Macro analyst Luke Gromen on why China's rare-earth leverage quietly removed the military deterrent behind the dollar order, why he thinks gold has overtaken the Treasury bond as the primary reserve asset, and why reshoring means devaluing the dollar.
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Luke Gromen came back on the show in the middle of a 96-hour market spasm, and for once the microphone matched the analysis, which is to say both were excellent. The trigger was a Friday social-media post from Trump threatening 100% tariffs on Chinese rare earths, a weekend walk-back, and a gold price that put on more than a hundred dollars an ounce while we were recording. Gromen has been early on the thing underneath all of it for years, and his read on these few days is that the market finally said part of the quiet part out loud: China has far more leverage than Washington has been admitting, and the structure that has anchored the dollar since 1971 is being reset in real time.
Two framings to keep straight before the details, because Gromen is precise about them in a way most macro commentary is not. First, he is not calling for the end of the dollar as the world's reserve currency. He is calling the end of the post-1971 structure of reserve status, dollar as primary reserve currency and Treasury bond as primary reserve asset, with gold quietly taking the second role back. Second, this is the same machine The Petrodollar, Explained lays out, viewed from the moment the gears visibly slip.
Start with why a fight over rare earths is really a fight about money. Gromen's reading of the weekend is that China clarified it will not sell rare earths into the US defense supply chain, the magnets and inputs that go into missiles and the systems that aim them. The West spun it as China cutting everyone off; China said it was narrower than that. But the part that matters survived the spin: Beijing is done feeding Western weapons production, and that quietly removes something the dollar order has always relied on. Historically, Gromen notes, if you messed with the monetary side of the rules-based order, the US could send the military and, in his words, kick your head in, which was a meaningful part of what happened to Saddam and Gaddafi. Take away the ability to do that and the window to reset the system swings open.
The dependency runs the other way now, and it has been hiding in plain sight. Gromen points to the CEO of Raytheon, who told the Financial Times that with several thousand suppliers in China, decoupling the US defense supply chain is impossible when the overwhelming majority of rare-earth processing runs through China, and to figures like David P. Goldman at Asia Times reporting that China can produce roughly four thousand cruise-missile motors a week against a US Tomahawk inventory measured in the low thousands total. His "for want of a nail" point is the sharpest version: a quarter-billion dollars a year of critical-mineral inputs gates a trillion-dollar military. Not all supply-chain bottlenecks are equal, and this is the one that can't be tariffed around.
The cleanest statement of his thesis is worth quoting in full, because the nuance is the whole point:
"I have never said end of dollar reserve status. It's end of the post-71 structure of reserve status, which is dollar as primary reserve currency, treasury bond as primary reserve asset. It happened. It's happened. The dollar is still primary reserve currency, but gold is now primary reserve asset."
The mechanism he leans on is an old one from the FOFOA monetary writers: when the dollar system is reaching the end of its current life, you see the dollar and gold rise together. Most people treat a strong dollar and a strong gold price as contradictory, because gold is supposed to be the anti-dollar. Gromen's framing dissolves the contradiction. There is roughly thirteen trillion dollars of foreign dollar-denominated debt out there, an enormous structural short, so when the dollar squeezes higher it forces people to sell Treasuries and US equities to raise dollars. That's the milkshake-theory dynamic, and he agrees it's real. But once gold rises far enough, it begins to collateralize that same dollar liability from the other side and becomes the sink for the flows, which is how you exit the dollar system without anyone formally repudiating anything. He points to China putting gold on warrant at the Shanghai exchange and BRICS states standing up vaults as a parallel settlement layer being greased into place, so that by the time the reset is obvious, the off-ramp already exists. By his read, gold had just passed Treasuries in global central-bank reserves, a call the ECB would later confirm when it reported that gold had overtaken US Treasuries as the largest official reserve asset after 2025's price surge.
