The Breakdown - Why The Dollar Has Never Been Stronger Or More Set Up To Fail [Money Reimagined Pt. 1]

Episode Date: May 2, 2020

The first of a 4-part docu-style series on the battle for the future of money. In this first episode of Money Reimagined, we look at: Why US markets took so long to react How the stock market became a political utility Why, even before the crisis, “increasingly exotic forms of quantitative easing” were inevitable Why the bailouts have some investors accusing our entire market of being cronyism rather than capitalism  What unlimited money printing means for the US dollar.  Featuring insight from Matthew Graham, Caitlin Long, Scott Melker, Kevin Kelly, Ben Hunt, Luke Gromen, Travis Kling, Mark Yusko, Anthony Pompliano, Jared Dillian, Dave Portnoy, Michael Casey, Preston Pysh, Peter Zeihan Music by DJ J-Scrilla "Faith In My Money (Money Printer Go Brrr)" from the “Sound Money” album.

Welcome to The Breakdown, Money Reimagined, a special podcast micro series in the run-up to consensus distributed, a free-to-attendance virtual event from May 11th through the 15th hosted by CoinDes. This series is about the battle for the future of money in the post-COVID-19 world, and it's a hell of a story. Here's your host, NLW. Welcome back to The Breakdown. In a little over a week, CoinDesk will premiere Consensus Distributed. When it became clear that COVID-19 lockdowns would force. Consensus in New York blockchain week to cancel, the team at CoinDest got to work designing a new type of virtual event. While many things had to change to make the new event work, one thing that was consistent was a key underlying theme, exploring the battle for the future of money.

So today I'm kicking off a special micro series called Money Reimagined. It is launched in conjunction with Consensus Distributed. Money Reimagined is a newsletter and weekly column from Michael Casey, who is CoinDesk's chief content office. officer. In The Breakdown's Money Reimagined podcast, we take the themes explored in that newsletter and bring them to a new type of narrative format. In this series, we'll introduce and reintroduce the key players in the battle for the future of money, from the incumbent U.S. dollar to the aspirational Chinese decept, to the insurgent Bitcoin, and all of this in the context of a post-COVID-19 world. Today's episode focuses on the dollar and asks how on the one

hand, the dollar can appear stronger than ever before, while at the same time having more risk for catastrophic and systematic failure than at potentially any other point in its time. For regular listeners of the breakdown, you'll know that this is a topic that I think a lot about. But to get to that question, we have to do a little bit of frame setting first. Even before COVID-19, 2020 was poised to be a big year in the battle for the future of money. So in 2019, we had seen first the Fed intervening again in markets, particularly in the context of overnight commercial lending markets. And this suggested to many that there were perhaps more cracks in the system than it appeared on the surface. We also saw the launch of Libra. This is Facebook's

would-be pan-global digital currency backed by a basket of national currencies, but a force unto itself. We saw, in the wake of Libra, an extremely aggressive push from China to front-run both Libra, but also the rest of the world when it comes to central bank digital currencies. We saw the emergence of DeFi as a meaningful tent pole in the crypto space in a way providing previews of what an entirely programmable financial system might look like. Finally, we saw the continued success of Bitcoin, consolidating around this narrative of digital gold. When the coronavirus hit, its impact wasn't to change these players per se,

but to fundamentally alter the context in which their battle for the future, of money would take place. Towards the end of January, the U.S. public started to get inklings of a new virus that was spreading quickly in China. On January 23, China issued a lockdown order for Wuhan in Hubei Province, which was the center of the outbreak. In the coming weeks, that lockdown was extended to more cities and provinces. Eventually, it came to apply to something like 200 million people or more.

Some, and by some, I mean a very small number of people in the U.S., were taking the virus seriously from the beginning. Eric Townsend, who is the host of the Macro Voices podcast, timestamped a Twitter thread on February 8th called When It Was Clear. He said, the purpose of this thread is to document and timestamp when it first became clear that coronavirus was likely to lead to a global pandemic. The purpose is to give something to cite when people later claim, but there was a no way of knowing. Pretty prescient, if you ask me. On March 3rd, a few weeks after that thread,

but still a few weeks before major lockdowns in the U.S. began, Matthew Graham, who is a blockchain-based investor in China, joined the breakdown to describe what it was like actually living through that lockdown. I mean, we both work in the craziest industry, right, is blockchain, is crypto. and being in China as an international person is also very exciting, shall we say. Keeping the fact that I work in China crypto in mind, I have to tell you this is the craziest thing I've ever seen in my life.

