A theory on why the US is surging military forces and focus around Venezuela.

The drug interdiction story doesn’t even begin to hold water. We do not fly F-35s to Puerto Rico and move an ARG/MEU for cocaine skiffs, we have not surged comparable force for larger narcotics flows elsewhere, and reporting on the draft National Defense Strategy says the homeland and Western Hemisphere are being elevated. That is the posture you would choose if you were worried about a nearby maritime denial threat, like Venezuela being used as a launch pad for undersea warfare. That lens fits the visible moves far better than cocaine skiffs.

I have no inside information and I do not want to be a hammer looking for a nail just because I have been writing and researching about autonomous underwater vehicles (AUV). But the AUV explanation fits the facts and should be taken seriously.

Venezuela and AUVs could be to the second Cold War what Cuba and ballistic missiles were to the first.

AUVs are game changing (see my previous posts linked in this thread for an explanation). They are relatively cheap, silent, and nearly impossible to find. They act autonomously and can wait in preloaded kill boxes for weeks. A small number can shut key lanes into the Gulf and East Coast, threaten or cut undersea cables, spike war risk premiums, and paralyze commerce. For pennies on the dollar they create coercive leverage over the US economy and our ability to project power.

Venezuela is especially attractive for adversaries because it sits beside choke points that funnel traffic to the US market, it has ports and fishing fleets that provide plausible deniability to launch AUVs, it is close to multiple cable approaches, and Caracas already works with Moscow and Beijing.

The popular claim that this is about oil also doesn’t make sense. Any serious pressure on Maduro would likely reduce Venezuelan supply in the near term and lift prices prior to mid-terms. The long-run payoff from rehabilitating PDVSA would take years and lands after Trump’s term is over. IMO, oil is the lazy explanation.

But if this AUV thesis is right, the odds that the Washington will accept anything short of regime change fall sharply, and the willingness to use military force to achieve it rises exponentially. A hostile AUV launch pad operating at the base of critical Gulf Coast shipping lanes and cable approaches is not something a US administration can tolerate.

I could be wrong. But if you ask, what is the cheapest and most effective way for our adversaries to pressure the US from nearby waters, launching AUVs out of Venezuela is the obvious answer. I believe it explains the recent actions far better than drugs or oil. x.com/michaeljmcnair… x.com/michaeljmcnair…

AI and other disruptive technologies aren’t going to show up in productivity metrics the way you’d expect.
The reason is bc productivity statistics are price weighted.
But when a sector’s productivity surges, it’s prices fall. Bc GDP and productivity averages weight output by current prices, those price drops reduce the sector’s weight in the aggregate. That weight loss can undo much, or even all, of the measured benefit from the productivity gain.
This is a solved problem. It was explained by William Baumol decades ago. It’s called cost disease. I had the opportunity to give a talk on this to a group of top mathematicians. They didn’t understand why the seeming exponential growth in tech doesn’t show up in GDP or productivity stats.
After I explained the price-weighting effect, they were shocked economists didn’t grasp it and that economists touted the metric as “productivity” without understanding the math behind it.
But they all said they’re sadly not surprised bc it’s classics economics. Economists love using math, but are horrible mathematicians, so they miss the nuances in the very formulas they’re using.

1/ Something extraordinary just happened in global markets.
The administration engineered a $200+ billion capital flow reversal without implementing a single capital control.
They broke the dollar's structural bid using nothing but market volatility.
Here's how they did it 🧵 2/ The Trump tariff blitz was supposed to push the dollar up. Instead it lit the fuse on the biggest dollar sell-off since 2008. My new report explains why.

1/ In my recent @commonplc article, I argue that the next phase of the Trump administration’s trade strategy will focus on capital flow tools. Tariffs address national security, but capital flow measures target the forces that actually drive persistent US trade imbalances.

https://twitter.com/commonplc/status/1922301813778243907

2/ Most discussions of trade focus only on goods and services. But the balance of payments has two sides: the trade account and the capital account. Every trade deficit is matched, dollar for dollar, by a capital account surplus.

