Tim Graf (TG): This is Street Signals, a weekly conversation about markets and macro brought to you by State Street Markets. I'm your host, Tim Graf, Head of Macro Strategy for Europe. Each week we talk about the latest insights from our award winning research as well as the current thinking from our strategists, traders, business leaders, clients and other experts from financial markets. If you listen to us and like what you're hearing, please subscribe. Leave us a good review, get in touch. It all helps us to improve what we offer. With that, here's what's on our minds this week.

Last week's podcast focused on some of the short term impacts that US fiscal and trade policy are set to have on political and market sentiment. Well, this week we're going to zoom out and look at how many of those same policies, as well as some of the emerging innovations in cryptocurrency and its relationship with the banking system, are poised to reorient the global economy and the global trading system and the role of the United States within and across it for decades, maybe even the next century.

And there are a few guests that I think are better suited to have that conversation with than Marvin Barth, an independent researcher and strategist whose insights are available through his website thematicmarkets.com as well as a second more freeform blog called “Seriously Marvin?!”. That's seriously marvin.substack.com. Marvin's approach lends itself perfectly to these big picture questions and you will come away from this having learned something, I guarantee it. I came away from it with more ideas for future episodes, so it's certainly not going to be the last time you hear from him. Enjoy. How's it going?

Marvin Barth (MB): Very well, thank you. How about yourself?

TG: Oh good. It's a little busy these days.

MB: I have the same problem.

TG: It's great to get you on here. I mean we had beers a few weeks ago and I was, you know, reading your work and first of all though, I wanted to just start with who you are, your background. You've obviously not been on this before.
People can find Marvin's work out there at Thematic Markets.

But just Marvin, why don't you talk about your background a bit? What have you done in life? What's taking you to where you are today?

MB: So I have a very path dependent but also I think quite diverse background.

So you know, just sort of through happenstance I ended up studying economics. Through further happenstance I decided to get a PhD in it, largely because I was underemployed, as I think is, is, is, the phrase. After I graduated from University. And after a couple of years working a bunch of odd jobs, I said, well, God, I got to do something. So I went and got a PhD in economics because I thought maybe that would make me employable. And I started my sort of professional career at the Fed.

They sent me to the bank for International Settlements in Basel, Switzerland. So I got to see how other central banks and how an international institution works.

I've worked in a variety of different sell and buy side roles across different asset classes, mostly in research. But you know, I did unsuccessfully launch my own Macro hedge fund at one point during that saga. And I also took some time to go back to Washington in a political role. I was the Chief Economist for International Affairs at the US Treasury Department for a couple of years. What has that meant for me? I think one, I have a very diverse view about what really drives financial markets because I've been in every aspect of the policy discussion from central banking, international institutions, to finance ministries. I've worked in pretty much every asset class, including illiquid asset classes. I have a very, what you might call fundamentalist view in terms of economics.

So most of my research goes back to sort of first principles in economics really, you know, trusting theory to help guide you, which I think is a huge advantage in the current environment where we have so many unprecedented things going on and so where so much of the field has trained itself on econometric models that need, you know, 20 plus years of data that's not very useful if this hasn't happened in two centuries or something like that. And, and so they're actually relying on theory and relying on all that experience across all those different institutions and asset markets is what I think is sort of my comparative advantage.

TG: Your time at the Fed, I mean, what was involved there and what have you carried with you from that experience? I mean, central banking, we're going to talk a bit about that hopefully, but it is kind of paramount in people's thinking. The Fed does seem to drive everything. We talked about this on our episode last week with our guest just about how influential the Fed is in driving markets even still, even as overcovered an institution as that is.

What do you still take from that experience?

MB: Well, look, the, the Fed is an amazing institution and you know, ultimately part of why I left was effectively because of such a, what a wonderful place it is, right? Like, you know, I had sort of approached the peak of my learning curve there and I could see that there weren't a huge amount of advancement opportunities given that nobody leaves because it's such a great place. So ironically it was that it was such a great place that drove me out. But I say that because what makes it such a great place, you know, one like, you know, when I finish my PhD, as you know, training for a PhD, you are basically trained to go be a professor somewhere. You are trained to be an academic.

You know, your advisors and everybody else are telling, you know, they want you to go to a top university. And you know, I was the top student coming out of my university that year. So you know, they really put a lot on me. And you know, basically the advice I got from everyone was, look, if you get into a top 10 university, top 10 economics department in the world, you go there. If not, you go to the Fed. So that tells you what quality of economists are going into the Fed. And then when you get there, the Fed is really good about allowing you to sort of self-select whether you're going to do more academic work. And they do plenty of academic work. I mean, I'm sure you've seen all the papers cited out of, out of the Fed.

They do really good, high quality academic work there. In fact, other economists from, even from the very best universes in the world like literally quake in their boots coming to present a paper at the Fed. Because these people actually know the data and really know the stuff. And they will drill you.

