literally just a dollar deposit held at an offshore bank, different only in that they are backed not by Fed bank reserves, but instead collateral of various sorts) into existence, and participating in the arrangement where they are pocketing a tidy margin by expanding the money supply and receiving interest payments from their collateral issuers. Collateral issuers, who, in the Eurodollar system, very heavily center around the US Treasury.
Hopefully I've made my point that the banking system is engaged in an extractive practice. And hopefully it's clear that not only is the Treasury paying for them to handle the money that it by all rights creates -- it's also being subject to being the financing arm of the government who gets to pay the higher prices that result from the expanded money supply. A money supply which expands not only by the centralized issuance of reserves, as we all are quite familiar with at the Fed, but vastly more through the private formation of capital that is private bank (and shadow bank) lending.
Which brings me back to where I started. If you were various government officials, watching late stage fiat starting to come undone, why WOULDN'T you be seeking to end the Fed, and remove the parasite?
Stablecoins don't demand the salaries of bankers. They don't worry about loan origination, nor collateral ratios. Assuming they're 100% backed (which is an assumption that needn't be made in a well regulated industry where Treasuries are centrally cleared and they have to open their books to government auditors), they don't run the risk of blowing up. The expense of the FDIC goes away. And meanwhile, in the event that you see foreign countries adopt the dollar (as Ecuador and El Salvador have, and Venezuela has in all but official policy), instead of bankers (often foreign at that) laying claim to the real resources the locals are putting up as collateral, the Treasury can stand to gain directly.
Those resources go a long way to shoring up the debt to equity ratio of the United States balance sheet. And to boot, when the broad economy demands new dollars (as it always must in a fiat system, because there are more dollars owed than existed at the time a debt is incurred by definition), those dollars have to come from the Treasury -- NOT a bank (or at least, a fractional reserve bank). If you're not versed in bond math, this is the first lesson they teach you on the first day in 101: price up, yield down. Put another way, as demand rises for new treasury debt to issue more stablecoins (which are required to be 1:1 backed), the interest rate the Treasury has to pay on that debt drops.
Combine an interest rate chasing 0 with access to resources around the world willing to enter deals in exchange for dollar financing, and you might even start to see a chance to reverse course on the national debt. Perhaps not nominally any time soon, but as a ratio of debt:gdp, things start looking bright. Of COURSE it'd help them if they also start accruing Bitcoin in the SBR, but realistically, it may be feasible to turn things around even without it.
Now, I don't want this to sound like I'm cheerleading for stablecoins, nor to actually say this has a particularly happy ending. Those paying attention here have likely noticed that in handing the origination of money to the Treasury (who of course can only really act directly through Congress) that this arrangement does essentially end you up with something akin to a command economy. Or at least one that is somehow even more controlled by central planners than our current arrangement, if you believe it, because for all of their extraction, the bankers do at least usually try to allocate capital where it is most likely going to turn a profit for them. It may not be a free market, but there are at least some market forces at play allocating the capital. When capital formation, on the other hand, falls purely into the hands of the state, you step even further away from a free market. Austrians in the room will of course see the issue here as the misallocation of capital that arises from human planning being simply not as efficient as any marketplace can be.
And no, I don't think they have an answer to this, other than continue to kick the can down the road. Really, how could they? In a fiat system, where debt is the only currency, and the currency is state controlled, it's not clear to me how there could really be any alternative. Kicking the can down the road is the only real end game here. So for the plebs, please recognize, I'm not saying to do anything other than continue stacking sats.
There is something further to be said though. If you're compelled by my musings so far that this is the likely course of action that the American state power will be aiming for in a reclamation of sovereignty and an attempt to set aright the balance sheet, it seems to me that it follows that doing this will not be something that would be politically popular. We've all seen how the media has derided Trump for his statements and attempts to "reduce Fed independence" (like it was some sort of sacrament). And bankers aren't known for being keen on just handing over their source of revenue. Even less for doing it because someone asked nicely, head of state or not. Recall that the American Revolution itself was fought because having borrowed from the BoE to fight the French and Indian War, King George saw fit to tax the colonists past their breaking point rather than dare to go against the bankers he owed, especially having seen the outcome of the Glorious Revolution less than a century prior.
This doesn't happen in a peaceful time. It happens in a crisis, amid the fervor of heated rhetoric and propaganda, when things are so bad that the populace says "fine, we'll do it your way, if only you can make the pain stop." Pain like not having enough food to eat. Pain like people being put out of a home. Pain like seeing portfolios cut in half, or then some.
I don't know about y'all, but I've been seeing a lot of talk about bubbles, frothiness, and of course, supply chain constraints. And I'll leave the matter of Iran for people more versed than myself to discuss, but I will just add that there does at least seem to be a fair bit of particularly London based financial institutions tied up in the whole thing.
What we do about that isn't something I come with answers to. But I can tell you it has me thinking about finding ways to make sure my cash flow needs are addressed, and worrying about how I'm going to hodl through what could be an ugly downturn as expenses run hot.
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So yea, that's my musings today. I probably should clean this up and do it as a long form article, but thought I'd just throw it out into the world and get it out of my head and on the screen. I'm not trying to go down every rabbit hole here (I've been down many of these elsewhere) but if you're catching something where I appear off base or you've got an interesting angle I'm all ears to it. Also just curious how people address the cash flow angle, as the idea of having to be a forced seller amid a deep crash is the stuff of nightmares. HODL and chill sounds easy until the deal becomes "sell your stack or see your home foreclosed on." So yea, let me know what you think. #Bitcoin #Stablecoins #AustrianEconomics
