Let them have cake – and circuses!

AFTER GETTING RE-ELECTED PARTLY BY VOWING TO TACKLE VOTERS’ CONCERNS ABOUT HIGHER PRICES, TRUMP HAS INADVERTENTLY BECOME TAINTED BY THE WHOLE POST-PANDEMIC INFLATION SHOCK.

That association would typically take years to shake off, but he only has months until the mid-terms. Expect increasingly desperate measures to court or con the electorate – and hence political, social, market and inflation volatility.

HENRY MAXEY

Chairman and Co-CIO

WITH HIS POPULARITY PLUMMETING, PRESIDENT TRUMP FACES AN EXISTENTIAL THREAT OF DEFEAT IN THE CONGRESSIONAL MID-TERM ELECTIONS IN NOVEMBER 2026.

If the opposition runs the House, subpoenas multiply, hearings blossom, and impeachment talk can return.

In 2025, the self-styled tariff man landed a massive tariff shock on the world without tipping the economy into recession or stopping equity markets making historical highs. But, in doing so, he has ironically taken ownership of the very evil which won him the election in 2024: inflation.

You might even say it’s unfair. Tariffs have added somewhat to the cost of US imports, but Trump now seems to be associated with the whole post-covid price level shock. It is as if people expected him to deliver falling prices – an unreasonable expectation and unprecedented outside deep recessions. So, when tariffs were linked to the possibility of higher inflation, they blamed him for the whole price level change.

The electoral success of Zohran Mamdani in New York’s mayoral election hammered this home, clarifying a galvanising political theme the Democrats sorely needed: the affordability crisis.

Naturally, Trump has called it a con job, and Treasury Secretary Scott Bessent has said, “Americans don’t know how good they have it.” But, in a land where vibes rule over reality – a feature which has so far suited the President – he now finds the vibes are against him.

And these vibes come with political guillotines attached. Elections used to be won or lost on the state of the economy, hence political strategist James Carville’s famous phrase ahead of Bill Clinton’s 1992 election win: it’s the economy, stupid.

Today, that should be: it’s affordability, stupid. President Trump has a major challenge on his hands for 2026. He cannot afford (pun intended) to deny the affordability issue lest he follow in the metaphorical footsteps of Marie Antoinette. A fate which is wonderfully caricatured in my favourite Gary Larson cartoon. As she faces the guillotine, she calls out: “And ice cream! I said, ‘Let them eat cake and ice cream!’”

Of course, when Marie Antoinette allegedly said “Let them eat cake!” (she definitely didn’t, according to historians) she meant brioche. Which is expensive French bread, highlighting the extreme disconnect of the aristocracy from the starving poor in France in the late 1700s. In a monarchy, or any autocracy, the force of authority allows such an extreme disconnect to persist until desperation yields a popular uprising. Democracy is designed to make revolutions a little less bloody and leaders a little more connected.

Trump, a master of vibes, is unlikely to make the Marie Antoinette mistake. His challenge is not his disconnection. It’s about how he seeks to resolve the perception and reality of the US affordability crisis.

This is Trump’s affordability paradox. If he tries to solve affordability directly with first level thinking – let’s give them cake! – he could make it worse. But, if he ignores or denies it, his popularity will not recover enough to win the mid-terms, even if the economy and stock markets are strong. Extending the paradox further, AI is increasingly seen as the enemy of affordability but the centrepiece of national security. AI drives the stock market because of market concentration in AI-related companies, and the stock market drives the economy.

“In a land where vibes rule over reality – a feature which has so far suited the President – he now finds the vibes are against him.”

Here, I want to consider the immediate and long-term implications of this paradox for markets and society.

We have long believed inflation volatility would ultimately give way to higher levels of inflation. The 2021 and 2022 Ruffer Reviews set out the structural framework behind these views.

Essentially, the period before 2020 was biased towards disinflation because of well understood structural factors like technology and a lesser understood system dynamic resulting from the interaction of Chinese and American macroeconomic policy. We called this refrigeration mode. In the West, CPI inflation was suppressed in favour of asset price inflation.

The geopolitical decoupling of the West from China started the dismantling of this system dynamic. Then the covid shock, followed by Russia’s invasion of Ukraine, led to massive monetary financing efforts by governments around the world, as well as supply chain disruptions. This delivered a huge dollop of inflation to the world.

As inflation has been normalising over the past few years, it’s natural to ask: was that it? Do we now just get back to structural disinflation driven by debt, demographics, globalisation and the AI industrial revolution?