TG: Yeah.

MB: So you have that type of academic rigor on one side, but then they also like, look, if that's not your bag, then they give you more room to do policy work. And the Fed has a tremendous amount of potentially interesting policy work out there.

What I sort of took from that is one, I work with people of super high caliber intellectual who had a framework for thinking about everything. You had some people who were a little bit too academic, some people who were more oriented towards the policy, but everybody had a rigorous framework and everything was tested and thoroughly examined. And you know, one of the most formative experiences I had was I, my, my last job at the Fed for the last few years I was there was in the financial markets section, which, in the international side, which was the section that briefed the board every week when I was there. And so I was, there were four of us in there. So once every four weeks I'm sitting there in front of the board briefing them and nothing is put in front of the board that hasn't been reviewed by at least 20 people. Right.

So everything you think you're going to put in there, someone's challenged every thought you've had, challenged every word you used. And it really helps you think about all the things that you put into your research and how you come to your views in a really rigorous way. So I think that is the single biggest, most important thing I took away from the Fed. Yes, there's lots of stuff that I use all the time in my work about how the institution thinks, how it works, what they're likely to do. Obviously I learned all of those sorts of things, but in terms of personally, what I learned from it was that it's just a level of rigor you won't find anywhere else.

TG: That's actually great because I was trying to figure out a way to shoehorn monetary policy and what you make of it right now into this conversation. And that's where we're going to close. For those who are listening, park what Marvin has just said. But actually, Marvin, the topic I thought we'd talk about and for those listening, Marv and I had beers about a month ago and just getting to know each other a little bit ahead of this. And we had a lot of interesting conversations that I think we're going to touch on, but most of them to do with the current policy framework pursued by the United States, pursued by the Trump administration.

We've got a big thinker who focuses on the long term. And so inspired actually by a previous guest I had, Ben Ashby about six months ago, he took the view that at the time was starting to become quite controversial, that this was, we’re poised for maybe another American century.

And at the time especially we were starting to think about rotating away from the US and the death of American exceptionalism. But he kind of took the opposite side of that and that's what we're really going to tease out for this week's episode.

As an opening proposition, I would put it to you, Marvin, do you think that's likely that we are on the cusp of another American century? Or are you more of the.

Yes, the, the diminishment of the dollar and the appeal of US assets is now lost.

Where do you come out on this? And then we'll start to dig into the kind of whys of that and the various aspects of it.

MB: Do I have to pick one side or the other or can I?

TG: You don't.

MB: No. And, and I think classic economist and say on one hand, but on the other.

Well, look, I say that because I, I think to your point, I probably come down more on Ben Ashby's side in general as sort of a mean trend. But there's a huge amount of caveats associated with that. So I have a research product called Thematic Markets. Why is it thematic? Well, because I think themes drive markets, and. And I differentiate themes from narratives. Narratives are things, stories that markets tell themselves because they can't explain something.

Themes are the actual things driving the underlying process, and those are often unobserved. And one of the big themes that I have been emphasizing for the last at least decade, maybe longer, is uncertainty. And uncertainty is really a concept, but it is an important theme. And uncertainty, I mean, in a very specific mathematical definition. So, you know, I'm a huge fan of Keynes Framework for analyzing and thinking about risk. So long before he wrote the general theory, he wrote a treatise on probability back in 1921. And he defines risk as into or delineates it into three buckets. So you've got objective risk, which is one where you know the probability. So when you go to a blackjack table, you know what the probability of getting an ace is, right? Then you have subjective risk. You have things that are a little bit less clear.

You know, what is the chance that we're going to have an earthquake in California, where I grew up? Right. You know, we have data on that. We can sort of put some numbers around it, but, you know, we don't know precisely. Uncertainty is where you have no idea. You cannot quantify it. In fact, you may not even know what's on the menu. So, like, you know, my favorite example of that is COVID.

Like, if, if we had had a discussion in December 2019, hey, you know what? Guess what? In three months, seven billion people are going to be on lockdown. You would have said I was crazy because that's not even on the menu. And yet it was.

I'm sorry for that preamble, but that's important to understand how I think about this question about is this potentially another American century in that the US Is in a very dangerous position? I think it has a lot of serious fundamental problems.

Society is fraying in many different ways. It has put itself in an unsustainable debt position.

And because of the fraying of its society, it's really difficult to get control of that in the same way that it was able to after, say, World War II. There are increasing problems with many of its strengths, its universities, its means of doing science.

You know, I think there's a lot of people who are actually questioning what it means to be an American anymore. Right. So the good news is the US has been through all those sort of problems before, right? Or at least many of them, and has been able to work itself out, but those are still serious problems and the US could blow itself up very readily. But you and I are currency guys, right? And one of the things you, you learn from currency is that everything is a relative game. So when I look around the rest of the world, I mean, Europe seems to be in a suicide pact with itself.

