The Breakdown - ‘Dismantle the Euro to Save Europe’ Feat. Tuomas Malinen

Episode Date: May 22, 2020

The European Union and the euro are part of the most ambitious political and economic experiment of the 21st century. The COVID-19 crisis, however, has exacerbated growing questions of political will and political legitimacy and led some to wonder if the eurozone can survive.  Tuomas Malinen is the CEO of GnS Economics, a macroeconomic advisory firm, and Adj. Professor of Economics at the University of Helsinki. In this interview, he and NLW discuss: Why the European debt crisis was actually a “morally corrupt bank recapitalization project” Why negative interest rates and quantitative easing made the European banking sector particularly weak even before the pandemic  Why the German Constitutional Court’s battle with the European Central Bank has major implications for the entire euro system Why European leaders are pushing for deeper integration when citizens want more lightweight integration Why European nations would be more likely to support one another in bilateral arrangements rather than through forced solidarity  Why the only way to save the European Union might be to let the euro fade away 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by ArisX.com, the Stellar Development Foundation, and Grayscale Digital Large Cap Fund. The Breakdown is produced and distributed by CoinDesk. Here's your host, NLW. Welcome back to The Breakdown. It is Thursday, May 21st, and over the last few weeks, we have spent a lot of time looking at. at the US dollar. And what it means for the dollar to be so strong relative to other currencies, does this serve the US, does this serve the rest of the world? Is there a better system? This is one of the most important questions, not just for the crypto and Bitcoin world, but for economies writ large. And I don't want to lose sight of the relevance or what's happening to other currencies

as we talk about the dollar. And so with that in mind, I'm really excited to share an interview with Tuomis Malinan. Tumas is the chief economist and CEO of GNS Economics, which is a Helsinki-based macroeconomic consultancy. He also is an adjunct professor of economics at the University of Helsinki. I came across Twomis earlier this year when he wrote a really brilliant thread called why the breakup of the Eurozone is a near certainty. It's a really, really interesting thread, and my conversation with Twomis did not disappoint. I think that the breakup of the Eurozone is a near certainty. I think, he is very clearly not an ideologue, but is someone who is trying to carve out an interesting middle space when it comes to economic thought and political thought as it relates to Europe.

We talk a lot about the background of Europe and the euro itself coming into the crisis and how tensions around the disbursement of aid in the context of the crisis have actually inflamed larger political questions. That's the main part of the interview, but we also get into China and why we might be at the end of the Chinese economic miracle, and more broadly, just look at what the state of the world economy is and why it is so fragile. So there's a ton here to unpack. I hope you enjoy this conversation as much as I did. One note, as always, long interviews like this, we edit only very, very lightly. So let's dive in. All right, I am here with Thomas Malin and Thomas, thanks so much for joining. I'm glad to be here. Thank you for

having me here. Yes, I've been, I've been following you for a little while now. It's far, for too little time, I think. I discovered you actually, it was interesting. So I was, I caught notice of a thread you posted about the euro and why the, the breakup of the Eurozone might be coming and what challenges it faces. And I saved it. I saved everything that I saved to a common kind of file storage area. I use an app called Pocket. And I was going back and reflecting on this because I immediately emailed you and asked you to join the podcast after I saw that and had read some more of your work. But then I was going back and I realized that I had also saved a threat of yours on China from January as well. So I had without knowing it, been following you for

even longer than I thought. But I'm so excited to have you here today to talk about, you know, as I was mentioning to you, the goal of the breakdown is to help people understand really how economic systems and power shift systems around the world are changing. And being a U.S. podcast, we're naturally kind of a little bit U.S.-centric. But the reality is, is that as much as we are trying to peel this back and there may be kind of forces peeling back globalization, we live in a highly interconnected, interdependent world. And so I want to make sure we have perspectives that can speak to different contexts. So there's a ton that you can speak to. I know your research is not refined or defined by any one kind of region specifically.

