How America Inflates the World

A field note on liquidity, standards, and the new meaning of stability

2024 was supposed to be the year contradictions caught up with America. Inflation remained stubborn despite aggressive rate hikes. The federal deficit ballooned past $1.8 trillion. Political dysfunction reached levels that would trigger capital flight in any other nation. Debt ceiling brinkmanship became routine theater.

Instead, the opposite happened. The dollar strengthened against most major currencies. Treasury auctions continued absorbing record issuance. The S&P 500 pushed toward new highs. Stablecoins exceeded $180 billion in circulation, nearly all pegged to USD rather than any alternative currency.

Each sign of instability ended up reinforcing confidence. Markets didn't treat American chaos as a warning. They read it as proof the system still works: liquid enough, tradable enough, fast enough to move when conditions shift.

The contradiction points to a different operating logic. When overheating becomes proof of liquidity, when chaos signals dynamism rather than decay, when even private companies outside U.S. jurisdiction end up holding more American government debt than most sovereign nations, something fundamental has changed in how global capital interprets stability.

The focus isn't on a single president or single policy decision. The focus is on how the structure operates. It's about watching a system discover it doesn't need to prevent bubbles. The emphasis shifts from "avoiding bubbles" to "maintaining breathable liquidity within them."

Part I: Liquidity's Self-Proof

The Pattern That Shouldn't Exist

Every major crisis since 2020 has followed the same counterintuitive script. March 2020: pandemic lockdowns trigger the fastest stock market collapse in history, yet capital floods *into* U.S. Treasuries and the dollar strengthens. February 2022: Russia invades Ukraine, and global investors pile into dollar assets. March 2023: Silicon Valley Bank collapses, U.S. equity markets wobble briefly, then resume their climb.

Each episode ends differently, yet the script remains the same.

Between 2020 and 2024, foreign holdings of U.S. Treasury securities remained above $7 trillion despite persistent concerns about American debt levels and political dysfunction. The VIX (a measure of expected market volatility, sometimes called Wall Street's "fear gauge") spiked repeatedly during this period, yet the S&P 500 (the benchmark U.S. stock index) nearly doubled from its 2020 lows. Market capitalization of U.S. equities exceeded $50 trillion by late 2024. Volatility and valuation moved in the same direction, not opposite ones.

Something fundamental has shifted in how capital interprets risk.

The Safety of Motion

The hierarchy of safety has inverted. It's not enough for an asset to be safe. It must be liquid enough that you can leave *immediately* if your assessment changes. A perfectly stable market with thin trading volume becomes risky: not because the asset might fail, but because you might get trapped. Conversely, a volatile market with deep liquidity offers a different kind of safety: you can always find a counterparty.

American markets provide this at unmatched scale. Daily trading in U.S. Treasury markets regularly exceeds $600 billion. The New York Stock Exchange and NASDAQ together process trillions in daily equity trades. Stablecoin markets facilitate instant 24/7 conversions. This isn't just size. It's *velocity*: the ability to enter and exit in seconds, not hours or days.

This creates a self-reinforcing loop. High liquidity attracts capital seeking exit optionality. That capital deepens liquidity further. The system rewards positioning where everyone else can exit first.

Investors' judgments align more with coordinated expectations: others will continue treating this as the liquidity anchor. And because everyone believes everyone else believes this, it becomes self-fulfilling. Research from the Bank for International Settlements shows that during stress episodes, dollar funding markets stabilize faster than other currencies. This happens not because underlying risks disappear, but because institutions price in the Federal Reserve as global liquidity backstop. That assumption shapes positioning and, in turn, validates itself. In pressure moments, dollar funding markets recover faster than most currencies, and institutional behavior builds on this dynamic.

You might personally think European infrastructure offers better long-term returns. But if you believe that during the next crisis capital will reflexively flow to dollars, then you face a coordination problem. Being right about fundamentals doesn't help if you're isolated in an illiquid position when panic hits.