Yeah. Corona. I mean, it's just nuts. It really has been like out of a movie. As backdrop, the stories that filter out into the West, If anything, a little under-exaggerated. And I think it's important to understand. This is nuts.

There were many voices in the crypto space, perhaps in part because of our direct connection with people like Matthew, who were ahead of the curve and actually calling out this crisis for what it might become. But if we were and the crypto industry was comparatively ahead of the curve when it came to coronavirus, traditional U.S. markets certainly were not. On February 12th, as again hundreds of millions of people in the supply chain capital of the world remained stuck indoors and unable to work, the Dow Jones Industrial Average minted new all-time highs. A week later, on February 19th, the S&P followed with another all-time high.

It wouldn't be until later on Monday, February 24th, that the markets actually showed any reaction at all. On that day, I talked to Caitlin Long, a Wall Street veteran and co-founder of the new Crypto Bank, Avanti. She brought up a third. theme, the propping up of markets by central banks that has followed throughout the crisis. I tweeted out about this in, I think, the third week of January, when I started watching this, because I come from a life insurance background, I've worked on catastrophe bonds related to pandemics earlier in my career. So when this started coming out, I was watching it a lot sooner, probably than it hit the mainstream headlines. And I was pretty concerned about this.

This has been something actuaries have been concerned about for a long time. We're overdue for a pandemic. And again, these extraneous events, unforeseen black swan type of events, we could handle them in the economies if we add strong balance sheets. But when you combine the fact that the balance sheets are weakened by being towards the end of likely end of a multi-decade credit bubble on top of something like this, it's a dangerous brew. We're starting to see the traditional financial markets start to recognize the potential here for that. Well, and it's been delayed. And what has delayed is that the central banks around the world, especially in China, have thrown enormous liquidity at the situation, which until arguably today, it really

wasn't deemed to be something that was a real threat from the financial market perspective. And so the injection of more of the same drug in terms of banking sector liquidity coming out of the Central Bank in China certainly put a Band-Aid over it for a while. But a Band-Aid doesn't stop a hemorrhage. And the decoupling only lasts as long as the drug injection from the Central Banks actually still has some oomph, so to speak. And I think we're starting to see that this is this is starting to overwhelm the ability of central banks to counter this. You cannot solve a pandemic if that's indeed what we're facing with liquidity. It's just not going to work. Now, as Caitlin mentioned, Wall Street did start to wrap its head around the implications of coronavirus,

and as it did, the drop extended. On Friday, February 28th, crypto trader Scott Melker put this market movement in historic terms. I think that the virus is one issue. the supply chain from China is the bigger issue. But I think the biggest issue and the real elephant in the room is that I already felt, and many did, that the market itself was inflated and was extremely overvalued. And that that's the case for many of these companies that have risen, you know, 50% in the last year gone skyrocketing. So this drop, I don't think it's surprising really anyone, but I think the aggressiveness and velocity of the drop is somewhat astounding. I mean, if you're not paying attention, this is a historic drop.

The SMP, I believe, was hitting an all-time high 10 days ago. And as of today, it's officially in correction at a 10% drop from that all-time high in 10 sessions. It's not like the crypto market. This thing's only trading, you know, I mean, obviously there's after-hours trading, but this is not in a 24-7 market. So that's just during business hours. It managed to do that. And that's something that we haven't seen since literally World War II.

On March 3rd, the Fed implemented an emergency rate cut of 50 basis points. Ikegaia asset management's Travis Kling pointed out in a tweet that the last time this happened was October 29th, 2008, which was, for those keeping track, two days before Satoshi had released the Bitcoin white paper. Yet this time around, the markets didn't react positively. If anything, the dramatic action wasn't reassuring, but in a way served to burst the market's last hope that COVID-19 wouldn't be all that bad. Delphi Digital's Kevin Kelly explains. What you're seeing, too, is expectations for, you know, a lot more accommodative and easier monetary policy, right? What I mean by that is you saw the Federal Reserve with an

emergency rate cut to their benchmark rate by about 50 basis points last week. And initially, you know, you saw a bit of a reaction in stocks, a very small kind of bounce within the first couple minutes, and then you really saw the market continue to fall, right? And I think what last week rate cut did, if anything, was confirmed to, you know, equity investors and market participants in general what they had, had, had, had, didn't want to admit to themselves. And that was that this was actually a real risk and something that, you know, the Federal Reserve was, was now watching and monitoring as a threat to, you know, economic activity. And up until that point, again, you know, every day we get new information and every day the severity of this becomes more and more clear to people.