But I'd like to maybe start with this idea of Europe and talk about the euro in the context of this COVID crisis and maybe how it's exacerbating forces that were there before. But maybe by way of setup, let's talk about what was the state of Europe from an economic perspective or, you know, if we want to get even more narrow banking perspective coming into the crisis? Well, it was weak, to say the least. The latest figures just before the corona crisis hit basically showed that we were already in recession. And now this is this massive economic hit will push us into depression. But the thing is that they are, and this is something we have been kind of toting to our U.S. customers. And also which have been constantly raising in Twitter that the European Bank, banking sector is actually the biggest threat to the world economy this time around.

So it's the shock, the actual shock is probably not going to come from U.S., but from Europe. And the thing is that what creates the fragility of the European banking sector, it basically starts in 2008 when we had the global finance, the crisis. And while in the U.S., they let a huge number of banks fail. In Europe, they did no such thing. So they bailed out the banks with very limited funds. And they also allowed the banks to keep some of this toxic stuff, you know, the CDOs and stuff like that in their balance sheets and pretend that they had some value. And this kind of made the, it kind of chompefied the European banking sector.

from the beginning, from the 2008 crisis. And then we had the 2010-2012 crisis, which is usually referred as the European debt crisis, although it was the European banking crisis. And the banks that were in trouble were basically German and French banks who had lent heavily to Greece. And if Greece would default, the banks would face serious losses. So our leaders kind of came out with this. ideal recapitalizing the banks through Greece, and it's, of course, doesn't work very well like that. So that's the starting point of why the European banking sector is so weak.

And after that, all the policies, the ECP implemented, basically the ultraide monetary transactions issued in 2012, the negative interest rates issued in 2014, and the quantitative easing issued in 2015. all made the European banking sector more weak. And the thing why the European banking crisis is so dangerous for the rest of the world is that we have the biggest concentration of the global systematically important banks. And the assets of our banking sector in the Eurozone are some 300% of GDP, while the same is about 80, 90% of the CDP in the U.S. So that's the background.

How, what is the, okay, so this is kind of the banking side, but obviously a lot of these issues are inextricable from political challenges. And part of what makes Europe such an interesting case study for the world is that you have, you have a political experiment laid on top of an economic experiment. So what was kind of the legacy of, of kind of the political side of all of these different issues, again, coming into this crisis. Well, yeah, the thing is that we know from currency unions that there is the glue kind of that holds them together is the political will.

And when the Eurozone or the laws concern or the treaties concern of the Eurozone were created, there were several articles put in place that in surrogate, that we wouldn't have fiscal responsibility from each other. This is just because, you know, we, we Finns, for example, have very little similarities with the Greeks. We don't, you know, that we are not in the same country. We have different cultural heritage and stuff like that. So we don't, the people of the North, for example,

consider that it's not their responsibility to support the people of the South, at least through government. governmental cooperation. And what the 2010-2012 crisis did is that it kind of enforced us, the politicians of all Europe basically enforced the people of the northern member countries to support the southern countries. And it started to show as a huge rise in the country. in the support for populistic parties like the true Finns in Finland and the alternative for

Deutschland in Germany. Just because our leaders were kind of twisting the rules we agreed when the Europe was set up. And after the 2010-2012 crisis, there was the refugee crisis in 2015, which caused kind of the same thing. So the EU kind of forced many of northern nations, to take a lot of refugees which they didn't want to take or the people didn't want to take. And this also raised the popularity of these populistic parties. And these two events have kind of eaten away the political support among the people to kind of keep supporting the construct of the euro and the weaker member nations. So it's a it's been a kind of kind of.

tragic route for the last 10 years, which are eaten away, the political cohesion and will. And like I mentioned, the thing is that it makes the current situation inflammable because, the flammable, I mean, because the, now we would need the political support and will more than ever, and it's the weakest we ever had. So that makes a case that the, it's very, very likely that the Eurozone will not survive through this crisis. So, okay, so we have a structurally and increasingly weak European banking sector. We have declining political will. And so your thesis, or the next part, so your thesis is that the chances of the Eurozone not

surviving this crisis are higher than ever. And then you said that the three questions, the Eurozone now, faces are, one, will the European Central Bank be able to provide support for sovereign bond markets through QE? Two, will national authorities accept the terms associated with possible bailout loans? And three, will national political leaders continue to support the euro? And just for context, for people who are listening, this was written on May 12th. So, obviously, we've lived lifetimes in the eight days or whatever it is since then. But could you explain just a little bit about those three points maybe as a way to get into the rest of this conversation?

