After the Dollar Cleared 102, I Crossed "The Fed Is Out of Bullets" Off My List

Contents

1. The queue I had already joined
2. The big stack at the table
3. Where I’ve landed, and what I still don’t know
4. Worth a look
5. One Thing to Take Away

A good steward of the state makes high what the world holds low, and heavy what the world holds light. … A single bolt of plain Chinese silk brings back from the Xiongnu goods worth many times its weight in gold, and drains the rival state’s means.

—— Huan Kuan, Discourses on Salt and Iron, “On Farming” (Western Han, c. 81 BCE; translated by the author)

MacroVoices Episode 553, produced on 8 October 2026, brought Santiago Capital founder Brent Johnson back after the dollar index closed above 102, to explain why he still sees room above. He also discussed his firm’s note titled “Desperate Housewives” — about a Treasury and a Fed moving from separate lanes toward “we will work together” — and walked through one piece of arithmetic: roughly 8,000 tons of U.S. gold still sit on the books at $42 an ounce, and marking it to the day’s roughly $4,100 would credit about a trillion dollars into the Treasury’s account in an afternoon. He said twice that he does not expect it, only that he cannot rule it out. Every figure here is that week’s market price, so the conclusions have to be rerun when conditions move.

The queue I had already joined

What I thought going in was embarrassingly simple: a new Fed chair, political pressure to cut, a deficit sitting there, central banks buying metal — therefore dollar down, gold up. I had joined that queue and filed the question as settled, mostly because so many people I read were saying the same thing. I had read “lots of agreement” as “already verified.”

There was a second habit attached to it. Whenever the conversation reached the extreme scenarios, my line was “the Fed doesn’t have much left.” I had written that sentence and said it out loud without ever asking what would have to be true for it to hold.

Then late September into October happened, the dollar broke out instead of breaking down, and the euro cut through a row of supports on the way to a lower low. My first explanation was “short-term noise” — a word with no acceptance criteria attached to it, which is how I know I was protecting the position rather than testing it.

The big stack at the table

Johnson’s first layer is straightforward: markets have been demanding higher rates, and the incoming Fed chair, to establish credibility early, went the other way from what many expected over the summer and raised. Higher rates support the dollar.

The layer he spent real time on matters more to me: where capital goes is decided by comparison, not by calculation. He goes through the alternatives one at a time. Europe has a war on its border, thin growth, and a political union without a fiscal union. Japan’s old problems are still there, which makes it something short of a safe haven. China’s market is half open, and getting in while a trade war runs carries a different class of risk. Then he adds the piece I stopped and sat with: much of the world sells into the United States in dollars, so it earns dollars and has borrowed in dollars, and to match liabilities against revenue without becoming a full-time currency trader, it stores value in dollars. That plumbing creates a standing bid.

A third layer he flags as not his base case but not excludable: part of the move in yields may be the AI build-out saying the great reset gets postponed. If this technology delivers a step change in growth, then sitting in bonds has a higher opportunity cost, and holders want paying more. I am half convinced, but it does resolve something that had been bothering me — several people I trust have said the data do not look like an inflation problem. If it is not inflation and yields are still rising, something else has to be doing the work, and “the cost of missing growth” is a candidate.

The best stretch of the episode is the poker frame. The United States is still the big stack at the table, and when the blinds go up, the big stack is hurt less than the short stacks. He has a slide showing a distribution: once you take the far-left tail — becoming the short stack — off the table, taking some damage along the way matters less, because everyone else is taking more. He is careful to say this is what he sees rather than what he wants. What it changed for me is where I look: U.S. rates rising is a large event, but the breakage probably shows up elsewhere, in the European, South American and Asian rates that are also climbing without a big stack behind them.

Two more points belong together. One is the mechanical effect of passive flows. The version everyone knows is how a constant bid lifts equities; the same machinery runs in reverse in bonds, because as yields rise and prices fall, those bonds get sold out of passive portfolios, and the seller is code rather than a person. That is why dislocations in the bond market can arrive fast. The other is the Treasury’s lane-crossing. Over the past 18 months the Treasury Secretary has waded into territory that used to belong to the Fed — buybacks, swap lines. Last month’s “I am the house now” got all the attention, but Johnson points at the next answer: asked how a market-determined-rates Fed chair would react, the reply was “we will work together.” Not separate lanes, not independence. Together.

He also takes apart the word independence. A fully independent central bank would not march up to the Capitol twice a year to testify, and would not have needed a charter from Congress to exist. His word is autonomy. And when the two sides have clashed historically, the Fed’s record is decent — his reading being that the sovereign decided the fight was not worth it. In 2022, while the Fed was raising to slow inflation, the Treasury was drawing down the TGA and reverse repo and sending liquidity back; those were not two hands moving together either.

Now the gold arithmetic, because the mechanism matters more than the headline. The gold certificates on file carry the metal at $42 an ounce. Mark them to market and the Fed writes up those certificates; to keep the balance sheet balanced, it credits the Treasury’s account with the difference. That is where the money appears. Which means two parties have to agree: the Treasury has to ask, and the Fed has to say yes. That is the source of the Fed’s standing leverage — the U.S. government, the largest in history, does not have its own bank, and a bank that is genuinely independent can decline. Johnson’s own cold footnote: if it ever came to that, the Fed would lose, Congress would rise up, the executive would use everything it had. But the theoretical ability to say no is the leverage.