But again, it's one of those things where a lot of people have had, obviously, this has been an incredible bull run over the last 10, 11 years in the U.S. equity market. And so people didn't necessarily probably want to believe what the severity of this potential impact could be. Okay, so let's take a breath here before we continue this story. The impact of COVID-19 crisis is coming home to roost. normal Fed action isn't moving the needle. So what happens next? To understand that, we kind of have to go back to what markets mean in the broader political context. That's where we turn after the break. First, though, something new, a message from our sponsors. I'm excited to welcome a number of

excellent new sponsors who are going to help us take the breakdown to the next level. Support for this podcast and this message come from Eris X. With Eris X, 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 ArisX.com slash consensus. This episode is also sponsored by the Stellar Foundation. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power or payments application, or issue digital assets like

stable coins or digital dollars. Stellar is easy to learn and fast implement. Start your journey today at stellar.org slash coin desk. Ben Hunt, who is the founder of the very popular newsletter and market consultancy, Epsilon Theory, explains in this clip how the markets became a political scorecard. The Trump administration, Donald Trump himself, has not been shy about saying those exact words, that the stock market is my scorecard. The stock market is my scorecard.

And, you know, I think to a large extent, every president has known that. It's just that, you know, this particular president, he tends to say the quiet part out loud doesn't even make a pretense that it would be anything but that, the stock market being the scorecard. I think that's absolutely been, again, the quiet part, the unspoken part, really since the great financial crisis of 2000. 2008, and it's been reflected not just in the stock market, right, but it's been reflected in every monetary and fiscal policy that we've been, you know, subjected to since 2008. And I want to be clear, I think that in March of 2009, when the Federal Reserve started, its policies of extraordinary support by buying stuff and by using their words intentionally to try to influence markets.

I think what they did in March 2009 was exactly the right thing to do. I mean, that's why we have central banks. We have them as that emergency liquidity provider of last resort. I like to use the example of, you know, pulp fiction where John Travolta gets that syringe of adrenaline and puts it, you know, right into the heart of the, you know, Odeed Uma Thurman. That's what the Fed did in March of 2009, and that's what Central Banks are supposed to do. What's happened since then, however, is what always happens, that these emergency government actions become permanent government policy. because it supports the power and the aggrandizement of these government organizations.

Now, Ben is not the only one who thinks that the scorecard and political utility function of the markets has become more significant than its perhaps pricing future dividends function. Macro-researcher Luke Gromond locates the genesis of the stock market as a political utility even earlier, arguing that decisions made in the 90s about how executive compensation was taxed created a spiral where the U.S. relied on asset prices going up to grow GDP. So if you understand that consumption's two-thirds of GDP and consumption can't rise unless stocks are rising, you sort of arrive at this place where it's a political utility. The policymakers have as policy, they have to have as policy.

again, because of decisions Clinton made 30 years ago, they have to get stocks up no matter what. Because the U.S. government can't fund itself without these asset prices rising, the U.S. GDP cannot rise without asset prices rising. We're likely going to be continually stuck in sort of this stop, start of asset prices down. Fed comes in with big amount of money, and then asset prices go back up, and then Fed tries to pull back. and we're going to wash, rinse, repeat this with both shorter periods of time between the time of asset prices selling and the Fed responding and with ever-increasing amounts of Fed responses until we get basically no response time between sell-offs and the Fed's balance sheet

getting bigger and bigger and bigger. And this, again, is I'm not moralizing on whether it's right or wrong. I'm just saying that if we wanted to fix it, we would need an 83 DeLorean with a flux capacitor, and we'd have to go back in time, you know, take that baby to 88 miles an hour. And these are baked in the cake. And because we've made the decisions, particularly post-95 with Clinton, they have to get stocks up. And so we go from the Fed is targeting the economy to move the stock market.

