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This chat Paul Krugman had with Nathan Tankus should scare the sh*t out of everyone [1]

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Date: 2025-03-03

Let me begin by saying if you are not following Paul Krugman since his move to Substack, you are missing a lot. It’s well worth subscribing to get full access to everything he posts. Krugman is a really smart guy who knows stuff and can explain it to other people so it can be understood. Further, Krugman knows other smart people, is willing to talk with them, learn stuff from them, and share it. Here’s Krugman’s own About page.

Nathan Tankus is someone I had never heard of — but it looks like I and many others need to right now. He’s been doing remarkable work to document what is happening since Trump returned to power, using expertise that gives him a unique perspective. Here’s his About page.

Krugman had a video chat with Nathan Tankus on March 1, 2025. Krugman considers what they discussed so important that it’s not behind a paywall. You can watch the video and read a transcript.

Krugman: Like most people paying attention, I was and remain terrified by the predictable power grab by the Musk/Trump administration. But it never occurred to me that Musk’s people would try to seize control of the computer systems that, in effect, cut all the checks the federal government sends out. In fact, very few people realized it was happening. One person who did realize it, however, was Nathan Tankus — an independent expert on the financial “plumbing” at the Federal Reserve and the Treasury Department. So Nathan suddenly became the man of the moment. His blog Notes on the Crises has become crucial reading — and he may have helped steer us, temporarily at least, away from the edge of the abyss.

Tankus has spent 15 years delving into the depths of the financial systems underpinning the way the government gets money to where it is supposed to go, working from outside the government. He’s become a go-to guy that the experts call when it comes to questions about how the government moves money around. For example during the pandemic:

Krugman: OK, we stepped up to help people through this—what I was calling a ‘medically induced coma for the economy’ during Covid. But that involved trying to get money out in unusual, unprecedented ways and presumably was technically very demanding. And you were writing about that then. Tankus: Absolutely. I was largely focused on the Federal Reserve, but I had interest in other things, including state unemployment insurance and actually how, as we'll get to in a bit, related to this, how their COBOL systems made updating them very technically complex. So for example, why the unemployment insurance checks were an additional $600 a week, rather than say, “We're going to replace 80% of your income.” It was just too technically complicated in the time available to program 80% or replacement rates. And so they just slapped on adding $600 a week to everyone's check because that was technically easier.

Tankus does something basic: he reads all of the press releases and other public domain material coming out to understand what’s happening. He also solicits information as he follows up on issues.

What the government does is absolutely vital to keep the financial systems operating smoothly. The systems that make it possible are held together by the equivalent of rubber bands and patchwork running on old code. It’s kept operating by a relatively small number of people with specialized knowledge and experience.

Musk through DOGE has been sending in teams of people who have no clue about what they’re dealing with or how it really works. All they are looking for is things they can cut and people they can fire. They think government is wasteful, government employees are disposable, and A.I. can be used to fix everything.

And that's why they're sending all these people to physically take over the buildings, to shut off people's emails, all that stuff. And that stuff is hard. It's a pain. It's annoying to have to actually go to try to take control of the federal government. It would be a lot easier if you could just flip a switch and it doesn't matter what those people are doing. And hey, maybe we can flip a switch and get those people to stop being paid. And with those people stop being paid, then they're going to have to quit and go somewhere else. Because they have to live. And it'll be a lot easier to take over the federal government that way. And that is what they were trying to do.

emphasis added

If you remember a few weeks ago, there was a news story about a top treasury official being forced out because he tried to block them from accessing critical systems. Here’s how Tankus reacted when he got wind of what was happening:

Tankus: ...And in an article in the Washington Post I had seen a headline about how a high level person in the Treasury had resigned in protest or is on leave or something, but related to the treasury's payment system. And as a payments expert, that headline was incredibly alarming. So alarming, in fact, that I put it aside and I couldn't get myself to read it for a few hours. I had gotten caught up with promoting my piece that day, so I hadn't eaten that day. So I was like, ‘I'm gonna go get something to eat.’ And my friend, colleague, the economist Stephanie Kelton at Stony Brook, when I told her that, she had already read the article and was already alarmed. She said, ‘I don't think that's the right order.’ But nevertheless, I hadn't eaten that day. So I went to go eat, and then I went to go read it. I mean, literally, four paragraphs into this article, I had a panic attack. It was possibly the scariest or one of the scariest moments of my life when I read that article. And it was so scary to me because what the article said was that the fiscal assistant secretary, who's the highest civil servant in the treasury, where everyone above him are political appointees. You know, there's that top layer of every agency which are political appointees that, you might fire the old people, you fire the Biden administration or the Trump people, and you bring in your people. That’s a normal expected part of government. But everyone below them are supposed to be professional civil servants who were doing the job regardless of the partisan status of the executive branch, regardless of who is president. And the fact that this person had been pushed out because DOGE and Elon Musk in the Department of Government Efficiency were asking to have access to the Treasury and this guy, a long time official, someone who'd been in the government since 1989, had been in this highest status position since 10 years ago had been widely credited as the person who has expertly managed the treasury and payments throughout the various debt ceiling crises where you're trying to squeeze every dollar and make sure payments go out without breaching the debt ceiling. I immediately understood how desperately serious and what the worst case scenarios could be and was overwhelmed by it. And I was also overwhelmed and alarmed as an expert in this area that so few people understood how serious this was that it was, and that it was going to be, that it's not just that this was so dangerous, but that there was very few people who were in a position to really say anything about this. And to be frank, my newsletter is called Notes on the Crises. I have 50,000 people on my email list, some already very high-powered, powerful people who—I'm not going to name names—but I know that they're there. And it might seem a little strange, absent concept, but I knew immediately that this was basically up to me.

