Bulwark Takes - Markets Rattled, Consumer Sentiment Plunges—While Trump Plays Emperor

Episode Date: March 27, 2026

JVL and Catherine Rampell are going live on Trump’s economic messaging, falling consumer confidence, and rising recession fears driven by oil prices.

All right. We are coming up live here in just a minute. We're going to give people a second or two to pop on. And away we go. Hello, everyone. I'm JVL here with my bulwark colleague, the great Catherine Rampbell. Catherine, how are you enjoying America's new golden age? Things are popping. Everything's great. It feels a little less golden and a little more rustic. I guess. I don't know what the right analogy would be. But yeah, not looking so hot. I would say, how are you enjoying things?

Yeah. Oh, I mean, I love it. I love it all so hard. We're going to start off with a quote from the CEO of Black Rock, President of Black Rock, Rob Capito, who yesterday, I think he was in Bloomberg was quoted as saying,

yeah, I think the markets are way underpricing the war risk. Here's what he said. Oil may still, I'm just reading from the, reading from the story, oil may still spike to $150 a barrel, even, quote, if we announced tomorrow that the war is over. And he then said it would take time for the disrupted supply chains return to capacity. Here's, here's Capito. What if this disruption is a week, six months a year? What is that going to mean for the companies I own?

My biggest concern is that people aren't looking at this. They're just making the assumption that there will be an optimistic outcome. Simultaneously, same day, we had a story in Bloomberg that inside the Trump administration, they are wargaming. What happens if oil goes to $200 a barrel? I mean, I hear you wish they had war game that like a month ago? Before the war. Often you do your war games before the war, not mid-war. then it's not really a war game, is it?

No, it's a, it's a war, it's a war. War war. So, I mean, Tim, our colleague Tim Miller has been running around like a crazy person saying, I feel like everybody is underestimating the economic impacts here. And on the one hand, I understand that because America is actually better positions to weather these sorts of shocks than many other countries. On the other hand, I do get the sense that American markets in general are underestimating what's going on. And yet, there's all sorts of bad signals.

It's not like everybody's thinking, hey, everything is great, but people are thinking that it's bad. We have some consumer confidence numbers we'll get into later. We have, again, oil prices going way high. Recession risk is rising. Recession risk is rising. Right. So I guess on the talk to me, Catherine, on the very big macro question of are the markets and people properly sort of understanding the risk curves in front of them? Look, I am not, you know, like a day trader. I am, I hold, you know, broad index funds like the S&P.

I don't. So I guess this is my way of saying, like, I'm not putting money on the line here. and ethically, it would be... Not investment advice. Correct. It is not investment advice and, you know, take with a grain of salt besides because, like, I don't have skin in the game in the way that people who are actually making trading decisions on this information, maybe they know something more than I do. But, yeah, it seems...

It seems like there's a little bit too much of a sanguine response to what's going on in the world right now. particularly after Trump very obviously says things to like jawbone the market to try to get people to calm down, right? It's like, why does anybody take him at his word when he'll periodically say, oh, don't worry, it's almost over. We're almost done. I want to get out of there soon. But there's like no actual evidence that he has presented that he has a plan for extricating the United States from this war or for that matter, from extricating the globe from this huge quag, like economic quagmire that he has created

by disrupting not just oil markets, but like everything in the world at this point. And it's really, again, like, I'm not a day trader, so maybe these people who have money on the line are smarter than I am and they see something that I don't. But I don't get what the off ramp is here and I don't understand what market participants think the off ramp is here. Like to get to the point of that Black Rock quote, the Black Rock CEO, CEO, President. President. His quote, if the war ended today and the Strait of Hormuz were magically reopened today, which not likely,

you still have a huge amount of damage that has been wrought already in the form of like a bunch of companies in the Gulf, excuse me, countries in the Gulf have either reduced how much oil they are producing or ended it entirely, you know, oil gas, natural gas, other products. Turned off their aluminum smelters. Right, exactly. They ran out of storage for stuff because they couldn't get ships through the straight. And they could not, like in the aluminum smelting example, natural gas was just getting too expensive. So they had to turn off the smelter. and that's going to take whatever it is, months or a year, to turn it back on.

It's not just like flipping a switch. So there are a bunch of reasons why that disruption alone means that there's a hole in the supply that will take a while to refill. On top of that, you also have some damage to the infrastructure already. And that's not just about how long it takes to turn back on the aluminum smelting plant. it's like you have an oil refinery that got taken out. And once that is gone, it is gone. And so you have to, you know, the largest natural gas processing plant in the world, which is in Qatar, got bombed by the Iranians.

And they're- It lost 20% of capacity. Yeah. Yeah. So that's huge. That's 4% global capacity, by the way. That's how big this place is. So a fifth of their, this one field's capacity, is.

is 4% of the entire world's capacity for producing natural gas. So, you know, in the United States is somewhat insulated from that. Like, we produce so much natural gas ourselves. We are a net exporter. But it's still a global market. And they're going to be more. Commodity. Prices go up everywhere.