You know, people talked about emerging markets and their rise, but when you actually look at it, most of their rise was really due to globalization and due to effectively, technology transfer, total factor productivity transfer, and capital from advanced economies to these economies. As that slowed and has been ebbing for the last decade and a half. What we've seen is that EM hasn't really gone anywhere as a result. So then there's China. China right now is, is clearly the strongest, most capable nation out there, but there are underlying problems there. Right. You know, their model has been one of state control that was effectively putting a primacy on catching up with the US at all costs. And so they have a lot of embedded losses and debt in the system, similar to, although on a far greater scale than what Japan faced going into its lost decade.

And in that sense, when you look at what's going on in the US look, it's still innovating, it's still creating new things. When you look at all the Trump policies, whether you like them or not, they're shaking things up, they're changing.
What were the serious embedded problems in the system? Donald Trump, like him or hate him, whichever, he has fundamentally changed America already.
And that shaking up just in and of itself is a good thing that unleashes a lot of the potential power that is just embedded in a place that got lucky to be invested with incredible natural resources, incredible defensive position in the geographically in the world, and has a relatively high caliber workforce.

TG: It's that shaking up, I think, that has prompted this discussion of whether it's another American century or whether the US is as attractive an investment destination or whether the dollar will retain its primacy. And it's the trade side of things. And you talked about globalization because that for me is kind of the catalyst that has shaken people to this into this realization that the world has changed.

Like it or not, things are going to be different. And thinking about the US as trade policy, and this is not, you know, last week was the discussion of, oh, what's the effective tariff rate going to be? We're not going to do that.

Actually, I'm much more curious what you think about how successful Trump or future presidents, as you say, his solutions may not be the ultimate solutions. But how successful do you think the efforts ongoing, as well as in the future, will be in reorienting the trading system? And how successful do you think they will be in pushing against this tide of globalization that does feel as though it's crested, but maybe it's. It's not necessarily complete.

MB: So, look, there's a lot to unpack there, Tim.

TG: I ask the big questions.

MB: Yes, you do. Let's, let's come back to specifically the whole dollar question, because I think that's a really interesting one. And some of the innovations that are taking place there are, I think, amazing and a huge underappreciated issue in markets. But let's just take the tariff one. So I'll tell you a funny story.

So on Liberation Day, I happened to be at a lecture by a very prominent economist who was actually my dissertation advisor, Valerie Ramey, who's done amazing work on fiscal policy. The lecture was on fiscal policy and what fiscal multipliers are for transfer payments versus military spending versus infrastructure spending versus tax hikes. You know, what are the economic effects of raising taxes? In different. And they all do have differential effects, right. And afterwards there was a dinner with, you know, very illustrious economists around the table, including a Nobel laureate. And it happened to be on Liberation Day. And, you know, tariffs are a tax, right. So I asked the obvious question. Well, okay, what's the multiplier on tariffs? Crickets.

You know, nobody had thought of this question, right? And I'm not trying to slake all these economies that, you know, they're very thoughtful, but this, I think, talks to you. And actually, Valerie in her lecture was really interesting. She was talking about how until the global financial crisis, actually the whole train of Keynesian analysis on multipliers of fiscal policy had sort of gone by the wayside for a couple of decades, and it had to sort of be reinvented and, and rethought. Well, this has been the same thing with tariffs.

So the immediate out of the gate perspective everyone had is, oh my gosh, tariffs are terrible. They're such an awful thing. Look at how much the world has grown because we lowered tariffs. And, you know, one, I could challenge, you know, how much of the growth in global trade and growth overall was actually driven by the fallen tariffs and how much was driven by changes in technology that made it feasible to have an extended supply chain. I mean, you go back to the 1950s where you're writing things down on a piece of paper. 1950s isn't that long ago. You could not have the type of supply chains we have now, what made that possible was the personal computer. That's what caused globalization period. Was not. Had nothing to do with tariffs. Tariffs were a small part of the. Shouldn't say nothing to do it.

Tariffs were a small part of the story.

And one of the things I think has been incredibly important in driving US growth and the rise in real interest rates over the last decade. And yes, real interest rates, if you look, they actually did bottom out a decade ago and started to turn then was what I call localization, which is that further technological change means that it's increasingly more efficient to use automation, whether it's AI or robots, than it is to use humans. And as that happens, that undermines the entire thesis for trade because trade is all about specialization of labor. Well, I don't need specialized labor.

And this is what's been driving a lot of the growth and investment in the United States. And so in that world, why do you care so much about tariffs? Right?

So after that dinner, I did go do the work. And when you look at it, the multipliers on tariffs are like literally an order of magnitude lower than they are on income taxes. So the best work on income tax multipliers is that it's minus two to minus three.

What that means is that for every dollar you raise in taxes, you reduce economic growth by $2-$3.

