The Wolf Of All Streets - Dollar Milkshake Theory: What Will Happen To The World Economy And Your Money | Brent Johnson, Santiago Capital

Episode Date: November 8, 2022

Brent Johnson is the CEO of Santiago Capital and an author of a popular Dollar Milkshake Theory. In this episode, Brent explains his theory of why we inevitably will see a strong dollar, shares his opinion on the role of Bitcoin, and provides some personal finance tips on what to do during an upcoming recession. Brent Johnson: https://twitter.com/SantiagoAuFund ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Even after an unprecedented period of money printing and high inflation, the dollar continues to be a wrecking ball, destroying everything in its path. I spoke with Brent Johnson, who's the founder of the dollar milkshake theory, about why this remains the case, what governments can do to stop it, and why it's likely to continue. You don't want to miss this conversation. The dollar has seemingly been an absolute unstoppable wrecking ball. I know everybody obviously asked you about the dollar milkshake theory, but first I want to discuss what could possibly stop the dollar at this point. Well, to be honest, I don't think there's anything the rest of the world can do to stop the dollar.

I think it's going to come down to whether or not the US wants a weaker dollar or not. I've said all year that I thought they wanted a stronger dollar, and I don't think what's happened is an accident. But at some point, they're going to want to rein it in. I think they wanted a stronger dollar. And I don't think what's happened is an accident. But at some point, they're going to want to rein it in. I think they wanted a stronger dollar for several reasons, which we can talk about, but they don't want a dollar that's so strong that the whole system implodes, right? They want it strong enough that they can achieve their goals, but they don't want it so strong that they have to come out and implement a whole new system. And ultimately, I think it's a strong dollar that will destroy the system. I don't think it's a weak dollar that will do it. A weak dollar will perpetuate the system. It allows people to kind of continue

what they've always done. So, you know, I think tomorrow is going to be a big tell on whether or not they got it strong enough for now or if they want it a little stronger. If you've been following me for the last few months, then you definitely know that I've been trading and investing on BitGet. Now, listen, it took me six months to decide that they were going to be the sponsor for the newsletter. But once I saw their partnership with Juventus, that they were the world's leading copy trading platform in crypto,

and also that they're a top five exchange by volume, well, I was sold and I was convinced. I've been using it ever since to dollar cost average and to invest in Bitcoin. You can also trade there with leverage, but of course, be careful if you're going to do that. And I don't know if you saw the recent news, but they've also done a deal with Lionel Messi. Now you can get up to an $8,000 bonus using my link below, and you can trade spot with absolutely no fees you also get a 15 discount on trading leverage go ahead and sign up right now using the wolf of all streets

dot info slash bit get claim that huge reward and use the world's best trading platform and obviously referring to the fomc meeting and the determination of what the rate hike will be and perhaps the tone of what the what the h hike will be and perhaps the tone of what the hikes will be moving forward. But you made an interesting point. I think a lot of people over the last few years have assumed that the United States actually wanted the weaker dollar, right, to prop up markets, to continue the party, so to speak. Why would they actually want a stronger dollar at this point? Well, I think for a couple of reasons. Number one is, one is fairly obvious, and that is that the Fed is really embarrassed and pissed off that they got inflation so wrong.

And Powell wants his legacy to be that he got it back under control. I don't think he wants his legacy to be that he presided over a huge inflationary storm that got away from him. So I think from that perspective, he wants to get inflation under control. And the only way that the Fed can do that is by crushing demand, right? They can't control the supply chains and they can't really control the bank's lending other than through interest rates, right? And so if you raise interest rates, you know, it restricts dollar supply. And therefore, it makes it harder to loan. It makes it harder to borrow, makes dollars less available.

And so therefore, perhaps growth slows. And if growth slows, then they're hoping that inflation slows as well. So that's kind of the obvious reason. I think that there are other reasons they're doing it. And I think they're geopolitical in nature. Maybe they are secondary to, I don't think they started off saying, let's do it this way for geopolitical reasons. But I think they're smart enough to know the knock-on effects of a stronger dollar.

And that is that it puts the rest of the world in a vulnerable spot. And if you think about where we were two years ago and where we are now, the world has definitely bifurcated. You know, two or three years ago, we were all moving towards the same common one world market, one globalized supply chain. And now that is, you know, without question been smashed. And we're going towards two supply chains and producing your own things for national security reasons and COVID responses. And so, you know, I think sides are being chosen, for lack of a better way of saying it, right? We've got the U.S. versus China.

