We talked last week about the early 1940s playbook, and how the formula driving the developing economic boom looks a lot like the formula that drove the boom out of the Great Depression and World War 2.

 

We're seeing defense, energy, chips, supply chains and data center building with wartime-like intensity.

 

Last week, the Wall Street Journal reported that the Pentagon was approaching GM, Ford, and other manufacturers to shift some capacity toward weapons production.

 

And today, the President added more fuel to the war mobilization.

 

He invoked Section 303 of the Defense Production Act to expand domestic production of energy grid infrastructure.

 

The memoranda called it "essential to national defense." 

 

Meanwhile, the "permanently open" Strait of Hormuz asserted by Trump last week, was closed with shots fired over the weekend.  

 

The war continues, and Trump's post yesterday ("No more Mr. Nice guy), and today, saying he's "under no [time] pressure whatsoever" to make a deal suggests that he's settling in for a longer campaign. 

 

And as we've discussed, the ramp in the defense industrial base that's been underway since early this year (to a planned 4 times the amount pre-Iran strikes) suggests that war capabilities are being sized for something bigger than Iran (i.e. China). 

 

Let's talk about the next Fed Chair.

 

Kevin Warsh will have a confirmation hearing tomorrow with the Senate Banking Committee. 

 

His prepared remarks were "leaked" this afternoon.

 

Remember this is Trump's hand-selected candidate to chair the Fed. He's been hammering away at the current Fed Chair for the better part of the past year, to influence rates lower. And rates have ultimately come down.  But the Fed has been on hold since December.

 

Warsh comes into tomorrow with the following framework, he articulated frequently earlier this year: it's regime change. 

 

A lower interest rate regime. He's said "AI is going to make everything cost less," and (consequently) "we are at the front end of a productivity boom." 

 

And within the regime change, possibly a new "accord" between the Fed and Treasury — to end the Fed's QE business (manipulation of credit markets), stop the distortion in markets and outcomes, and preserve the dollar's value and reserve currency status.

 

This is structural reform, ending the madness of the post-Global Financial Crisis central banking world. 

 

And with that, Warsh has very important and specific commentary in his prepared remarks for Congress.  

 

He says Fed independence is about "operational conduct of monetary policy." And it doesn't span to "international finance."

 

He's telling Congress that the Fed's international finance functions are NOT entitled to the same independence as rate setting. 

 

He's talking about dollar liquidity (dollar swap lines). 

 

As we've discussed here in my daily notes, for the better part of the past year, in times of uncertainty global banks tend to scramble for U.S. dollars to meet dollar-denominated liabilities. 

 

Providing "access to dollars" is a bargaining chip for the Trump administration (to incent policy and geopolitical alignment). And Warsh seems to be indicating that's a government and Fed collaboration.

 

With that, it was reported today that the UAE visited Bessent in recent days to lobby for access to dollars (dollar swap lines).

 

And it's fair to expect, with the power change at the Fed next month, that Europe will have to get in line, as the dollar swap lines they've experienced as automatic will become conditional under the Trump-led Fed (conditional upon alignment).