Yeah, well, the first one is that the ECB has been strongly supporting the sovereign bond market of the euros of member nations and thus supporting the fiscal capacity of ESPES, of the weaker nations. The second is that the author, the programs that were unleashed on the weaker member nations of the crisis nations in 2010, 2012 were highly unpopular in those countries. which is no surprise, of course. And the third is what I kind of referred to was will there be, you know, political support for in the northern member countries to keep kind of pushing or giving money to the southern or the weaker member countries. And as it currently stands, all these three are failing.

So can you explain for people who haven't been following along, How has the ECB attempted to kind of engage in this moment as compared to, you know, the U.S. Federal Reserve or other central banks around the world in the context of the crisis? Well, the original response of the ECB was very similar than in the U.S. They thought it, what was it called? It was the pandemic emergency purchase program, which they just bought a huge, amounts of sovereign debt from the Eurozone, and they also bought some corporate debt. But the thing is that in the original QE, it was the decision of the ECB and the European Court of Justice that the purchase program needed to follow the capital key of the ECP,

which means that they need to buy the sovereign bonds according to. to the capital the countries have issued to the ECB. So there are certain, like, I think it was over 20%, but then they can buy German bonds and just 2% of Finnish bonds, for example. But in the pandemic emergency program, they scrapped this. And that was kind of the beginning. But then there was the decision of the Germanist Constitutional Court, which essentially found that the ECB may have overstep its monetary mandate in the original QE program.

And they gave us, actually, not us, the ECP, a three-month deadline to show that they have not disproportionately affected the fiscal capacity of, the member countries of the Eurozone. And that changed the whole ballgame because that's exactly what the ECB has achieved with the QE programs. So now the thing is that if the ECB can persuade the constitutional court of Germany that this has not happened, the constitutional court will order the Bundesbank, withdraw from the program, which means that the Bundesbank will exit the ECB or that the ECB will stop the program. So the Germanist Constitution Court has kind of issued a backstop for all these bailout operations of the ECB. So it has completely changed the ballgame. While there is like

with the Fed, there seems to be no backstop. The Fed is buying anything it wants, basically. So this has changed a lot within 10. Just, you know, two to three weeks, the whole ballgame of monetary policy has changed in the Eurozone. What is the perspective right now? Are people, I guess, who is, not that it's this easy to kind of make it a dialectic, but who thinks the ECB is right in this case and who thinks the German court is right in this case? I think the federalists think the ECB is right. And those who are either nationalist or realists like me,

we kind of think that the law and order and the letter of the treaties is very important and we need to hold on to that. So it's kind of, it's divided. Basically, now you can see from the comments of people, analysts and journalists, the difference that who would like to see Eurozone going into Europe going into full federation and others who want to go back to smaller economic areas in the sense that we would have a sovereignty of national economies again. So it's rather divided. It's rather divided. It's just two parts, the Europe at the moment.

It's a defining moment in the history of Europe, actually, I think. Support for this podcast and this message come from Eris X. With ArisX, you can trade spot and regulated futures on cryptocurrencies through a licensed, U.S.-based exchange. ArisX believes in fair access for all. Sign up today to take advantage of zero fees and learn more at erisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure,

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For more information, visit grayscale.co slash coin desk. That's g-r-a-y-scale.cow slash coin desk. It's really interesting. You basically have kind of in that versus scenario that I just set up or kind of forced. You have on the one hand, you know, what you call federalists. And then on the other hand, probably uncomfortable lumping of nationalists and, you know, realists as you referred to yourself, maybe economic realists. What is the difference, I guess, for people who are trying to understand the difference between kind of a nationalist perspective, which starts perhaps from an ideological base and a realist economic perspective, where do those two points diverge? Because maybe, I would imagine, uncomfortable belt fellows in some contexts. Yeah, yeah, we kind of are.

yeah um i don't yeah it's it's yeah it's a water thin line basically but i think a well we have we have what we have in common is the thinking that decision making should be as close as possible to the ordinary people but us realists don't want to close the borders basically that's the that's the issue we we would be believe in globalization in general form and cooperation, a wider cooperation between nations. But I think we have reached to the point globally also that the globalization has gone too far. So we have to come back a little bit because you need to have people need to have a sense of control of the issues that are within their realm.

