America Can Create a Crisis, and America Can End It

What follows is a personal thought exercise, not a forecast. It rests on one strong assumption: the United States gets every step right and pulls every step off. In reality markets shift constantly, every move meets resistance, and some of that resistance may be large enough to stop the whole game. That part comes in a later piece. Today covers one question only: If they succeed, how does the game play out?

On Wednesday, October 14, 2026, the U.S. released September CPI: 3.7% year over year, well above expectations. By the usual logic, higher inflation means higher yields. Yields did rise, for less than an hour. Then they turned down.

The next day, PPI came in at 6.3% year over year, the highest since 2022. The monthly gain was 1.3%, half of it from a 20% jump in gasoline prices in a single month. Yields fell again. Within two days, the 10-year Treasury yield dropped from around 5.3% to 5.05%.

The same week, AI stocks crashed worldwide.

On Wednesday, CoreWeave, a U.S. AI data-center company, fell more than 15% after a chart of its bond yields went viral on social media. The company has a market cap of about $38 billion, roughly $51 billion in debt, and lost $2 billion over the past year.

On Thursday, Korean stocks fell more than 7%, down 14% for the week and nearly 40% from their June high. Japan fell close to 5%.

Many people saw these events happen together and had the same reaction: that’s too much of a coincidence. Inflation this high and yields fall anyway, and AI blows up at exactly that moment. Is somebody pulling the strings?

Nobody is pulling the strings. But somebody is waiting.

To understand what they’re waiting for, pull the camera back to February.

When the Drought Comes

Picture a city where every business needs water to operate. The water isn’t produced locally; a single waterworks supplies the whole city. In normal years rain is plentiful, and nobody gives the waterworks much thought.

Then the drought comes.

In a drought, the waterworks doesn’t have to do anything. Everyone lines up at its gate. And the longer the line, the more it can charge.

Swap “water” for “dollars” and “the waterworks” for “the United States,” and you have the world of 2026.

In the first seven months of this year, emerging-market foreign exchange reserves, their water, fell by more than 6%. In October, emerging-market dollar bond issuance was zero. Not because they didn’t want to borrow; because they couldn’t. Meanwhile, Gulf states and several Asian countries approached the U.S. Treasury on their own initiative to apply for something called a currency swap line.

A swap line is a dollar overdraft facility the U.S. opens for a foreign central bank. When you run short of dollars, you post your own currency as collateral, I lend you dollars, and you repay on an agreed date.

Watch the sequence. The U.S. isn’t pushing dollars on anyone; others are lining up to ask for them. That is where the whole game starts.

So why did the world suddenly run short of dollars? The first reason is the war the U.S. launched in February.

On February 28, with U.S.–Iran nuclear talks still on the table, American and Israeli aircraft were already over Iran. Nearly 900 strikes in 12 hours. Iran’s Supreme Leader Khamenei and several senior officials were killed on the spot.

The day before the war began, Brent crude was $72 a barrel. A little over a month later, nearly $120. Iran closed the Strait of Hormuz, through which a fifth of the world’s oil passes. The U.S. president called $120 oil “a small price to pay for defeating Iran.”

Oil is priced in dollars. A 60% rise in the oil price means every oil-importing country on earth needs 60% more dollars to buy the same barrels.

In economic terms, the war amounted to an order from Washington to the rest of the world: everyone must buy more dollars.

The art of war is of vital importance to the State. - Sun Tzu

In this game, war is fiscal policy, carried out by the Pentagon rather than the Treasury.

The second reason wasn’t designed by the U.S., but the U.S. caught it and ran with it. It’s called AI.

AI Is Pumping the World Dry

Over the past two years, money from all over the world has been drawn into the U.S. as if by one giant pump. The pump is called AI.

Data centers cost money. Chips cost money. Grid hookups cost money. Where does it come from? Borrowing. Of the investment-grade bonds issued by U.S. companies this year, nearly half are AI-related. Alphabet, Google’s parent, sold a $25 billion bond and drew $115 billion in orders. Since July, Amazon and Alphabet together have borrowed more than every emerging-market government in the world borrowed in dollars over the same period.

Money is finite. Global savings don’t grow just because AI is hot. Every dollar Amazon borrows is a dollar someone else can’t. One side’s gain is the other’s loss, no exceptions.

Who gets crowded out? First, emerging-market countries; as noted above, zero issuance in October. Second, and more interesting, the U.S. government itself.

The Treasury also has to borrow, several trillion dollars a year. When AI companies and the Treasury both have their hands out at once, investors have to choose. Amazon’s bonds come with a growth story and a slightly higher coupon; Treasuries have no story and a lower yield. So Treasuries must pay more to clear. The 10-year yield touched 5.34% in early October, the highest since 2002. It rose 85 basis points in the third quarter alone, the largest quarterly increase since 1994.

The pump is a double-edged sword for the U.S. It draws global money into American private companies, and it steals the American government’s buyers.

The AI pump wasn’t the government’s design, but the government can exploit it.

The rest of this story is about how the government combines that pump with the fire it lit itself.