My answer is no. The system dynamic has changed permanently. Previously, it suppressed inflation; now, it encourages inflation.

“For a period of cleansing, an affordability crisis is fine, provided the rich are getting poorer too.”

One of my favourite quotes on the political economy of inflation comes from Fred Hirsch. He suggests inflation is most often associated with the decay in the status order of society (or social stratification).1

“It is no accident that inflation has been most entrenched in societies and periods in which the underlying ideological struggle has been most intense… Put another way, containment of the latent distributional struggle without financial instability requires either sufficient authority or sufficient consensus, on the values or principles underlying the distribution of income and other aspects of income. If established authority weakens before a sufficient consensus or new authority emerges, inflation results.”

In short, when societies cannot agree who should lose, inflation decides how everyone loses.

Today, the diminishing consensus is plain to see in the growing political polarisation and swings of Western politics. Look no further than the US, where the dominant right wing electoral victory of Donald Trump was followed a year later by the dominant left wing victory of Mamdani in New York. Affordability was a common component of both victories, but the policy prescriptions of the respective victors are very different.

In this context, it is hard for governments to rein in excess spending because there is no longer consensus about what constitutes prudent policy and how to allocate losses from austerity. When economies operated on a gold standard, gold outflows acted as a brake. When policy drove an overheating, external deficits rose, gold left the country, and real rates were forced higher to cool it all down. In effect, deflation was the corrective mechanism to excess. However, in a fiat currency system with loose anchors on the banking system, if discretionary monetary and fiscal policy do not contain the excess, currency weakness and inflation result. Eventually, inflation creates societal pressure for corrective policies.

Hirsch goes further, implying that inflation could be considered the safety valve of last resort on capitalist systems’ inherent tendency towards inequality. It is first a symptom of the systems’ inability to self-regulate and then a blunt instrument of a solution. Inflation tends to reduce measured wealth inequality by eroding nominal claims. It may be politically tolerated for a time by lower-income earners, provided it coincides with high employment and is perceived to impose losses on wealth holders as well as on wage earners. It is a blunt instrument because, while it might reduce measured wealth concentration, it often worsens lived material insecurity. That is why modern central banking is focused on maintaining low and stable inflation.

Viewed this way, inflation is a necessary feature of capitalism in democracies with fiat currencies, solving what Marx considered to be the inherent contradiction of capitalism. For a period of cleansing, an affordability crisis is fine, provided the rich are getting poorer too.

It is this second suggestion – inflation acts as a safety valve – which concerns me most. Not because it is wrong as a description of past inflations, but because it might not work that way any more.

Having suppressed CPI inflation in favour of asset price inflation for so long before covid, the wiring of the system itself has changed. My fear is that, in the US in particular, inflation or price level shocks are no longer a safety valve on distributional stress and may in fact amplify it. If so, running it hot to outgrow your debt – which seems to be the US administration’s strategy – risks amplifying political volatility. And greater political volatility – violent swings between more extreme left and right wing administrations and more political violence – is likely to lead to more inflation than real growth.

INFLATION IS NO LONGER A LEVELLER IN A VIBES DRIVEN, HYPER-FINANCIAL US ECONOMY

This seems to be due to a combination of perceptions and reality.

In reality, the structural features of the US economy, combined with the circumstances of the post-pandemic inflation, were uniquely shaped to boost corporate earnings. Economy-wide supply side shocks due to covid, allied to massive fiscal stimulus, provided a perfect context for aggressive pricing.

In game theory terms, everyone knew everyone else faced the same supply issues, so the natural forces of competition were suspended; pricing power, absent for decades, surged back. Covid and then Russia’s invasion of Ukraine provided a narrative shield against consumer resistance. The oligopolistic structure of many industries – particularly the big tech players but also sectors dominated by private equity – made it easier. Effectively, America’s business sector did exactly what a profit-optimised machine would do when presented with the pricing opportunity: it grew its earnings and margins aggressively (Figure 1). This provided a huge boost to the fundamentals of asset prices and the wealth of asset owners.

In parallel, the massive post-pandemic monetary-fiscal stimulus created enormous liquidity. And, as we’ve noted over the years, US financial markets are now organised to be highly sensitive to changes in liquidity. The reasons include the rise of passive investing, the dynamics of repo market leverage, the behaviour of systematic investors, and algorithmic market making and trading. Ultimately, it’s no exaggeration to say liquidity and flows matter more than fundamentals to asset prices – or to describe the US as a hyper-financial system, one where fundamentals are the servant of asset prices.

