The Breakdown - Raoul Pal: Monetary Policy Is Finished and Macro Debates Are Boring

Episode Date: September 18, 2020

Raoul Pal is CEO and co-founder of Real Vision, a platform fundamentally disrupting macroeconomics and financial media.  In this wide-ranging conversation, he and NLW discuss:  Hot takes on the most recent Jerome Powell/Federal Reserve press conference Why central banks can’t do anything more until they merge with treasury departments  Why stablecoins are disrupting how we think about global reserve assets  Why traditional financial media missed an entire generation of investors Why all macro debates are boring

The Fed are never going to raise rates again. They can't. Because if you remember from the last time we went through the rate cycle, what happens is everyone puts more leverage on at the lower rates. So then you can't raise rates because you blow them all up. And if you just remember what's just happened in the last three months was record borrowings from corporates. So the leverage is just ratcheted up a whole other level at the lowest all-time rates,

which makes it now impossible to raise rates. Welcome back to the breakdown with me. NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io. And produced and distributed by CoinDes. What's going on, guys? It is Thursday, September 17th, and I am so excited to share with you my conversation with Raoul Paul. Raoul is the co-founder and CEO of Real Vision as well as the CEO and publisher of the global macro investor. Listen, I know that if you are listening to the breakdown, you know who Raul is.

You've been watching Real Vision content. You've been listening to his talks. And I think what's really important about what Raul is doing for this industry is that it's not just that he has interesting perspectives, although, as you'll see, if you don't know yet, he does. It's more that he's also creating an alternative platform where independent media voices or independent finance voices that have really different perspectives than traditional finance media are aggregating to share their perspective on key debates that are shaping the world around us.

In this conversation, we talk about Raal's Insta take on the Powell Presser. We talk about the boredom and unknowingness and can't-knowingness of many of the macro debates like inflation versus deflation and the dollar and what the Fed should do. We talk a lot about stable coins and central bank digital currencies and the blending of central banks with treasury efforts and what that might mean. And of course, we talk about Bitcoin. I know you're going to love this conversation. So without any further ado, let's dive in. All right. I'm back with Rao Paul Rao so much. Thank you so much for being here today. That's great to be here.

Yeah. So listen, I'm really excited for this conversation. As I was just telling you, before, I think a lot of the folks who listen to the breakdown have spent probably a lot of time with your ideas, with your thoughts, with your content. And so kind of what I thought would be fun to do is, you know, all of us are living through this moment where the tectonic plates of finance and the economy and money are shifting underneath our feet. And I think in some ways, what would be really valuable is to almost go back through a lot of the things that we've learned and how they've kind of changed from where you thought we were going to be this year as this whole crisis. got started a few months ago, you know, what we've learned that's been different. But I thought that

maybe a good place to start, given that it just happened, is the latest Fed Powell Presser, right? And, and you said, you haven't had a chance to catch up with it. It was literally minutes ago. But the long and the short of it is, can be summed up. Charlie Baylow tweeted, he said, ABA, always be accommodative. It was kind of more of the same of, we're going to keep interest rates, you know, at zero through 2023 at least. And we don't cause inequality or anything else. And we don't have the tools to fight inequality. But I guess, like, you know, we were just talking about this before,

but what is your take? I mean, are these things even worth paying attention to? Are we giving them too much credit as, is it just because we're starved of spectator sports that we give these things, the sort of credit that we do? Yeah, I mean, look, Americans are terrible at not looking outside of America.

But look at Mark Carney, from the Bank of England. He resided over the Bank of England for, I don't know how many years, eight years, ten years, never saw a rate rise. He can do anything. And we have to get used to this.

Monetary policy has finished. Yes, can they tweak a bit of QE more, but we know it doesn't really work. So there's nothing they can do. Not until, and we can talk about this later, until we blend fiscal and monetary by the use of digital currencies, particularly the Fed coin, for example, not until we get to that day, do the Fed really have anything to do.

So their job now is just don't let anything blow up. If it blows up, like the credit market, their job is to provide liquidity. But there's nothing else they can do anymore. So it's a world where there's no real point listening to the Fed. The Fed have told us very clearly they're not going to raise rates. I don't think they're going to raise rates ever again. You know, that could change. If we structurally change how the economy is driven, you know, by certain times fiscal policy and, you know, universal-based income, maybe that changes.

But if nothing changes, the Fed are never going to raise rates again. They can't. Because if you remember from the last time we went through the rate cycle, what happens is everyone puts more leverage on at the lower rates. So then you can't raise rates because you blow them all up. And if you just remember what's just happened in the last three months was record borrowings from corporates. So the leverages just ratcheted it up a whole level, another level at the lowest all-time rates, which makes it now impossible to raise rates.

So if they were to raise them 100 basis points, the economy goes straight into recession. So, yeah, the Fed meetings is a dead spectator sport. So this is interesting. There's two interesting points about that. One is, I think, the spiral that the economy finds itself trapped in. So a couple days ago, the show, we focused on the growth of zombie firms, right? And it's fascinating. I started looking around at just where the narrative was on this, not just in the U.S.,

but around the world. You do a search for zombie firms right now, and you get hits from Japan, Korea, UK, Germany, and the U.S. And it's everyone is talking about the same thing, right? Companies that can't afford to service their debt. And those are the companies, many of them that are just kind of piling on the leverage. to use your word. So on the one hand, you have kind of a Fed that is trapped based on that sort of structural reality, right? If they're really going for full employment, that's something that they're not willing to touch. But then on the other hand, you have sort of the Jeff Snyder

argument that they actually never had that much power to actually shape things anyways. This flood of money was a myth. And so you have kind of whichever side of this you look at, you have the Fed trapped in this box of sort of an inability to do anything. And it makes me wonder, and it maybe gets back to the kind of the starting point of your assertion, whether we're just looking to them for too much, whether that's really placed too much faith in them. My belief is I look at central bank policy around the world and look at the correlations with their risk asset markets and it doesn't exist. I mean, the Japanese stock market is traded in a bare market or sideways in a cyclical range for 30 years now.