Even without belief in superior safety, coordinated expectations pull positioning into the same place.

Observable indicator: If this logic holds, capital concentration should increase during volatility rather than disperse. The 2020-2024 period confirms this: despite VIX spikes, foreign Treasury holdings remained structurally above $7T, and U.S. equity market share of global capitalization rose from approximately 45% (2020) to 49% (2024).

Overheating as Trust Signal

This produces an outcome that reverses traditional risk assessment: signs of excess strengthen the system's attractiveness. When U.S. tech stocks trade at valuations disconnected from earnings, when Treasury auctions absorb record issuance, when real estate in major cities reaches levels far beyond local incomes, markets read overheating as "capital still converging, exits still open."

High asset prices indicate that enough people still believe in the liquidity. The moment prices stop rising is when you worry, because that's when you question whether liquidity will persist. But as long as valuations keep climbing, the market is telling you: the pool is still deep, the exits are still clear, you're not trapped yet.

Markets treat this volatility as part of system operation. The chaos confirms the system is still alive.

Verifiable prediction: If overheating functions as trust signal, then cooling should trigger positioning anxiety. Watch for capital outflows not when inflation rises, but when asset price growth stalls and trading volumes decline.

Related: The Shape of Overheating

Part II: From Hegemony to Protocol

The Grammar of Power

Dependency has shifted from visible extraction to invisible interoperability. You need oil, so you negotiate with producers. You need security, so you host military bases. You need market access, so you sign trade deals. Power sits at the center, extracting rents, enforcing terms.

The new dependency centers on *interoperability*. The empire no longer occupies territory. It defines the grammar everyone else must speak to talk to each other.

Consider what happened in July 2025, while the world fixated on tariff threats and tech stock swings.

The GENIUS Act: Standardizing Digital Dollars

On July 18, 2025, the GENIUS Act became law, establishing the first federal framework for "payment stablecoins": cryptocurrencies designed to hold steady value, typically pegged to the dollar. The legislation mandated reserve requirements: issuers must back their tokens 1:1 with "high-quality liquid assets" (U.S. dollar cash, Treasury securities maturing within 93 days, repurchase agreements, or government money market funds).

At the regulatory level, this addressed consumer protection and systemic risk. At the structural level, the law defines what counts as legitimate.

Verifiable indicators: By Q2 2025, Tether (a company registered in the British Virgin Islands) held $127 billion in U.S. Treasuries, a sum that would rank 19th among sovereign holders if it were a country. To issue a stablecoin that gains market trust, issuers hold assets that regulators and users recognize as "high quality." In this framework, "high quality" defaults to dollar-denominated.

Operational implications: When Tether demonstrates reserve safety, it shows U.S. Treasuries or equivalent dollar instruments. When Circle (issuer of USDC) minimizes risk, it doesn't diversify into German bunds or Japanese government bonds. In May 2025, Circle rotated from longer-dated Treasuries into overnight repurchase agreements. These repos are Treasury-backed loans that mature in hours. Circle optimized for liquidity while remaining inside the dollar system. Rules define "trustworthy reserves" as dollar-system assets. Compliance equals maintaining mobility within the dollar liquidity pool.

The 99% Problem

As of mid-2025, dollar-pegged stablecoins command 99% of the global stablecoin market. Euro-backed stablecoins? About $157 million in total circulation (roughly one-twentieth of one percent).

This isn't because the euro is inferior. The European Union's GDP rivals America's. The euro is the world's second reserve currency. Banks across Europe are launching stablecoin initiatives with regulatory blessing. Yet in the crypto economy (the supposedly "borderless" digital future) the euro barely registers.

Why? Because the entire decentralized finance ecosystem already speaks in dollar terms. Every DeFi protocol prices assets in USDT or USDC. Every major exchange uses dollar stablecoins as base trading pairs. Every liquidity pool concentrates in dollar-denominated tokens. 