We have fully moved to the Fed is targeting the stock market to move the economy. Now, one final note before we bring it back to the Fed's specific response to COVID-19. Last fall in an interview with CoinDesk, Travis Kling argued that the types of Fed intervention in the markets were likely to get increasingly, well, weird, as the normal intervention stopped working. But there are problems starting to show up here. The global economic data is undoubtedly turning down right now, and it's turning down in concert. It's all turning down at the same time.

it's all turned down at the same time because the whole world is now on this central bank trade and on this cheap money trade. But it's apparent that central banks are going to cut interest rates and juice QE into infinity to either prevent a recession or prevent the soft or kind of have the recession be as soft as possible. And those forms of quantitative easing are going to be increasingly more exotic because in the same way that, you know, if you do heroin long enough, then you've got to keep taking. a bigger and bigger shot of heroin, you need increasingly more exotic forms of QE to get a similar type of effect. Because if you're in Europe and you cut interest rates from negative

40 bibs to negative 50 bibs, it just doesn't make that big of a difference. Increasingly exotic forms of QE, that's a great place to jump back into what happened next. By mid-March, COVID-19 was no longer deniable. On a fateful Wednesday, March 11th, Tom and Rita Hanks announced that they had contracted the disease, the NBA canceled the rest of its season, and U.S. President Donald Trump finally stopped calling this thing the flu. Over the next weeks, the first shelter in place and lockdown orders would come. And with them came a distinctly new economic phase of the crisis. In this phase, Travis's notion of increasingly exotic forms of QE was pretty quickly validated. The Fed not only ratcheted up its action, but it expanded dramatically

what it had a mandate to buy. Delphi's Kevin Kelly again explains the new remit. So I think this is a very unique economic crisis that we're facing right now, and I preface that because this mandated kind of global shutdown of business is large and small, is what really has pushed policymakers into kind of uncharted territory. And so, you know, with this massive exogenous shock to revenue and cash flow. They're really trying to just pump as much money in the system and basically create this monetary and fiscal bridge to get the global economy across this massive recession crevice, right? And so some of the intervention we've seen from the Fed is basically just dusting off the old playbook from 2008, 2009. You have large scale, you know,

U.S. Treasury and agency MBS purchases, cutting a benchmark interest rate, like the Fed funds rate. But I think one of the big key differences, first off, is just the sheer size and size. scale of these programs. So the Fed has added, you know, almost $2.5 trillion to its balance sheet in a matter of just eight weeks. And if you go back to the period between September and December of 2008 when the Fed really kind of first started to launch QE and started to ramp up its asset purchases, that's, we're already double that amount, right? That was about 1.1,1.2 trillion. So the sheer size and scale these programs is one of the first notable differences. The other is how far out this mandated or how far they've expanded their mandates.

in terms of what it is they can purchase. So you've not only had these Main Street lending programs on the fiscal side, you know, we obviously had that initial $2 trillion under the CARES Act, which funds things like the payroll protection program, which is trying to, again, keep small businesses, really just trying to keep small businesses afloat. But on the Fed side of things, you know, they're getting into municipal debt. They've expanded their mandate into buying, you know, investment grade and now speculative

greater or junk bonds, high-yield debt. And they're unlikely, I think, to go so far as to buy equity ETFs. But who knows? I mean, at this point, you know, a lot of people, if you said that they were going to be buying high-yield debt, you know, even three months ago, would have called you crazy. I think it's important to note, though, there is some kind of misconception or confusion around what it is that the Fed's actually mandated to do. And so the reason why you've seen kind of broad-based, you know, high-yield ETS, for example,

coming to the picture is because in the aftermath of 2008, actually, Dodd-Frank prevents the Fed from bailing out any single failing company, right, a company that's going to fail and basically bailing them out individually. And so the Fed has to create these programs that gives relief for a broad kind of class of borrow, it's not necessarily just one individually. But again, I mean, the size and scale at which they've really ramped up asset purchases, and this isn't just a U.S. story. If you look across the pond, the ECB is committed over, you know, 750 billion euros.

It's over $800 billion. And the kind of key here for both the ECB and the Fed and really kind of major central banks globally is this continued rhetoric that there is no real limit to what they can do, right? And so unlimited QE isn't necessarily unlimited QE in that, you know, if they printed $20 trillion tomorrow, that would certainly have an effect on the markets. But there is nothing that really restrains them or puts a cap on the amount of spending that they can have. And so their mandate is going to be very flexible going forward.

