PodcastTom LuongoBrent Johnson

Episode #261 -- Brent Johnson and the Ratchet & Pendulum of History

Johnson sees a long-term shift away from the rules-based global order and globalization, alongside competition among major powers that he says they would prefer to resolve without war. He expects the balance between the Fed and Treasury to change, with stablecoins, Treasury actions, and possible policy coordination contributing to greater overlap. Other speakers offer interpretations of U.S. strategy and institutional change, while the host conditionally forecasts that a global slowdown could follow a peak in high U.S. rates.

Geopolitical RiskMonetary PolicyStablecoins

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Key Takeaways

Johnson sees the shift away from the rules-based order and globalization as a durable transition, not simply a Trump-era swing: he describes a roughly 20–25-year historical shift and a longer-term political ratchet toward greater authoritarianism, despite short-term political reversals.

Johnson says the United States and its rivals want to compete with as little death and destruction as possible, while warning that world war could put a severe downside scenario back on the table. He also argues that purpose-built institutions may address problems when the United Nations fails, and predicts this approach could be used on issues involving China.

Two speakers offer interpretations of a possible U.S. shift in its relationship with Europe: one says moving troops from Germany to Poland could give the United States leverage over material moving into Ukraine, while another sees Trump's approach, with Scott Bessent involved, as financially distancing the United States from the EU. Neither is presented as a confirmed policy outcome.

Johnson argues that stablecoins could let the Treasury or U.S. government reach people and institutions with less reliance on banks, potentially weakening the Fed's leverage in a future dispute. He expects Treasury and the Fed to work together in some form and cites Bessent's Argentina swap line as an example of their roles increasingly overlapping.

GEO-POLITICS

Political Ratchet — Johnson argues that the shift from the rules-based order toward America First policies is likely to persist regardless of who takes power, even if Trump accelerated it. Using the Roman Republic as an analogy, he describes short-term political swings within a longer-term ratchet toward greater authoritarianism.

“Much of my theme over the last couple years and I believe for the years to come will be the rewiring of the world from the rules-based order to America…”—

Deglobalization Era — Johnson expects globalization to give way to an earlier historical order, describing the transition as a roughly 20–25-year swing rather than a quick change.

“Globalization was the future…”—

War Avoidance — Johnson says the United States does not want war with China, Russia, or Iran. He argues that these powers are trying to win their competition with as little death and destruction as possible, and that an agreement would be preferable. He says world war could put a severe downside scenario back on the table.

“The United States does not want to go to war with China. The United States does not want to go to war with Russia…”—

TECHNOLOGY

Stablecoin Leverage — Johnson argues that stablecoins could let the Treasury or U.S. government reach people, institutions, and corporations with less reliance on the banking system. In his view, this could erode the Fed's leverage over Treasury in a future dispute.

“Stable coins allow the treasury or the US government to go around the banking system directly to the people and to the other institutions or the corporations and they don't…”—

ECONOMY

Fed-Treasury Balance — Johnson says the Fed has prevailed in roughly four of five Fed-Treasury conflicts over the last 50–60 years, but expects Treasury to win a future clash. He argues the current contest may differ because U.S. hegemony could be at stake and the executive may be less deterred by political blowback.

“Not because I think if you look over the last 50 60 years, it's like four to one in favor of the Fed…”—

Relative Advantage — Johnson argues that policy and institutional changes with potentially harmful long-term side effects may still strengthen the United States in the short term and help it overcome competitors in a relative contest.

“And so, a lot of these policies that I think will get changed or institutions that will get changed, policies that will get changed, it's almost like taking steroids…”—

Treasury Buybacks — Johnson says Scott Bessent is managing the long end of the yield curve through Treasury buybacks of up to $6 billion. Bessent cited a thin long-term bond market as a reason to increase buybacks and said Treasury would make a market in those bonds. He also said Treasury would work with the incoming Fed chair.

“is why he's out there doing Treasury buybacks at up to $6 billion on the long end of the curve, right?”—

FORECASTS

Rate Peak — The host predicts that once high U.S. interest rates reach a maximum-pain point, a global slowdown will follow and lead Americans to start cutting rates. This is a conditional forecast, not a settled outcome.

“And once that maximum pain point is reached and the pendulum the overall pendulum is swung all the way to high interest rates that the high US rates it's at…”—

Midterms And Market Uncertainty

The host treats the midterm outcome as uncertain and argues that investors should avoid taking risks beyond their comfort level while larger political shifts unfold.

America First Ratchet

The speakers describe a long-term shift away from globalization and the rules-based order, with short-term political swings unable to reverse the broader historical direction.

Treasury Yield Curve Strategy

The host links Treasury actions and Fed rate decisions to management of the yield curve, while forecasting that high rates could eventually trigger a global slowdown and rate cuts.

U.S. Leverage In Global Markets

Brent uses a poker-table analogy to argue that the United States has financial and institutional advantages, even when its policies create costs or market volatility.

Fed And Treasury Convergence

Brent expects the Fed and Treasury to coordinate more closely, pointing to Treasury interventions, swap lines, and public statements about working together.

Eurodollar System Pressure

The host argues that enforcement against financial networks and changes in dollar pricing could constrain offshore dollar channels and give domestic institutions greater influence.

Treasury Versus Federal Reserve

Brent says Treasury may prevail in a future institutional contest because preserving U.S. hegemony matters more and executive officials may accept greater political blowback.

Stablecoins And Treasury Power

Brent argues that stablecoins could let the government move dollars without relying as heavily on banks, weakening a source of the Fed’s leverage over Treasury.

Central Bank Independence Debate

The speakers discuss a possible narrower Fed role and contend that closer Treasury coordination may suit a more competitive national strategy, despite long-term credibility risks.

Short-Term Policy Advantages

Brent argues that policies with potential long-run drawbacks can still strengthen the United States in the near term, especially given its relative economic and regulatory advantages.

Rates, Inflation, And Savers

The host and guest debate rate policy, noting that higher yields benefit savers while debt burdens and potential effects on growth remain important considerations.

Great-Power Competition

Brent says the United States prefers to avoid war with China, Russia, and Iran, and frames its actions as efforts to manage competition while limiting destructive outcomes.

Rubio’s European Strategy

The host interprets Marco Rubio’s European visits, troop positioning, and public remarks as signals of a tougher U.S. posture toward European governments and institutions.

Europe And The Rules-Based Order

The speakers argue that U.S.-European relations are being redefined and that Washington may build purpose-specific institutions as it challenges the existing international order.

Fed Treasury Outlook

Brent reiterates that closer Fed-Treasury coordination is likely across administrations, discusses gold’s possible monetary role, and directs listeners to his research.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

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