So basically within your own country, people need to have that fate, that they can change their fate, basically. So the thing is that if you compare to the US and Europe, the US states have more sovereignty now than the member countries of the European Union. And this is something that should not be. because we don't even have a federal government, at least yet.

So the European Union went too far. It has tried to grasp the power in any places it can get and transfer it to Brussels. And this is created a, this is basically what's behind the rise of the populistic parties because people don't want, people don't want to lose control of their own nations. And that's the biggest mistake that the European leaders had made. I think this is a really important point of nuance because especially it gets so amplified

in kind of the media model. But there is a big space between sort of a nationalistic country first at all times in all contexts and a purely globalized where one big global family no matter where you are, right? There's a huge amount of meaningful space in between. And it's interesting to see, you know, the U.S. has an interesting spot in the globalization conversation, obviously, because of being the world's reserve currency, because of kind of the legacy of comparative economic power. But even now, you're starting to see people have a conversation, whereas, you know, five, ten years ago, again, it was presented as these kind of very, very diametric sides. I mean, Donald Trump won

with, you know, Maga Hats, right? Make America great again. And that sort of appeal. Whereas now you have the start of, I think, an interesting political breakdown a little bit where you have people who have been traditionally left and kind of liberal or pro-globalization, called maybe neoliberal, who are like, huh, maybe we should be able to produce masks, you know, here in the country. Maybe certain types of supply chains are actually, you know, national security concerns. And the idea of a totally subverted global world order with just in time supply chains might be going too far in the face of what we might want is some national resilience. And that doesn't mean that they've gone full, you know, close the borders and screw China. It's more that there's this open middle space that

that hasn't perhaps existed there in the political conversation. So I guess I would ask is, you know, is there any of that middle space or has the conversation politically calcified so much that it really is kind of the full federalist, you know, EU and euro as it is, and expanding. integration on the one side and nationalists on the other? Or, you know, are there more of you, basically? That's a very good question. I was kind of hoping that when the Brexit was done, people were or was agreed by the British people, that people would have walking up to this. But it seems like the battle lines have been hardened. You know, the guys who want, the people who want, the federalist Europe are more aggressive than ever.

And the middle ground is there. It's strikingly obvious that there is a middle ground. We need to act together in Europe too, you know, cooperate. But currently the battle lines are so hardly drawn that I don't, I fear that we will be facing a complete collapse of the European cooperation before we can build it again. And this is just because the federalists are pushing back so hard, not giving up an inch. And that's a very, very dangerous strategy. Because if you look at the history of humanity, you know, sovereign governments, sovereign countries have always defeated these kind of multinational things at the end.

So it's just something that I would really not like to see that the whole European Union will fall apart. But for example, leaders of French and Germany are now pushing so hard for the fiscal transfers that I fear that when there is this pact going against them with basically Sweden and Denmark and the Netherlands. and it may and they are promising something to the Italians and Spaniards that I don't think many of the Northern countries want to keep.

And that is where you create a serious rift and the likelihood of complete breakdown of relations. And when that has happened in Europe, bad things have followed that we know. So this is, it's not

lucky looking good at the moment. for Europe because we don't recognize the middle space that is definitely there. So this gets to something that I've seen you say numerous times, both in your own tweets, but then kind of responding to others, which is this idea of dismantling the euro to save Europe. What does that mean? It means that we agree in a common fashion that the euro was a failure. and we just decide in a secret cabinet meetings that we dismantle it. We just, you know, there's all, these are these target two imbalances,

which is basically tracks the transfer of funds from one eurozone to another. We have this. ECB has bought a lot of these sovereign bonds and we have this pan-European payment system which we need to have also in the future. So we just agree that we keep all this or handle these. We agree politically how they are handled and just, you know, let the euro go. At one day, all the countries, we announced that now we are in our own currencies and we have capital countries in the whole Eurozone and we just go back to the national currencies

and do it in cooperation to save the European Union. But if we don't do that, if some countries like Italy or Spain, they live in anger from the euro, there's a high probability that also exit the EU. And then the whole system breaks apart. So let's game this out a little bit. So let's say that this happens. How would this play out economically for different countries? Which, you know. The version that you're rooting for, right?