For many, this expansion of Fed involvement was a fundamental break in what was supposed to be a free market. Morgan Creep Capital founder Mark Yusko here describes it in an interview with the breakdown as cronyism. And the idea that we're going to socialize that risk and bail everybody out, I think is insane because it breaks. Then what you do is you break down the entire financial system that we all believe in, which is if you take intelligent risk, you get compensated for those risks.

when you take unintelligent risk or you do unintelligent things, you get penalized. But if you socialize risk and make everybody pay back those that lost money, as if losing money is a bad thing, I just think it's a very slippery slope. And I think we've been on that slippery slope for a while in that, you know, we've kept the stock market elevated by doing, I think, ill-advised things with interest rates. I think, you know, cutting interest rates as quickly as we did back in 2015, 16, 17 was ill-advised. I think we should have been, you know, raising rates and people's, oh, but we would have caused a recession. What's wrong with recessions? Recessions are actually good.

They cleanse the system. We get rid of the weak companies. That's how capitalism is supposed to work, right? We're supposed to allow the weak to go away. We're supposed to encourage the strong to survive. We're supposed to give the tools for all companies to compete and build markets. Instead, what we've got is cronyism today, whereas if you're well connected to the president or the administration, you're going to get a handout and you're going to continue to exist. And the stat I keep going to is zombie companies.

38% of the S&P 1500s, so the biggest 1,500 companies, 38% can't service their debt with their current EBITDA. Forget paying back their debt. They could never do that. But they can't even service their debt. So interest rates have to stay low. They have to be zero. And they're going to be zero for a long time. Now, it's clear that the folks at Morgan Creek have no problem speaking their mind because in this clip, Morgan Creek, digital partner, Anthony Pompliano, puts government's role in markets in even more stark terms. The first rule of businesses don't run out of money. And if you're running out of money, you've got to figure out how not to do that. And so you have three options. You can either increase your revenue somehow. You can go to the debt markets or you can go to the equity

markets. What corporations are doing right now is they're actually going to the debt and equity markets, but they're not going to find public or private investors. What they're doing is they're running to the government. And the reason is because they think the government is the idiot in the room. And what I mean by that is they believe that the U.S. government will give them a better deal, a more attractive financial deal than they could get from the same public or private investors. And so what happens is they don't need to be resilient, right? To your point about the incentive, the incentive is not to be resilient. The incentive is who can get to the government and get them to give you the money, right? That's how you survive. Whatever one thinks of the necessity of these

bailouts, there quickly arises a question. How is the government going to pay for this? With the total stimulus package reaching well into the trillions, a new meme was born. Money printer go burr. Not in generations has Wall Street absorbed the number of body blows it took today. The world has gone mad and the system is broken. The American financial system is wrong. Rock to its foundation as top Wall Street institutions topple under a mountain of death. Bailed out by the taxpayers. It's pretty clear they cannot be trouble. Is that you're trying to understand this as an economic story.

Once you look at it as a crime story, you'll get it. After the break, what money printer go burr means for the almighty U.S. dollar? The Fed is losing control once again. has pumped out $125 billion. Support for this podcast and this message come from Grayscale Digital Large Cap Fund. In times like these, diversification is key. Consider Grayscale Digital Large Cap Fund, ticker symbol GDLC.

It's the only publicly traded investment product that offers diversified exposure to large-cap digital currencies, all from your brokerage account. For more information, visit grayscale.co slash CoinDesk. That's G-R-A-Y-Scale.co slash CoinDisk. So finally we come then to the battle for the future of money and the main contender we're discussing today. The dollar. The US dollar is locked between two narratives that seem at first extremely contradictory.

On the one hand is the narrative that is encapsulated by the money printer-go-Burmeam. It's the idea that when so much money can be created seemingly out of thin air, to backstop seemingly everyone and everything in the economy, what meaning does money have at all? Daily Dirtnap publisher and market commentator Jared Dillian wrote a piece for Bloomberg called Why Money is Losing Its Meaning and described this emerging loss of confidence in the dollar and even the Fiat system as a whole. PBS did an interview with Paul Volker like back in the 80s. And Paul Volker basically said that one of the government's primary jobs is to instill confidence in money. And that's one of the things that the Federal Reserve is supposed to do.

And I think the thing that motivated that piece was we are at the early stages of a loss in confidence in dollars. We're at the very early stages of it. And that's what motivated that piece. Now, this perspective is not limited to strictly speaking market professionals. In a recent Twitter rant, Barstool Sports founder Dave Portnoy likened the U.S. dollar to Shrewbucks from the office. Oh, Fed this, fed that. Let me tell you something about the Fed. they're shrewpucks. We're dealing with shrewpucks at this point. Let me ask you this.