And the European stock markets have been 20 years. So they've just been in a range. So it's only the US, which tells us something. One thing is the marginal propensity to take on leverage in the US is higher than elsewhere because there is some sort of hubristic mentality of, I can buy it. borrow more money, I'll make more money. You know, it's just, it's very different. And it's a slightly younger population than Europe.

So they're slightly more risk-taking by demographic. But I think the Fed really has never had the power, but we've just believed it. So it's kind of Pavlovian as opposed to a reality. And so it's like, oh, the Fed have cut rates, buy stocks. I mean, I've lived my life through the 1990 cycle, the mid-90 cycle, the 98 cycle, and then the full cycle in 2000, the full cycle in 2008, every time we go into recession,

of which we've only had, you know, 1990, 2008, every time the Fed cut, the market rallied, then they cut the market rally, then they cut the market rally, and then everyone goes, oh, shit, they're cutting because things are bad, not good. And it's just like beyond me that everybody therefore thinks the Fed can save the day. the business cycle, show it to a small child, show it to your grandmother, say, does the economy go up and down, or does it flatline? Have they controlled the business cycle or not? Look at the evidence. And a child would go, well, a carl does that exactly. So what have the Fed managed to do? Yes, they might have elongated it. They didn't get rid of the business cycle. So this ridiculous belief that the Fed somehow are in control and this is like this super brain has now conquered everything that the Rick's bank that was formed in Sweden back in, I don't know, 1630, and then the Bank of England in late 1600s, and then all of these other central banks, the Bank of Amsterdam, which ended up being the Dutch National Bank, we're all

smarter than all of those guys, because obviously, you know, Darwinian evolution in 200 years means we're now, no, just no. Yes, there is some understanding. Yes, we have more data. Yes, we have more tools, but the economies were different then. But the point being is it didn't work anywhere else. So why expect it to work in the U.S.? And I just think it's the emperor has no clothes. And that, at one point, people will realize that. Well, it's interesting because part of, I think, the rise of the sort of specter, the mythology of the Fed has also come in line with the rise of sort of mainstream cable financial media in a lot of ways, right? Like, that was the, that was the whistle in a lot of ways for that Pavlovian response is

Fed does a thing. That's news to report on. That news is the main thing that everyone's watching and paying attention to. And then it gets amplified. Part of what's so fascinating to me about right now, and I mean, this is directly relevant to you and Real Vision, is that it's, I mean, I wonder, maybe I'll just ask this as a question, is it unbelievable to you that there hasn't been a more major challenge? to mainstream financial media until the last few years, right?

No, no, because, this is the beauty of disruption and being a disruptor. What you observe is the fact, and I know the people at CNBC well and the people at Bloomberg well, what you observe is they have a 65-year-old as their main audience. And now that baby boomer is about to retire. His interest in the stock market goes down over time. The only thing he wants to not do is lose his pension. That's it now. So there is a change.

Yes, of course, there's a tale of Gen Xers who watch it too. But what it meant is that they had taken an audience and well done. They got demographic rights. So back in the 90s, they offer it to this audience of 30-year-olds, 35-year-olds. So think of all the millennials now. And they take them on their financial journey, but they just didn't adapt. So they're going to lose their audience. So they've been so focused on that.

And anybody who's come into the space said, it's a duopoly and the audience is terrible. But nobody thought, oh, well, maybe there's another audience. And that was the thing because, well, millennials, they're broke. Yeah, but it doesn't mean they're not interested in the economy because it matters to them. And there's still so many of them, 80-odd million in the US alone, where the millennial bulge is much larger than elsewhere in the world, there's a huge amount of that number who end up being successful. I mean, if you just think of all of the people who've just gone through Silicon Valley

and have been given stock options, what is that? That is the financialization of a tech professional. So suddenly they're now in the financial economy. They've got an option. Okay, what the hell's an option? Okay, welcome to Real Vision. And they go then through that journey of like, okay, I need to find a financial economy. what the hell's going on, I've been given these shares, I don't know what they are, what's

an option, but even know what it means, and then you get them on their journey through life. So I think the media just missed all of this. They just didn't bother. And super, yeah. No, it's super interesting that it's super interesting that it's an assessment of almost missing the audience, because I think that, I think that you're dead on. And I also think that one of the things that's been fascinating to observe, you know, from the standpoint of podcasting, right?

right, and the rise of sort of independent media, which in a lot of ways, part of what I think makes Real Vision powerful is that it's a really interesting combination of independent media voices that combine to an aggregate that's, you know, kind of stronger than the sum of its parts. But it's definitely not a network where you have mandates from on high and you have this kind of strict programming. It's very clearly people who bring their interests and their, you know, the people that they want to talk to into kind of a larger whole. But anyways, one of the things that's fascinating is how many times I hear, and I'm sure you've heard it too, from folks that you wouldn't assume are your normal demographic, right? I hear from long-haul truckers a lot because podcasting is a

huge thing for them. And there's this moment of disruption and frustration and fear and concern right now around what's happening in the economy, and people are looking for where can I go learn about that? And they're not getting it, they can't get it from sort of traditional media, even financial-focused media. So they're digging around. And it turns out there's these new podcast, there's videos, and there's plenty of people who want to have that conversation. But the gatekeepers have finally been blown out, I think, in some ways. Yeah, I mean, absolutely right. I mean, fascinating.

