MacroVoices #553 Brent Johnson: Disparate Housewives

Brent Johnson returns to MacroVoices to explain the unexpected strength in the US Dollar Index, which has broken above 102 despite widespread predictions of dollar weakness. He attributes this to three primary factors: the lack of attractive alternatives globally (Europe faces war and stagnation, Japan and China have their own problems), the world's continued need for dollars for international commerce, and the possibility that AI-driven growth expectations are supporting higher real rates and bond yields.

Johnson's central thesis, the "dollar milkshake theory," remains intact directionally even though the predicted sovereign debt crisis hasn't yet materialized. He argues that if such a crisis occurs, the dollar would likely spike higher, not lower, as global capital seeks the safest haven.

A significant portion of the discussion focuses on Johnson's new research report titled "Disparate Housewives," which examines the changing relationship between the Federal Reserve and the Treasury Department. Johnson argues that the historical separation of powers between these institutions is eroding, with Treasury Secretary Scott Besant increasingly entering monetary policy domains traditionally reserved for the Fed. He cites Besant's comments about being "the house now" and his emphasis that the Fed and Treasury "will work together" as evidence of a deliberate shift toward coordinated policy-making. Johnson characterizes this not as the Fed losing independence but as a strategic alignment driven by the need for unified action in great power competition with China.

The conversation explores a provocative scenario: the potential revaluation of US gold holdings from the historical price of $42 per ounce to market prices near $4,100 per ounce. Johnson explains how this accounting action, if executed with Fed cooperation, could theoretically inject trillions into the Treasury General Account. While acknowledging this seems extreme, he argues it represents an insurance policy the government maintains and that such tools could be deployed if needed during a sovereign debt crisis. He notes the USD still needs the banking system to function but suggests stablecoins represent emerging technology that could eventually shift power dynamics back toward the Treasury.

On interest rates, Johnson identifies three drivers of higher Treasury yields: reduced enthusiasm for Treasuries among global investors (though not wholesale rejection), the AI narrative suggesting potential growth and the possibility of debt sustainability, and passive portfolio mechanics that accelerate bond sell-offs as prices decline. He expresses concern not about rates rising in isolation but about the knock-on effects globally, using a poker analogy to argue that the US, as the "big stack," can absorb pain that would devastate smaller economies.

Regarding the geopolitical environment, Johnson positions the current era as analogous to the late 1940s-early 1950s Cold War period rather than the 1970s. He argues this framing suggests lower inflation than many expect, while emphasizing the seriousness of US-China competition. He notes that China's energy infrastructure advantages (nuclear power development, electricity output) position it formidably in the AI race, and that the outcome is not predetermined. He traces various Trump administration actions—chip sanctions, energy policy, Venezuela intervention, Iceland diplomacy—as derivatives of great power competition strategy.

Johnson draws parallels between the United States and the Roman Republic circa 120-60 BC, noting similar problems: foreign wars draining treasuries, inequality, political infighting, and cult of personalities. Crucially, he argues the more likely outcome mirrors Rome's transition to empire under a strongman rather than outright decline, with consolidated power replacing political division.

On AI and employment, Johnson rejects apocalyptic narratives while acknowledging short-term disruption risks. He predicts the government will likely expand universal basic income or welfare programs to manage unemployment displaced by automation, framing this as a probable outcome rather than a prescription.

The market desk segment analyzes current conditions: equity strength masking poor breadth (only 20% of stocks above 50-day moving averages), dollar strength continuing as path of least resistance, oil near $93 with thin inventory cushions and extreme short positioning, gold under pressure but potentially nearing accumulation levels, and natural gas facing record short positioning vulnerable to a squeeze if early winter materializes.