They go up here too. Right. Right. So it's really hard for me to understand why they're, I don't want to say there's like this euphoria. But again, there's just like almost this indifferent. nonchalance about some of this long-term damage that is happening. And I don't really understand why, or at least why it would be comforting to hear Donald Trump say,

don't worry, it's going to be okay. Let me trot out of theory. My theory is that nobody believes Trump when he says these things. Okay. Everybody believes its market manipulation, but they believe the market manipulation will work. And so they pile in because there's like a little bit of money to be made short term. Okay. Yeah. So when Trump, when Trump tweets something out, people don't think that he like actually pieces coming, right? He says, oh, we're really closer to a deal. But they think, oh, the market will

run with. And so it becomes like a self-reinforcing thing. Right. If everybody in the market thinks that the market's going to react this way to this news, then it's going to. And so, you You wind up with it gets very noisy, right? Yeah. That's a good theory. Yeah. But at some point, like somebody should be taking the other side of that trade, though. And maybe they are in that they should be assuming, okay, well, if it's all like puffery, you know, there's no there there that at some point the reality will catch up with with the market.

And so they should be shorting everything, right? I mean, I guess you can get the time frame wrong. Cains famously predicted that markets were going to crash, but you can run out of liquidity before your bet is, you know, before you win the bet, essentially, and lost a lot of money. So maybe it's possible there are people who are realizing, you know, the greater fool theory that somebody else will be willing to take, you know, will believe the bullshit, essentially. that eventually that's going to stop holding. But I don't know. It's also scary to get involved in trying to take the other side of things when it's clear that one side is consciously manipulating the markets.

Yes. Right? When there is obviously a lot of insider information going on. We've seen it from Kalshi to Polymarket to oil futures, right? Did you? $580 million in the old. oil futures that came out right before the tweet, like 16 minutes, 17 minutes before the tweet. Stock futures and oil futures, actually. Somebody or somebody's got very rich. Right. And so when you

know that that is happening out in the world, I mean, it just seems like it's tremendously risky to say, oh, I'm smarter than everyone else. I'm going to take the other side of this because you could get burned real hard by people just manipulating the markets around you. I don't know. So we have a couple things to talk about, one of which is consumer sentiment. This is great. Expectations. What is the economic output? We now have people expecting business conditions to go down in both the short run and the long run. And inflation expectations are way up. Short-run inflation now, people are expecting four and a half percent. The OEC or somebody, the OECD, yeah.

The OECD put out, what was their, their guest? Do you have that at your finger? My recollection is that they said 4.2% inflation in the U.S. over 2026. So obviously well above, in fact, more than double the Fed's target of 2%. So, yes, that's headline inflation. so that includes energy prices, obviously. And the Fed normally strips out what's going on in energy prices and in food prices because they're so volatile. But it doesn't mean that consumers, A, don't feel it.

Like consumers care about what happens to energy and food prices. And B, energy prices also affect the price of everything else, right? Any goods that need to get shipped, any products that need to get manufactured that requires fuel of some kind. Anything that has plastic packaging, as you wrote. Yes, anything that has plastic packaging, fertilizer, which is made, parts of it are made from petrochemicals. And so you have fertilizer prices going up, which again leads to higher food prices, among other things. So, yeah, so lots of signs that prices are going up. I think we also have a chart somewhere showing what the markets think.

Yeah, that Bloomberg business terminal chart, is that the one you're talking about? Yeah. Do you have it? Can we throw that up, guys? No, not that one. No, that's a Brent crude. It's one of the very bottom of our document. Anyway.

But basically, you know, you can kind of back out from how treasuries are trading what market participants think inflation is going to be. And it suggests that they think, yeah, that's the one. It's like an ugly chart. Yikes! Yeah. Line go up. Line go up, Catherine.

Yeah. Investors are now betting overall U.S. inflation over the next 12 months will surge above 5%. So yeah, so that's, you know, this chart is from March 20th a week ago, but I looked up the data. I don't have a Bloomberg terminal anymore at last, but I had a friend looking up for me yesterday, and it's still about 5%. So just to give you a sense of like what, again, people who have skin in the game think that we are going to have pretty high inflation, mostly driven by energy, but not exclusively driven by energy because there, as we've said, like so many other supply chains are conditional on this. So it's a weird set of facts to be forcing into reality leading

into a midterm, I would say. Normally presidents would be doing everything that they can, turning over every rock trying to find ways to reduce gasoline prices. And obviously, that is not what this administration is doing. Can we throw the recession for? up on there, guys. Because that's the other thing that's interesting, the sort of oil price shocks and their correlations to recessions. Yeah. So it's not a prediction per se, but it's showing that like, yeah, it's when energy prices

get very high, more often than not, I would say, you end up having a recession. But not always. Like we had a huge, you can see on the chart, we had a huge price spike in 2022 when Russia invaded Ukraine. that led to much higher oil prices. And we didn't have a recession then. So it's, you know, it's not. Joe Biden at the helm, though.

So. Joe Biden at the helm. And we released a lot of oil from the Strategic Petrolling Reserve, which Donald Trump, among others, were very critical of at the time. And now, of course, we have the administration today trying to do the same thing. But a little bit late, you know, I've asked different people who are energy experts like, Is there something that they could have done to keep gas prices from going up so high, aside from not starting a war in the Middle East?