If governments can just print unlimited money like shrewbucks, why doesn't every government do it? Why does every government guess what? Inflation, your buck, your dollar, your shrewbuck, literally becomes a shrewbuck. You can't just be like, oh, here's a contrillion, contrillion, if you flood the market of those trillions, the quadrillions mean nothing. That's basic economics. The logical endgame of this narrative has both an economic and a psychological dimension. The economic dimension is the idea of inflation, that at some point the market switches from a deflationary environment to an inflationary environment, and people are going to want to rush out of the dollars that they're holding, which are made less valuable by that rampant printing.

The psychological dimension is what Dillian was getting at and what we see in Portnoy's rant, which is a broader loss of faith in the fiat currency system. the idea of a system that is backed by the, quote, full faith and credit of the U.S. government. Okay, so money printer go burr, the potential of inflation, the eventual loss of faith in the fiat system as a whole. That's narrative one. Narrative two is rooted in an observation of what's actually happening around the world. The dollar is right now, and it's not close, the most significant and important store of value asset in the world. Despite these trillions of dollars of stimulus and money printing, this crisis

has only strengthened the dollar relative to other currencies. To some, it isn't the inflation potential of the dollar, but the current global strength of the dollar that is the true economic wrecking ball. On April 25th, Raoul Paul, the founder and CEO of Global MacroInvestor and the Real Vision Group wrote, I hear the narratives that the Fed is printing money, burr, and it is all going to cause a dollar collapse. I worry that this narrative is very wrong. My strongly held view is that the dollar is the pinnacle of all the macro issues we face. The Fed has undertaken unprecedented printing, as we know, and the ballot sheet is growing exponentially. But it is not that simple. We live in a relative world, where the dollar standard is the very cause of many of the

issues we now face. There are simply not enough dollars available in the world to service all the debts, and thus a debt deflation remains the big risk. You see, the biggest problem the world faces is the dollar. We were in a vicious doom loop where slowing growth causes the dollar to rise, which causes slower growth, which causes the dollar to rise, as all borrowers play musical chairs to get access to the dollar to service debts. So how then are we supposed to make sense of these two seemingly contradictory narratives? I asked CoinDesk's chief content officer Michael Casey this example.

question. And to him, the real issue had to do with the world's debt becoming dollarized. The bigger question, though, is this dependence on the dollar, is the fact that the whole world needs it, right? Once we move into this moment, it speaks to the, you know, Raoul's concern about debt levels, where so many of the world's debts have been dollarized. If you look at charts showing security issuance in dollars. They just continued to rise over the last 15 years. That means that, you know, there's a desperate scramble to get hold of the currency that you need to pay back your debts.

And it happens at every level of society and it feeds its way into the banking system. So the fact that the world had created this dependency on the most liquid currency that was there and that in itself was also a function of the fact that so much of our trade is denominated in dollars meant that now we're in the situation where everybody is scrambling to get it and the Fed is in a situation where it has no choice because it doesn't want that edifice to fall to just keep feeding that demand which is why you have swap lines that are open indefinitely with central banks right now and the Fed essentially providing repo facilities to foreign central banks in the United States. So that all is there because we're utterly dependent

on this one thing. And that's a dangerous situation to be in because at some point it could all turn upside down. Now, podcaster and market analyst Preston Pish has a slightly different take, which is effectively that the way that we think about inflation is de minimis, that the consumer price index measure of inflation is not the right way or not a complete way to look at it. And we have to think about asset prices. And we have to think about how the growth of asset prices as disconnected from the real underlying economy creates structural issues. You have a huge network effect with the dollar.

It's very dominant because so much of the debt is denominated in dollars or goes back to dollars. So there's this massive network effect for dollars. And there's a demand for dollars. So as there's impairment on balance sheets, as there's impairment due to derivatives blowing up like we just saw in the oil market, there's a very high demand for more and more dollars. Now, as those dollars polarize themselves into very wealthy individuals' hands, which is what you see at the end of these types of events,

let's just take Jeff Bezos, for example, owns Amazon. Amazon continues to take massive market share. Even through the coronavirus situation where it was really bad and it might even get worse as we move forward, money is still flowing heavily into Amazon and into the few equity holders that have it, relatively speaking, when you look at a person like Jeff Bezos.