Okay, the same thing for tariffs. You reduce it by 30 cents to 70 cents. It's just not anywhere near. I think that's a really fundamental thing that, you know, people need to accept. One, we aren't living in the same world that we lived in before. Technology has changed in a way such that trade will be less important for many things. It'll still be very important for commodities, it'll still be very important for technology, i.e., you know, innovation centers trading their technology with other places. But the actual manufacturing of things and even a lot of services is going to be done much more locally using automation. And as a result, especially for a highly indebted country like the United States, if frankly they can raise revenue with less of a growth effect from tariffs, that's actually a smart move and they should be doing it.

TG: The question I have that follows on from that then is the, the external balances of the various countries, and I mean, effectively we're talking about the US And China on the other side. Does that, in your view then lead to a natural closing and will presidents or leaders in the future be successful enough in their policy aims at forcing that closure, or is it something that you see happening kind of organically as a result of the policies being pursued at the moment and the efforts to, I don't know, take away the emphasis on supply chains globally and reshoring.

MB: Or let me go back to what I said earlier, that, you know, I'm a fundamentalist when it comes to economics, right? So let's go back to International Econ 101, which is that international imbalances are the result of an accounting identity, right? So the current account balance equals national savings minus national investment. The little sort of interesting side note I'd note about that is I'm seeing all sorts of commentary now about, oh yeah, look at the latest trade numbers. You know, China's just rerouting everything through other countries. And that's because they show that, oh, China's exports to the US went down and everybody else's exports went up. And I'm like, well, yeah, because we've got that silly little thing called an accounting identity.

So unless the US changed its savings or investment dramatically, if you have less imports from China, you have to have more from somewhere else or you have to have fewer US exports, one or the other, something, one of those things has to happen. That doesn't actually mean that there's a rerouting, right? So I think that's an important little note for people to take, take account of. And the reason why that's important to your underlying question is that the US has had these persistent imbalances, right? This is one of the big, big problems. Like, you know, US has had a current account deficit for what, 40 years or something.

So there is a structural issue there. And one of the structural issues there is that on a risk adjusted basis, the US just grows faster than everybody else. Actually the mathematics of it work, right? Like the US has taken it to an extreme right now and it needs to rein in its unsustainable debts. But if the US persistently grows faster and can generate higher risk adjusted returns for the rest of the world's investment in the United States to pay that back, there's nothing that should cap the US ever turning back to having a surplus. There's no reason for that because its economy just keeps growing with the debt. Okay?

So I'm not sure that I see the conditions for that to change given our earlier debt discussion. But what you are trying to do here is recognize that other economies out there, and I think, you know, China's is the hulking gorilla in the corner in this one.

But there's been plenty of other economies out there that have done this, have artificially suppressed their savings to promote export oriented growth policies that have misallocated capital globally. So one of the big complaints you'll hear people say about tariffs is, oh, this is a misallocation of capital.

Americans are going to start doing things that they're comparatively less good at.

We don't know what they're comparatively less good at because everybody else had distortionary policies as well that were creating their big surpluses.

The center for Strategic and International Studies underestimates this. I don't think they fully account for all the implicit credit guarantees and subsidies through the banking system.

Estimates that China has been on an annual basis providing about two percentage points of GDP in subsidies to its industries. Well, that's a massive distortion. It's like a distortion on a scale we've never seen in economic history. As far as we can tell.

That's really the underlying crucial issue about these sort of trade policies is are they reorienting the US and other economies? Because I think other economies are going to follow back towards more balanced domestic production in a world that we are seeing as far less certain. And so you shouldn't be able to count on global supply chains or you're certainly not going to be able to. And it's really just about building resiliency.

TG: I think my previous question really was about the accounting identity. And that then takes us into the realm of something you mentioned with respect to fiscal policy in the US' debts. It's the notion that during this discussion of trade a few months ago that oh well, China can retaliate by selling their treasuries. Like that always gets mood-ed. It's like, okay, yeah, but ultimately someone's going to be buying them because it's not as though, you know, the accounting identity has to work. It has to balance capital, the capital account has to offset the current account.

So someone's going to be buying them. You may not like the price at which they're going to be bought and the price might have to adjust as account as, you know, a factor within that. But it really then comes to that structural question of what the external balance situation looks like. And then we get into the realm of fiscal policy and you alluded to the debts that, that the US is running. And that's where I wanted to take this next, which is actually why and how the fixed income markets have in my view at least remained quite benign as a lot of this is going on. Of course you had volatility on Liberation Day and the week after and there's been this discussion of the US is living beyond its means which look, that's probably a fair assessment given its, its overall debt level. But term premia as is, is, bandied about as what needs to adjust. And it's adjusted a bit to the scale, I might have thought, for the rhetoric involved.

Why do you think that hasn't really happened? Why in my view are yields so well contained? Or am I wrong about that?

MB: So first, let's start with your point about somebody else has to buy.