This combination of both liquidity and earnings surging post covid gave asset prices all the upside without some of the downsides usually associated with high inflation periods – lower multiples and margin pressure. In short, wealth inequality worsened with inflation, and the growing extremity has been live streamed, podcasted, Instagrammed and YouTubed widely to a society obsessed with individual material wealth.

Against this asset price reality, there is a battle raging around the inflation: is the affordability crisis a vibe or a reality? ‘The K-shaped economy’ is a popular catchphrase in financial circles. In short, the upside of economic good fortune is accruing only to a privileged group. Those who own assets and have the right jobs sit on the upper leg of the K, while those who don’t and so are finding life increasingly tough sit on the lower leg of the K. The affordability crisis plays into this idea. And, since many more Americans sit on the lower leg of the K, it is an appealing political cause.

In January 2026, The Economist ran an issue entitled ‘The angst over affordability’.

It laid out the facts to show that American real wages – particularly for the lowest paid quartile – have actually increased over the past decade. Figure 2 shows real wages by different income cohorts. The tenth percentile shows the real wages of the lowest-earning 10% of workers.

Yes: wages have outpaced prices, so there shouldn’t be an affordability issue. This implies we have not a crisis but a vibe.

“I believe the affordability crisis is a reality for many and an amplified vibe for many more.”

So why do so many Americans feel there’s an affordability crisis? I suspect several factors are at play. Firstly, the abrupt post-pandemic inflation was a nominal shock which has woken people up to a much more insidious money illusion which had been at play for many decades when inflation was much lower. The academic George Akerlof describes money illusion as workers’ tendency when inflation is low to focus on nominal changes in wages rather than real wages.2 During the disinflationary era from the early 1990s until the recent inflation shock, real wages for much of the population hardly moved. When inflation surged in 2021, not only were employees reminded about the need to think about real wages, but it also prompted some reflection on how minimal real wages growth had been in the prior decades, particularly for lower-income earners.

Our Chief Economist, Jamie Dannhauser, created a series for the wages of the bottom 20% of earners deflated by an index of items most salient to that cohort. The idea was to capture how people might feel about their purchasing power. What it shows is that their wages didn’t keep up with the prices of salient items, particularly pre pandemic (Figure 3).

So perhaps the sense of struggle pre-dates the post-covid inflation, and the post-covid nominal price shock gave voice to it.

According to academic research, it takes about three years for people to acclimatise to a nominal shock like this.3 That feeling – “I can’t believe my coffee now costs $10, it was only $7 a few years ago” – takes time to decay.

Social media and the algorithms which drive it are probably also increasing the salience of inflation narratives in the minds of those who are looking for confirmation. The same academics note, “the rise of social media as a prominent information source – with misleading viral posts on high prices4 – may have scrambled the link between economic fundamentals and consumer sentiment to some extent.”

A third dimension was highlighted by investor Mike Green, in a report on where the US poverty line actually lies. His contention is that, for a family of four, the poverty line is now over $130,000. The official number is more than 50% lower. Underlining how sensitive the issue is, the report went viral, generating lots of popular support but also adverse commentary from academic ‘experts’ on poverty.

Most of the criticism missed the important point – not whether the precise number is correct, but whether Green’s central observation is. That is, inflation in non-discretionary costs (housing, childcare, healthcare unadjusted for quality to reflect actual cash outlay) has been squeezing family finances in a manner which charts of real wage growth don’t capture. The additional post-covid shock tipped many more families into a position where they struggle, even with two parents working full time jobs.

Overall, I believe the affordability crisis is a reality for many and an amplified vibe for many more, driven by large, abrupt nominal price moves and the political motivation to give them added salience in the context of widening wealth inequality. Figure 4 highlights how left-behind wage earners with no assets must feel relative to owners of houses and financial assets.

The problem: if inflation does not alleviate the tensions of distributional stress generated by capitalism’s natural tendency but actually amplifies it, then we should anticipate much greater political volatility. And political volatility presents a threat to stock markets.

“The stock market is, by extension, part of the national security imperative, given that AI and AI capex is the theme underpinning the stocks which dominate the equity market.”

TARIFF EGG ON TRUMP’S FACE

Trump won the election by pinning the affordability crisis on Joe Biden. By cheerleading headline grabbing causes like reducing egg prices while people were still acclimatising to the nominal price shock, he presented himself as the person who would bring the price level down. So, when tariffs injected more inflation uncertainty into the US economy, I believe he took ownership not only of future inflation but also, inadvertently, of the past price level shock and associated affordability crisis.

