MacroVoices: Brent Johnson Says Fed-Treasury "Marriage" and Gold Remonetization Are the Hidden Backstop as the Dollar Breaks Out Above 102
Episode 553 of MacroVoices, recorded October 8, 2026, with Santiago Capital founder Brent Johnson and the Big Picture Trading desk
Brent Johnson, the longtime dollar bull behind the "dollar milkshake" framework, argued on MacroVoices that the Fed and Treasury are moving toward formal coordination, and that the great-power contest with China will demand it. The conversation came as the Dollar Index (DXY) closed above 102 on Wednesday. Johnson's new paywalled report, "Desperate Housewives," casts Treasury Secretary Scott Bessent and Fed Chair Kevin Warsh as partners in an arrangement whose terms, he said, are still undetermined: "Whether this is a mutual marriage, whether a shotgun is involved, whether it's public, or whether it's private, I think that's yet to be determined."
The Fed and Treasury Are Heading Toward Coordination
Johnson's central claim is that the idea of Fed independence is a misnomer. In his view, the Fed has autonomy, not independence. "If they were fully independent, they wouldn't have to march up to the Capitol two times a year and testify before Congress. If they were fully independent, they wouldn't have needed a charter from Congress." He noted that the Fed has historically fared well in conflicts with the executive branch, largely because the sovereign chose not to push hard. He expects that to change as the US enters what he calls a great-power competition that requires a united front.
He pointed to evidence that the relationship is already shifting. Over the roughly 18 months of Bessent's tenure, the Treasury has moved into areas traditionally reserved for the Fed, including Treasury buybacks and swap lines. Johnson said the more important remark came when Bessent was asked how a Fed chair who favors letting markets set rates would respond. Bessent did not say each institution would stay in its lane. "He very clearly said, we're going to work together." Johnson contrasted this with 2022, when Powell was tightening while Yellen drew down the Treasury General Account and reverse repo facility, injecting liquidity. He also cited the 1951 Treasury-Fed Accord as an example of open conflict.
Host Erik Townsend went further, arguing that Bessent is now participating in what amount to wartime policy decisions, including the design of sanctions on Iran.
Revaluing the Gold Certificates: An Accounting Lever, Not a Near-Term Plan
The most concrete mechanism Johnson described is a revaluation of the Treasury's gold. US sovereign gold is carried at $42 an ounce, against a market price of roughly $4,100. Johnson said the Treasury could instruct the Fed to mark up the gold certificates on file, and the Fed would credit the Treasury's account to balance its books, producing about $1 trillion in an afternoon. Townsend pushed back that marking an asset to market raises no real capital, and Johnson agreed this is "an accounting trick" that adds money to the system and dilutes each dollar. He likened it to the 1930s confiscation and revaluation of gold.
Johnson also explained why the mechanism depends on Fed cooperation. The Fed is the Treasury's bank, and a truly independent bank could decline to accept the revalued certificates. He said the Fed would ultimately lose such a standoff, as Congress and the executive would intervene, but that its role as the distribution arm of the dollar system is the source of its historical leverage.
He argued that stablecoins are beginning to erode that leverage. "Stablecoins do not need a banking system to distribute either the bonds or to raise cash or to make payments." He called the gold option an insurance policy and was explicit about timing: "I am not expecting this anytime soon. I don't think the government wants to do this." He suggested the dollar's strength shows the government does not need a confidence-restoring measure at present, and he said such a step would likely come only if the dollar needed a new bid.
Townsend raised a more aggressive variant, a gold-backed stablecoin built on the roughly 8,000 tons of US gold, which he said he would not support. Johnson said he does not expect it but cannot rule it out. He added that another 6,000 tons held at the New York Fed on behalf of foreign owners could in theory be pulled in as well. "It wouldn't surprise me at all if they put a little notice on the door that said, 'We have now taken custody of this gold as our own for services previously rendered.'" His broader point was that the authorities have far more tools than the "Fed is out of bullets" camp assumes: "For 25 of the 26 years, I've been hearing that the Fed is out of bullets."
Dollar Breakout: Warsh Raised Rates, and the Alternatives Are Poor
Johnson said that over the summer many investors expected Warsh to coordinate with President Trump and cut rates, sending the dollar lower. Instead, to establish credibility early, Warsh raised rates. Johnson cited three additional supports for the dollar. Europe has a war on its border, little growth and a political union without a fiscal union. Japan is not attracting meaningful global capital. China's market is largely closed, and a trade war is under way. The world also earns and borrows in dollars, so holding dollars matches liabilities to revenues. A third, less appreciated factor, which he said is not his base case, is that the AI buildout may be extending the growth runway and allowing the debt problem to be pushed further out.
Johnson conceded that his original milkshake prediction, a global sovereign debt crisis that would drive the dollar back to its record highs, did not materialize in 2020 or 2022. "The milkshake as a prediction event of a global sovereign debt crisis was wrong," he said, though he maintained that the direction he predicted for assets has been correct. He now thinks the authorities can delay an endgame longer than he initially expected. If a debt crisis does arrive, he still expects the dollar to rise rather than fall.
In the short term, he flagged stretched momentum, positioning and sentiment in the dollar, and warned that a pullback is plausible, with a bounce in the euro and gold. But he said a continued rise in the dollar would be dangerous: "If the dollar goes much higher, it's going to start to break some things."