I was at a conference at the Central Bank of Ireland in May, an annual conference between the national association for Business Economists in the US and the euro system. And there was a, one of my former colleagues from the Fed there who runs the Financial Stability division and he was on a panel and he, and this was just after the whole Liberation Day, mass sell off of Treasuries and everyone talking about crisis. And he was completely nonchalant. He's like, look, every single thing that I wrote in my last financial stability report about all the things I worried about in treasury market, none of them happened.

Prices changed, that's it, you know, it all worked. So when people say, oh, you know, we're not, you can't trust US financial US institutions any longer or things like that, look, there was a radical change in US policy on a lot of different fronts. And that is something that should require an additional risk premium. And I think we've seen that there are sort of two big things I look at that testify to this. So 30 year, 10 year spreads, that's very much just pure term premium, right? Nobody's thinking any sort of cyclical effects that far out, right? So you have seen those rise about 30 basis points since the start of the year.

Ten year swap spreads, another potential measure, those have risen about 10 basis points. So we are seeing it, and we are finally, I think to your point, just getting back to levels of term premia. And by the way, I hate this term premia model, of like ACM. They're, they're garbage. They are complete garbage in, garbage out. Do not pay any attention to them. They might get the direction right, but they are absolutely terrible on level. But if you look at like things like these spreads, I'm talking about level adjusted, they are starting to get back to the range they were in the late 80s, early 90s. Okay?

So that's normal to me now remember that that was following a big period of, you know, bond market turmoil in the early 80s. So you know, they were actually, you know, healthy premium. So in that sense, I would say we actually have pretty healthy premium baked in. So I might push back on you a little bit that we, that we haven't seen a movement. We actually have seen more of a move. But to your fiscal point, I think what's really interesting here is there is a tremendous disparity between the reaction of the commentariat and officialdom to any type of tax cutting policies relative to any spending policy. Spending. Oh, Germany spending more. This is a good thing. Yay.

But then I just point to Argentina, right? And all of those same economists were telling us that Argentina was going to be a disaster under Milei's policy. Exact opposite. And this is not a fluke. So one of the veins of economic research that I cite over and over and over again on this issue is the so called Italians. So the late Alberto Alassina and not late hope, hopefully not anytime soon. Francesco Javazi. Their work looking across economies over 30 years, across OECD economies and they show over and over and over again that the only real effective manner to deal with excessive debts is radical spending cuts. That's it. It's the only possible feasible path. Raising taxes never works.

Okay, I give this sort of rant, I'm sorry because I look at what people are complaining about with The Big Beautiful Bill and look, it goes nowhere near far enough in terms of getting the US back towards a sustainable path. But unfortunately the US you know, it's all for political reasons. They dress it up. They have this, this 10 year window relative to legislation. And so the Congressional Budget Office scoring is, well, relative to what we had legislated before.

This is what the effect is on all these things. And we could argue about their economic assumptions. I'm not going to. It's, it actually doesn't make a huge difference. What does make a big difference is you have to remember that that existing legislation was Congress some years ago gaming the whole 10 year window system to say hey, we're going to have all the fiscal consolidation at the end of this period. And then wow, they unwound that. They didn't actually go through with that. Shocking. So yes, of course relative to that this is a massive expansion of the budget deficit. But that's irrelevant. What's relevant is what happens relative to 2024. I haven't done the final Senate accounting, so this, this. Let me issue a caveat here. This may be subject to some amendment, but I don't think it's going to be a big issue.

But if I look at the CBO's numbers year by year on what happens in 25 and 26, i.e. the period of this Congress, which is really what's relevant because that's, that's the stuff that's probably not going to change a lot. Yeah, you have only the second decline in nominal spending in the United States since 1965. Since we have detailed records, actually The Big Beautiful Bill is doing something we never see. They're actually cutting spending now. It's nowhere near enough. And in fact, you actually do have a decline in the deficit in, you know, year on year revenue versus year on year expenditures for 2025, less so for 2026, although still a slight improvement in the deficit. Again, nowhere near what we need to see.

But I would be looking at this and saying, wow, I'm actually seeing the first signs from the US that they're actually willing to do something about their spending problem, because that's what it is. It's a spending problem.

TG: And it's. As you talked about before, we're currency guys. It's all relative. Other countries are also spending, or we'd really like them to. You know, I think one of the aims of the Trump administration is especially on defense, to get that to happen. That you alluded to Germany and looks like it is happening.

But thinking about the currency question, and I wanted to, you know, as a kind of the meat of the discussion, actually Marvin's written something really interesting with regards to currency and specifically crypto policy, but as the sort of entree into that, it's fiscal policy and fiscal policy as it pertains to currency in terms of, again, going to this theme of the US at the center of the global financial system and whether it maintains that and whether the dollar maintains its primacy. And like I think it's received wisdom, we don't need to spend a lot of time on the notion that the dollar's share of reserves is probably going to keep declining. That's just kind of natural. As the rest of the world grows. Take that as red.