We've just created a community platform called The Exchange, where people can have long-form conversation, and I think it's going to be absolutely enormous, just looking at what's going on in it already. But I asked people, I said, listen, I want to know how you use Real Vision and who you are. because we all survey our audiences and oh yeah we're you know our average age is 38 years old 76% millennial and gen x they earn this blah blah blah okay fine when you get a video from these guys and we've got 70 of them now come through in a week and it's like so one guy is like and he's in a lab coat he goes well i'm a i'm a neuroscientist and i'm in south korea another guy

astrophysicist works at one of the astronomy labs in chile you know and then you've got a retire a nurse and then you've got i mean it's it's amazing to me and what they are these people and it's you'll find it's the same people listen to you it's a different group it is the tribe of learners so the learners go deep and not broad so they choose some core topics that they will want and it could be anything right could be model trains but there's probably 10 model train podcasts in the world and they will listen to all of them right but we happen to be in finance, finance current affairs, and then usually the ancillaries to that, sometimes it's sports less so, usually it's, there's health and wellness fits in, you know, Tim Ferriss and Joe

Rogan and all those guys write on that. People go down these, a few verticals, and that's been, that's fascinating. And so what you get is a broader range of people who've gone down a vertical, as opposed to this broad vertical, which is normal traditional television, where you're serving a broad, shallow need. So it's just the whole world's pivoted. When we started Real Vision, people said to us,

well, you need to do three-minute videos maximum and advertising. And we said, no, we're going to do long form and, because I'm a contrarian. So it's like we're going to do long form and in-depth analysis. People said we're idiots, and we're going to have a subscription for it. But that's the way. the world's gone. I mean, everyone's going long for them because we don't want to be treated like

idiots any longer. Well, I mean, I think that's exactly it is this, man, it's everyone's favorite advice when people start doing content to tell them to beware of how much to do. And just none of the evidence shows that. In fact, the evidence shows the exact opposite, that people, to your point exactly, are sick of being treated like they don't have enough of a stake in this to have an attention span for it. Yeah, I mean, we learned on real vision. at first, you know, you argue internally, do we need to dumb down our content? Do we need to make simple explainer shows? So we tried them because people like, I don't really understand.

We weren't listening. We thought we were listening. So we said, okay, here's some simple shows. They're like, fuck you, we don't want this stuff. We want the real stuff. We're like, okay, so what does it mean? And then when you see the videos of these people, guess what they all do? They pause the video 10 times, go on Google and say, okay, what's a Eurodollar future?

How does that work? And then they take notes and then they carry on because they're learning. And they love it. They love the fact that they're skiing a black run and they don't quite know how to do it, but they want to do it. So they're always kind of slightly out of their depth. And that's the best way to learn. It's like when you go to a foreign country to learn a language,

just kind of throw yourself in. And that's what they're doing. They're trying to learn the foreign language of finance by just immersing themselves in it. And they said, we don't want the idiot stuff because we're all smart. Sure, we love education content too. But don't give us the what is a stock, what is a bond. Just leave that for CNBC when they're trying to trap a millennial audience online. And what better domain, too, to treat people like adults with a stake in the future than finance, right?

The one thing that absolutely connects everyone and has everyone has a stake in from the lowest of the low on the bottom of the pyramid to the highest of the high, right? I mean, that's the thing that's always blown me away about this. I could talk media with you extensively. I want to bring it back so my listeners don't get too annoyed. So I want to actually go back to your first example. So Mark Carney, Bank of Inland Governor, one of the things that you mentioned is this idea that the Fed might not be able to do any more until there's a deeper convergence integration with Treasury.

It's obviously a huge question. I thought you'd take that little hook that I'd say. Yeah, you threw it right out. And the first thing that Carney did, actually, it was even before he left fully. But the way that he set up his next act was synthetic hegemonic currency, right? This idea of a bank or for the modern era, you know, an alternative sort of SDR type thing. Basically, he was like, you know what, Libra had a good idea, but we should do it as central banks, not as an individual private company in some ways. So that was something you've been paying attention to.

I mean, how have you seen the evolution of that idea? And maybe to broaden the question, what do you think is the state of kind of the conversation around who the dollar serves as a global reserve asset? Is this sort of the normal background noise that we always get where some people are like, maybe the dollar should go away? And it's all just bunk because who cares because it is so entrenched? Or are we seeing an actual shift in the openness to looking at something different? Okay, there's a lot there. Firstly, the private sector beaten to it, stable coins. You and I can exchange dollars instantaneously now.

So that was hugely disruptive. The private sector said, well, I'm not waiting for you guys. I'm just going to do this. And the rise of stable coins has become big. Now, we've got several parts of the global financial system are broken. We're all kind of aware of it. One of them is the monetary transmission mechanism. One of it is people don't want to be beholden to the SWIFP payment system and the SWIFT

payment system slow and clunky and old. So just stop with those. And also a dollar standard is complicated for anybody, particularly if you're an exporter. Forget geopolitics and US versus China. Just a simple thing. Your South Africa, it's a pain or Brazil. Okay, so those are simple problems that everybody's got. Then we've got the monetary policy as a tool for stimulus is pretty much past its sell-by-date.