And one of the responses has been, well, they could have, like, started releasing oil from the Strategic Petroleum Reserve a little earlier because it takes a while for it to flow, literally, through the market. So there are things that they could have done that they did not think to do for, whatever reason. This administration is clearly not known for its planning capacity. So, yeah, I mean, besides the fact that oil prices are going to lead to higher consumer prices down the supply chain, that also leads to a higher risk of recession. And that's because, well, for a number of reasons, but like when consumers are spending more on gasoline and today,

they're spending, I think, about $400 million more per day than they were. Not $400 million per day, $400 million more per day. Correct. That's from gas money. Just want to make sure people understand you. Yes. Because gas has gone up by more than a dollar since the war started. So collectively, based on how much gasoline American consumers buy, they're spending

collectively $400 million in additional spending per day. that's $400 million that they do not have available to spend on other goods and services, right? Maybe they're no longer going out for dinner or they're no longer buying their kid the nicer birthday gift or whatever it is. That's consumer spending that gets diverted to energy. And so you have all of the companies that would have been patronized by consumers losing out. Right. So then they have to pull back. maybe they have to lay off workers, their workers ultimately, and cut back their spending.

And this is how you get the vicious cycle that is a recession. So that's why there's a big concern about a recession risk and why, in fact, in the past, you have seen that pattern with energy shocks correlating, at least, with recessions. And we were not on, we were on very shaky ground to begin with. This is why. I mean, we had the Fed report shortly before, I think it was before the war started, although who can say, because I don't remember anything anymore, that we've had basically zero net job growth

since time took office, right? I mean, things were not, it isn't like, hey, everything was great, but now we have this oil shock. Yeah, what happened was Jay Powell, who's the Fed Chair, gave a press conference last week. So it was after the war started. Okay.

Where he mentioned that the Fed thinks we've had zero zero job growth overall in the last six months. Six months, okay. Yeah, when they account for, you know, what they think is like, what will be some likely revisions. So they think we've had zero job growth. And he was saying, to be fair, at the time, like, maybe that's okay because we have fewer workers since we're deporting a lot of the workers.

We've deported so many workers, guys. So don't worry. Yeah. So he's like, maybe that's, like, it's hard to say how much of this is supply, you know, supply of workers versus demand for workers. but it's still not a great thing. And it means that if you get hit by a big shock, then there is some significant downside risk, is how I think he put it. And those numbers that, you know, last six months, no job, you know, expected no job growth, that predates the war.

So prior to this big shock, you had some fragility in the job market. And you can also see in some of the other numbers, things like the of those who are unemployed right now, the share of them who are a lot. long-term unemployed is unusually high, meaning that if you are one of the unlucky people who has lost your job, there's just not that many openings. So there's not a lot of firing. There's also not a lot of hiring. So without that churn, you can just get stuck. So you may have like this this large contingent of the workforce that's already getting kind of screwed. And then what happens if you do tip into from zero job growth to negative job? growth, i.e. job losses, then things are going to get worse. And I feel like I'm getting sucked into

the, the, the, the dumerism that is. Oh, I would never do that to you. No, never, never with JVL. So, you know, I don't want to say, like, a recession is inevitable. It's definitely not. But the risks of recession have certainly risen. We started out, as you point out, with some fragility in the job market and elsewhere tariffs creating more uncertainty, etc., then you layer on this massive energy shock slash everything shock that just makes it much harder for companies to plan and hire, and that can lead to that vicious cycle I was talking about earlier. So two other data points here that I think really buttress what you're saying. The first is, gosh, I wish I had thought up to bring this chart with me.

But workers are very reluctant to leave jobs right now. Yeah. So workers, you know, people who, your quits rate is way, way down because people feel like they are not going to be able to find another job if they quit the job they have. The other thing, which, yeah, it's different, but I think is speaking to the same psychology is housing. And so the housing market right now. is suddenly frozen in amber. Nobody's buying, nobody's selling. And this is, I think, the type of

behavior you see when consumers are just spooked, right? It isn't even panicked. They're spooked and nobody quite knows what's going on. Well, it's not only that, it's that interest rates are really high. And interest rates have been rising as a result of this war as well. And to walk people through how that happens when you have higher inflation, among other things. So you have higher inflation, that means that it's more likely that the Fed is going to have to have higher interest rates to counteract that inflation. Maybe not today, but the Fed, you know, Jay Powell, among others, has even said, like, our next move very well could be a rate hike rather than a rate cut. It's not the baseline scenario, but it's possible. So if markets think that they're going

to be potentially higher interest rates, then mortgage rates are bad. benchmarked off of the Fed's interest rates. So that leads to higher mortgage rates. And then that means that the delta between what a seller is willing to sell for and what a buyer is willing to buy can get larger, right? Because the buyer is not just having to think about the sales price, the list price. They're also having to think about like, what is their monthly mortgage payment going to be? And so I think that's part of what's going on here.

We have a housing crisis, which has led to higher prices in general and people not being able to afford them. And then layer on top of that mortgage rates. And Donald Trump is aware of this, right? He is, just like he's been trying to jawbone markets into, like, cutting oil prices or whatever. He has also been trying to jawbone the Fed, well, jawbone and, like, extort. Threaten to prosecute. prosecute the Fed into cutting interest rates. But like I said, there are a whole bunch of reasons why that's not the obvious thing that they should.