The spending question, it not being necessarily enough in terms of curtailing spending, does that contribute in any meaningful way over the future towards that diminishment of reserve status or lower percentage of currency reserves held by institutions in dollars, does that accelerate it in any meaningful way?

MB: It will. I don't think it has yet. So I think one thing that's really important for people to think about in terms of the reserve numbers are that it's hard because a lot of countries don't provide any sort of reserve breakdown. The reality is that as far as we can tell from the Large holders who do provide detailed information that really the decline in dollar reserves is almost entirely Russia, China, and to a small extent India. India is an interesting story there. So this is really a geopolitical issue. This is not actually a, oh, the dollar is losing its status. We don't want to hold things that you guys just seized when we went to war. Yeah, yeah, okay, great. Which by the way, they didn't go out and rush out and buy euros either because the Europeans are the ones holding the assets.

So I think that's an important point. The other is, you know, you see all these stories about gold being the new reserve curve and everyone doing this. Again, if you look at the actual gold holdings data, the first thing you notice is that central banks rarely ever change their actual holdings. Like the number of troy ounces in their holdings is a flat line.

This huge surge in gold as a share of reserves has been, lo and behold, the price of gold went up. Did you know that, Tim? Did you know the price of gold went up?

TG: It's, it's occurred to me that, yeah, I saw a chart on that not long ago.

MB: Now that's not everyone. There are a few, again, you can look at this. There are a few central banks, gosh, the ones that I just mentioned that, you know, supposedly are diversifying from dollars, but are actually diversifying into a dollar denominated asset.

I don't know, maybe that's just dollars held in a different form. Is, is, is really China, Russia and you know, there's the checks and a couple of others. India is a big buyer. Remember, India is the largest gold importer in the world and they always historically had a much higher share of their reserves in gold. In the early 2010s they reversed that, that policy. They're basically rebuilding back to where they were. That's it.

So again, I don't even see the dollar story. I think a more realistic indicator of the dollar status globally is, hey, take a look at stablecoins. What do people, what do average everyday people on the street around the world want to hold? Dollars? Period, end of story. 90 percent of the value of outstanding stablecoins is dollars.

And it is a key growth area for, for remittances globally. It's one of the fastest forms of growth of remittances is dollar remittances via stablecoin. That right there should tell you everything you need to know about where the dollar is going and whether it's lost any of its status. It hasn't.

TG: Yeah, this, this is What I really wanted to talk to you about all of this before. Yeah, it's all well and good, but this is actually, this is the key question for me because it comes, it's crypto and I'm not talking about Bitcoin. It's stablecoins.
They address so many of the things that we've talked about already, or at least they have adjacencies to maybe they don't address them. We're going to get your thoughts on that.

And I'll start with the comment Scott Besant made about there being stablecoins that is being a source of demand for treasuries, potentially able to suppress yields. But then also I think more importantly, first of all, I want to get your thoughts on that. But also more importantly this dollar question about how well and this has been brought up. I had Mark Sobel, who used to be the Treasury's my old colleague. Yes. Yep. We talked about this last year as well. You know, crypto is not a competitor to the dollar. It is likely going to boost the dollar. And he was saying this, and I'm pretty sure you were saying this a long time ago. And so that's what I wanted to kind of get to here, which is first of all on the yield question or the source of demand for Treasuries. Let's address that quickly.

Do you think the rise of stablecoins actually might curtail or cap US Funding costs just through the demand channel?

MB: I don't think so. And the reason for that is, I mean, this goes back to your earlier point about China dumping their Treasuries and somebody else has to buy them.

If you are moving from a banking system deposit to a stablecoin deposit, well, the bank either is going to have to curtail credit, which they're probably going to try and avoid. This is going to be a long, prolonged process. I had written some stuff, as you said, describing how this happens, but in the end, the bank is effectively going to have to go out and issue debt to replace its lost deposits. So yes, you're seeing something.

One hand is absorbing T bills, the other hand is issuing new bank debt.

The net effect in terms of overall interest rates is probably pretty neutral.

It does raise credit spreads. Right, because you're taking away the credit safe asset and replacing it with a credit instrument. But the effect on overall industry, it's probably, probably minimal.

TG: Yeah.

So let's then talk about the bigger picture questions. And again, this is a piece from Marvin Substack, revolutionary Money in Banking. It's well worth your Time to have a look and to subscribe.

I wanted to see if you could address what you've written about stablecoins and their potential and where this can all head and, and whether do you think this is really a happy accident of policy being pursued or is this intentional what the US is doing with respect to its stablecoin promotion?

MB: I mean there, there, there's a lot of things that you look at in the, the Trump administration is doing and you're just like, is just, is this just lucky happenstance? Like, is there really a means behind it? And this is one of those ones where you do it. You're like, is this literally just that Trump saw a constituency out there that he could take advantage of in the electoral framework, or is there a broader thought behind this?