So the idea of the central bank digital currencies changes a lot of things. And I don't yet know, and I don't think any of us yet know what that means. Part of it is that you can build baskets of currencies to create some tradable alternatives, which is basically what Libra were doing. You know, they were including the US dollar in the basket. The problem is, is the dollar's like something like 80%, 70% of all world transactions. Yet the US is 25% of global GDP. That's unsustainable, right?

This is leading to that dollar shortage idea. It's just not enough dollars. And then the Europeans regulated and the US regulated, and it meant the European banks and US banks with subsidies, so subsidiaries. Deutsche Bank's office in New York is now non-fundable with Deutsche Bank's office in in Frankfurt. So you've got a problem. So they can't fund themselves in dollars because the Eurodollar market doesn't work any longer because it's not supplied by actual dollars.

And then the European banking system itself had to de-lever and had to raise its reserve assets. And the same with Japan and all over the world. So you're finding that the banks who are the intermediaries don't work. So you need to get rid of the intermediaries. Well, the central bank coins does that because you can the central bank can give liquidity for cost for a lending rate to anybody at this point. Do you need a bank? We don't know.

Maybe that's where we're going. But they are able to therefore get rid of the issue of international monetary transmission, which kind of the stable coins do already because you can just create the stable coins. They're basically Eurodollar stable coins. So, okay, so that's good. So we've got a way of that working. The SWIFT payment system, well, if it's digital currencies and everyone's got, if there's interoperability, then we can start moving currencies around the world instantaneously and make payments

instantaneously. If you can basket them together and have the US dollar in the basket, but not at the weight of where it is in global trade, but let's say you create a global trade basket where the US dollar is, let's say, 40%, as opposed to 25% where it should. or 75% where it is now. Well, that's super helpful for everybody, because you can have that, the R&B, the Euro, the Aussie, whatever it is in that basket.

And that basket, because it's not dollar denominated, now only goes up and down by global money supply. So now you've got a stable currency. So you and I can transact, sell our commodities forward, do all the things without the fear of the bloody currency moving around. Okay, that's great. That's a huge change for the world. which is the SDR idea.

But then there's another really big thing why this is really useful is if you go to digital currencies, monetary policy becomes fiscal policy because I can send you money immediately. And with big data sets and behavioral economics, we can basically incentivize or do anything. So I can say, as a central bank or a government,

whether central banks remain independent or not, remains to be seen. I doubt it. But basically, you can give people or tax people differently, instantaneously. You can have different rates of interest. So if you want the baby boomers to get their assets out of cash, or whatever they've got it in, you give them negative interest rates. But you're in your 30s. So therefore, well, I want you to buy a house and everything else. So I give you a low interest rate, but not a negative interest rate because I want you to build saving. you can do anything. I mean, the whole world of monetary policy will change completely.

And fiscal policy, because fiscal and monetary become the same thing, because you've got direct access to cash from a central bank. So all the modern monetary theory, you don't have to build a bridge and hope you employ people. You just give those people money. It's a huge change. Yeah, I mean, it's fascinating. So a couple follow-ups to that. First, just sort of affirming your point about stable coins in the private market beating

it to it. I talk about this a lot on the show, but I still think sometimes that people don't get just how fast these assets are growing right now. It's $100 million a day since July. Stable coins have been growing in terms of new supply circulating, which is phenomenal. I mean, we were at about $4.8 billion at the beginning of the year, and it's up to $17 or $18 billion now. So huge, huge change that's happening right in front of our eyes. Second, I think to your point that's really interesting is how much this is just being driven by, actual sort of use case fulfillment, right? And people finding it, the market's finding that they need this. So one of the things that Circle noticed very quickly when the COVID-19 crisis started is that their supply was rocketing up, right? USDC is sort of the, I mean, they're trying to position themselves in some ways as the regulated version of Tether. And they're up to, like, $2 billion now in circulating supply. And they grew from $1 billion to $2 billion really fast, whereas it took a long time to get to a billion. And they found right as the crisis started that it was, It wasn't actually just crypto traders getting out of crypto markets and kind of moving to that safe asset for a while.

It was random people who needed dollar exposure, you know, in emerging markets around the world, who were sophisticated enough just from a technology perspective to know how to do this. And it's hard not to imagine that that doesn't just explode at some point. But isn't this? I mean, I hadn't thought about this until you and I were just speaking. I mean, this basically is the euro dollar market in digital form, reinventing. because you can create a stable coin and print more stable coins. Now, yes, it's backed by a dollar, but basically that can happen in the US. I mean, if J.P. Morgan wants to create a massive stablecoin market, they could no problem.

Because they've got direct access to the Fed, direct access to all the liquidity, and they can supply the entire world with dollars. And guess what? The whole Eurodollar market's gone overnight, because that is the new Eurodollar. I mean, it's fascinating. When I hadn't really thought about it, but it is Eurodollar. Yeah, and I think, by the way, I think that's their plan, too. JPM coin is sort of sitting there emerging in the background. JPMorgan just offloaded their sort of blockchain, their independent blockchain

that was supposed to be a privacy-centric Ethereum fork. They sold it to consensus to just focus on JPM coin. So no one knows exactly what that will be, but I think that you're probably not too far off with that potential direction. Well, what makes the, and we'll get into this in a bit, What makes it particularly attractive is the US dollar already has a yield curve. So then you've got time value of money, right? Bitcoin doesn't have it yet.

I mean, defy is the start of trying to figure out what a yield curve is. And defy is basically the money market rates. And we still haven't sorted it out. We don't even know what it is. What's a risk-free rate? We don't know any of that yet. But stable coins already have it. So I can lend you 30-year money.