An entrepreneur could launch a euro stablecoin tomorrow. The technology is identical. But they'd immediately face a coordination problem: to interact with 99% of crypto infrastructure, users would need to convert euros to dollars at every step. Fragmented liquidity. Constant forex friction. Locked out of the primary lending, borrowing, and trading venues.

You can issue a non-dollar stablecoin. But you'll be building in a different language than everyone else is speaking.

Once liquidity standardizes in one unit, alternative units become translation layers rather than money.

When announcing the GENIUS Act, White House officials stated plainly: the law would "enhance demand for U.S. Treasuries" through reserve requirements. The mechanism operates as described: anyone who wants to issue a trusted payment instrument (anywhere in the world) must either hold dollars or exit the mainstream market. 

The choice remains technically free. But the switching costs are prohibitive.

Protocol Thinking Beyond Finance

The stablecoin example crystallizes a broader pattern. American power increasingly operates through technical standards, platform effects, and network topologies.

Consider cloud infrastructure. Amazon Web Services, Microsoft Azure, and Google Cloud control 63% of global cloud computing as of Q2 2025 (AWS at 30%, Azure at 20%, Google Cloud at 13%). A company can choose European providers. But if they want seamless integration with the software tools their partners use, if they want the deepest library of pre-built services, if they want hiring from the largest talent pool trained on familiar systems, the switching costs compound. Not impossible. Just expensive enough to make inertia rational.

After Russia's invasion of Ukraine, the U.S. and EU sanctioned Russian banks by excluding them from SWIFT, the dominant messaging network for international transfers. Russia and China have developed alternatives (SPFS and CIPS). But adoption remains limited because banks worldwide have spent decades building interfaces, compliance procedures, and correspondent relationships around SWIFT's technical specifications. Changing requires rewriting operational infrastructure.

The pattern repeats: AI training runs primarily on NVIDIA chips designed in California. Semiconductor fabs depend on equipment from ASML (Dutch) but using American export-controlled components. Scientific collaboration flows through platforms like GitHub (Microsoft-owned). Even when physical production disperses, the protocols (the standards determining how components interact) often trace back to American technical ecosystems.

The 18-Month Window

Here's the most revealing part of the GENIUS Act timeline. The law took effect in July 2025, but detailed regulatory rules won't be finalized until January 2027 (an 18-month implementation window). During this period, the Treasury is soliciting public comments, receiving roughly 300 submissions by late 2025. The debates focus on technical minutiae: Can "internet-native assets" like ETH serve as reserves? How will federal versus state jurisdiction divide? What size threshold triggers stricter oversight?

These seem like narrow regulatory questions. But they're negotiations over what kinds of digital money get to exist. And every global stablecoin issuer (whether in Singapore, Switzerland, or Seoul) must spend those 18 months guessing how U.S. regulators will answer, adjusting their designs preemptively to stay eligible for American market access.

The power operates through making every other actor's strategy contingent on standards still being formed. By the time the regulations are published, global behavior has already realigned.

You don't ban euro stablecoins. You let them suffocate in fragmented liquidity. You don't forbid alternative cloud platforms. You let network effects make them uncompetitive. You don't occupy territories. You set the technical specifications everyone else must implement to interoperate with each other.

Enforcement is indirect. Deviation costs do the work.

The empire doesn't sit at the center anymore. It functions as the center (the zero coordinate around which everything else positions itself). Deviation requires recreating an entire parallel ecosystem.

When Tether, a non-American company, becomes the 19th largest holder of U.S. government debt (not out of policy preference, but because that's what the plumbing of digital finance demands) the dependence is complete. Trust may not be total. Usage becomes default.

Observable indicator: Protocol lock-in creates measurable switching costs. Track non-dollar stablecoin projects: if they launch with dollar-peg options or maintain dollar liquidity pools despite non-dollar branding, the protocol effect is observable. EURC, despite European regulatory support, maintains USDC bridges for exactly this reason.

Power defines behavior not only in markets but in people. Systems adapt, and so do those who rise within them.

