Forward Guidance America Is Risking A Liz Truss Moment | Kevin Muir
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May 21, 2025 
Kevin Muir, author of the MacroTourist newsletter, dives into the complexities of fiscal dominance and Modern Monetary Theory. He discusses how higher interest rates can stimulate markets and the implications of the U.S. deficit on economic resilience and long-term risks. Muir tackles Trump's economic policies, potential capital controls, and foreign capital movements. He also shares insights into bond and equity markets, positioning for FX volatility, and a looming private credit unwind—equipping listeners with a deeper understanding of today’s economic landscape.
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Modern Economy and MMT Insight
- Modern economies operate fundamentally differently under fiat currency systems compared to gold-backed systems.
- MMT explains monetary creation via government spending better than traditional economic models, emphasizing inflation as the key constraint.
Higher Rates Can Stimulate Economy
- Post-COVID, raising interest rates actually stimulated the economy because private sector borrowers had locked low rates.
- Higher government borrowing costs increased fiscal deficits, injecting more money into the economy.
U.S. Fiscal Dominance Explained
- U.S. debt ratings are largely irrelevant since the government can always print money to avoid default.
- The U.S. runs far larger fiscal deficits than other major economies, driving stronger economic performance.