I know exactly where to price it. It's the same as everything we've been doing. So it's bloody easy as an interim step because we already have the infrastructure and the architecture and the financial understanding what it is. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com. Crypto.com offers one of the most cost-efficient ways to purchase crypto out there, as they've just waived the 3.5% credit card fee for all crypto purchases.

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The company offers instant crypto credit lines against all major cryptocurrencies, with interest rates starting from only 5.9% APR. Nexo also lets you earn up to 10% annually on your fiat and digital assets, What's more, interest is paid out daily, and you can add or withdraw funds at any time. Get started at nexo.io. Let's go to this idea of the SDR, because I think that the basket piece is something that's both enormously fascinating, but it's also less clear, because you either would need, on the one hand, governments to get together and say this was important to them, which seems unlikely at the current state in time. I mean, that's kind of what, I mean, I almost feel like it was a test balloon that Carney was flying out there, and people were like, no. No. Or you would need a market to just do it, which feels more likely to me, right?

This is the world that we live in. If you and I said, you know, this is a pretty good idea. Let's set up five different currency baskets. Jesus, we shouldn't talk about this too much because I'm going to do it. But continue. We should just set up five currency baskets. Asian basket, global basket, European basket, blah, blah, blah, right? Commodity exporter basket. it. Fine. So now we can trade different baskets of currencies frictionlessly and say, okay, you can transact in this. So your reference rate is basket one. Hey, you commodity guys, your reference rate is basket three, if that's what you choose. It goes into your contracts that you always reference

that. So the oil market goes to basket three, the commodity one. Basically, it gets rid of all the volatility of quantity prices. I mean, that's enormous, enormous, because then the US dollar doesn't become, anybody who's in financial markets now, having been bleating on about this for years now, understands how important the dollar is that it drives bloody everything. You're like, huh, so actually the biggest driver of crude oil prices is the dollar, of copper is the dollar, of almost anything is the dollar, so of emerging market. So if you got rid of that, then you getting rid of the dollar as the element and you can isolate what the actual return of the actual asset is that's not always bloody denominated in dollars. So if you have this global currency,

and again, if you think about the global currency with dollars in the basket, which people can go ahead their heads around, so what's the denominator? But the denominator will be money supply of that basket. So one basket will be worth more. So you and I will make the sovereign AAA non-money printing basket. And then you and I will make the, you know, kind of racy currency, but we can do anything and easily. So right now, if you want to go and trade a basket of FX, it's a pain because you have to do it yourself, go through all these things, you know, you have to roll the forwards, all of that. But once you've got digital currencies, it's become super easy. So the world can just basically change your new trading system. And, you know,

I seem to be the only one really pounding the table about this, but it's huge. Saudi Arabia, they don't need to have dollar oil prices. Yeah, so let's bring it into the, obviously the nation that's the most aggressive about this in the world is China right now. Do you have any thoughts on their DSEP approach? I mean, what do you think they're trying to accomplish? So, okay, let's go back to that world trade example, for starters. What is China's problem? bloody imports everything, all the raw materials, and then exports other stuff.

Okay, so in the middle of that is this huge problem that I have because they've got a bunch of leverage and it's in US dollars. So they've got dollar liabilities and then this current account that moves around and they're then beholden to the US. So how do you be a superpower when somebody else's got a gun to your head? And that gun is the swift payment system plus the dollar borrowings. So they've got two big problems here. And then they have the volatility of prices driven by the US dollar.

Well, if the Chinese can get rid of that, then it's very powerful for them. And they know, because they're a big customer of everybody's too. They're a big import and exports to all of Asia that if they just went and stabilized an Asian currency, the Asian currency trading basket that you and I will have set up and made our billions from, that gets rid of all of all. their problems. And if they want to trade with the US, they're going to say, well, we're not going to do dollars. We don't want dollars. You can use the Asian currency basket or we'll use global basket. So they use the global basket. I mean, it's a very elegant solution to a huge amount of problems.

And the US cannot hold a gun to the head with a swift payment system, which they did to Iran, and they've done to Russia as well. You know, that doesn't wash. Now, yes, the US is backed by military, but nobody's going to go to kinetic war with Russia or China. It's just never going to happen. And they know it. So they will push for change and they will get it. Super interesting. You know, you were just saying before that you've been kind of beating some of these drums

and, you know, a lone, lone profit out, you know, screaming in the dark. What do you think it is? I don't know. Yeah, one of the two. That's a history. Unfortunately, let's hope it's, you know, far too many profits don't live to see themselves. validated. Do you think that how much of this is complicated to people technologically, how much of this is complicated to people because it's such a radical different way of looking

at the world? How much of it is just the simple kind of process that people have to go through to learn? Well, first, we need to get to the central bank digital coin. We can create it because of the, I mean, you and I can basically create it tomorrow using stable coins. That's amazing. But nobody's thought about it yet because everyone's still digest it. Because don't forget, really this whole industry has come from a bunch of people in tech who kind of saw the libertarian future and said we want to build out this a new financial system but they didn't really understand the old financial system because they were building it from scratch they did it like engineers then there's the other side which the finance guys were like well this bit of the financial

system broke let's repair those and it was very hard for many people stand in the middle and go no forget that we can change everything um and so i just think people just haven't looked at it because they're still trying to get US stable coins off the ground or you know sterling stable coins or euro stable coins off the ground and Libra was the one that just went like this when they said it I didn't I didn't understand any of it until Libra and the moment I saw that I'm like okay this is genius if Facebook create a global currency of which everybody uses it and they're gonna I think the floor was them was that they were going to a treasury in Switzerland.