Related: The Needs Behind the AI Boom

Part III: Trump as Adaptation

The Environment Selects

Political operating styles face selection pressure from information environments. High-frequency traders dominate microsecond markets not because they're smarter, but because when execution speed becomes the primary variable, their specific capabilities become advantageous. The same logic applies to political leadership in an era of hyper-liquid capital flows.

Trump's governance style produces volatility. Markets have learned to process that volatility. Whether this represents adaptation, exploitation, or dysfunction depends on the timeframe and perspective you choose.

Immediacy as Governance

Political communication has compressed from measured cycles to real-time pricing. Traditional policy proposals go through committee review, public comment periods, legislative negotiation. Announcements come via official channels with prepared remarks. The timeline stretches across weeks or months.

Trump compressed this entirely. Policy became immediately tradable. Academic research has documented statistically significant market reactions to Trump's social media communications, with Treasury yields responding within minutes and VIX volatility spiking within hours of policy-related tweets.

When political decisions become real-time market events, they also become instantly price-discoverable. Instead of uncertainty building over weeks while rumors circulate, the impact gets measured and absorbed immediately. Volatility spikes, then resolves. The market prices the current statement, adjusts positions, moves on.

This real-time tradability allows uncertainty to be priced as volatility rather than left suspended long-term. Whether this represents more clarity or just faster chaos is an open question. Markets can price both.

Observable metric: Compare implied volatility (options pricing) versus realized volatility during Trump statements versus traditional policy announcements. If real-time tradability truly resolves uncertainty faster, implied vol should drop more quickly post-announcement than in traditional cycles.

Ambiguity as Optionality

Policy reversals read as inconsistency to traditional frameworks, as flexibility to volatility-adapted systems. Tariff threats announced, then delayed, then modified. Regulatory stances that shift between meetings.

Consider his approach to tariffs. Announcing aggressive measures creates negotiating leverage and tests market reaction. If response is manageable, proceed. If markets rebel too strongly, adjust. The initial threat functions as a live experiment in discovering where resistance lies. 

To external perception, this looks like oscillation. To market participants, it reads as preserving multiple pathways. Whether this represents strategic flexibility or decision-making dysfunction depends on outcomes you prioritize.

In stable environments, this behavior reads as weakness. In volatile environments, rigid commitments can become liabilities. The same actions get interpreted through different frameworks depending on baseline conditions.

Performance as Signal

Governance has merged with continuous performance, collapsing the distinction between policy and theater. Press conferences become market events. Interviews generate trading opportunities. The line between governing and performing disappears.

This matches how algorithmic trading systems and 24/7 news cycles process information. Markets react to whatever moves sentiment, regardless of source category. This creates liquidity around political uncertainty. Options markets price "Trump risk." Volatility itself becomes an asset class.

Whether this represents effective communication or degradation of institutional norms is outside the scope of this analysis. What's observable is that markets have developed instruments to trade it.

Pattern, Not Judgment

The environment was shifting toward speed, liquidity, and continuous information flow before 2016. Trump's operating style matched those dynamics. Whether he recognized this consciously, adapted instinctively, or simply operated according to personal preference is unknowable from external observation.

Markets complain about the chaos while simultaneously pricing it, hedging it, and trading it. The volatility feels destabilizing on any given day but over time becomes another input to model.

What changed for observers: The adaptation isn't only in political leadership. It's in how markets developed instruments to trade political uncertainty itself.

Measurable shifts in market infrastructure emerged: Options trading volume at CME Group on equity indexes rose from approximately 30 million contracts in Q1 2015 to nearly 100 million in Q4 2023, with a 51% surge in 2020 coinciding with heightened political and pandemic uncertainty. By Q2 2025, average daily options volume had increased 76% year-over-year, with a single-day record of 2.8 million contracts following the March 2023 Silicon Valley Bank collapse.

Political event hedging became systematized. Post-election options open interest in 2020 reached $20 billion in notional terms, 88% above 2016 levels, outpacing the 62% growth in underlying equity values. Options with expiration dates extending beyond the 2020 election showed significantly higher concentration in January and March terms compared to 2016, suggesting positioning for prolonged uncertainty periods.

