Ever wonder what happens when ‘crackpot economics’ meets the Federal Reserve? Paul Krugman has some chilling predictions about market calm before the storm. Is a financial disaster brewing under the surface, or are the markets just ignoring the warning signs until it’s too late?

Esteemed economist Paul Krugman has sounded a dire alarm regarding a looming economic crisis, directly attributing the potential disaster to what he terms Donald Trump’s “crackpot economic doctrines.” This stark warning comes amidst concerns that the very independence of the Federal Reserve, a cornerstone of economic stability, is under significant threat from shifting economic policy.

Krugman’s recent newsletter detailed a disturbing sequence of events, highlighting attempts to undermine the Federal Reserve’s autonomy. Specifically, the attempted removal of Fed Governor Lisa Cook on what Krugman describes as “unsubstantiated claims” represents a “shocking and terrifying” development for those closely monitoring macroeconomic trends and the future of the financial system.

The core of Paul Krugman’s apprehension lies in the very real possibility that the Federal Reserve’s crucial independence could soon be completely eroded. Such a scenario, he argues, would pave the way for political interference in monetary policy, potentially jeopardizing the financial well-being of countless individuals as Donald Trump’s administration seeks to impose its will.

He points to Trump’s past demands for interest rate cuts, even when the economy was robust and indicators suggested the need for rate increases, as a clear precursor to this impending policy disaster. These actions, driven by a desire for short-term political gain, fundamentally contradict established economic policy principles and risk long-term market stability.

Krugman emphatically labels these approaches as “crackpot economic doctrines,” warning that their inevitable consequences include runaway inflation risk, followed by a profound economic catastrophe. This cycle, he fears, will unfold as misguided policies erode confidence and distort fundamental market realities.

Despite the gravity of these warnings, a striking paradox exists: the financial markets have largely remained unperturbed. Paul Krugman observes that markets often operate under a façade of normalcy, failing to account for significant disruptive events until the evidence becomes overwhelmingly, even blindingly, apparent.

Drawing parallels to historical financial upheavals, such as the 2008 subprime mortgage crisis and the 2010 eurozone debt meltdown, Krugman illustrates how “market pricing almost never takes into account the possibility of huge, disruptive events.” Instead, markets tend to function as mere “conventional wisdom processors,” echoing the sentiments of other notable economists regarding market behavior.

He vividly likens the current market complacency to a “Wile E. Coyote moment,” where the markets continue to run forward, oblivious, until they inevitably glance downwards and realize there is no longer any support beneath them. This, he cautions, is when the true, catastrophic reaction to Donald Trump’s influence will finally occur.