And that leverage is being eroded by something new. Stablecoins need no banking system to distribute bonds, raise cash or make payments, so as the rails get built, distribution power drifts back toward the Treasury.

Will anyone actually do it? He does not expect it and does not think the government wants it, but he thinks they know it exists as an insurance policy and want the option to use it quickly. When the host pushed further — turn the 8,000 tons into a gold-backed stablecoin and use it as a foreign-policy instrument — the answer was again “I don’t expect it, and you can’t rule it out.” Then the joke: there are about another 6,000 tons sitting in the New York Fed that do not belong to the United States, and he would have a hard time seeing them shipped home if everyone asked at once. He imagines a notice on the door saying custody has been taken for services previously rendered, and your account has been credited.

Where I’ve landed, and what I still don’t know

The correction is this: I swapped an absolute judgement — the dollar weakens — for a comparative one. That changes what I go and check. Instead of only reading U.S. deficits and rates, I put Europe’s energy bill, Japan’s old problems and emerging-market rates on the same table and ask who gives first. The trading desk segment at the end of the episode was making the same point: the euro has cleared almost every major support, and Europe is the net energy importer most exposed to a supply disruption, which shows up first in the currency.

If your version of this question is “everyone says the dollar is going down, should I move into something else,” I’d rewrite it into something checkable: of the place I’m moving to, which of energy, fiscal position and politics looks better than here? If the answer is none of them, that’s the same mistake I made — treating “this side looks bad” as “that side will do well.”

The second common sore point is gold. It had come off its highs to around $4,100 by the day of the recording, having dipped below that intraday. Johnson is candid: if the dollar index really goes to 110, gold probably works lower, maybe toward $3,700 — and he bought some for a client the day before, because momentum and narrative have both drained out and it just put in a golden cross, so he expects a sizeable move within weeks, guesses higher, and would likely buy the low if he’s wrong. Those two statements look contradictory until you separate them: he is describing a distribution rather than a price. What I took from it is that when someone says “it could fall another ten percent” and “I bought yesterday” in the same breath, the question to ask is what their reason for holding is. If the reason is insurance, neither the drawdown nor the purchase is an event. If the reason is that it should go up, the drawdown is evidence against the thesis and needs marking.

Third, and the one I most wanted to write down. He has been doing this 26 years, and for 25 of them he has been hearing that the Fed is out of bullets; his point to people is that there are far more bullets than you can imagine. The gold-certificate mechanism is one concrete round. When I used to say “they’re out of options,” I had never once counted. The lesson isn’t about gold — it’s that I had been leaning on a sentence that sounds strong and carries no test.

What I still can’t judge, stated plainly. He thinks the better analogue is the late 1940s walking into a cold war rather than the 1970s inflation, the reasoning being postwar debt plus a long great-power competition. He also uses late-Republic Rome, and notes that people usually skip the most important chapter — what followed the Republic was the Empire, power consolidated rather than dissolved. I have no way to adjudicate the analogy; what it gives me is a branching set of paths in place of the single “debt is large, therefore collapse.” The other open question is AI. The host relayed the view that Chinese open-source models run only three to six months behind the frontier, and that running them on your own hardware also solves the data-exposure problem — which would be ugly for the private credit market that has formed around AI. Johnson’s answer was that he doesn’t agree 100% and doesn’t disagree 100%, that he treats China as a formidable adversary, especially on electricity output, and that he does not consider the outcome of this competition a given. He also went out of his way to recommend an earlier episode of the same show on energy, saying the guest’s work sits right at the heart of the fight.

Worth a look

• MacroVoices Episode 553, produced 8 October 2026, hosted by Erik Townsend with Patrick Ceresna, guest Brent Johnson
• Santiago Capital’s research page — the “Desperate Housewives” note sits behind their paywall, and that week’s listener email carried a summary plus the slide deck
• Names raised in passing, useful as threads to pull: Mike Green on passive flows, Harley Bassman on what’s driving yields, Michael Every on stablecoins and statecraft, Matt Barry on Chinese open-source models, and Carly Anderson on energy

One Thing to Take Away

To judge whether something will happen, first find out who has the standing to say no. The hardest piece of reasoning in the episode isn’t the price of gold — it’s that the entry requires two parties to nod: the Treasury has to ask, and the Fed, as its bank, can in principle refuse. Once that’s visible, a question like “will they print” becomes checkable: draw the chain of authority, then look for whoever on that chain can block, and for how long.

Something I’ve tried, on whatever you’re pushing right now, investing or not — a new car at home, a new process at work, moving a kid to a different school. Three lines on a sheet of paper: who signs at the end, what routes I still have when they say no, and whether I’ve been reading “everyone agrees” as “the signer agrees.” The first time I did this I found I’d been stuck on something for two months because I kept persuading people who had no vote.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.