the non-caotic, non-disorderly, the orderly breakup of the euro, right? The dismantle the euro to save Europe. How would that play out in the local economies or the newly returned national economies? Well, of course, depend a lot. But there was actually a proposition from a German economist just published yesterday or today morning about that. Let's just let Italy leave and Germany pays them. for leaving, gives a grant, just you know that they can manage. And there are several scenarios how this could play out in each country, but there's all,

there's, there has to be some defaults basically on the on the on the most indebted countries. And well, going country by country is not possible in this in this interview, but they and we don't I haven't analyzed it in the in the in the but but the it would go fine if we would just you know support each other and the and we will we will most likely have a banking crisis we just have to go through it so it will not be easy

it will be economically very difficult but it would give us the possibility of a very fast recovery after the crisis And that's what we are aiming here. And when countries, economies recover, cooperation also recovers. So it would be very important looking to look in the future that we get rid of the euro because it would most likely revive the economies of, well, all the suffering nations. Only loser would be probably Germany, but she would be just fine.

Do you think in some ways that the ability for European member states to figure out ways to support each other is actually easier outside of the Euro context if this scenario were to come to past? Yes, I'm definitely, I'm sure that it is because then, you know, then the people would probably support it more because they just, you know, that would be a, what's the word? lacking the word. But anyway, it would be, it would come out of the goodwill of the citizens, not because we have to have to do it because otherwise the euro breaks up. Now is these politicians are telling us that we have to do it. We have to do it, though the eurozone breaks up. And that's, that gives a, when people cannot say that I help you because I want to help you,

but I, but we are told that you are have to, you're forced to help. that's not nice. That doesn't create any goodwill towards the project. So I think if we would get rid of the Europe, people of Europe would naturally start to cooperate with each other more openly as we live in the same space. Yeah, it's interesting, right? So you keep this model of open borders where the relationships between people is preserved, the easy flow of business between countries is preserved. And then all of a sudden you have a crisis in a southern state, Italy. German leaders get to make the case to their people that whatever deal they want to cut is

the right one between those two nations and it's designed, right? That's kind of the mental model instead of this emanating from on high or the feeling of it emanating from on high. And it is the obligation, right, of the people of, you know, ex-prosperous country to foot the bill for some other place. Exactly. Yeah. Well, this gets us to an interesting, an interesting context for the essay that you wrote this

morning. Can you tell us a little bit about that? Yeah, actually, I wrote a blog on essay demanding that the Finland will exit to Europe. And the reason for it was that the French and Germany have now agreed that there should be fiscal transfers in Europe. And this is very problematic because like I mentioned, when we created the Eurozone, there was. a treaties put in place which made sure that we will not bear the fiscal burdens of other countries. And so Germany and France are proposing something that is directly breaching this. Moreover, it's also a breach of several constitutions like that in Finland.

So we are going, we have gone to the situation seems to be such that saving the euro, the European leaders, at least in Germany and France, are willing to sacrifice or go into unlawful place, basically. And that is really troubling because, you know, all our countries are based on the idea of law and order, that we follow the law, whatever happens. And now they are willing to throw all our treaties away and constitutions away just to save a current. So it's just, you know, we have arrived in a place where, you know, unlawful as rains. And I don't think Finland should be in it anymore. And another thing is that the euro has hurt us badly.

We have a very kind of small or narrow in the export base. And we have always relied on the currency to depreciate when we have a, you know, when the demand for our exports drop, and it has always helped us in the future. And now we don't have it. And every time we have crisis or recession, it takes a long time for Finland to recover or the Finnish economy. So the euro has also been hurting us.

