Dry powder v. “whoosh down”

PublishedApr 9, 2026

Duration23:10

Most Important Insight

The Federal Reserve is trapped in a state of fiscal dominance where any significant market 'whoosh down' would collapse capital gains tax receipts and force an immediate, massive liquidity injection to prevent a US sovereign debt crisis.

Most Original Insight

The exhaustion of the Reverse Repo Facility (RRP) has removed the primary 'dry powder' buffer for the Treasury market, making the financial system more sensitive to liquidity shocks than at any point in the last decade.

Key Points

US interest expense is now on a trajectory to exceed $1.6 trillion annually, making it the largest single line item in the federal budget by late 2026.
The depletion of the Reverse Repo Facility (RRP) means the Fed no longer has a passive way to add liquidity to the system without expanding its balance sheet.
A sharp decline in asset prices (the 'whoosh down') would lead to a catastrophic drop in tax revenue, necessitating even more Treasury issuance into an illiquid market.
Gold is increasingly being treated by global central banks as a tier-one reserve asset that carries no counterparty risk in a high-debt environment.
The Treasury is forced to rely on short-term bill issuance to manage yields, which significantly increases the frequency and risk of debt rollovers.
The Fed's 'dry powder' is effectively gone, leaving the Standing Repo Facility as the only remaining tool to prevent a spike in overnight rates.
Structural inflation is likely to remain higher than the 2% target because the Fed must prioritize the solvency of the Treasury over price stability.

Investment Implications

Asset / Sector / Instrument	Action	Source	Notes
Gold	BUY	explicit	Gromen argues gold is the primary beneficiary of the shift toward fiscal dominance as it cannot be devalued by central bank printing.
Bitcoin	BUY	implicit	As a digital liquidity proxy, it is expected to catch the overflow from the inevitable expansion of the Fed's balance sheet.
S&P 500	HOLD	implicit	Expect extreme volatility or a 'whoosh down' in the short term, followed by a sharp recovery once the Fed is forced to intervene.
US 10Y Treasuries	SELL	implicit	Rising interest expense and the exhaustion of liquidity buffers suggest yields must rise or be capped through inflationary money printing.
USD/JPY	SELL	implicit	The dollar faces long-term pressure as the US fiscal position deteriorates relative to other major economies.

Hang on a sec…

Gromen claims that a market crash is 'mathematically impossible' to sustain, but this ignores the Fed's historical willingness to endure significant market pain to maintain the dollar's credibility as a reserve currency.
The argument that the RRP exhaustion is a terminal event for liquidity overlooks the Treasury's ability to draw down the Treasury General Account (TGA) to bridge short-term funding gaps.
He suggests gold is the only 'neutral' asset, yet in a true liquidity 'whoosh down,' gold often sells off initially as investors scramble for US dollars to cover margin calls.