Like, you could argue about maybe they should be doing it regardless of Trump's political pressure. Like maybe that's the right move. I don't need it's actually a really hard question to answer. But it may not be because we've just shown all of these data saying that like inflation is going to go up. So let's let's talk about Fed and interest rates now. I'm going to say this a little bit. but we're here, so we might as well. Prior to the war, the assumptions were that we had rate cuts coming,

and markets had largely priced that in. Yeah. I mean, markets had decided, yeah, don't worry, good times are coming. Money's going to get cheaper. Suddenly we're in the war, and you wind up now getting a whole bunch of all these contrary indicators, which we're talking about rising energy costs, rising inflation, et cetera, et cetera. And so if you're at the Fed now, you're being pulled in two directions. At the very least, I think it's probably safe to say they will not be willing to cut rates as aggressively as they would have on February 26th.

So if their meeting had been on two days before the war in February 26th, that rate cut is not the cut that they would do now today. I don't think. That doesn't mean that they'll raise rates, but it means like the entire window of how they're looking at. at this has shifted. Yeah. The next meet, when's the meeting, June? Um, I think the next thing. Somebody have to look that up for us. I can look it up, but I think there's one in April. Is there an April meeting? I think there is, but I don't know. I may be wrong. You know what? I'll effort that while you talk. So my question is then, so you've just written about Kevin Warsh, who's coming in to have a job in which I think no matter what the Fed does,

Trump will be angry because I'm sure he wants like 900 basis points cut or something like that. So what, I mean, what I'm not going to ask what is the Fed going to do because nobody knows, but like what should we be looking for? Like as we're trying to understand what's happening and what various moves from Fed, the Fed on the chest board would mean, just make me smart about this. Like as we're getting ready for the next. Kevin Warsh is kind of screwed. I mean, it's like his own fault to something. He knew what he was signing up for it. I guess I should put it this way. So Kevin Warsh is kind of screwed because he has been a lifelong inflation hawk. Inflation hawk means that you're usually someone who's like, airs on the side of being more worried about inflation, and therefore you err on the side also of tighter monetary policy, which would mean things like higher short term interest rates, a smaller Fed balance sheet,

etc. That is what his disposition has been throughout his career with a couple of exceptions, both times just as Donald Trump either one re-election or took office, he suddenly became much less worried about inflation. This happened in 2020 leading into 2021, excuse me, 2015, 2015, 2016, and then again, end of 2024 leading into 2025, into 2025, and then again, end of 2024 leading into 2025. So both times when Donald Trump was about to take office. So he has instead more recently positioned himself as someone who is not as worried about inflation. He is willing and had like basically promised to cut short-term interest rates. He would do some other things to shrink the balance sheet.

And he said that like the law said each other, whatever. The only thing Donald Trump cared about was cutting interest rates, right? Trump said quite explicitly on social media and in many. interviews that this was a prerequisite for anyone who wanted the Fed job, they had to be willing to cut interest rates. And I think he specifically said something like, they should be cutting rates when the economy is doing well. Why are they cutting rates when the economy is doing well? They're trying, you know, they or Jay Powell, they were trying to hurt him. So Warsh got the job or has been nominated for the job. He hasn't been confirmed yet because he promised lower

interest rates. All of the things that Donald Trump has done since he has taken office have made that promise harder to keep by first lots of tariffs, which have not had, you know, they've not had an enormous effect on inflation, but they have had some effect on inflation. You can see that. Because he's only put like 20% of them into into effect. Yeah. Yeah. And also, and companies have kind of like tried to hold off on raising prices because they were expecting the Fed to strike the tariffs down, things like that. So, but it has had an effect. You can see it in certain categories, like appliances, for example. So there's that. Then, of course, there's this war, which has raised inflation expectations in the consumer data that you talk, you know, the consumer survey

data that you talked about in that market data that we talked about, the OECD forecast, across the board, people think that inflation is going to go up. And there's a question of like, how does the Fed deal with that? His, Historically, they've said that they tried to look through price shocks, meaning that if it's a one-time price shock, particularly in something like energy, which is super volatile, they don't assume that it's going to feed into ongoing inflation. It's a one-time price increase and maybe it'll fade away when the shock is over. And it's not like we're worried about ongoing, you know, people expecting prices to keep going higher and higher and higher. It happens once and then it's done. And normally, that's sort of how you would expect the Fed to react to things. But it's different now because we've had historically high inflation, quite in very recent memory. We've had inflation above the Fed's target for five years now. So, you know, there's a different psychology, I guess is how I would put it. Like there is a real fear that even though maybe intellectually people realize, yeah, this is a one-time shock. It's not about the

prices of everything going up. They still might, you know, like how you were saying before, people are changing their behavior based on what they think everybody else is going to do, even if they think everybody else is also wrong. It's kind of like that with inflation psychology. If everybody assumes that their suppliers are going to raise prices, because maybe they'll be confused about what's going on. It's a one-time supply shock or not. If they think that their suppliers are going to raise prices, if they think that all of their services are going to get more expensive, their shipping is going to get more expensive, you know, although, logistics, whatever, they may preemptively raise prices. So it's like if you worry about high prices,

it can become a self-fulfilling prophecy. Everybody assumes that prices are going to go up, and then it happens. So that's the thing that the Fed is worried about. It's this idea that inflation expectations become unanchored, is the term of art. And so should they be looking through this oil shock, or is it like the oil shock and the tariff increases, you know, the tariff-related price increases and this history of the past five years are all of those things going to compound so that like people start willing inflation into exist more inflation into existence in which case the Fed needs to crack down and be like nope we're going to be the bad guys we're going to raise interest rates and like nobody has to worry about everybody else raising prices because everybody

else is going to be like have the same medicine you know be minister of the same medicine So that's something the Fed could do. On the other hand, they're like, you know, what's the what's the line about who was it? Eisenhower? Somebody said like, just bring me a one-handed economist. Like there are too many on the other hands. It's fine out Eisenhower. I mean, it's coolidge or somebody.