(Yes this is a long quote — but Krugman has made the entire chat available, so excerpting this should be justifiable given how serious the matter is, and how little of it is making it into the press.)

How bad is it?

Tankus: Well, first I would just say overwhelmingly, we don't really know. I mean, the full scope of what these people are doing is not very clear. It's, of course, under very unclear authority, likely illegal in so many cases. And so the most dangerous thing is just how little we know. In this case, with Marko Elez getting in there, it seems to be downloading data. For a time, I had sources right in the Bureau of the Fiscal Service office or building where he was bouncing around looking at all these very sensitive systems and my sources could see him download data. But the systems are so sensitive that even senior IT people in these places could see that Marko Elez was downloading data but couldn't see what the data was because these systems are so sensitive, even they don't have access to them.

That’s how things like this happen, as with USAID:

Krugman: So that's before they actually seized the building and told everybody to go home. They actually just stopped the payments. Wow. So I was going to offer a hypothetical, but I don't need to. That's an actual case. They just sort of made the judgment, decided we don't like USAID and without even telling the officials at USAID to stop paying the money or before we get around to that, we just tell the computer to stop making the payments.

emphasis added

If I were trying to come up with a metaphor that begins to approach just what is happening with Elon Musk and DOGE, between their access to government computer systems and mass firings of government employees, it’s as though hackers have taken over like a virus flooding through government computer systems while simultaneously given the government agencies a lobotomy that cripples their ability to cope with the insane demands being placed on them. They are not just breaking stuff — they are doing their best to make it impossible to fix it.

No part of government is safe from these looters and vandals. Digby is sounding an alarm about Social Security: Will Trump Let Him Do It?

Trump says that he won’t touch benefits. But he’s all for Elon eliminating waste. fraud and abuse in the program, all of which is defined by Elon. Here’s what he thinks of the program: The billionaire argued Friday on “The Joe Rogan Experience” podcast that the United States government is “one big pyramid scheme” before blasting Social Security as “the biggest Ponzi scheme of all time.” When asked to clarify, Musk said, “Well, people pay into Social Security and the money goes out of Social Security immediately, but the obligation for Social Security is your entire retirement career. If you look at the future obligations of Social Security, it far exceeds the tax revenue.” Musk, who oversees Trump’s cost-cutting initiative for federal spending, the Department of Government Efficiency, added that “people are living way longer than expected” and thus the government’s obligation to pay the debt “will be much worse in the future.”

And…

By the way, there’s already trouble on the way: Social Security has never missed a benefit payment since the program first began sending individuals monthly benefits more than eight decades ago. But the recent actions at the U.S. Social Security Administration by Elon Musk’s so-called Department of Government Efficiency are putting monthly benefit checks for more than 72.5 million Americans at risk, former commissioner and former Maryland governor Martin O’Malley told CNBC.com. “Ultimately, you’re going to see the system collapse and an interruption of benefits,” O’Malley said. “I believe you will see that within the next 30 to 90 days.” Ahead of any interruption in benefits, “people should start saving now,” O’Malley said.

It’s already happening. A friend of mine has stopped getting Social Security payments. The nearest office she could go to to sort out the problem has been closed. Good luck trying to get through on phone lines when there’s no one left to answer them.

Anyone who expects the Republican Party to stop this is living in an alternate reality. Even though Social Security is supposed to be the untouchable third rail in politics, all bets are off with the GOP traitors, wrecking crew, and looters now running the government.

Some of these are for subscribers only, but Krugman has a selection of free articles. It’s worth a look — here are some samples. (Several are limited access)

Cruel and Usual: Republicans Prepare to Gut Medicaid — And their own supporters will be among the biggest victims

..We’ll be hearing a lot of lies about Medicaid in the weeks ahead, starting with Trump’s arithmetically impossible claim last week that Medicaid won’t be “touched” by the planned spending cuts. So here are two things you should know about a program Trump and his allies have in their crosshairs: it’s extremely important to many Americans, and it’s much more cost-efficient than the rest of our health care system.

