Oct 26, 2026 · 52 min
The dollar stays king despite America’s fiscal strain
Inflation, The Deficit & Why the Dollar Stays King with Benn Steil | The Real Eisman Playbook Ep 81
The episode tests whether persistent deficits, new capital demands, and geopolitical competition can eventually weaken the dollar’s unmatched financial position.
- 1The dollar remains dominant because no alternative currency combines America’s market depth, credibility, and global financial reach.
- 2Treasury market interventions cannot offset enormous deficits, while AI investment could intensify competition for capital and raise borrowing costs.
- 3Historical choices involving Henry Wallace, Bretton Woods, and the Marshall Plan shaped the international order behind today’s monetary system.
Don't miss
Steil argues that a Wallace presidency might have opposed the Truman Doctrine, Marshall Plan, West Germany, and NATO, altering the early Cold War.
The brief
Steve Eisman and Benn Steil begin with persistent inflation, the Federal Reserve’s forecasting record, and whether political pressure could push policymakers toward a rate hike.
They argue that Treasury’s proposed Operation Twist is too small to move a market overwhelmed by federal borrowing, while AI investment may further compete for capital.
The dollar’s fiscal vulnerabilities are real, but Steil finds no credible replacement in the euro, renminbi, or gold; France’s debt lacks America’s automatic demand.
The conversation’s historical turn centers on Henry Wallace and the counterfactual possibility that his presidency might have resisted the Truman Doctrine, Marshall Plan, and NATO.
Steil closes by tracing Bretton Woods, Harry Dexter White, and the Marshall Plan, showing how postwar choices created the dollar-centered order now under pressure.
What was said on this episode
27 statements · 6 positive · 20 negative · 1 neutral
Inflation remains persistent and is not declining.
“inflation has been persistent. It's clear that it's not coming down.”
Listen at 2:42
Delayed Fed action could unanchor inflation expectations and complicate future policy.
“if they don't move now and make it clear that they are dedicated to the 2% long-run target, that inflation expectations will become unmoored and it will make their job much harder in the future.”
Listen at 2:56
A majority may support a Federal Reserve rate hike this month.
“there looks now like there may well be a majority for hiking rates”
Listen at 4:02
The Fed’s enlarged balance sheet does not impair inflation control above zero rates.
“the fact that the balance sheet is much, much bigger than it was before, say, the great financial crisis, is in no way a problem for the Fed in controlling inflation.”
Listen at 6:47
Formal Federal Reserve forward guidance should be eliminated.
“the one part of his agenda I do agree with is getting rid of, quote-unquote, formal forward guidance.”
Listen at 7:00
The Fed has forecasted worse than leading private forecasters for decades.
“the Fed has been systematically worse than so-called blue chip. private sector forecasters for many, many decades now”
Listen at 7:33
Bessent’s Treasury market signaling operation failed.
“it did not work.”
Listen at 11:09
The Treasury operation was too small to affect the Treasury market independently.
“So, this is nothing on its own.”
Listen at 11:40
Bessent’s logic regarding Japanese Treasury sales failed.
“So, Basin's logic did not work.”
Listen at 13:33
Major central banks diversified from dollars primarily by buying gold, not other currencies.
“major central banks around the world have been answering that question over the past 20 years. They have not, broadly speaking, sold dollars for other currencies, but they have sold gold.”
Listen at 15:42
Gold can perform at least as well as the dollar during financial stress.
“gold is approximately as good, some could argue, better. than the U.S. dollar, because gold tends to do well during times of stress.”
Listen at 18:02
China’s SIPS system is intended to compete with SWIFT internationally.
“The Chinese have been building an alternative international currency settlement system. It's called SIPs, which is trying to compete with the huge international system called SWIFT.”
Listen at 21:06
AI’s capital demand is pushing Treasury rates higher.
“AI is exploding, and there's a huge demand for capital. That's true. That is true. That is true. pushing up treasury rates”
Listen at 22:36
The U.S. fiscal trajectory is unfavorable.
“The trajectory is ugly.”
Listen at 23:33
U.S. political leaders no longer seriously intend to address the deficit.
“There's no longer any serious willingness in Congress or in the executive branch to address it.”
Listen at 23:40
Greater U.S. debt issuance requires attracting more rate-sensitive investors.
“the more debt we issue, the more interest rate-sensitive investors we have to attract into the market to buy our debt.”
Listen at 26:53
A worsening investor profile accelerates U.S. interest-rate increases.
“you get an acceleration. effect on the rise in interest rates.”
Listen at 27:06
The U.S. Treasury investor profile deteriorates as the deficit worsens.
“the profile of our investors is getting worse and worse as the deficit gets worse.”
Listen at 27:12
French government bonds are not regarded as risk-free assets.
“Nobody is going to call French government bonds a risk-free asset.”
Listen at 27:52
A Wallace presidency likely would have conceded Manchuria, South Korea, Hokkaido, and the Dardanelles.
“there had been no pressure on the Soviets to get out of Manchuria. No pressure. We probably would have given away South Korea, Hokkaido, the Dardanelles to Turkish Straits.”
Listen at 41:14
Henry Wallace opposed the Marshall Plan, West Germany, and NATO.
“Wallace opposed the Marshall Plan, Wallace opposed the creation of West Germany, Wallace opposed NATO.”
Listen at 41:51
The United States alone held veto power in both Bretton Woods institutions.
“The United States was the only country that had veto power in both.”
Listen at 46:06
Harry Dexter White largely created today’s dollar-based international financial system.
“the dollar-based... international financial system that we know and love today, is pretty much created by Harry Dexter White”
Listen at 46:12
Harry Dexter White worked in Soviet interests.
“he was absolutely working in their interests.”
Listen at 46:45
Intercepted Soviet intelligence cables described White’s activities on behalf of Soviet intelligence.
“identifying White under his various code names and describing his activities on their behalf.”
Listen at 49:06
The Marshall Plan rapidly rehabilitated countries that became U.S. allies.
“the Marshall Plan was meant to rehabilitate... the countries that we become are our future alliance allies as quickly as possible”
Listen at 50:46
U.S. disengagement from Europe would have enabled Stalin to expand Soviet influence.
“the United States disengaging from Europe was the perfect opportunity for him to promote. chaos, anarchy, complete dissolution of society in Western Europe so that he could expand”
Listen at 51:32
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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