Anyway, it doesn't matter. You know, if you're worried about a recession, if you're worried about job losses, then the Fed should be cutting rates. On top of all of this, let's say the members of the Fed who are setting rates do think that the right approach is to stimulate the economy, to cut interest rates. Now they have to worry about, like, are people going to view this decision through the lens of, oh, we're just doing it because Trump wants us to. And then they have to like, I don't know, it just makes everything so much more difficult. Donald Trump should have just let the Fed be, put smart people on, and let them do their thing. What in our history with that man leads you to believe that he could have done that? Hey, he elevated, he elevated Jay Powell to his current job.

People forget that. He did. He also nominated Christopher Ray. He made a lot of mistakes of personnel, you know? Yeah, yeah. So anyway, so, so Warsh is in a difficult spot. I guess that's how I would put it. I mean, the funniest outcome, so the Fed does make.

late April, April 28, 29. The funniest outcome would be rates remain unchanged, which would then leave everybody setting their hair on fire with, why didn't they raise rates? Why didn't they cut rates? That's the most likely outcome, actually. So you were talking before about what would have happened if we didn't have a war, what would the Fed have done?

My vague memory is because the Fed puts out these, they call them SEP, the survey of economic projections. I always forget what it stands for. It's like each of the members on the committee that sets interest rates, they put out anonymous forecasts for what's going to happen to inflation, unemployment, GDP growth, and interest rates. And so this is the dot plot. If people have heard of the infamous dot plot,

it's like you can see where their dots fall on the chart, but you don't know whose dot is whose. It's very sneaky. So you could see that like last year, from the dot plot, I think towards the end of last year, the members of the Fed, like the general, the median dot or whatever suggested

that they were going to have at least one interest rate cut this year, and it would probably be earlier in the year. And now with all of the recent developments, with the war and other things, from the dot plot, you can see like when that rate, they still think there's going to be a rate cut, but it's coming later. And you can look at markets. And they also think it's going to come later. So, you know, I think the baseline forecast is still that there will be some interest rate cut, but it's not going to be in April. It's not going to be in June and may not even be in July.

I don't remember what the forecast show now. I can look it up. But it keeps on getting kicked down the road, because it's like it's never going to be the right time. It's if inflation is summary of economic projections. Summary. Thank you. Summary. Thank you, Jasmine. Never remember what the S stands for.

Jasmine on the spot for us. Okay. So I, we had a couple questions asking for darker. People saying, you know, what do you worry about? You want it darker guys? I have a big thing that I worry about a lot that nobody else seems to care about, except that last week an analyst at Deutsche wrote a paper about it. Okay.

And so, but it is, this is an interest killing. The minute I say the word petrodollar, 80% of the people watching this stream are going to log off. So I'm going to hold that in reserve so that you and I can nerd out about the petrodollar system. Okay. And I would say as you are looking at the very near term future, so you're looking at the next week, four weeks, What are the things that would worry you the most that you, they like, this development could wind up to bad outcomes economically? Yeah. Yeah.

So I mentioned damage to infrastructure earlier when Donald Trump was threatening to bomb power plants besides the extraordinary humanitarian cost that that would entail. and, you know, as I understand it, from talking with our colleague, Mark Hurtling, would be war crimes, et cetera. That would also be pretty catastrophic or lead to pretty catastrophic economic outcomes because you would imagine that Iran would retaliate and would go after other kinds. I mean, they already have gone after other kinds of infrastructure. They're trying to do tit for tat, eye for an eye when we bombed their natural gas field in South. PARs, then they started bombing, or with mixed success, I think, an oil refinery in Israel and various other refineries and processing facilities, et cetera. If you have more infrastructure that gets destroyed, very, very bad economically, because again, that stuff cannot be easily

rebuilt. And you could imagine that feeding into a global recession. session slash depression. Beyond that, I know you want to talk about the petrol dollar. I can get to that. I'll let you rant about that. I would say that the other thing that I would be very concerned about is that you have the potential for sort of a multi-crisis in the sense that there are other ticking time bombs in the U.S. economy, U.S. and global economies, frankly. And there are mostly unrelated, but they can definitely feed onto each other. So the examples that I would give are the AI bubble right now in the United States. AI-related, AI-related investment is propping up. Talk about Taiwan and liquid natural gas, if you will. Can I poke you to do that?

Oh, well. No, you. Well, I was going to say, I mean, I'm guessing you're referring to the fact that Taiwan is the major producer of semiconductors around the world. And so- Which are required for data center construction. Right. Data-sec- I mean, not just data center construction, but like all-electron cars, right? Pretty much anything. Refrigerators.