Why AI Spending Reminds Jim Chanos of the Fracking Bubble — Some of what I learned from the market veteran

Chanos compares the investment in A.I. to the huge investments in fracking — which were a problem because the returns peter out pretty quickly — production from fracked wells drops off pretty quickly but the bills still have to be paid for all of the heavy up-front investment.

..Forget that. How about the capital being employed? There better be something new. I mean, we're talking now for the just a top handful of companies doing $300 to $500 billion in capex [capital expenditures] annually. I mean, AI isn’t like the internet, which made things more capital efficient and raised returns on capital. So far, AI is doing the opposite. It is a massively capital-intensive business. Someone joked that the top tech companies are now looking like the oil frackers did in 2014, 2015, where more and more capital is chasing arguably a variable return.

A Belgian Congo Plan for Ukraine — Plus a conversation with Phillips O’Brien

..I wrote a couple of months ago about an old book by Norman Angell, The Great Illusion. Even in 1909 Angell argued, correctly, that conquest no longer paid. In a world in which a nation’s wealth rests on its ability to produce goods and services, seizing another country’s resources can never be worth enough to justify the money and blood expended to carry out the theft. Suppose that we indulge Trump’s fantasy that we could extract $500 billion — two and a half times Ukraine’s prewar annual GDP! — from the beleaguered nation. That would still be only 1.7 percent of annual U.S. GDP, and it would be spread over many years, so it would at most add a small fraction of one percent to U.S. national income.

The video conversation is fascinating; O’Brien points out that modern warfare has been completely upended. Tanks have proven spectacularly ineffective in Ukraine because of the logistics involved. It’s simply not cost-effective to fight with multi-million dollar weapons systems that can now be taken out with far cheaper drones. There’s much more in the chat. O’Brien and Krugman observe in passing that Trump is attempting to carve the world into spheres of influence, dominated by Russia, China — and the U.S. instead of a world structured around international cooperation. (It looks to me a lot like mobsters dividing up territory.)

From Orban to Trump, Part I: Talking with Kim Lane Scheppele — How Hungary foreshadowed dark times for America

Scheppele is an expert on Hungary. She lays out in detail how Victor Orban’s autogolpe playbook to turn Hungary into an illiberal democracy has been adapted and adopted by Republicans in America. One of the revelations Krugman uncovered during this chat was Angela Merkel’s role in facilitating the transformation — because of investments by German car companies that would have been upset by actions against Orban, she held off sanctions. It’s subscriber only, but worth the cost.

Chaos Is Bad for Business — Ignorance, megalomania and the economic future

Among the other items discussed is this little beauty being floated by the Musk/Trump regime:

..Most alarming of all, if it’s real: People within the administration appear to be floating the idea of restructuring U.S. debt via a “Mar-a-Lago Accord” that would force investors holding Treasury bills — short-term debt — to exchange them for 100-year bonds. This would effectively be a default on U.S. debt. Since the whole world financial system rests on the perceived safety of U.S. Treasuries, which are universally accepted as collateral for many transactions, such a move would threaten global economic chaos. But is the administration serious about this idea? Nobody knows.

emphasis added

When MAGA Meets Minsky — Laying the foundations for the next financial crisis

..But it’s also surely part of the effort to flood the zone — to do so many bad things at the same time that it’s hard to focus on any one outrage. And I’m sorry to say that this strategy often works. In a week in which Trump has firmly allied himself with Russian aggression while falsely claiming that millions of dead people receive Social Security, how many people noticed Tuesday’s executive order that appears to be an effort to strip the Federal Reserve of its ability to oversee and regulate Wall Street? This is, however, important. The Musk/Trump administration has been weakening financial regulation across the board. The Consumer Financial Protection Bureau, which aims to shield Americans from fraud, has been shut down. All of the agencies that try to supervise and regulate financial institutions, other than the Fed, are now being run by people hostile to the very idea of regulation. Cryptocurrency, which is rife with fraud and scams — indeed, the whole thing may be a scam — is now being actively promoted by the executive branch.

Krugman has been liberated by leaving The NY Times. These posts at Substack have allowed him to break free from the increasingly burdensome constraints and layers of editorial scrutiny that were being put on his writing. Krugman is both excited and horrified by the sheer amount of material he has to work with these days — and he’s now free to write and talk about it.

As I said up top, if you are not following Krugman, you are missing out on a lot. You may want to follow Nathan Tankus at Notes on the Crises. If you’ve been wondering why Donald Trump is talking about visiting Fort Knox to see if the gold is still there, see Tankus on A SCAM BUILT ATOP AN ACCOUNTING GIMMICK WRAPPED IN BULLSHIT: WHY VISITING FORT KNOX IS NOT ABOUT SELLING GOLD BUT IS ABOUT BUYING BITCOIN. It’s a bit heavy on financial arcana at times, but offers a perspective that the legacy media is not equipped to handle.

We live in interesting times.

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