Gold: Nibbling at Support, With Downside to $3,700
Johnson said gold, near $4,100, is at a support area, and that a break could take it down another 10%. If the DXY were to reach 110, he would expect gold to fall to about $3,700. Even so, he said he bought gold for a client the day before, regards this as the zone to start accumulating, and expects a "fairly big move" within weeks, probably higher, following a 50-day/100-day moving average golden cross. If he is wrong, he said he would add on weakness.
The Big Picture Trading desk was more cautious. Its view is that rising real rates and dollar funding stress create a poor macro backdrop for gold. It described price action as "very heavy" with no follow-through, and said silver and platinum positioning sits in the lowest percentiles of a one-year look-back. The desk said a break below $4,000 is possible but would become a long-term buying opportunity.
Rates: Passive Selling, AI Growth and the "Big Stack" Argument
With the 10-year Treasury yield at 5.35% and the 30-year near 5.8%, Johnson offered three explanations for higher rates. First, buyers are less eager for Treasuries because of policy uncertainty, though he stressed this is not a wholesale rejection of them. Second, AI raises the possibility of stronger growth and so a higher required return on government debt. Third, he drew on Mike Green's work on passive investing: just as passive flows create a constant bid on the way up, rules-based selling in falling bond prices can produce rapid dislocations.
His more distinctive point was that US rate pressure matters less than its spillovers. He used a poker analogy: the US is the "big stack at the table," and rising blinds hurt smaller players more. He noted that rates are rising sharply in Europe, South America and parts of Asia. "The US can accept a lot more pain than the rest of the world and still come out okay," he said, adding that the US can accept being hit as long as it stays the largest stack and others are hurt more. "When you zoom out and look at the whole forest and you see that the whole forest is on fire, the big picture starts to come more into focus." Asked about a carry trade of long US Treasuries against short Canadian government bonds, he said the idea "is not a horrible one," since a US investor earns extra yield while the Canadian dollar weakens.
The Cold War and Rome Analogies
Johnson said the better historical analog is not the 1970s but the late 1940s and early 1950s, when heavy wartime debt coincided with the start of a cold war. He expects a long contest with China, on a scale of decades, in which other countries will be forced to choose sides. He sees the AI race as inseparable from it, and said chips and traditional energy are being weaponized. In his view, Secretary of State Marco Rubio's recent trip to Iceland and the US intervention in Venezuela earlier this year are "derivatives" of the same competition.
He also compared the US with Rome in 120 to 60 BC, citing foreign wars that drain the treasury, inequality, personality cults and political infighting. What followed was not collapse but the Roman Empire. "I think that is the more likely scenario for the United States now than one where the United States falls and becomes a second-class citizen on the global stage." He added that this gave him no pleasure to say.
China's AI and Energy Advantage Is Taken Seriously
Townsend relayed Matt Barrie's argument that free Chinese open-source models are only 3 to 6 months behind frontier US labs, and that they can be run air-gapped on a company's own hardware. Barrie's contention was that this could undercut US frontier labs and, by extension, the private credit that has financed the AI buildout. Johnson said it is "definitely a concern" and that he neither fully agrees nor fully disagrees. He said China's electricity output is a major advantage, and that it is "not a given by any means" that the US wins. He said the US must develop energy sources that let it keep leading in AI. Townsend added that China has more conventional nuclear plants planned or under construction than the entire existing US fleet, as well as state-funded work on thorium molten salt reactors.
AI and Employment
Johnson called himself a non-apocalyptic AI optimist who expects a "step change function for the better of humanity" over the long run. He expects short-term unemployment problems to be handled with some form of universal basic income or a further expansion of the welfare state. He framed this as a prediction rather than a recommendation, because the alternative is "a bunch of unemployed, upset people with no money." He described the path as "pretty bumpy" until the economy reaches escape velocity.
Big Picture Trading Desk: Bond Stress, Narrow Equities and Oil
Patrick Ceresna framed Johnson's thesis as a trade: buying the 70 put on Canadian dollar futures expiring November 6, with the Canadian dollar near 70.37 US cents. The put costs about 22 pips, or $220 per contract, and implied volatility is below 5%. A move to 69 cents would leave about 78 pips of profit after premium, roughly 3.5 times the amount risked. The premium is lost if futures finish above 70 cents.
On equities, the desk said the S&P 500 is at new highs while breadth is poor. Earlier in the week only about 20% of stocks traded above their 50-day moving averages. The Russell 2000 and the equal-weight S&P 500 are both in downtrends, and the "Mag 7" has effectively become a "Mag 2" of Nvidia and Microsoft. Ceresna flagged systematic selling triggers near 7,700 on the S&P 500, about 2.5% below recent highs, with estimates of as much as $85 billion of potential selling. He said the index is unlikely to break higher without relief in rates.
On oil, crude was nearly $93 amid concerns about possible attacks in the Strait of Hormuz and the Oman lane. Gross speculative shorts are at a five-year extreme, inventory cushions are thin, and the recent $10 reversal appears only in the front month, while January and March contracts continue to make new highs. The desk said a breakout above $100 could hit rates and then equities. Ceresna also noted a euro breakdown with potential support toward 108 to 110, and record gross short positioning in natural gas, which leaves it vulnerable to a squeeze if early cold arrives.