And the problem is, nobody's going to let Facebook run in a separate foundation, a trillion or two trillion dollars because they become a central bank. But you don't need a central bank. The point being, we don't need any of that stuff

to have this basket. There's ways of doing it. I'm sure the markets are pretty smart in creating particularly, particularly this whole kind of crypto blockchain market, you know, the hive mine there. They'll create a different way

that doesn't involve an asset management firm because they hate the idea of that because it's so, you know, it's all about, you know, it's disintermediation and decentralization. So I think it's going to get sold without being some, you know, fat cat, single person running it. I think it's going to be a different way. And it's probably going to end up being distributed. How? I've no idea.

But, you know, I think this is a huge change in what is money and how does money work. And we haven't seen that change in hundreds of years. I think that this is part of why I don't care what people think about where Bitcoin fits in their vision of sort of a digital currency world. It is such an important narrative bridge for people, if nothing else. I think it's obviously much more important than that. But watching people grok this year when the having happened, you know, this supply, this programmatic supply, reduction happened at the same time as the money printer go Burr meme was just totally ascended because everyone flipped the switch on their printoutary tightening and monetary

loosening at the same time was going on right and and in a way in quantitative tightening and it wasn't some guy you know in a suit at a conference saying Bitcoin's going to go the other direction it was completely predictable boring and just happened right and that narrative struck a nerve I mean even people who had been around it, I think really groked that sort of sound money, limited sort of supply piece of the Bitcoin narrative. And I think that, again, even if your interest lies in something fundamentally different from Bitcoin and where it fits, that ability to see a different possibility because it

just makes sense and clicks, I think is really, really important. Well, the Bitcoin narrative is hilarious for me because every time I think I've got it, I understand it more. And I'm like, I then realize I don't know it. I don't really understand. And then I really start to see more and more and more that, oh, my God, this is the most elegant thing I've ever seen. I mean, I'm now just a firmly of the opinion.

This is the world's greatest reserve asset. Now, yes, we have too much volatility for that right now. But it's just, I can't fault it. I can't fault it. It doesn't work for a whole bunch of stuff. Or it could do, but it's probably not good enough. Maybe that's not its role. But as the foundation stone for everything,

it's got a bloody good chance. I tell you, I don't see anything else that's going to come on the horizon or that exists already that has a chance. So here's an interesting question around that reserve asset. I obviously agree greatly with what you said. So Tavi Costa has this interesting argument around gold and silver. And he personally thinks it might apply to, Bitcoin as well, although I don't know if his firm does. But it basically amounts to the idea that

in addition to looking at these precious metals as just store of value sort of safe haven assets, they're starting to look like potential growth assets as well. So he's particularly focused on mining stocks and sort of these companies that have been forced to kind of clean up their books over the last few years. That's cyclicality. right? That's worthless in the money discussion. That's a cyclical issue. The actual reality is that as soon as the price goes high enough, uneconomic mines become economic. And the price converges back again. I mean, that's the history of all commodities. That's all that happens. So, yes, gold has that extra elements that it kind of offset some of the monetary printing. I just had

an unbelievable trial conversation with Michael Saylor from micro-stratestrategies. And his view, and I hadn't heard this before, in all fairness, his view is like, well, if you look at the supply of gold, it's 2% a year. He said, so they're devaluing gold by 2% a year because the demand is not offsetting the supply, and therefore you've got, well, you've just got an increase in supply of 2% a year. And if you compound that, it's basically the rate of inflation. So if you compound that, you're actually losing purchasing power. And you've seen that gold, I mean, I looked at everything versus the top four central bank balance sheets in terms of rate of change of growth. Gold did well. It underperformed by 50 percent, the balance sheet.

The only asset in the world that actually outperformed the Fed balance sheet was Bitcoin. It's the only one. Yeah, Michael is very interesting. Michael went from skeptic to all the way down, the rest of the rest of it. rabbit hole. He's joining the show tomorrow too, actually. But what do you make of, what do you make of not micro-strategy's sort of approach, but potential resonance or model or template setting for other parts or other companies? Do you think that micro-strategy is something that people will look at and say, hey, that's really interesting? I should consider that. Or is it kind of an outlier?

It's an outlier in some respects, because I think he is an embedded. inflationists with the fear. And I don't think corporations, I think most corporations think of their treasury cash balances as an option on an ability to do something. Now, okay, some people are Apple, but Apple basically run a hedge fund on their, on their cash balances. You know, they do, but so I'm not sure that everybody's in the same position that he is and has the same view. But once the auditors approve how they can do it and it fits into the accounting and blah, blah, which is still a problem, then what is the chance of Apple owning a bunch on their balance sheet?

Pretty high. Because most of the family offices are starting to do it. Everybody's starting to do it, right? We know that the wall of money coming is institutional. So corporate treasury will be there. But most corporate treasurer don't think that way because they're not thinking of having the cash in their balance sheet for so long. He just has a very particular view on it and then didn't want to devalue that cash over the

time. Because I don't know, he was thinking 100-year tile arises, most people don't think of cash in the balance sheet as that. They think there's a temporary pause of which I can then use it for something. And Apple, as I said, who have large amounts of cash and have done for decades, they actively manage it in different ways to offset it versus the loss. Yeah, I think it's interesting how much the specific leader has to do with these questions as well as it relates to, you know, whether other companies are going to do this or not. But also, I think your point that it doesn't take much of a narrative or expectation shift from the managers running treasuries everywhere to see this massive change.