But now it's just, if we are suffering in the euro, and now we would need to go to an unlawful place also. So I don't, that's not worth it. So it's just better to live. Yeah, it's interesting. There's a bit of a tail wagging the dog thing happening when the desire to preserve a choice, right? A euro, a construct, starts to dictate policy, especially when what it dictates is a certain type of crisis time power creep. I mean, we're certainly seeing that, you know, crisis has always create power creep in the political sector.

I think in America, you're seeing it most acutely now with the blending, let's call it, of, the Fed and the Treasury through, you know, special purpose vehicles or whatever you have. But it's a common story. You know, it's interesting hearing you talk about, talking about the, the euro's deleterious impact on Finland just in general, though. You know, this is something that people are starting to ask questions about in the U.S. The strength of the dollar, you know, because the U.S. dollar is the world's reserve currency, you know, we always are going to run trade deficits just to get dollars out into the world. That's kind of the nature of the beast. But the cost of that, and this is just built into the system, is that the currency can't really find its natural equilibrium

via trade, right? It can't have, you know, momentary or, you know, a few year down cycles where all of a sudden our exports become more competitive, really, because there's just artificial demand because everything is priced in dollars. And that's becoming more and more of an issue, the farther out from the initiation of the dollar-led system we get. Yeah, a good point. Yeah, that's your problem. Yeah, exactly. Oops.

Oh, well. So listen, you know, I think that there's so much to dig into in the Euro. I really appreciate you taking the time to look into that. But I do want to ask you about a couple other parts because, again, your research is truly global. And so I wanted to touch briefly on China. China, you know, is kind of a third leg of this conversation as it relates to how the economic, how economic, how economic, power is balanced around the world coming out of the COVID crisis. You had a really interesting tweet storm at the beginning of, I think it was in January, where you said that China's leveraging and

de-leveraging has driven the global business cycle. And reading back through a number of your other blog posts on the site as well, you've written a lot about how we're kind of experiencing the end of the Chinese miracle and how it really kind of started in the great financial crisis. So I guess I'd love to hear your take on China coming into the COVID crisis. and maybe coming out of it as well. Yeah, okay. Yeah, so not many people understand, but China has been running this cycle since 2009, basically.

So if you look at, for example, the investments in the physical capital in the major industrialized nation, China has accounted for over 50% of them after 2009. And moreover, it has accounted for over 60% of all new money or credit created globally since 2009. So this has been China's cycle. Before they were usually U.S. cycles, but this has been a China cycle. But the problem is that since 2009, the death of China has grown about three-fold

compared to GDP, so three times faster than the GDP. And that's something that just cannot last. And the thing, we are talking about the deleveraging and leveraging cycle. is that China has tried to deleverage to stop the crowd of debt few times, like first time in 2015, which led to the mini recession in China and globally, and then they started to leverage again, and then end of 2017, they started to deliver it, and all the times China has done this, the global business cycle has followed them up and down, up and down depending on on the on the on the on the on the on the live de-de leveraging or leveraging and this

this has been really phenomenal and and strict correlation since at least 2015 and many people in the us for example are very hard time of of accepting this but this is what has happened it is very clear in the in the indicators but the problem is that when you create a lot of debt and and What happened? Okay, let's go back in 2009, that China, Chinese government forced, basically, it can command banks to lend. So it forced banks to start lending massively. And when you force banks to lend, a lot of that will go to unproductive investments. So slowly, the productive growth of China started to creep down. And in 2012, it went negative. And it has been negative ever since. So China is investing, it's growing, but its productivity is declining.

And this is something you never, ever observe beyond or outside economic crisis or some bigger shocks. So I consider that the Chinese miracle, the very fast growth that started in the late 1970s actually ended in 2012. And since then, they have been on borrowed time. And the thing is when these massive dead bonanzas, which China is now driving, when they come to an end, there is a collapse. There is no exception. It always collapses. And the Chinese credit bonanza is the biggest world history knows. So we are definitely heading to the end of the current Chinese miracle at least.