They say enough things and you pick up enough little signals here and there that at least somebody somewhere in the administration is thinking about these things.

So you mentioned Scott Bessant talking about, oh yeah, we're going to get people to buy all these T bills and you know, frankly, two trillion or three trillion, these numbers that, you know, he's, he said two trillion. I've seen other bank estimates saying like three trillion. And I'm like, you guys are smoking crack. If you do a full transition to get M1 replaced, fully bankrupt, backed by high quality liquid assets, assuming those are mostly treasury, you're talking 12 trillion.

This is, this is not a small number. This is huge. So they're, they've clearly thought through that part. But then you see other things they're talking about like you know, Scott Bessant also makes very clear, hey, to the point you raised with, with, with Mark Sobel saying, and what I've said as well, no, actually this makes the dollar dominant. Right? They have thought through this. And I first, like, you know, credit or credit is due. Although I can't mention his name, he asked me not, not to because he works for another institution.

A former employee of mine was, pointed this out to me about two, three years ago. Like I was very bearish on crypto in general. I said, look, the end game in this is zero. Never bet against the sovereign. The sovereigns will hunt you down and they will take your money. But he said that's not the issue, it's the payment rails they build. And there is an increasing consensus building in parts of the US Government that hey, actually the way to ensure dollar dominance after you've done things like all these sanctions and politicize or geo-politicizing SWIFT is to have an independent third party payment system.

And if your currency is the dominant currency on that, guess what, you won, right?

And this is frankly what is going to happen once the Genius Act or the Stable Act Pass and you have regulated, audited stablecoins that anybody in the world can count on. The fact that these things hold actual real assets and they're audited and they're looked over by a financial regulator in a first tier country and they're all dollars, everyone in the world is going to start transacting, you know, all your foreign exchange transaction, all these things on a retail business are going to do that.

You know, a good friend of mine runs the top institutional crypto exchange, bullish, he's a former oil trader and you know, he was telling me, look, all these people from my old life are coming to talk to me about this stuff because oil majors now are transacting on the blockchain, right? Because it's easier for them. So this is where things are going to go. It is massive and it has immense implications not only for sustained dollar dominance, and it will be dollar dominance unless the US blows itself up fiscally, which as we said is still possible.

But it also raises all sorts of questions. I mean, like, you know, one of the issues I get into is this, this creates huge risks for other unstable monetary systems. And one of the big unstable monetary systems out there is the euro area, right? They still do not have a fiscal union backing their monetary union. And now that Germany's decided to go spend like a drunken sailor, there's no fiscal backstop anywhere in Europe anymore. So this is a real big background threat that I don't think people have thought through fully yet.

TG: Yeah, it's always been the response and it's the classic response to the question of dollar dominance is, well, who else, you know, your other large economy has a closed capital account, effectively a third large economy that could potentially do it has these fiscal issues and is not a proper fiscal union.

Just thinking about the question of how the US goes about this, can we talk just very briefly because we are, I'm taking up a lot of your time here, but the mechanics of what we're talking about with respect to pursuing stablecoins and achieving dollar dominance, how mechanically does that happen?

MB: You know, to some extent it's a fortuitous set of events for the US, right? Like this sort of fell into their lap in a sense. And in the piece that you reference, I, you know, I talk about sort of the shift in political economy that, you know, one, you've had this building populist movement in the US for over a decade, Anger over the global financial system and banks and a sense that, you know, banks and policymakers were pursuing policies that help them but not the average person. All of that sort of provided a real foundation for hey, we want to move back to a hard money regime where my deposits are backed by real assets 100 percent. Right.

At the same time the growth of crypto wealth out there, right like, you know, seen it all over the place.

Some people have gotten fantastically wealthy from crypto and they are now actually an effective capital lobby to counter the banking system which was always one of the biggest and most important lobbies in, in the United States. So that political economy shifted and then meanwhile, completely without anybody doing anything to, to create this, you have the development of these things called stablecoins that originally and still are 90 percent, a little, a little over 90 percent mostly trading in the platform itself between cryptocurrencies. But there is a, as I mentioned, a large and growing share of transactions are real world transactions. Remittances are a huge fast growing area as mentioned. Another one is in a lot of economies like Nigeria, Argentina, Venezuela. Places where you do not have a stable monetary regime and you cannot trust the local authorities.

Increasingly people are using dollar stablecoins to, to transact. And so once that happens you have sort of a critical mass and all that was missing is actually a trust enhancing regulator in the background. The US does that. This really starts to take off. Now that creates a threat to not just foreign banking systems, but to the US banking system. Right. Because if you really did have that, hey, a stablecoin is every bit as good as any other dollar and you could have one that's fully backed by asset like safe liquid assets versus bank loans that you wonder what the heck's package behind that thing. Especially after 2008.