My argument is really simple. At $250 billion, $230 billion asset class, you don't need to care. You just need to be interested. At a trillion dollars, you have to care. So basically, everybody's short calls on the upside. And the moment the market goes up, they're all like, oh my God, I need to buy it. It's everybody, the pension system, the individuals, the corporates, the registered investment advisors, everybody is short the upside of this thing. Because if it goes up, they all have to buy it because it becomes then a larger asset.

Right now, yeah, it's like a kind of decent-sized S&P company, but not a leader, right? but sooner or later get to a trillion dollars, okay, it matters as an asset class. Get to $10 trillion, then you're a proper asset class. But we're a long way from that yet. So whatever, you know, delusions of grandeur that we have in Bitcoin, we're nowhere near mattering, but we will. And it will matter. And then once you do that, you suck everybody in.

I mean, that's how it's always been with Bitcoin, even people who believe the most in the underlying ideals of the thing, the programmatic sort of math-basedness of it, still recognize that the greatest advertisement for it is when price goes up. That's what gets everyone in to start paying attention and start to, you know, you have to have a reason to look down it. You also have to have a reason to have career risk shift, right? But also, it goes, because Bitcoin was unique. It started as a groundswell. It came from individuals. Nothing else has come this way. and we now need to get in the institutions. The institutions will watch price,

but unless it's an agreeable asset for them, i.e., they can do it, they can store it, they can value it, they can put it in their accounting, and all that stuff, they don't want to do anything. They'll watch the price, and they might do it PA. You know, they'll do it a bit themselves, and that's pretty typical. But it's the actual market cap of the asset itself that will end up driving them, not the performance.

Because don't forget, we've seen it with the hedge fund industry, everything else, the more these guys pile in overtime, volatility dampens because there's much more larger buyers and sellers and eventually the price structure of the whole instrument changes, which is fine. Bitcoin will morph from being a rocket ship to being a cruise liner. And it needs to happen. But not yet. We'd like to do that at a higher price, please. Yeah, I agree.

So listen, one of the things that makes you such a unique perspective to bring to the show is you are hosting a lot of conversations. You're not just having a lot of conversations. You're hosting a lot of conversations. And one of the things that I find really fascinating about this moment is how really smart people are fundamentally disagreeing about so many very, like, basic or not basic, but, you know, key questions when it comes to the economy. So you have the inflation versus deflation debate, that you have the Fed should do less, Fed should do more debate. You have the dollar wrecking ball versus the dollar devaluation debate, right? What are, you know, you've had a number of events recently with Real Vision,

there's a ton of content going, which of the debates are most interesting to you that you're watching play out? In the end, we know everybody's arguments, so none of them are interesting. Because price will be the arbiter in the end. It's not like, you know, there's no way I'm going to change anybody's mind and it doesn't really matter to me. And no, and somebody could change my mind.

But it's unlikely in inflation, deflation, because in the end, let's see what happens. And it's, so a lot of this is not interesting, which is why I spend a lot of time more looking at the crypto world, because it's more intellectually stimulating than, look, everything else has been a stall set out over 10, 15, 20 years. And it's kind of wait and see. We had some huge surprises. I didn't think that we would see, I'm just looking at my screen now, gold, is up 47% banks down 35% in the same year. Okay.

Or NASDAQ up 29% and, yeah, banks down 34. I mean, this is telling us, the K-shaped record. Anybody with a debt problem is a nightmare, and anybody's got a free balance sheet is given infinite amounts of cash. I didn't think that was going to happen. But, but yeah, so I think, you know, people say, oh, let's have more debates about the dollar. Like, what is there to say?

What else is there to say about the dollar, apart from, let's see what the price does? And then one side's going to have to eat humble pie, or even worse, it does the Japan. Look at the Japanese yen. I've heard this, my entire career, Japanese yen's basically gone sideways. It's just a huge triangle pattern that's gone on for 20 years.

Even the Japanese stock market, I've heard everything. Japanese bond market, oh, God, all day. How many people have, how many hedge funds are wasted their time and effort on calls, put, just don't go anywhere. Maybe that's what's going to happen. Maybe some of this stuff just go sideways. You know, because like the bomb market, everyone's got a view.

I think it goes negative. Other people think, oh my God, rate's going to go. Maybe it just doesn't. Maybe just stays here, just less than 1% and does nothing. That's what everybody else. That's what happened to Europe. And that's what happened to Japan. So, I don't know.

We'll wait and see. We'll wait and see. But I think the debates are interesting for people to get up to speed with. but then after that, there's no conclusion. Everybody's going to win. I mean, I feel like you're basically reiterating Brent Johnson's Twitter, which is, please see my previous article about this. I haven't changed my perspective.

Tell me how I'm wrong or right on any given day. Just over and over and over with the dollar milkshake, you know. I think you could probably even argue that our obsession with relitigating these debates day and day out based on, you know, tiny, tiny movements in the DXY. or anything like that is probably net draining on intellectual resources that could be better put elsewhere, you know? Because to your point, they're just, they're going to happen. A lot of what happens is people anchor on what's just happened. So bonds have had a big move. So everyone's focused on bonds. You know, are they going to do this? But the point being,

the world doesn't usually work that way. And the crowd is always a little bit late. So I don't know, I just get a sense that they're all going to be looking over there and some, something's going to happen over here, whatever that means, and I don't even know what it means. And even I'm like, when we were looking at down the barrel of the worst economic events in history, none of us, none of us would have said, oh, the stock market is going to go back to the all-time high in the record time ever in the middle of the worst recession in all recorded history. So when we're all looking there, something over there happens. I don't know what that is, but that's what we should be keeping our eye on.