Everything has a chip in it. Correct. So you could imagine a universe in which, well, there's, it depends how dark you want to go, like how World War III-ish you want to go. none the more dark. So it's, you know, there is the question of like, Taiwan is very dependent on liquefine natural gas from the Middle East. What happens if their costs get so expensive that they can't continue producing?

What happens? This is the really dark outcome that, again, it is not a prediction, but it is a risk. China gets emboldened by what we've done in Iran decides to, this is an opportune time to go out. after Taiwan and solve the so-called Taiwan problem. And that has a huge disruption in global sending conductor. I'm actually sunny on this one. I think the worst things get for America, the less China needs to go after Taiwan because they're about to inherit the entire global order. Yeah. But they, this is something. Why, I know it's very important to them. But like, you know,

you do that, it then queers things with the Europeans. It makes things harder to really make the case that, well, you know, we may be autocrats, but we're rules-based and we're predictable. I feel like they now believe they can play for more. But that's my own path. I hope that is the case. You know, I'm far from an expert on this. But you ask me the darkest case scenario.

Sure. And I love that. So let's say China gets emboldened. So there's that. what I was saying about the AI bubble is that AI will have major transformative effects on the economy, some of which will be good, you know, maybe boosting productivity and in making things much cheaper for us. Torture Nexus. This is a joke about AI that, you know, the people who built AI, it's like they read a book called Don't Build the Torture Nexus.

And their takeaway from that was, hey, guys, we can build the torture nexus. Okay. I think I've heard you say a version of this before. In any event, AI itself may wipe out a lot of jobs. I don't know on what time frame. And there's lots of smart people who disagree with each other on that, who know more about it than I do. But let's say that's a longer time frame. In the meantime, there's a lot of bad money chasing after good in terms of companies. companies trying to win the AI race that will not win. And they're going to pull all of that investment

money that they've put into data centers and software and various other things. And if that's propping up the economy, which to a large extent it is if that collapses at the same time that you have these huge energy shocks that are hurting other parts of the economy. And then on top of that, you have what's going on with the private credit markets, which is like its whole own can of This is a corner of the financial market where basically you have private equity funds, loaning money to companies, and it's not completely unregulated, but almost completely unregulated. And kind of like nobody is paying that much. Nobody's paying that much attention to it.

And there have been a couple of companies that went belly up recently. And it's like all of a sudden we're learning, oh, shit. Like there are these loans, these huge loans that went bad. And nobody's paying attention to like the interconnectedness of them in the same way leading up to the financial crisis. The subprime stuff. Yeah. It's kind of similar to that.

It's phantom debt that nobody can see. And when you don't know the debt is out there, if it goes bad, it spooks everybody. Because then, well, how much else of it is out there, right? We don't know what the liabilities are. Right. And so, and who was it? Jamie Diamond made some comment recently. Like, if there's one cockroach, there are usually more.

And what he was referring to is like nobody's paying attention to this. you know, companies that are getting loans that shouldn't be getting loans, that they go bad, and then what are the knock on effects? And they're like probably a lot of other borrowers out there that are like this, and we just don't know what their connectedness is. And so all of these things, the war, the AI bubble and credit markets, they're all kind of distinct, but they can feed on each other, right? Like let's say you have one big, highly leveraged company go bust, and it spooks lots of other investors and suddenly that's a time when people say, hey, like, I'm going to reevaluate what's in my portfolio. Why is 50% of my portfolio in AI, which is pretty close to what the

S&P 500 looks like right now. It's like 40% of the S&P 500 is in these AI connected stocks. So you could have like this sort of massive reshuffling that then makes everything else worse, if that makes sense. And so that's the scenario that I would be most concerned about. Again, not saying it's going to happen, not even saying it's more likely than not, but you have a bunch of bad things. You could get very unlucky. And we have this very careless administration that is not even thinking about any of these risks. You know, again, let alone the humanitarian side of what they're doing. Like the economic risks here. They're not thinking about it. They're not paying attention. If anything, they're trying to deregulate financial markets even more.

That's also what's been happening at the Fed, which we can get into at some point. But, you know, they're not paying attention to any of these problems that may ultimately compound one another. And you could end up in a very dark place economically, not just in the U.S., but like you could end up in a global depression. I hope we don't. But like, I do not trust our leadership to. be thinking about any of this and let alone like knowing how to manage a crisis that may be partly of their own making. I mean, these are the same people who, as we said at the beginning, are now wargaming $200

oil in the middle of the war they started. Yes. They didn't war game it beforehand. They waited until they were four weeks into the war to start the war games. Yeah. Yeah. I do feel a little bit like Ed Harris in Apollo 13. Well, what do we got on the spaceship that's good?

you look at any accounting, well, where's the strength? And I'm not quite sure what our underlying strengths are. Well, okay. So you wanted to talk Petro Dollar, so which is another piece of all this that we, I mean, which is going to drive the five people who are watching this off the stream. But look, we'll do it. But we're going to do it with a hard limit of like two minutes. Okay.