And what happens after, then it gets really interesting because the Chinese Communist Party has its mandate basically dictating that they will grow the economy and jobs. And when those are taken away, what happens? Will there be a revolution? There's one Finnish researcher, China researcher. who has said that China has a revolution in about every 70 years. And just last year, China had the 70th anniversary of establishing the communist China. So it would be time, according to that logic, to have some bigger, you know, softling of the political scape of China.

But we have to see. But the economic road is ending, that's for sure. and the coronavirus just, you know, it was just the thing that broke the camels back or something and then because it will deliver the massive economic hit. But the road that China has been has already, is, the road has been such that it will end to a collapse regardless of the shock that will initiate it. It's interesting. This is, I mean, this is a point that you've kind of been making more broadly, too, about the,

the world economy, which you see is very fragile. You wrote a piece on March 17th called Financial Markets are becoming unhinged. And you said, as we have argued repeatedly, the crisis most likely started on the 16th of September 2019 within the repo markets. The coronavirus is only the trigger and now a convenient excuse for emerging an unfortunately very real economic calamity. I asked, what was the thesis of that article and just kind of your thesis writ large? And how do you see that playing out now? Do you think that central banks are going to be able to to kind of prop this up one more time, or are we really at the end of a super cycle?

I think we're at the end of the super cycle. The thing is to what broke down in 16th of September was this kind of massive leverage cycle, leverage cycle in the global finance order. So for several reasons, it's just at that date, the big banks were not willing to lend to the repo market anymore. because, well, there were a lot of leverage financial institution like hedge funds in the repo market nowadays. And the Fed had to step in because if there would be no lending on the hedge funds, highly leveraged hedge funds,

they'd start to go under and it would create a financial panic. So that's why we consider that the financial crash actually started already then. But of course, what the Fed did is stepped in and started to buy the U.S. treasurer. Treasury bills and started to provide a massive amounts of liquidity in the financial system again. And then in mid-March, the U.S. financial markets were basically in a state of collapse. So the Fed stepped in and started to prop up every single major corner of the capital market. Our U.S. partner actually said that. That was. the end of the free American capital markets.

But the thing is that this is, they can face, Fed can basically say the financial markets almost from any fate, except the one that hits the real economy, which the coronavirus has now done. So you cannot print demand, or you can try to print the demand by financing the government but that will always lead to the destruction of the value of money eventually. So I think the Fed is trapped. All central banks are trap. This is the hit in the real economy they cannot fix.

They will desperately try to keep the financial markets float. But the thing is that financial markets cannot indefinitely go detach from the real economy because we're in the same economy. So at some point, the financial markets need to correct on the level where the real, where the real economy is going, and that implies a crash. What are you watching going forward? What are the key signals that you're looking out for? Chunk bonds, basically.

And all the real economy indicators, basically, you know, all the basic stuff like joblessness and all the leading indicators and stuff like that. But I would watch the junk bond yields and spreads very close. because there you can see when the financial markets started to become unhinged again. Tuamus, this is such a great conversation. I could pick your brain for much longer, but I really appreciate you sharing your insight.

Thanks for being here today. Thank you. Thank you for having me. The piece of the conversation that I keep reflecting on is this idea of a middle space between the European Union as it is conceived now and the EU. euro as it is conceived now must be preserved at all costs and this rising tide of nationalism on the other side. There's a huge middle space and this is reflective, I think, of U.S. politics as well. There's a huge space between democratic socialism and rabid kind of right ideology on the

other side where people can debate and disagree but have a kind of rational conversation about tradeoffs and economics and what is right not only in the short term but in the long term. divorced from strict ideology. That space is the hardest to claim right now for a number of reasons. We're at the end of cycles where they reward and incentivize highly reactionary attitudes. It's also hard to claim that middle ground because it doesn't make for good headlines. It doesn't work within the media model, which, if anything, says that's why we need a new media model. It's something I think about all the time. I'm sure we're going to be talking about it more. And for my part, I appreciate you guys journeying with me on this alternative media path where we get to hear

from a lot of different perspectives. Some that you guys probably agree with and some that you guys probably don't. So I appreciate you, I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace.