“Mother All Crises” | Luke Gromen on America’s Choice Between AI Dominance and Real Value of Treasury Market
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this deep dive episode, Luke Gromen of Forest for the Trees presents a compelling case that the United States faces what he calls the "Mother of All Crises" - a forced choice between maintaining the real value of the Treasury bond market and losing the AI race to China, or sacrificing the dollar's purchasing power to compete and reshore American industry. (00:15) Gromen argues that the inflationary costs of trying to keep up industrially are creating real supply constraints in critical areas like electrical grid capacity and rare earth materials - resources the Federal Reserve cannot simply print. (00:43) The conversation explores why this represents a fundamental shift from the post-1971 dollar system, where the U.S. could offshore manufacturing while maintaining capital market dominance. Now, as Gromen explains, "you can't reassure and bring the capital back here or have the capital here in your capital markets and reassure. You can't do the two opposite sides of the same balance sheet." (02:13) • The central theme revolves around the impossibility of simultaneously reshoring American industry while maintaining the real value of the U.S. Treasury market and dollar-denominated assets.
Speakers
Luke Gromen
Luke Gromen is the founder of Forest for the Trees (FFTT), a macro research firm that provides institutional investors with strategic analysis on global monetary and fiscal policy trends. With over two decades of experience in financial markets, Gromen previously worked in equity research and sales, spending fifteen years on trading desks including direct connections to the New York Stock Exchange floor. He is widely recognized for his deep understanding of monetary systems, international capital flows, and the intersection of geopolitics with financial markets.
Jack Farley
Jack Farley is the host of Monetary Matters, a podcast focused on macroeconomic analysis and monetary policy. He brings expertise in financial markets and economic analysis to conversations with leading thinkers in the field. Farley is known for his ability to break down complex macroeconomic concepts for both professional and retail audiences.
Key Takeaways
The U.S. Faces an Impossible Trinity
Gromen emphasizes that America cannot simultaneously reshore its industrial base, maintain the real value of Treasury bonds, and compete with China in AI development. (02:13) This represents a fundamental departure from the post-1971 system where the U.S. could offshore manufacturing while maintaining capital market dominance. The mathematical reality is that capital cannot exist in two places at once - it can either finance new factories or support existing Treasury markets, but not both without massive Federal Reserve intervention.
Real Supply Constraints Cannot Be Printed Away
Unlike previous crises that could be solved with liquidity injections, this crisis involves real physical bottlenecks. (00:43) The constraint in AI development has shifted from semiconductors to electrical grid capacity and rare earth materials - resources the Fed cannot create through monetary policy. As Gromen notes, "these are not things the Fed can print. They have to actually get them. And getting them, they actually have to pay people to get them." This represents what he calls the "Mother of All Crises" because traditional extend-and-pretend solutions won't work.
Gold Wins in Both Inflation and Deflation Scenarios
With U.S. debt-to-GDP at 120%, gold becomes the only asset that performs well in both inflationary and deflationary environments. (52:10) Gromen explains that in deflation, falling tax receipts would push the U.S. toward either defaulting on treasuries or printing money, while inflation obviously benefits gold. Central banks have been the primary drivers of gold's recent performance, with the gold-to-oil ratio rising from 6 barrels per ounce in 2007 to 72 barrels currently.
China's Grid Advantage Creates Strategic Vulnerability
China surpassed U.S. electricity generation in 2008-2009 and has since installed grid capacity equal to the entire U.S. grid in just the last ten years. (33:48) Meanwhile, U.S. grid capacity has remained essentially flat for twenty years. This creates a critical bottleneck for AI development, as Gromen notes: "We don't have the grid. Full stop. We're going to run out of grid." Land deals for data centers planned for 2030-2031 are already being canceled due to confidence that grid hookups won't be available.
Bitcoin Serves as a Warning Signal for 2026
Gromen views Bitcoin's recent breakdown against both gold and the dollar as a warning sign for broader market stress in 2026. (64:06) Having been long Bitcoin since it was under $30,000, he turned bearish based on technical breakdowns, concerns about quantum computing threats, and Bitcoin's failure to separate from tech stock behavior. He describes Bitcoin as "the last functioning smoke alarm," suggesting its weakness indicates broader liquidity challenges ahead as real capital costs continue rising.
Statistics & Facts
- U.S. true interest expense (gross interest plus entitlements plus veterans affairs) equals 96% of trailing twelve months receipts, even with record tariffs and stock market highs at the time of recording. (52:05)
- The cost per gigawatt of nuclear power in China is one-sixth the price of a gigawatt in the United States, implying the dollar needs to be devalued 87% against the yuan to achieve competitive parity. (10:28)
- China has installed grid capacity equal to the entirety of the U.S. grid in just the last ten years, while U.S. grid capacity has remained essentially flat for twenty years. (34:01)