For people who don't know what the Petro Dollar is, this is an agreement the United States came to with OPEC in the 1970s that said all oil transactions they are made and settled in U.S. dollars. This was meant to simplify the system and help ease the flow of oil as a commodity

in the wake of all the price shocks of the 1970s. This had the effect of making the dollar, the reserve currency for the world because what it meant is that every country needed to have U.S. dollars on hand in order to purchase oil.

which meant that every country had to purchase dollars, which meant that dollars are very safe, which meant that U.S. debt was very cheap to finance. The reason we can run a country where we run massive deficits is because we can sell our treasury bills very, very cheaply, and we can get, you know, borrow money now to pay for entitlements and Social Security and Medicare at very, very low interest rates. If the petrodollars system were to go away, then that would speed up what the pointy-headed econ nerds called de-dollarization, which is the world moving away from the U.S. Greenback as the backstop currency for everybody.

And so when I look at this crisis, I mean, I just sort of put myself in Iran's position. And I think if I wanted to hurt America, what's the biggest thing I could do? And the biggest thing I could do is I could try to help China do something that would be in China's interest, right? If you're Iran, you can't really hurt America. I mean, you can hurt the global economy. You can hurt the American economy. But you can't hurt America in strategic ways. But you could help China.

And China can hurt America. And so one way to do this, the way our sanctions work against Iran, when Iran sells oil, it sells it because it is sanctioned, not in U.S. dollars, but in Chinese won. if part of Iran's price for a ceasefire was that all oil coming through the Strait of Hormuz in order to keep the straight open has to be sold in WAN. That would fork the global oil market. And creating the Petro-Wan as a competitor to the Petro-Dolar would have enormous consequences in the long-term for America. Nobody would notice it in the first week or the first month or the first year. But like over the long haul in how we handle debt financing and Social Security and Medicare and the entire network of how the American economy works, that would be like a dagger aimed at the heart of the American way of life. And so I look at this and I think, well, if I was Iran, what would I, well, China would love that.

China would be very, very interested in something like that because that would really cement their status as a rising. power in America's status is a declining power. And so you could say, hey, our price is that we do this thing that helps the Chinese. And I look at that. I'm just like, that freaks me the fuck out. And nobody else cares about it. Do you care about it at all? Or you're just like, Jay, this is 50.

You're like item 55 on a list of 5,000 things that could go wrong. I mean, the threats to the dollar extend beyond this. this, right? Like, there are a whole bunch of reasons why dollars look, in theory, less safe than they used to, including that we have a president who does not adhere to rule of law. And so beyond the fact that oil transactions transacted in dollars, there were a lot of other reasons why U.S. debt looked safe and U.S. dollars looked safe. And it was because the U.S. as a democratic institution was considered reliable as a borrower and stable, right? And so there are a lot of other risks to our reserve currency besides that. However, the problem is it's not obvious that, like, it's not obvious what would replace the dollar, and that's been the problem from the get-go. The yuan does not seem like a particularly attractive replacement as a global currency. So it would require the Chinese to make a bunch of significant structural changes in their central banking system.

Yeah. I mean, that right. So, yes. Yeah. So, but, you know, it can still. The euro is pretty attractive as an alternative. Yeah, but it's, people have been saying that for a while. There was also a euro crisis, you know, within very recent memory.

So it's really hard to know. My friend Martha Gimbel, I don't know if you know her, she's at the Yale Budget Lab. She testified before some congressional committee recently, and she was asked something about the dollar as a global reserve currency. And she had this great metaphor about how it's like at the beginning of a Hallmark movie where the heroin is dating the shitty guy, the shitty boyfriend in New York City. and she knows she can do better, but she hasn't found anything better. So she just sticks with him, and we haven't gotten to the plot point in the movie

where she goes home to her small town and meets the guy who runs the Christmas tree farm or whatever. What she was looking for was right in front of her the whole time. So in this analogy, you know, we realize we're stuck with the bad bow, but we don't have a, more attractive alternative yet. That I think is how a lot of the world thinks about this.

So if a more attractive alternative were to materialize, I think that that could give us a run for our money. No pun intended, or maybe pun intended. But it's not, we're not there yet. And actually, one ironic thing about what's happening in- I'm not predicting this. This was a what keeps JVL up at night? Like when I look at what is the worst possible outcome here,

that's the one I say, we don't want that. That would be bad. That would definitely be bad. That would be bad for a ton of reasons. And it would force us to make fiscal decisions that we are not prepared to make. No. Yeah. And neither party. What was I going to say? Yeah. Oh, what I was going to say was that one irony of all of this is that like, even as the dollar seems like it's become less attractive, maybe because of the petro dollar stuff,

maybe because of the rule of law stuff. Actually, the dollar has appreciated against a basket of currencies in the last month, I want to say. And it looks like that for now is just a flight to quality, that people are freaked out about the state of the global economy. And for now, again, the U.S. dollar still looks like the best of a bad batch of options. So you do see people buying dollars, even as they're dumping, they seem to be dumping treasuries, you know, bond rates are going up. They seem to be dumping a lot down too. I thought you said there was a flight to quality, Catherine. Bitcoin is down from a high of 123-7 to currently 733-6. Holy, holy. I hadn't checked in on the Bitcoin in a while. Yeah. Wow. Gold. People have been dumping gold. That's probably like,

I mean, I'm not really sure what's going on there, but I would guess it's, you know, maybe there are a bunch of margin calls and people are saying, like, it's not so much about they don't, they don't think gold, gold is a useful hedge against inflation anymore as like, they just needed raise cash. If we start talking about gold here, the gold bugs are going to come after us and be like, no, you don't understand. So I want to take us home with something great that we got news that Donald Trump is going to put his signature on U.S. currency. Also putting his face on the gold commemorative coin and the normal dollar coin that he's going to mint for himself. I mean, when you put that next to, hey, he started a lot of,

a war which could cause a global depression, it's very small potatoes. And who cares? Yeah. On the other hand, I care a little bit. Do you care at all about this? Because I look at this and I'm like, this is a banana republic shit. Yeah, but like we're so far down the path of banana republic shit already that it's a little hard to get too animated about it.