Four Cards in America’s Hand

• Card one: the world is short of dollars, and only the U.S. can issue them. Half of this card was made in America, as covered above.
• Card two: AI has pulled global savings into the U.S. The money is already on American balance sheets; the only question is whether it sits on corporate ones or the government’s. That can be adjusted.
• Card three: a law that has already passed and is only waiting to take effect.It’s called the GENIUS Act, and it governs stablecoins. Think of a stablecoin as a digital dollar circulating on a blockchain, one coin equal to one dollar. The difference from a real dollar is who issues it: a private company, not the Fed.Only one clause of this law matters for retail investors. For every stablecoin issued, the issuer must hold a short-term U.S. Treasury bill or cash in reserve.In other words, every additional digital dollar used anywhere in the world forces someone to buy a dollar of U.S. government debt.It’s a machine that writes Treasury demand into law. And it buys specifically short-dated paper: the law restricts reserves to maturities of 93 days or less. It takes effect January 18, 2027. Stablecoins currently total about $300 billion. The San Francisco Fed ran the numbers: over the past five years, the two largest stablecoin issuers bought Treasuries equal to 40% of what China sold over the same period.
• Card four: the Treasury’s debt-management toolkit.The name sounds complicated; what it does is simple. The Treasury decides two things: what maturities to issue, and what maturities of old debt to buy back.It can issue more bills (three-month, six-month) and fewer bonds (10-year, 30-year). It can also swap newly issued debt for old long bonds nobody wants, which is called a buyback.A buyback is not money printing. The cash comes from issuing new debt; one kind of debt is exchanged for another. But the effect is fewer long bonds in the market and more short bills.

Why do this? Keep one thing in mind for later: the U.S. is shifting its debt toward the short end.

Five Moves: Fix the Pipes, Then Open the Tap

The cards are on the table. Now the play. The policies in this exercise proceed in sequence, each step solving a problem the previous one created. Glance at the timeline first, then read on.

Move one: now through early 2027

Others come asking for dollars. The U.S. provides them, with conditions. Gulf states want swap lines? Fine. Keep settling oil in dollars, and don’t sell your long-dated Treasuries. Asian countries? Fine. Reserve composition and investment in the U.S. are all up for negotiation.

Why are the Gulf states short of dollars in the first place? Because Iran struck their oil and gas facilities in retaliation and interrupted their exports. Why did Iran retaliate? Because the U.S. bombed it first. Some of the people lining up at the Treasury’s door for water were driven there by American bombs. A slap, then a piece of candy, and the candy isn’t free.

What about small countries without swap lines? They take another channel: pledge their U.S. Treasuries to the Fed in exchange for dollars. You must already hold Treasuries to qualify for dollar borrowing, which is a neat piece of design.

Is there precedent? Yes. In October 2025, the U.S. gave Argentina $20 billion in liquidity support and got a political result in return. Treasury Secretary Bessent said publicly in mid-October: “We can do it again.”

The goal of this step: foreign governments go from selling Treasuries to not daring to sell them, pledging them for liquidity instead.

Move two: late 2026 through 2027

This is the most intricate step in the game, and the easiest to misread.

Start with a fact: the Fed is currently hiking. It raised once in September; markets expect another hike in December, then a pause in 2027. By mid-2027 the real rate, net of inflation, will be around 2.9%, as high as the peak during the worst of the 2023 inflation.

At rates that high, AI companies’ borrowing costs are high. Push borrowing costs high enough and AI construction stops. When AI stops, the pump stops. CoreWeave losing 15% on a single bond-yield chart was the first sound of that process.

So the U.S. must stop rates in 2027. But it faces a contradiction. Inflation is still 3.7%. Cutting rates would announce to the world “we’ve given up on inflation,” and long bonds would be dumped.

The answer: leave rates alone, but increase the quantity of dollars.

How? Three tools, each already in use.

Tool one: the Fed buys short-term Treasuries. The technical name is “reserve management purchases” (RMP), and the Fed insists repeatedly that “this is not QE, just a technical operation.” From last December through this August it bought $215 billion. The program is paused for now, but officials say it “can resume at any time.”

Tool two: the Treasury issues more bills. Covered above; the debt shifts short.

Tool three: swap lines. Dollars exported abroad.

Put the three together: the Fed buys at the short end, the Treasury issues at the short end, and dollars flow overseas. Rates don’t fall a single basis point, but the total stock of dollars grows.

Why call this a “shadow devaluation”? Because a currency’s value has two dimensions: price and quantity. Price is the exchange rate and the interest rate; quantity is how many dollars are in circulation. A public rate cut changes the price, and the whole world sees it. Quietly increasing the quantity changes nothing on the surface. The lever everyone watches stays still; the other one does the work.

Will the dollar’s exchange rate fall? Not necessarily in the short run. Europe, the UK, and Japan face the same oil-driven inflation; they’re hiking too, and nobody dares ease first. When every currency is expanding, exchange rates cancel out. Where “more dollars” will actually show up is in the dollar’s purchasing power against gold and against oil.

When does it start? Watch three dates. After the November 3 midterms, political sensitivity to inflation is at its lowest. Year-end is the peak of Treasury issuance; when funding gets tight, the Fed has a reason to resume buying in the name of “preserving market functioning.” And if AI companies’ financing keeps breaking down, the Fed can cite “financial stability” rather than “inflation” as its reason to stop hiking.

Move three: all of 2027

In January 2027, the GENIUS Act takes effect. Every stablecoin, one T-bill behind it.

But taking effect isn’t enough; people have to use the things. Who needs them most? The places short of dollars. The U.S. government is considering a plan to push dollar stablecoins abroad, especially to emerging markets. Your country is short of dollars, your banks can’t borrow them, so here’s a way to hold dollars without going through a bank at all. Every dollar you hold is a Treasury someone bought.

A corollary follows. As the second section said, war is America’s dollar-demand stimulus. If the whole game requires the world to stay short of dollars, then:

The U.S. has no incentive to end the war.