Trump knows November’s mid-term elections are existential to his presidency, and the central issue – affordability – is not solvable by then. What’s worse, his run it hot economic policy may antagonise the issue through stickier inflation and higher asset prices.

AI = ANTAGONISTIC INFLATION?

Trump’s paradox deepens because he has lost the popular narrative on AI just as he has grasped the national security imperative of winning the AI race with China and using the stock market to facilitate it. For many people now, AI is synonymous with the threat of job loss, higher electricity prices and wealth inequality, and yet it is considered one of the only areas where the US still has a lead on China in the metaphorical and literal space race to dominate the key industries of the future. The mere possibility of artificial general intelligence means that US investment and government support for AI has to be unwavering. In this respect, the Stargate and Genesis initiatives launched in 2025 should be seen as analogous to the 1940s Manhattan Project and the 1960s space race.

The stock market is, by extension, part of the national security imperative, given that AI and AI capex is the theme underpinning the stocks which dominate the equity market. The stock market’s concentration in AI-related companies which are extremely overvalued on conventional metrics has been described as a good bubble because it is helping develop this critical AI infrastructure. In short, the AI bubble needs protecting as a national security concern but is becoming a political liability.

Meanwhile, corporate America has also internalised the potentially existential threat of not adopting AI within corporate strategies, so there is real pressure from board rooms to be seen to be using AI to drive efficiencies and evolve business models. One can debate whether it is the AI itself or the pressure to find efficiencies using AI, but 2026 appears – through weight of anecdote and early data – to be the year when AI productivity emerges. If economic growth accelerates under Trump’s run it hot agenda, these AI efficiencies mean there may not be the normal sharp tightening in labour markets. In effect, wage pressure is likely to be less responsive to economic growth than in the post-covid years. Corporates are expecting, and expected, to do more without needing to hire.

Ground zero of this dynamic is the graduate recruitment market (Figure 5).

Little wonder that the Harvard Youth Poll of 18 to 29 year olds revealed most (59%) see AI as a threat to their job prospects – significantly more than immigration (31%) or outsourcing of jobs to other countries (48%).

When you put all these thoughts together, it’s easy to see that AI has become antagonistic to Trump’s efforts to solve his affordability paradox in 2026.

He needs the good bubble in AI to persist for national security purposes and because it holds up the stock market which itself drives employment in the hyper-financial US economy. But, for the AI enthusiasm to persist, it needs to demonstrate the promised productivity benefits to the economy, thus justifying both the capex and the adoption. The hope is for another leg down in unit labour costs (Figure 6).

This would favour corporate margins and stock markets over real wages, worsening the vibes on affordability and wealth inequality. In other words, AI could mean antagonistic inflation: more inflation in asset prices and CPI than in wages.

So, if there isn’t a quick fix to the affordability crisis, how does Trump win the mid-terms?

His current approval rating is not a good starting point (Figure 7).

ANSWER: BREAD AND CIRCUSES

The Roman authorities kept the populace quiescent by providing free or subsidised grain and spectacles like chariot races and gladiatorial games. This neat recipe for distraction functioned as a pressure valve in an unequal system.

For a man who thrives as a circus master, it should come naturally to Trump. So brace for bread and circuses – and administrative price controls. Even if the economy and stock markets remain strong. Circuses are to distract people, bread to directly alleviate affordability pressure, and administrative price controls on salient items to temporarily suspend inflationary pressure and make people feel he’s on their side. Trump has to think like Caesar in the dawn of the Roman empire; he shouldn’t find that too difficult.

Trump has started 2026 with a blitzkrieg of exactly this flavour: imposing a ceiling of 10% interest rate caps on credit cards; buying $200 billion of mortgage-backed securities to compress mortgage spreads; pushing big investors out of residential housing; forced dividend cuts for defence companies, to encourage investment;

pressurising tech companies to avoid data centre developments increasing local energy costs; pressure to lower drug prices under the Great Healthcare Plan; foreign adventures in Venezuela; expansions into Greenland; suggestions of stimulus cheques paid for by tariffs; a legal attack on the Federal Reserve (Fed) Chair, presumably to increase pressure to cut interest rates; and an emerging narrative about Democrat fraud, which is likely to lead to an ‘anti-corruption’ push reminiscent of President Xi.

