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Hidden Forces

Capital Wars and the Death of Fiscal Illusions | Paulo Macro & Le Shrub

Hidden Forces

Demetri Kofinas

Government, Business

4.8 • 1.6K Ratings

🗓️ 17 April 2025

⏱️ 48 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

In Episode 410 of Hidden Forces, Demetri Kofinas speaks with investors Paulo Macro and Le Shrub about the consequences of a breakdown in the international capital and trading system—and what this means for markets and investor portfolios.

The first hour revisits last year’s discussion on “EM-ification,” the breakdown of the rules-based global order, and the urgent search for a new safe asset in a world of deteriorating fiscal balance sheets. Together, Demetri, Paulo, and Le Shrub map out what investors should be paying attention to in the year ahead.

In the second hour, the conversation turns to the implications of a full-blown trade and capital war, including:

  • The impact on U.S. assets—especially Treasuries and the dollar—if surplus nations redirect their capital flows away from the United States

  • Resurgent inflation fueled by strategic rearmament and industrial policy

  • A potential decoupling from—and even a hot war with—China

  • The abandonment of fiscal restraint in the face of an economic slowdown amid persistently high or rising borrowing costs for the U.S. government

  • The risk of massive wealth destruction triggered by a dramatic revaluation of the U.S. dollar

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Producer & Host: Demetri Kofinas
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Episode Recorded on 04/15/2025

Transcript

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0:00.0

What's up, everybody? My name is Demetri Gaffinus, and you're listening to Hidden Forces,

0:06.0

a podcast that inspires investors. Entrepreneurs and everyday citizens to challenge consensus

0:12.8

narratives and learn how to think critically about the systems of power shaping our world.

0:18.6

My guests in this episode of Hidden Forces are Paolo Macro and Leshrub,

0:23.3

two popular substack authors with large Twitter accounts who were on the podcast together

0:27.9

almost a year ago to the day to discuss their respective frameworks, including the EMF

0:33.2

ocation of developed economies and their political systems, the search for a new safe asset in a world

0:38.7

of worsening fiscal balance sheets, and how the strain on the international system and on

0:43.2

American military and financial hegemony could amplify some of the budgetary and political

0:48.4

headwinds facing developed economies in the years ahead. I asked them back on the podcast to revisit that conversation

0:55.5

in the context of everything that has transpired in the last year and to plot a series of possible

1:01.1

courses for what investors can expect in the year ahead. In the second hour of our conversation,

1:07.1

the three of us discuss what a smashing of the international capital and trading system could mean for investors,

1:13.2

and for the value of U.S. assets in particular, including U.S. treasuries and the dollar,

1:18.5

if exporting countries begin reinvesting more of their current account surpluses in their own economies

1:23.5

and in asset classes outside the United States.

1:26.9

We also discuss what we think will actually happen from a policy standpoint.

1:31.3

Will it propose tariffs lead to an escalating trade and capital war,

1:35.3

with the endgame being a complete decoupling from and possible hot war with China,

1:39.3

as unthinkable as that may have seemed, only a few years ago?

1:43.3

Will it lead to new bouts of inflation

1:45.3

as national economies seek to stimulate domestic investment in strategic industries and find

...

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