So as these high net worth individuals collect, this continuing stream of Fiat dollars, they continue to employ that money into more investments. They plow it into other stocks. They plow it into bonds and they bid the prices of stocks and bonds higher and higher and higher. What that does whenever this money is consolidating into those hands of the few is it's removing that velocity of money, that currency that can be used by all the other market participants. And let's remember. remember, they're the market participants that need the money most because they're the ones that are hurting the most. So they need that flow of cash in the system. It's almost like oil

in an engine as it works. And what's fascinating about this is as the U.S. continues to add more and more of that fiat of that dollar into the system, the demand for it becomes even stronger and stronger and stronger. So what I argue is both of the things that you're talking about, are true, you're not seeing the inflation necessarily if you're using a CPI bucket, but if for whatever reason you started incorporating some of the biggest capitalized companies into that basket or you started incorporating fixed income bonds into that basket, all of a sudden you start to see this printing that is happening like crazy and it starts materializing itself. So by traditional measures, your CPI index, your inflation indexes that you're using, you're not going to see it, right?

So that's where I think the money printer go burr type meme is confusing a lot of people because they're looking at a CPI bucket and you're never going to see it there. Now, a final perspective on this that I want to share has to do with the global context of the dollar and the argument that the comparative lack of alternatives is the key factor. I had a few weeks ago political strategist and author of Disunited Nations, Peter Zeyon, on the podcast and he discussed exactly this in the context of the strength of the dollar. Okay, so currencies. The United States is the noun say $2.2 trillion stimulus, fiscal, and recovery program,

a combination of bailouts and checks to people, loans to business, that sort of thing. Every dime of which is fueled by deficit spending. So we're talking 10% of GDP is a supplementary program, which is entirely based upon. upon money that we don't have in the bank. This is on top of a deficit for the Trump administration for the current fiscal year that is like the third largest in history. So just a huge amount of quantitative easing, debasement of the currency, printing of currency,

whatever your preferred phrase for that concept is. And the dollar has gone up. The degree to which the United States is the sole, sole store of value in the global system was already pretty extreme in the last two years, and it's only gone up during the crisis because there's nothing that the Europeans can do in terms of stimulus spending without actually raising debt. Even if they decide to do something like QE,

like the United States has done, they don't have to have the debate, which last time took years, over who gets how much of whatever the stimulus spending happens to be. The Europeans are having a hard time raising the capital that is necessary to deal with this crisis, whereas the U.S. can just flip a switch, and that's what we've done.

Investors look at that and they're wondering, okay, which of these systems is still going to be around in a few years? And they're all flooding their money into the United States despite all the deficit spending. As for other countries around the world, the Japanese aren't interested. The Chinese have capital controls and the Brits are an economic structure that's about one-sixth the size of the United States. And that's everybody. So we've got a centralization of financial holdings. in a singular economy that is no longer interested in holding up the ceiling of the world. So love it or hate it, the U.S. dollar is where it's at. And in the last few days,

since the stimulus spending was finalized, it's even risen versus gold, which, you know, if there is any environment where gold should be doing well, it's right now. So it's it. It's the U.S. dollar or nothing. All right, this strikes me as a good place to end this episode. As we look at the players in the battle for the future of money, the U.S. dollar, as we can see exists in this weird in-between between, on the one hand, being the only currency the world demands, and on the other hand, having all of these risks associated with exactly that, made more profound by the unlimited money printing that is going on right now. So, on our next episode, we will start to shift our focus to a group of contenders who, although different,

all seek to carve out a new place in the established global monetary order. Thanks for listening to this special breakdown micro series of Money Reimagined. I will be back soon with the next episode. You've been listening to The Breakdown, Money Reimagined, a special podcast micro series where we dig into some of the most important conversations we'll be having at Consensus Distributed, a free to attend virtual event from May 11th through the 15th, hosted by Coindesk. This episode is sponsored by Aris X, the Stellar Foundation, and Grayscale Digital Large Cap Fund. theme song is Money Printer Go Burr, a new track from DJ Scrillo, which is available as part of

his newly released Sound Money album. This episode featured content from NLW, Matthew Graham, Caitlin Long, Scott Melker, Kevin Kelly, Ben Hunt, Luke Groman, Travis Kling, Mark Yusko, Anthony Pompliano, Jared Dillian, Dave Portnoy, Michael Casey, Preston Pish, and Peter Zyan. This episode was announced, scored, edited, and produced by Adam B. Levine, and the rest of the team at CoinDisc. questions or comments, email podcast at coin desk.com. And we'll be back on Friday, May 8th with episode two in our continuing story. Just waiting around the corner. Chancellor on brink of second bailout for...