America Is Risking A Liz Truss Moment | Kevin Muir

Episode Summary

Executive Summary: Kevin Muir argues that in a fiat system, fiscal policy—not monetary policy—drives macro outcomes and asset prices. He says U.S. deficits and global fiscal expansion have supported markets, but Trump-era attempts to shrink trade and budget deficits would likely pressure equities, the dollar, and bonds. His preferred response is to express views via long-dated options and focus on FX volatility, while remaining bearish U.S. assets relative to the rest of the world.

Main Topics: Fiscal dominance over monetary policy (Priority: 5/5): Muir explains why he shifted toward MMT-style thinking: in a fiat system, government spending and deficits matter more than conventional recession indicators or rate-based frameworks. Rates, deficits, and why higher rates can be stimulative (Priority: 5/5): He argues that in the current cycle higher rates boosted fiscal outlays via interest costs, while private sector borrowing sensitivity was muted because households and firms had already locked in cheap funding. Trump, tariffs, and the paradox of reducing deficits (Priority: 5/5): The discussion centers on Trump’s stated goals to cut trade and fiscal deficits, which Muir believes would be negative for U.S. stocks and potentially for the dollar if pursued seriously. U.S. vs rest-of-world macro divergence (Priority: 4/5): Muir expects the rest of the world to spend more and invest domestically, while the U.S. remains over-owned and overvalued. That rotation should support non-U.S. assets relative to the U.S. Bond market risk and long-end yields (Priority: 4/5): He is concerned about rising Treasury yields, especially the long end, because fewer global savings are flowing into the U.S. and deficit spending remains elevated. Trading approach: long-dated options and FX volatility (Priority: 4/5): Muir favors using long-dated calls/puts and sees foreign-exchange volatility as the most attractive expression of the current regime shift. Private credit and corporate refinancing pressure (Priority: 3/5): He is short corporate credit near term, citing refinancing waves and volatile policy, while warning that the bigger future credit risk may be in private credit rather than public markets.

Key Arguments: Conventional macro signals like the inverted yield curve missed the post-GFC and post-COVID reality; fiscal policy became the key driver once private-sector credit growth was constrained. MMT is not a political manifesto but a more accurate description of how fiat economies work; government spending creates money and deficits are the private sector’s credit. Higher rates can be stimulative in a highly indebted, duration-locked economy because the government pays more interest into the private sector while private borrowing response is muted. The U.S. has been running far larger deficits than other developed economies, which helps explain its market outperformance. A genuine effort to eliminate the trade deficit or cut the budget deficit would likely weaken U.S. equities and could strengthen the bearish case for the dollar. Global investors are heavily overweight U.S. assets, so even a small shift toward domestic investment abroad could pressure U.S. valuations. Bond yields could rise further if global capital stops recycling into Treasuries and if the U.S. keeps running large deficits. The best way to express macro views in this regime is through long-dated options, especially in FX, rather than outright directional spot or equity positions. Near term, U.S. stocks may be supported by volatility-controlled strategies forced to buy on declining realized volatility, even as corporate credit weakens from refinancing supply. Private credit is a likely future stress point because lower-quality borrowers migrated there during the easy-money era.

Data Points: Permissionless 4 conference dates: June 24th to 26th - Blockworks conference promotion at the top of the episode Conference discount code: FG10 for 10% off - Promo code offered for Permissionless 4 tickets U.S. deficit to GDP: 7% - Muir cites last year's U.S. fiscal deficit as exceptionally large Canada deficit to GDP: 2% to 2.5% - Used as a comparison to show U.S. fiscal outperformance Europe deficit to GDP: 2.5% to 3% - Comparison point versus the U.S. Japan deficit to GDP: 2.5% to 3% - Comparison point versus the U.S. Post-COVID stimulus comparison: U.S. spent roughly twice as much as the next closest economy - Illustrates the scale of U.S. fiscal support Current fiscal-year deficit pace: Almost 20% higher - Muir says the U.S. deficit is running materially above prior levels this fiscal year Interest-rate target narrative: 3% (described as 3% deficit/GDP, 3% rates, or 3% 10-year in the discussion) - Scott Bessent’s earlier policy framework as referenced in the conversation Treasury 30-year yield level: 5% 'yippee level' - The line in the sand that markets have tested multiple times Term premium historical comparison: 250 bps vs 50 bps - Muir contrasts past and present 10-year term premium levels Equity risk premium example: ~4 to 4.5 in 2020 vs ~0 today - Used to explain why relative valuation between stocks and bonds has shifted Whistler ski patroller reference: Past role mentioned - A personal aside at the end of the interview Institutional staking security note: Over $100 billion in digital assets secured - Promotional sponsor copy for Blockdaemon Blockdaemon node scale: Over 250,000 nodes globally - Sponsor copy highlighting infrastructure scale

Pivotal Quotes: "the government's deficit is the private sector's credit" — Kevin Muir: Explaining why fiscal deficits support private-sector liquidity and asset prices "if you go and are successful in getting the trade deficit down, almost by definition, it's going to mean lower stock market prices" — Kevin Muir: Describing why Trump-style trade rebalancing is bearish for U.S. equities "the next part of this is that we're going to see foreign exchange vol bump meaningfully in the coming year" — Kevin Muir: His preferred trading expression for the macro regime

Implications: Listeners should expect a world where fiscal policy, not the Fed, drives markets. That favors FX volatility, selective non-U.S. exposure, caution on long-duration Treasuries, and skepticism toward U.S. equities and credit if deficits tighten or capital flows reverse.