He even announced actual games: “In the fall, we will host the first-ever Patriot Games, an unprecedented four-day athletic event featuring the greatest high school athletes – one young man and one young woman from each state and territory.”

Naturally, this drew comparison to The Hunger Games books and movies. Life imitating art and history in one go.

I expect this frenetic activity to continue into November. And, if he doesn’t think he’s going to win at that point, then expect something radical to allow a deferral or cancellation of the elections. He won’t follow Marie Antoinette to the gallows, metaphorically speaking, without a fight.

WHAT DOES THIS POLITICAL DYNAMIC MEAN FOR INVESTORS?

Nominal growth and earnings growth in 2026 is set to be positive, especially in the US, where fiscal policy is run hot in the first half of the year and inflation is expected to be well behaved throughout. Financial sector balance sheets – aka liquidity – have become less constrained than at the end of 2025, which also removes a headwind. So the outlook for financial assets should be generally sunny, though with the risk of stormy political intervals. The political interventions are going to be driven by polling and popularity, which can easily run orthogonally to markets and the economy.

So we have to beware the moments when run it hot morphs into run it ragged.

Bread and circuses policy becomes disruptive to markets. If these coincide with marginally tighter liquidity and extended investor positioning with extreme positive sentiment, there could be sudden drawdowns. The Greenland spat is exhibit A.
Nominal growth appears to be getting too hot, raising term premiums and real rates in bond markets and, ultimately, forcing the Fed to take more interest rate cuts out of the curve.

Within markets, beware areas where price controls could be imposed – the salient items for consumer sentiment, such as food at home, gasoline, utilities, debt service and rents. Conversely, look to be exposed to areas where policy is supportive and where the policy ‘bread’ is likely to be thrown. For example, stimulus cheques and tax rebates directed at the lower end consumer are likely to be spent or speculated with.

The issue with direct macro stimulus is that it might generate more CPI inflation without wage inflation. Companies’ pricing reflex is a well-trained muscle; any macro policy perceived as inflationary provides air cover for price increases. In 2025, many businesses untouched by tariffs still raised prices under the cover of the tariff narrative, according to the New York Fed: “Many businesses indicated they increased prices to cover other rising costs such as wages and insurance, though [possibly some] businesses were taking advantage of an escalating pricing environment to increase prices.”5

So, given the potential inflationary impact of such policy and the administration’s desire for interest rates to be cut further in the near term, I would expect the bread to happen much closer to the election. Circuses first, bread later.

This all makes for an exciting year in stock markets but possibly a more troubling longer-term outlook for stocks and society generally.

DEBT AND DELUSION

Returning to Fred Hirsch’s observations, we started with the idea that the growing inequality is an inherent feature of capitalism, and inflation is both an inherent feature of the stresses inequality creates in a democratic society and also the safety valve of last resort to save capitalism from itself.

Our contention is that the safety valve is broken. The global system dynamic suppressed CPI inflation and boosted asset price inflation in the 30 years pre covid, giving rise to the wiring of today’s hyper-financial US economy. This changed the way the pandemic-inspired inflation was processed through the economy and markets. Instead of diminishing inequality – as it has in the past – it amplified it. This implies that today’s lightly anchored, fiat money capitalist system has no endogenous means of resolving the tensions it naturally creates.

Twisting the knife into this breakdown is the arrival of AI as a national security priority, stock market driver and corporate sector imperative. Stock markets must be protected for national security reasons, while the corporate implementation of AI is likely to slow the hiring reflex of corporates. In other words, AI is another incremental but decisive development which will make inflation antagonistic.

For the indebted US government, this means a strategy of inflating its way out of debt will only increase the societal stresses generated by growing inequality and a failing consensus on the values or principles underlying the distribution of income and wealth.

In this world, Main Street struggles to outrun Wall Street even when the stimulus is directed at Main Street. Yet Main Street is always connected to Wall Street on the downside, because unemployment rises when equity markets fall.

This leads to what some have described as gonzo capitalism.6 If you have been left behind by the asset price inflation and can’t save in any material sense, the dominant strategy is to try to catapult your wealth forward through speculation.

Behaviourally, this has been encouraged by the covid lockdowns (sports gambling stopped, so financial markets became the only open zone for the gambling instinct); the perception that government will bail you out when bad things happen; gamification of speculation to encourage addictive tendencies on mobile technology platforms; increased access to leverage in options, ETFs and crypto; and a social media driven culture of financial nihilism. Why behave sensibly if it won’t lift you out of the struggle? Better to speculate to accumulate. It’s like playing the National Lottery, just with a greater sense of legitimacy: “I’m investing, not gambling.” The growth of retail option volumes supports this story (Figure 8).

