VideoBrent Johnson Milkshakes Pod | Investing • FinanceBrent Johnson

Why rising Rates are a Problem for the USA & a Death Sentence for Short Stacks at the Poker table.

Johnson argues that rising rates and a stronger dollar place pressure on economies outside the United States, which rely on dollars for offshore activity and may face heavier currency and borrowing-cost burdens. He points to higher sovereign yields and bond-price declines across major markets, alongside more than $100 trillion in offshore dollar debt. He also discusses foreign demand for gold, the risk of a dollar-liquidity crisis, and elevated short positioning in U.S. 10-year futures.

Interest RatesCurrenciesFixed IncomeMarket LiquidityGoldMarket Structure

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Key Takeaways

Johnson argues that rising rates are a global pressure, not a U.S.-only problem: from 2018 to 2026, 10-year yields rose more in Italy, Germany, Japan, the U.K., France, and Colombia than in the United States, while 30-year rates reached record highs in Japan and the U.K. He says the burden is heavier for shorter-stack economies, whereas the United States has more capacity to withstand it.

Johnson says the United States can create the dollars it needs, unlike economies that use local currency domestically but borrow dollars offshore; rising global rates and a stronger dollar therefore make both funding channels harder for those economies. He cites more than $100 trillion in offshore dollar debt when off-balance-sheet exposures are included, compared with $15 trillion on balance sheets.

Johnson warns that dollar stress could force institutions to seek dollars from central banks, which may need swap lines or another source of dollar funding; he says the stronger dollar in 2022 came close to a crisis and involved four central banks. He connects that vulnerability to the difficulty of sustaining offshore dollar borrowing as rates and the dollar rise together.

BOND-MARKETS

Bond Losses — Johnson says rising interest rates have coincided with sovereign bond-price declines worldwide: 37% in the United Kingdom, 30% in France, and 28% in the United States. He says these declines are putting the whole world under pressure and adds that rates could stay at this level or rise for a long time.

“So the United Kingdom has fallen 37%. France 30%. The United States 28%. It hurts. It's not good. But Germany's fallen 25, Japan 23, Canada 22, and Italy 20…”—

DOLLAR-SYSTEM

Dollar Capacity — Johnson puts the U.S. M ratio at about eight in his example, as interest paid rises from about 15% to over 20% of federal receipts. He argues that the United States can create the dollars needed to operate globally, unlike other countries, and therefore does not face the same risk of running out of that currency.

“So let's just kind of look at all these different countries…”—

Dual Funding Pressure — Johnson argues that economies outside the United States use local currency for domestic activity and borrow dollars for offshore activity. When global rates and the dollar rise together, he says both carry trades become harder to sustain, putting the rest of the world under greater pressure.

“So every economy outside the United States borrows dollars offshore and they and they use to operate offshore in addition to their local currency operating at home…”—

Offshore Dollar Debt — Johnson says the Bank for International Settlements estimates that dollar debt outside the United States exceeds $100 trillion when off-balance-sheet exposures such as FX swaps and forwards are included, compared with $15 trillion on balance sheets.

“So if we look over here on the right, this is dollar debt outside the United States…”—

GLOBAL-RATES

Stack Size — Johnson argues that rising rates hurt the United States but burden shorter-stack economies more: the same increase in the blinds consumes a larger share of their resources. In his poker analogy, the United States is the big stack because it can create chips, giving it more capacity to withstand pressure and outlast smaller stacks.

“And so as rates are rising everywhere for America, it's a challenge. But the United States is the big stack at the table…”—

China’s Bond Market — Johnson excludes China from the international bond-market comparison because more than 95% of its bond market is domestically held, subject to capital controls, and essentially closed. He attributes China’s falling rates to deflation associated with its real-estate market.

“China is over at the kids table. Now, China has a lot of things going for them…”—

Sovereign Yields — Johnson says 10-year sovereign yields rose from 2018 to 2026 in the countries discussed, but by different amounts. Yields rose more than in the United States in Italy, Germany, Japan, the United Kingdom, France, and Colombia; they rose less in Chile, Canada, and Mexico, while China’s fell. He cites U.S. rates rising from 2.7 to 5.3, Japan’s from zero to 3%, and France’s by 400%, arguing that higher borrowing costs are hurting other major markets as much as or more than the United States.

“From 2018 until 2026, rates on the 10-year treasuries of sovereign yields of all these different countries have gone up a lot…”—

Rates, Bonds, And The Poker Analogy

Johnson revisits his long-standing view that rising rates would depress bond prices and explains why higher blinds in poker resemble a market environment that pressures smaller stacks more.

The U.S. Big Stack

He argues that rising rates hurt the United States, but the country’s ability to issue dollars gives it a relative advantage over economies that cannot create the currency they need.

Sovereign Yields Worldwide

Johnson acknowledges his timing was early, then points to higher sovereign yields across major markets and says many countries have seen borrowing costs rise more sharply than the United States.

Dollar Debt And M Ratios

Using a poker-stack measure as an analogy, Johnson says foreign economies face pressure from both domestic borrowing costs and dollar liabilities, which can strain their ability to meet obligations.

Offshore Dollar Exposure

He cites more than $100 trillion in offshore dollar debt when off-balance-sheet exposures are included, and warns that a stronger dollar can force foreign institutions and central banks into crisis responses.

Currency Losses And Bond Prices

Johnson says dollar strength has weakened many currencies and that bond-price declines have affected markets worldwide, while emphasizing that rising rates are damaging but do not hurt every country equally.

Short Treasury Positioning

He remains bearish on bonds over the long run but notes that unusually large speculative shorts in 10-year Treasury futures could leave room for a temporary countertrend rally.

Gold And Global Currency Risk

Johnson attributes gold’s gains mainly to foreign investors and central banks seeking protection from weaker home currencies, and concludes that market risks extend beyond the U.S. Treasury market.

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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.

No Guarantees: Past performance does not predict future results; investing carries risk.

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