January 12, 2026

For eighty years, the global economy has rested on a single, unshakeable pillar: the US dollar. It is the currency of international trade, the safe haven for global savings, and the mechanism that allows the United States to run a military empire on credit.

In this week’s podcast, I argued that this pillar is beginning to crack. And the person wielding the sledgehammer is the President of the United States.

Donald Trump’s recent threat to launch a criminal inquiry into Federal Reserve Chair Jerome Powell—allegedly over the refurbishment of federal buildings—is unprecedented. It is a thinly veiled attempt to intimidate the central bank into lowering interest rates, a move designed to juice the economy before the midterm elections.

The Independence Trap

Why does this matter? Because the entire global financial system relies on the assumption that the Federal Reserve is independent of political whims. Investors in Tokyo, Riyadh, and London hold trillions of dollars in US debt because they believe the value of that debt will not be eroded by a president looking for a quick poll boost.

If Trump succeeds in suborning the Fed, he breaks that trust. He signals to the world that the dollar is no longer a store of value, but a political tool. This accelerates the process of “de-dollarization”—a trend already fueled by the weaponization of the financial system against Russia in 2022.

The Exorbitant Privilege

The US enjoys what Valéry Giscard d’Estaing called an “exorbitant privilege.” Because the world needs dollars to trade oil and wheat, the US can print money to fund its deficits without suffering hyperinflation. This privilege funds the 750 military bases America maintains around the globe. It funds the Seventh Fleet. It funds the wars.

If demand for the dollar collapses, so does American hard power. The cost of borrowing would skyrocket. The US would be forced to choose between its military empire and its domestic social programs. It is an existential threat far greater than any rival power.

A Stalinist Turn

The tactics being used are chillingly familiar to students of history. The use of the FBI and the Justice Department to target political enemies and independent officials echoes the methods of high Stalinism. Just as StalinStalin Joseph Vissarionovich Stalin (18 December 1878 – 5 March 1953) was a Soviet politician, dictator and revolutionary who led the Soviet Union from 1924 until his death in 1953. Read More hinted his displeasure to remove “wreckers” in the bureaucracy, Trump is using the machinery of the state to purge those who stand in his way.

This performative authoritarianism—kidnapping foreign leaders like Maduro, threatening central bankers—is not a sign of strength. It is the behavior of an empire in decline, lashing out as its structural foundations rot. Trump may think he is saving the economy, but by attacking the Fed, he is playing with fire in a room full of gasoline.

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Transcript

Nick: Hi there and welcome again to the Explaining History podcast.

This is becoming our “US Edition” lately. I usually do an episode during the day and another at night to catch American listeners. I know many of you didn’t vote for this chaos, but what happens in the US is relevant to everyone right now.

Today, we’re delving into the legal threats against Federal Reserve Chair Jerome Powell. Before you cringe at the thought of arcane economics, bear with me—this matters.

The Federal Reserve, like the Bank of England, is a central bank. Its job is to regulate the economy, primarily through interest rates—the cost of borrowing. Low rates encourage borrowing and spending, which can lead to booms and eventually inflation. High rates cool the economy down but can cause recessions.

In the US and UK, central banks are independent. This is to stop politicians from tinkering with interest rates to get out of trouble or win elections. It bakes in a neoliberal orthodoxy where the “market” disciplines governments.

Donald Trump has threatened a criminal inquiry into Jerome Powell. The pretext is spurious allegations about the refurbishment of federal buildings—a transparent attempt to intimidate Powell into handing over monetary policy to the White House.

Why does Trump want this? Because the cost of living crisis is tanking his poll numbers ahead of the midterms. He believes lowering interest rates will solve this. More importantly, his wealthy friends in real estate and finance want cheap money to service their debts.

This is potentially catastrophic. It feels quite Stalinist. During the 1930s, Stalin would hint his displeasure at officials, leading to their arrest on trumped-up charges. We are seeing a similar politicization of the FBI and Justice Department under figures like Kash Patel.

Even if the inquiry goes nowhere, the threat signals to future Fed chairs that displeasing the president has consequences. If the Fed loses its independence, and a president can set rates on a whim to win votes, the long-term economic stability of the US is imperiled.

But the bigger threat is de-dollarization. The US dollar is the world’s reserve currency. This gives the US an “exorbitant privilege”—an endless overdraft that allows it to fund a massive military empire because demand for the dollar remains artificially high.

Imagine you are a Saudi or Japanese investor holding billions in US debt. If you see an erratic president taking control of the Fed, you might decide the dollar isn’t safe. If confidence collapses, the cost of borrowing for the US government goes through the roof.

Trump is asking for a $1.5 trillion military budget. That is paid for by debt. If the world stops buying that debt, the US cannot afford its army, navy, or air force. Trump is playing with fire.

Central banking relies on the norm that leaders don’t use threats to control it. By shattering this norm, Trump risks accelerating the end of the American imperial system. The kidnapping of Maduro and the threats against the Fed are signs of an empire in chaotic decline, replacing strategy with performative impulse.

Announcements:

• Patreon: You can now listen ad-free on Patreon. Link in the show notes.
• Masterclass: Our Russian Revolution Masterclass is on Sunday, January 26th. Tickets are selling fast, so book now!

Take care, everyone. Stay safe. Bye-bye.