It's terrible. And in any other administration. Three minutes. All I'm asking for is three minutes. Yes. We don't have to write a dissertation. on it, we do not have to say that his signature on the dollar bill is issue number one for the next Democratic president.

Like that. Yes. It's silly. Can we not look past it? That's what I just don't want to look past it. I feel like we look past so much stuff now because we're like, well, at least he didn't shoot somebody in the streets of Minnesota, you know? And like, well, if that's the bar, if mass agents of the state executing people on the street is the bar of what we can care about, that seems bad to me. Yeah.

Oh, I totally agree with that. It's hard to find the bandwidth. Yeah. Cook for me on the signature. Yeah. It's so narcissistic. And it's so Trump, though. Like, he's all about putting his name on things, right?

He's all about his whole career has been about slapping his name on buildings and sneakers and Bibles and everything else. And now he's putting it on the money. I will say it will be increasingly difficult for him to call this Joe Biden's economy when he's. His signature is literally on the money. The money as it maybe gets debased. There's like some poetic justice to that, I guess, that he's going to put his face and his signature on currency as they become less valuable because of things he is doing,

i.e., because of inflation. I don't know. Do we have this statement from Bessent? This stuff is just like so unctuous. Yes. Under President Trump's leadership, we are on a path toward unprecedented economic growth, lasting dollar dominance and fiscal strength and stability. All the things we just said may be at risk. There is no more powerful way to recognize the historic achievements of our great country in President Donald J. Trump than U.S. dollar bills bearing his name. And it is only appropriate that this historic currency be issued at the semi-quintennial. And then you have the treasurer whose name is getting, I believe, knocked off of the dollar bill. also falling all over himself to talk about America's golden age economic revival. It's gross. It's undeniable.

I don't think the word undeniable means what he thinks it means. So you tell me your thoughts. I'm sure you have much more eloquent views on what this means for our republic. I mean, it just, it underscores for me the absolute centrality of. any reform movement to tear down all of this shit. And, I mean, this is, this was like a long-running debate with me, Sarah, and Tim, where I was like, hey, if we get a Democratic president, and by Democratic, I don't mean, like, member the Democratic Party, I mean, it could be a Republican who is not an authoritarian.

Small D. Democratic. Small D. Democrat, right? It is imperative that they tear down the ballroom and simply rebuild the East Wing. exactly as it was. It doesn't matter what it costs because the message to aspiring authoritarian has to be, you can do what you want, but there is no throne. Whatever you do, we will tear down and put it back the way it was. You don't get to leave your mark. This is part of that. You know, like I think that all of those dollars with his signature on them should get pulled out of circulation. We're going to replace them one for one. And it sounds stupid and sounds silly because

It is just symbolic and does it really matter? No, does it matter as much as a war or ice and, you know, should you prioritize tearing down DHS and reassigning the various agency functions within DHS to other places that you can rebuild from the studs up? Yes, that's more important. But the symbolic stuff is important too. There's a reason Trump does it, right? It's, this is all part and parcel of conveying to the populace, to the demos that you have to

submit because everybody's behind it. And you know that they're all behind it because look at this. We just built this big thing right here. You know, look at my names on this. You want to go to Yellowstone National Park. We got to get your card and my name is on that card. And if you put a sticker on your card to cover up my face on the card, I'm going to tell the park service that they can't let you in. Did you have you followed that? This is a thing. So like that is an incident, that is something that would happen in like Nikolai Chishascus's, you know, regime where all you are disrespecting the great leader. No, if you put a sticker over his face that we've put it on your card, then we shall not admit you to the grocery store. I just know these things aren't important,

but yes, they're very important and they're so low stakes that they should all be torn out root and branch as a means to send a signal both to the populace and to society about what we will and will not tolerate, but even more than that to send a signal to the next aspiring authoritarian. There. That's my rant. Boom. I support that. Drop.

Yep. That's great. All right. Catherine, this was a lot of fun. I can't believe we did this for a full hour. I promise we'll do it shorter next time. With more petro dollars. With more petrodollary talk.

We're going to get real deep into basis points next time. Everybody else, thank you for being with us. We'll be back next week. Do me a solid. Hit like. Hit subscribe on the chance. It actually helps us more than you could possibly know with the algorithm. And we will be back on Saturday live with reports from various No King's rallies all

across the country. I will be hosting. I'll be sitting in the big chair trying to direct traffic and it should be a good time. Catherine, thank you, my friend. Thank you. Everybody else. This is fun. Good luck, America.