Yeah, with the largest voice in that recovery, at least in media presence, being a guy who built a media business on sports over 30, 20 years, and never touched stocks until he was bored at home, right? The markets are a very fickle mistress, and they do what they're going to do, and that's kind of what makes them so addictive and interesting. Yeah, because look, I've always said, and particularly macro, it's the world's most beautiful puzzle that you can solve for bringing. brief moments and then the rest of the time you're thinking about it and trying to figure it out. And sometimes you can't see any of the puzzle. I don't understand any of it. And other times it starts in place.

So that's why it attracts so many kind of great thinkers because it is an amazing thing. And it's once you solve the puzzle, you earn money, right? It's a perfect dopamine response system, you know, it's a behavioral economics in real time. So it's ideal. So I understand why people come to it because it is, it is. intellectually becomes more interesting than sports, which is more, yes, there's a science

to sports betting and stuff like that, I understand. But finance becomes an even larger playing field. All right, listen, so I just have a couple more minutes of your time, and I asked people last night what they wanted to ask. So I'm just going to rapid fire a couple of them. If you have no perspective, no problem. Real estate versus Bitcoin and gold, basically versus other kind of hedge trades.

Bitcoin. I mean, just the volatility of the asset class, one is like a one-ball asset at best, maybe a half-volatility asset. It doesn't move much. My trend, the other one does this. So basically in the bull market, the one that does this is going to massively outperform the other. So, yeah, I think in order, I would do Bitcoin first, gold second, real estate third in the next five years. The next 20 years, real estate's always done pretty well over time. That's a good answer. How do you view short-term downward volatility for Bitcoin based on stock prices, right? Do you see stock prices continue to go up and Bitcoin's...

It's just a passing correlation. If you understand some of the players involved, people like Bitmex and stuff, there's leverage. And leverage and people get blown out with the leverage and there's a risk-seeking behavior and that risk-saking behavior is a behavioral thing. And particularly when you look at, let's say, the people have gone from sports, sports betting to stop market betting, the millennials who were given a check, learning their way around this whole thing, they're all the same players. It's a passing short-term correlation.

It is, and I get that question 20 times a day. I'm like, it's just short-term. Look at the two charts. They're not the same thing. I know that Plan B says that some huge correlation, I think it's because both of the assets went up over time. And so I think it's more of a spurious correlation. Maybe his maths is more rigorous than mine.

I'm not really good at maths. But basically, it's just passing. It is not the same thing. Are you, if any, what other commodity plays are you eyeing besides precious metals? None. I'm a deflationist still. So if I am, I'm looking to shorten, but everything's stuck in a range. Even oil broke down and it's gone back to the range.

Nothing's happening. And so I don't buy into the whole reflation. Oh my God, we need to own every commodity. For that to happen, we need the dollar to really move and really break properly. And we need to see that against emerging market currencies. We need to see global growth recovering, of which is not. It's kind of flatlined at kind of negative 5% or so. There's a bunch of things that aren't in place for that to happen.

It will come. It will come. It always comes. And maybe the, you know, like China was part of the last cycle, maybe the rebuilding of India after they've dealt with COVID. and they have to move forwards, maybe that is the next source of commodity demand, plus the MNT-style infrastructure spending. So there's a narrative that can be constructed.

I just don't think we're there yet. I think everyone's jumping the gun. All right. Last one. You've kind of given your irresponsibly long BTC idea, what major catalysts would be needed to drastically change your allocation? You know, I don't know. because none of us actually know what the catalyst is that drives Bitcoin.

Darius Dale from Hedgeye keeps asking this question, can you show me what drives it in the shorter term? It goes, I get the story. How do I analyze it? I'm like, I don't really know. And we still have, there are some people who've got some tools, whether it's the hash rate or whatever it else. I don't think we really know.

So it's difficult, which is why you just have to have a very wide stop loss and say, well, fine. And with me, I'm very lucky because I earn an income. So I can just leave that money there and sit in it for longer, and I earn income, and I can add to my savings and make other investments if that's the case. What would really change it? Finding something that looks like it has a much larger opportunity in a time period. And that could be, if the dollar falls, it could be emerging markets. That's the only thing I could see that could compete from my capital for Bitcoin over that's a three-year time horizon. Now, would I get rid of all of it?

No. Could I put some of it into emerging markets and particular markets? Yes, but I don't think it's the time and the place yet. It's the same as the commodity trade. It's about when the dollars firmly change and with the backside of the recession, then we get 10 years by emerging markets go to the beach, but I think Bitcoin will do better. Raoul, it's been awesome having you on the show. I really appreciate you hanging out today.

Yeah, I really enjoyed it. One of the really interesting threads from that conversation is the idea of where power in monetary policy and economics is shifting. Raul made the assertion towards the beginning that monetary policy is finished, and what he meant is that there are just such clear limits to what the Fed or any other central bank can really do. Now, when we talked about the idea of these SDRs or basket of reserve currencies changing the shape of the reserve currency system, perhaps moving us away from the dollar, really what we were talking about is the potential that private markets, private institutions, private transactions start to put pressure on this system as it's been organized and that it won't be some new Bretton Woods conference that shifts the system. But in fact, the available

of different types of synthetic digital assets that change the way that people transact and do business globally. I think that's an incredibly important and fascinating part of our future, and is certainly something that we'll be exploring more here. For now, however, guys, I appreciate you listening. I appreciate all your ratings and reviews. If you haven't had a chance yet, I would love it if you could go to iTunes and give this a five-star rating and even leave a review about what you like so I know to do more of it. And until tomorrow, be safe and take care of each other. Peace.