You know, you could imagine that deposit flight out of the US banking system takes place pretty quickly. So both the Stable Act and the Genius Act have built in a lot of protections for the banking system. So one is a, one thing that qualifies as a high quality liquid asset is an FDIC insured bank deposit. There are. The other thing is, is that stable coins do not have access to the Fed where a bank does. Now there's an intriguing sign that that might change in the future in that one of the designated high quality liquid assets that they're allowed to hold is a reserve.

TG: Yeah.

MB: At the Federal Reserve. Well, gosh, that's kind of hard to do if you're not allowed access to.

TG: The Fed, yeah, that was actually going to be my next question is what role and where is the Fed on this? You know, thinking about your experience there, but I'm sure contacts you still have, what is their role to play and where are they at with this?

MB: So officially they don't have a position in this. You know, they are monitoring it and you know, they've just come up with this fancy new payment system, Fed now, which, you know, ultimately does empower the banks to do rapid, real time growth, you know, instantaneous, real time gross settlement, which is the big advantage that stablecoins would have over banks.

So at this point, they don't have a significant view or, or position how they would actually conduct monetary policy going forward in the system. That, that gets much more complicated and interesting. We could have a whole discussion about that.

But I will say that I have heard rumors that internally they're like, oh, yeah, no, this is going to take over. They have been thinking about this and do have, I think more developed views than they let on in public.

TG: Yep. As you say.

MB: And it's one of those, Sorry, it's one of those things where it's, it's not, hey, we want to see this happen. It's, oh my gosh, we look at this and we see that's what is going to happen.

TG: Yeah, well, you said, as you said, it's an impressive institution. They look at everything, they cover everything, they come at it from every single angle and everything is vetted 20 times over. I promised we would talk about the Fed. We have. But actually I have one last question and I know we are at an hour, so I'm.

This is probably better for a part two, maybe another time. In 6-12 months, maybe. But you've also written about the thinking on Trump's approach to the Fed and how it may not be exactly what people perceive it to be.

Can you sum up just to finish the podcast where you think he might head in terms of his choice to replace Powell?

MB: Whatever you want to say about Donald Trump, everybody loves to talk about how much he lies and things like that. And really most of the things that you would say are his lies are really basically exaggerations and misdirection. And he does it all the time. But on the things that his voters care about, what were his actual campaign promises? He has a remarkable record of keeping them. I'm going to get rid of the immigrants. He's doing that right. You know, I'm going to cut every taxes on tips, overtime and Social Security. He does that go down the list he is trying to keep his policy.

So it's really strange that one of his voters top priorities is inflation and he's sitting there, you know, haranguing the Fed chief that he should be lowering interest rates when these guys have completely blown it on inflation. You know, I talked about how great the Fed is, but frankly, I think they have completely blown it in the last few years and I don't think that they should have cut last fall.

But it seems strange and I think, you know, go back to this point, that a lot of his rhetoric is misdirection. You know, think about the crazy back and forth that happened with Iran and then in the end, oh no, everything's great, we're all settled, we're done. You have to remember that everything he says is an act. And if he really is intent on keeping his policy, his promises to his voters, and you think through what his incentives are when he actually does have a chance to replace the Fed chair, in which case it won't, it's too late to have any real impact on the midterms by, you know, the middle of 2026, it will. Given the long and variable lags, he's actually better off appointing a hawk.

But there's still good reason for him to attack Powell now politically. I mean, there's two big things he gets. One, if we do have a recession, he gets to blame Powell.

Right? That's a big one. The second thing is, is that inflation in the last two months has shockingly fallen quite dramatically and nobody's talking about it. Well, one of the things Trump loves to do to get people to talk about things they're not is say something really controversial.

Hey, look at how much inflation has fallen and the Fed hasn't cut. That Powell guy has to go. Well, all of a sudden everybody has to talk about how much inflation has fallen when he became president right now that it has nothing to do with them.

Doesn't matter.

The point is he has strong incentives to pursue the anti-Powell line and talk about appointing a dove, but when it really gets down to when he gets to appoint that person, it's not clear to me he will appoint a dove.

TG: To be continued. There's a lot here, Marvin. There is always so much interesting stuff that you write about and I'm guessing when we do this again, there will be loads more to talk about. Marvin's substack is Thematic Markets. He also has A blog, Seriously, Marvin, which I love the title, and B, love the content. It's a bit more experimental. Marvin Barth this has been amazing. We're going to do this again. Thank you so much.

MB: Thank you. I really appreciate the time and would love to come back.

TG: Thanks for listening to Street Signals. Clients can find this podcast and all of our research at our web portal Insights. There you'll be able to find all of our latest thinking on markets where we leverage our deep experience in research on investor behavior, inflation, media, sentiment and risk, all of which goes into building an award winning strategy product. And again, if you like what you've heard, please subscribe wherever you get your podcasts and leave us a review. We'll see you next time.