Zero-day-to-expiration (0DTE) options, which allow traders to bet on intraday moves without overnight risk, now account for nearly half of all daily options volume as of 2024. These instruments effectively convert political announcements into same-day tradable events, compressing the pricing cycle from weeks to hours.

The behavioral question isn't whether individual portfolio managers changed their specific rebalancing frequencies. The observable pattern is that market infrastructure evolved to make political volatility continuously tradable, and participation in that infrastructure expanded dramatically.

In this same environment, there also exist leaders who choose the path of "dense pre-negotiation." Markets can price both rhythms, just with different response mechanisms. Neither is inherently superior. Both are tradable.

The observation here is compatibility, not endorsement. Systems select for what they can process. Participants adapt their behavior to maintain function within the system as it operates, not as they might prefer it to operate.

Verifiable prediction: If this adaptation is structural rather than Trump-specific, similar behavioral patterns should emerge in other high-volatility information environments. Watch for: increased options activity around other high-frequency communicators, shorter analytical timeframes in corporate strategy, and proliferation of "sentiment analysis" tools across sectors beyond politics.

Part IV: When Exception Becomes Baseline

Emergency measures have calcified into operational infrastructure. The Federal Reserve's balance sheet, which stood below $1 trillion before 2008, exceeded $7 trillion by 2022. Quantitative easing, initially framed as a crisis tool, ran almost continuously for over a decade. Treasury issuance that would have triggered sovereign debt concerns in previous eras now proceeds routinely.

Scale reference: The 2023 banking stress illustrates how exceptional measures become standard operating procedure. When Silicon Valley Bank collapsed in March, the Fed activated the Bank Term Funding Program within days, offering loans against securities at par value rather than market price. By March 2024, when the one-year program closed, it had extended $163.9 billion in peak outstanding loans. To contextualize: that's roughly equivalent to New Zealand's annual GDP, deployed in under a year to prevent fire sales in the U.S. banking system.

This amount represented approximately 5% of deposits at U.S. banks with assets under $250B. Not massive relative to the entire banking system, but substantial enough that without it, contagion scenarios were plausible. Losses were absorbed through the system rather than realized by specific institutions. What would once have been labeled a bailout was processed as liquidity management.

The transmission mechanism: How does U.S. policy overheating disperse globally? Three channels operate simultaneously:

First, direct capital flows. When the Fed maintains lower-than-expected rates or larger-than-expected balance sheet, capital seeks higher yields elsewhere, creating asset inflation in emerging markets. When it tightens, capital reverses, creating stress abroad. The volatility exports.

Second, dollar as invoicing currency. Approximately 40% of global trade is invoiced in dollars (even when neither party is American). When U.S. inflation rises, it affects pricing in dollar-denominated contracts worldwide. The inflation exports through commodity prices, shipping costs, and cross-border transactions.

Third, reserve asset holdings. Foreign central banks and now private entities (like stablecoin issuers) hold U.S. Treasuries as reserves. This creates structural demand that allows the U.S. to issue more debt at lower rates than fundamentals alone would support. The excess gets absorbed into global balance sheets.

Once non-standard tools normalize, the system's heat tolerance rises. But heat tolerance isn't the same as heat elimination. The temperature keeps climbing. The question becomes: at what point does higher baseline heat become unsustainable even with adaptation?

The foundation question: From a structural perspective, continuous external capital inflows function as a critical stabilizer. The foundation exists. The system is leveraged far beyond what that foundation would support by itself. American technology companies generate genuine revenue. AI infrastructure creates measurable output. Financial services add real value. But the asset valuations and debt loads multiply that foundation by factors that would be unsustainable without the global absorption mechanism.

How much adjustment room exists when conditions tighten? Recent history offers limited guidance. The 2022-2023 tightening cycle triggered regional bank failures and required intervention. But that was a relatively mild stress test. A true deleveraging has not occurred since this system fully formed.

