Macro Voices MacroVoices #396 Luke Gromen: The Dollar Treasury Feedback Loop, Deconstructed
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Oct 5, 2023 
Luke Gromen, Founder of Forest for the Trees, deconstructs the dollar-bond yield relationship and discusses the consequences of a rising dollar on US treasury markets, western sovereign debt markets, and US banks. The tension between China, Russia, and the United States is explored, with a focus on potential economic strategies to harm the US. The limitations of treasuries as a stable asset are analyzed, along with their alternatives. The relationship between treasury yields, stock market performance, and deficits is explained, while crude oil prices and gasoline demand are discussed, indicating a potential recession.
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Rising Dollar Paradox
- A rising dollar isn't a sign of US strength, but of the dollar system unwinding.
- It reflects increasing net effective supply as foreigners sell treasuries to service dollar debt.
Dollar Feedback Loop
- The rising dollar creates a feedback loop: higher dollar leads to treasury sales, increasing rates, further strengthening the dollar.
- US banks, holding substantial treasuries, get caught in this loop, exacerbating the problem.
Oil Price Control Backfire
- The Fed's rate hikes and SPR releases acted as oil price controls.
- This hurt US shale production, as its decline rate is much higher than that of other producers.