“In this model, the market becomes a political utility aligned with the wishes of the monarch – and a casino for the speculate to accumulate incentive structure.”

Except most retail investors don’t get a lucky strike. It’s the casino which wins – in this case, the platforms like Robinhood7 and market making operations. Speculation is part of the bread and circuses dynamic, but it only stokes the fear and loathing generated by growing inequalities.

Obviously, if Wall Street always outruns Main Street and stock markets are now considered part of national security, then it would be better to encourage participation in markets through investment rather than speculation. This is the aim of Trump Accounts, which were part of the One Big Beautiful Bill Act. These are universal, government-seeded, tax-advantaged investment accounts for eligible children. Unfortunately, this is too little (the government only seeds $1,000), too narrow (they’re only for children) and too late (the wealth inequality is already too great).

ALL HAIL THE EMPEROR!

In the end, with no endogenous safety valve, the pressure has to resolve through the ballot box: if the system will not redistribute, democracy will. Populism thrives because the establishment is perceived to have failed. And, while the populist right may have its chances – Trump got re-elected because the Democrats were blamed for inflation – it ultimately points to the election of parties of the populist left which are willing to forcibly redistribute wealth and income. In short, modern capitalism becomes threatened by old-fashioned socialism.

We are starting to see flickers of these dynamics. For example, California activists, led by unions, are trying to qualify the 2026 Billionaire Tax Act – a one-time 5% tax on net worth over $1 billion – for the November ballot. Of course, a hyper-financial system like the US would blow up under socialism because socialist policies would undermine the stock market, quickly leading to economic fallout and reactive policies which worsen this feedback loop. Market volatility, inflation and currency debasement would follow. To make it work under the current structure would require the socialist mindset to adopt markets as a transfer mechanism, which just isn’t in their DNA.

If modern US capitalism is to survive, then, perhaps democracy will have to give way to a more authoritarian rule, with the power to impose a particular distribution in favour of capital and the strategic imperatives of today’s geopolitics. Under the banner of national security and winning the new Great Game with China, one already hears the argument that democracy is no longer fit for purpose. Proponents of the dark enlightenment like Curtis Yarvin, who have traction with some of the current administration and the influential US tech community, are already making the case for a return to a strong CEO leader, aka monarchy. In this model, the market becomes a political utility aligned with the wishes of the monarch – and a casino for the speculate to accumulate incentive structure. Bread and circuses would be the standard operating protocol.

A third term for Trump, if it happens, should be seen as the first leg of a journey to a new form of government: the Trump Imperial DINOsty. Democracy In Name Only.

Is there any hope for a less politically charged, more benign outcome?

Conventional economic thinking would offer as the answer a productivity miracle which allows high real GDP growth, low inflation, tight labour markets and reasonable real wage growth. With rapid deregulation, supply side reform and AI, it is tempting to believe this is conceivable. Alongside this, the post-covid price level shock should subside with time as consumers acclimatise, provided inflation is contained. This would be a good outcome for Main Street and even better for Wall Street.

Sadly, I just don’t think there is enough time for this to play out before the mid-terms. Or confidence among Trump’s administration that it would change perceptions enough. Trump is going to run it hot, create distraction and try to manhandle the affordability crisis to win the vibes war.

So I fear we are now on course for extreme political volatility in the US as democracy thrashes around trying to solve capitalism’s lack of an endogenous safety valve. Socialism fixes the inequality but breaks a hyper-financial system. Authoritarianism accepts inequality as the price of national security and co-opts markets as political utilities. The latter might sound bullish for equity markets, but the journey is likely to involve violent drawdowns and, ultimately, favours real assets over nominal claims.

Inflation volatility remains a key character in this Greek tragedy for democratic, free-market capitalism.

Brace for bread and circuses. And soon, perhaps, an emperor. ⬤

1 Hirsch (1978), The Political Economy of Inflation 2 Akerlof and Shiller (2009), Animal Spirits 3 Cummings and Mahoney (2023), Digesting inflation 4 Washington Post, November 2023 5 libertystreeteconomics.newyorkfed.org 6 Hat tip Hunter Thompson’s Fear and Loathing in Las Vegas 7 UK spread betting companies typically report that 70-90% of clients lose money Cartoons by Robert Thompson robertthompsoncartoonist.com