Whether the world has so thoroughly adapted to this baseline that any serious tightening becomes unthinkable remains an open question. The answer likely depends on whether you're asking in 2025, 2030, or 2040.

Observable threshold: The system's heat tolerance can be measured by the speed at which emergency tools activate. In 2008, major interventions took weeks. In 2020, days. In 2023, hours. If the next stress requires intervention within minutes, the baseline has shifted beyond human decision-making cycles into automated stabilization.

Conclusion

Instability strengthened rather than weakening trust. What changed was the definition of stability itself.

Volatility absorption replaced volatility elimination. Deep liquidity pools disperse even massive shocks before they concentrate enough to break anything critical. Network effects prevent alternatives from gaining traction. Protocols become so embedded in global infrastructure that switching costs overwhelm any frustration with the existing arrangement.

Other systems watch and adapt. Not by copying specific policies, but by learning to operate in an environment where volatility is the baseline. Where maintaining optionality matters more than making commitments. Where being able to exit fast counts more than being fundamentally safe. The protocol spreads through imitation of survival strategies.

The system's functional innovation operates at the definitional level: demonstrating that overheating can be converted into order, as long as enough participants agree to price the heat rather than flee from it. The system asks you to trust that when it wobbles, you'll be able to move faster than the failure.

The question perhaps isn't how long this equilibrium can last.

The question is whether, once the world learns to breathe inside bubbles, the old sense of stability retains any recognizable shape. Or whether this is what stability looks like now.

Just hotter.

Read the companion essays : The Shape of Overheating / The Needs Behind the AI Boom

Appendix: Sources & Notes

Figures current as of November 2025.

Bank for International Settlements (BIS) Dollar Funding Research
- Key papers: BIS Quarterly Review articles on dollar swap lines and global liquidity provision
- Specific reference: "The dollar, bank leverage, and deviations from covered interest parity" (Avdjiev et al., 2019)
- Finding: Dollar markets stabilize faster during stress due to Fed backstop expectations
- Source: BIS Working Papers series 2020-2024

Bank Term Funding Program (BTFP)
- Launched: March 12, 2023 (post-SVB collapse)
- Peak outstanding: $163.9B (March 2024)
- Program closure: March 11, 2024 (one-year term, not extended)
- Scale reference: Approximately equivalent to New Zealand's annual GDP (~$250B); represented ~5% of deposits at U.S. banks with assets under $250B
- Source: Federal Reserve H.4.1 Statistical Release

Circle Reserve Composition Shift (May 2025)
- Rotated from longer-dated Treasuries to overnight/short-term repos
- Announced in USDC Reserve Transparency Report (May 2025)
- Proportion: ~43.3% repos, 29.3% Treasury securities as of mid-2025
- Source: Circle transparency reports

Cloud Market Share (Q2 2025)
- AWS: 30% | Azure: 20% | Google Cloud: 13% | Combined: 63%
- Source: Synergy Research Group Q2 2025 report
- Note: Figures represent global IaaS + PaaS spending

Foreign Holdings of U.S. Treasuries
- Maintained above $7T throughout 2020-2024
- Peak: $7.9T (Oct 2021); Low point: $7.1T (Nov 2023); Current: $8.1T (Sept 2024)
- Source: U.S. Treasury TIC Monthly Data

GENIUS Act (2025-07-18)
- Signed into law July 18, 2025
- Source: White House Fact Sheet; Congressional Record S.1582
- Implementation timeline: 18-month rulemaking period (finalization by Jan 2027)
- Treasury ANPRM issued Sept 19, 2025; ~300 public comments received by Nov 2025

Options Market Growth and Political Event Hedging
- CME Group equity index options volume: ~30M contracts (Q1 2015) → ~100M contracts (Q4 2023)
- 2020 pandemic surge: 51% increase in average daily volume vs 2019
- Q2 2025: Average daily options volume up 76% year-over-year; April 2025 reached 1