re: Implications of fiscal dominance in the US and likely options going forward.

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It stores crude oil. So even if WW3 starts, we’re constrained by refining capacity, not available crude.

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This is my understanding as well. I think it's more of a tool against some kind of embargo or long term upheaval either in the US or Europe or some kind of war.

And BTW domestic refining capacity is an even easier target to our enemies than SPR. They are huge, above ground, and usually pretty close to decent sized cities.

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I know there was zero (or near zero) monetary elbow room in 2020 when they needed to stimulate the economy. That's why they did direct payments.

But to summarize your lengthy post - you are suggesting that we are contributing to specific economic policies and will continue to blur the lines between fiscal and monetary policy in a quiet effort to "lighten" our total debt as a % of real GDP?

Sorry if I'm off the mark. But if you are right, the hedge would be long term, broad investments in total market + a healthy dose of real property (gold/silver, land, real estate, etc.), right? I think the real question here is how likely do you think there is a real alternative to the USD in the near/medium term future as the dominant currency?

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The gist of it is in a regime of fiscal dominance the central bank's policy choices are severely curtailed by the debt and deficit position of the govt. For example, Powell couldn't have pulled a Volcker and raised rates to 2X cpi because that would have instantly sent the US into insolvency. Even going to 5% required padding the bond market with the BTFP (since ended but accommodated by requiring everyone to access the discount window once/year), Janet shifting issuance to the short end and an arguably premature curtailment of QT.

Nothing is going to replace the dollar anytime soon. It will remain the dominant unit of account in global trade. What is being replaced are US treasuries as the global reserve asset. Since WW2 and especially since Kissinger's petrodollar arrangement with the Saudis the model has been net exporters store their usd surpluses in treasuries which provided expanding demand for US debt globally as the global economy grew. This allowed US fiscal spending to expand along with our ballooning trade deficit.

The GFC changed everything. Bernanke was terrified of another depression and he, Paulson and Bush/Obama simply shifted the upside down private sector balance sheet to the public sector. Too big too fail balance sheets were absorbed by the govt, banking and nonbanking lending institutions alike. Remember GM? GM the car company was fine. It was their lending arm that was threatening to destroy them.

The Chinese watched all this play out in the post GFC years and said "wow, if they get into trouble they're just going to print their way out. Perhaps we shouldn't store our trade surpluses in treasuries anymore." They stopped buying in '14 or so and launched belt and road. If China's not buying anymore it's over. There simply isn't another marginal buyer of US debt out there big enough to allow US fiscal expansion at the rate we've grown accustomed to. The Triffin Dilemma has now come full circle.

LINK

That's^ a pretty good take on where we're likely headed. More countries are going to trade with each other in their native currencies and settle imbalances in gold. This is already happening amongst BRICS members and imo Japan will be the first NATO aligned country to start buying oil in their native currency with Washington's blessing (if they can print yen for oil they won't be forced to sell treasuries for dollars to buy oil with).

If you look at how geopolitics are aligning it is basically net consumers (G7) against net producers (BRICS). Where does that leave us? Well, we have to devalue and reshore. That will be an incredibly inflationary process but it has to be done. After spending an entire generation exporting our middle class to support treasury demand to feed the fiscal beast the chickens have come home to roost. Trump's victory in '16 was a regime shift, and along with BREXIT, marked the return of populism in the West.

The process of devaluing and reshoring with our current debt burden is delicate to say the least but the following chart demonstrates why it is necessary. LINK

Bread and circuses are not going to placate the masses forever. At some point they're going to need jobs, jobs that produce income that result from real production, not serving coffee or counting paper clips in the administrative state. (How AI factors into this is another conversation for another thread.)

But if you are right, the hedge would be long term, broad investments in total market + a healthy dose of real property (gold/silver, land, real estate, etc.), right?

Yes, gold and btc, desirable R/E etc... should do well. Equities as a whole should do well in nominal terms, adjusted for inflation, equities that are cash flow positive should continue to do very well. Over the next 2-5 years there will probably be some significant sector rotation into industrials as this policy shift takes shape. All of this is assuming policy makers do the right thing which imo is devalue and reshore while letting wage inflation outrun cpi. Holders of long term bonds will get killed on a real basis during this transition. Oh well, they've had a 40 year run while the middle class was gutted.