Is Treasury Quietly Executing Miran’s Gold-to-FX Playbook?
We have compelling evidence of stealthy US FX reserve accumulation – using gold. Stephen Miran’s 2023 “User’s Guide” detailed how Treasury could convert gold into foreign reserves without congressional approval. Current market fingerprints suggest Miran’s playbook may already be active.

How Miran’s Strategy Works:
1. Buy unlimited gold: Treasury, under 31 U.S.C. § 5116, can acquire bullion freely without new appropriations, typically financing via short-term T-bills. Gold is the only asset Treasury can later “monetize” into foreign cash without new appropriations.
2. Monetize gold later: The Gold Reserve Act requires proceeds from gold sales to retire Treasury debt.
3. Create a debt liability first: ESF sells dollars forward (ex. agreeing to deliver USD in six months for euros).
4. Settle using gold: Just before settlement, Treasury sells gold, immediately using dollars raised to retire the forward liability, satisfying statutory debt reduction.
Result: Treasury swapped idle bullion for interest-bearing FX reserves, all within existing law…no congressional vote, no hit to headline debt, no directional bet on gold.
That’s the whole playbook: buy gold freely and use it as collateral to flip into euros or yen via a forward sale of dollars.

Evidence Its Live:
1. 2000+ tonnes of gold shipped to New York since December, the largest inflow ever.
2. EUR fwd rate - essentially the 1yr fwd discount vs. spot EUR/USD - normally tracks spot closely but recently has diverged sharply (see chart). This indicates someone, who is rate-insensitive, is supplying dollars (or demanding euros) in the forward market strongly enough to flatten the curve even as the cash market pushes spot higher. That is precisely the footprint you would expect if a large player were selling USD fwd in size while simultaneously accumulating euros: the forward supply leans on basis/forward points, but the spot legs of those trades, whether outright EUR buys or the mirror leg of a gold swap, push spot up. In other words, the correlation break is further circumstantial evidence that the fwd leg is being used to fund something structural, not a speculative punt.
3. Last week, Treasury abruptly raised its Q2 borrowing estimate by $390 billion, primarily in short-dated bills, precisely how you'd prefund a substantial fwd settlement requiring cash delivery.

Alternative Explanations (partial):
Admittedly, this theory could partially be explained by other factors:
1. European institutional investors have sold large unhedged USD asset holdings, pressuring spot EUR/USD upward.
2. The massive bullion inflows to COMEX were partly driven by tariff fears, creating a profitable arb and prompting dealers to deliver gold against COMEX futures.
3. The extra bills issuance could merely be “catch-up” financing to get the TGA back to $850 bn once the debt ceiling is lifted.
But if Treasury were also buying bullion for a forthcoming FX swap, the mechanics would look identical on headline borrowing data: issue bills now (shows up as higher net borrowing), pay bullion suppliers (cash outflow eats into the TGA), sell the gold for dollars at forward settlement.
It also doesn’t fully explain why the EUR/USD fwd curve has flattened steadily across longer maturities, nor why the forward vs spot correlation would break so decisively, nor the curious alignment with Treasury’s sudden borrowing spike, and why COMEX stocks would remain persistently high after the tariff exemption - only bled ~1.5 mn oz...small vs the inflow. Why isn’t the metal racing back to London now that the arb is gone?
Also, important to note that public ledgers still show flat official FX assets. That means either: dealer banks are warehousing the euro and yen leg until forward settlement - perfectly consistent with Miran’s structure; or we’re still “testing the plumbing” with modest ticket sizes.
We should know for certain in short order, as Treasury must publish Sovereign Wealth Fund details by Sunday, May 4 and Thursday’s H.4.1 release and upcoming TIC banking data will confirm whether we're witnessing the first genuine US fx reserve build in decades, or if it’s simply an improbable set of coincidences that just happen to perfectly align with the mechanics of Miran’s gold-reserve accumulation strategy. Fun fact: the US is the only G7 country that still has a law on the books allowing their treasury to buy gold without congressional/parliamentary appropriation