The reason a hard divorce favors China, in Gromen's telling, is timing, and we have a recent measurement. After the April 2025 "Liberation Day" tariffs, the Treasury market took about seven trading days to seize up before the administration blinked, which is the asymmetry in one data point: the US bond market breaks in days, while China can hunker down for months. Stack the military logistics on top and it gets starker. He cites the eleven days of combat over Israel that reportedly chewed through 15% of America's high-end air-defense missiles, against a Chinese production base that can turn out the entire US cruise-missile-motor inventory in a week and a half. "Amateurs study tactics, professionals study logistics," he says, quoting the Marine general Barrow, and his argument is that the US optimized for tactics and the wrong weapons platforms while China optimized for the industrial base underneath a war. It's the same conclusion Lyn Alden reaches from the trade-and-currency side: the leverage moved, and the spreadsheet has known it for a while.
Gromen is sympathetic to the idea that stablecoins can help the Treasury, but he insists on naming it honestly. The thing the GENIUS Act sets up, he argues, is a way to refinance the debt in near-cash markets because the government can no longer issue enough long-dated bonds at prices that don't blow up its interest bill. You can already see the move in the data: Bessent doubled the pace of Treasury buybacks Yellen had started and skewed issuance toward short paper, pulling in duration. The endgame he hears rumored is the 1950s playbook, making the T-bills that back stablecoins non-marketable and capping their yield, which would hand the Treasury control of the short end and let it finance large deficits in cash-like instruments. He calls it the kissing cousin of printing money to pay the deficit, and his point is not that it's a scandal but that it's where indebted great powers always end up. The more dramatic option on the table is a gold revaluation: mark US official gold up toward $20,000 an ounce, only slightly above its long-run average relative to the foreign portion of the debt, and you deposit something like five trillion dollars into the Treasury's account as a pure accounting entry, no gold sold, enough to retire a fifth of the marketable debt. At fifty-to-a-hundred-dollar daily moves, he notes, that number looks less insane than it did six months ago.
Here is the identity most of the reshoring conversation skips, and Gromen states it bluntly:
"We offshored this stuff to support the dollar. Why do people think that bringing it back can be done without waylaying the dollar?"
The dollar's reserve premium is exactly what made American manufacturing uncompetitive, so reversing the offshoring requires unwinding the premium, which means a materially weaker dollar, which is inflationary, which eventually forces the Fed to absorb the bond market onto its balance sheet. He puts numbers on the gap: Josh Wolf's congressional testimony that China can build a one-gigawatt nuclear plant for 85% less than the US, and his own framing that since a gigawatt is a gigawatt under identical physics, an 85% cheaper Chinese gigawatt means the dollar is roughly 85% overvalued against the yuan. If the country genuinely splits supply chains with China, he doesn't know whether the dollar falls 40 or 60 or 85%, but he's certain it isn't the 10% the market has priced. And to the people insisting AI deflation cancels all of this, his answer is that deflation is the midwife of hyperinflation in a society this leveraged, because, as he puts it, there's nothing more inflationary than an insolvent sovereign printing money to keep the nominal value of its debt high. The fix on the labor side is unglamorous and slow: subsidize metallurgy, rare-earth refining, and the skilled trades at Manhattan-Project urgency, because the engineers who could rebuild the base are aging out on a clock the country doesn't control.
The most resonant passage is historical. Gromen brings up Felix Somary's memoir, The Raven of Zurich, and a scene from around 1912 in which Europeans, full of pride and certainty, watched Chinese merchants weigh their silver and gold by mass rather than trust the denomination, and concluded the Chinese were generations behind. In fact they were a generation ahead, carrying the historical memory of paper-money inflation under the Mongol emperors. Stop me, he says, when that starts to sound familiar: the Chinese have bought gold hand over fist for eighteen years while Wall Street laughed, and they are not laughing now. The same memory logic runs through Tobias Straumann's 1931, the year Germany chose default over a second hyperinflation precisely because 1922 was still fresh.
Where it lands is the same conclusion Alden reaches, and the one the petrodollar story keeps pointing to, by a different road. The Treasury, Gromen argues, is de facto standing Bitcoin up as a competing reserve asset alongside gold, because the stablecoin plan only scales the way it needs to if Bitcoin is worth far more than it is today. The individual version of the move is the one he keeps coming back to, and it's deliberately small: a business funneling a few percent of revenue into Bitcoin through something like Square's new auto-convert, swept to self-custody, the monetary equivalent of a heart patient walking to the mailbox before attempting the marathon. "If I can do it," he says of holding his own keys, "anybody can do it." The reset is going to happen to people whether they participate or not; the only question is which side of it they're standing on.