We've got Russia versus the U.S. We've got Russia versus Europe. So we've got all these different sides that are being drawn. And I think for the most part, it's, you know, east versus west, right? And so people are choosing sides. And I think any countries that are on the margin and could kind of go either way, I think if the U.S. can put them in a vulnerable position, then they're also in a position to bail them out or help them out. But I think now, in the past, there weren't so many strings attached to the bailouts or to the help, but I think there would be strings attached now.

And so I think that's kind of why the U.S. is doing it. Interestingly, number one was Powell wants to basically have his Volcker moment, right? Obviously, but the situation is not the same. Debt to GDP is over 120% rather than 30%. But taking that aside, the Fed is supposed to be independent of politics and is not supposed to represent the government per se, right? So it's interesting that the first response is this one individual's ego is the reason that we're seeing what we are

in a world where that's not supposed to be the case. Well, and I think, you know, just as a little add-on to that, I think earlier this year, maybe even just two or three months ago, you know, the Biden administration, the government, the Democrats, however you want to label that, probably wanted Powell to tighten because leading up to the election, they wanted to get inflation under control, right? They don't want everybody going to the ballot box pissed off because gas is six bucks or groceries are through the roof. But now, I mean, we're pretty much at the election now, right? I think people probably pretty much made up their minds. So at this point,

my guess is that the Democrats and the Biden would probably like Powell to slow down a little bit. This is just pure speculation on my part, right? But I don't think Powell sees it that way. I really don't. And I can be wrong on that. But I think that he is determined to get inflation down. And I don't think that he's necessarily going to stop. I agree. I mean, we have plenty of historical precedent for what the Fed does, even in hawkish tightening cycles during election season. And generally, they lay off the gas so that the market can do well. And obviously, then the incumbent party wins the election. But that's not what we're seeing here because inflation is running so hot. Does that mean that we're going to see a wholesale flip here

of the party and well i think the additional part let's say that the i mean i think i don't think this is stepping too far out on a limb that the republicans are probably going to get the congress back next week um and they're not going to want biden to have a nice tailwind you know the last two years of or the next two years of his administration from their perspective, hopefully the last two years. So I think and again, this is pure speculation. I think that the Republican side or the new Congress would be more supportive of Powell continuing to hike than if the Democrats remain in control. If Democrats remain in control, I think a Biden,

or I'm sorry, a Powell pivot is much more likely. You know, you've even seen some of these Democratic senators and congressmen come out urging Powell to slow down with the rate hikes. He's going to hurt too many people, lose their jobs, et cetera, et cetera. So, and I haven't seen any Republicans say that. So anyway. Yeah. And you talked about, obviously, sort of the second reason for a strong dollar is that the countries that are on the margin will be basically forced to accept a bailout from the United States. That's really been the playbook of the IMF, World Bank, United States government, CIA since the 1960s and 1970s.

Right. Basically, this isn't it's funny because this isn't anything earth shattering. But a lot of times when I say it, people push back and they'll say, no, they're not doing it for that reason. And I'm like, well, OK, evidence is pretty astounding. If you look at Southeast Asia or South America or anywhere else that there was magically a coup supported by the CIA or an IMF or World Bank massive loan that was unpayable and basically put them under the auspices of the United States government forever. And as you said, I mean, considering the position of Russia and China, it makes a lot of sense. Yeah. I mean, the dollar getting stronger this year, it solves a lot of problems or at least goes away towards solving a lot of problems.

And I, you know, a lot of times I'll see, you know, analysis or comments that says, you know, once the Fed figures out that what they're doing is actually going to bankrupt the country, then they're going to reverse. Well, I don't think the Fed is so stupid that they don't realize that if we raise rates, yeah, it's going to cost more to fund the government. I don't I don't mind people saying that the Fed is kind of misguided or out to lunch or they don't see things clearly, but they're not stupid people. You may think that they're wrong, but they're not stupid. And so I think they're smart enough to know that if they raise rates, yeah, it gets more expensive. But I kind of liken it to, it's like a battle. If an army goes into a battle, they don't expect that nobody's going to get hurt, even if they win the battle, right? Of course, there's going to be people get hurt. There's going to be parts of the economy that struggle if they raise rates. But, you know, if they know that the rest of the

world is going to be hurt even more, it just kind of solidifies their position at the top of the mountain. I love the point that they can be wrong, but not stupid. I mean, these people know generally what they're doing. I think you can make the argument, obviously, that they went overboard with the actual easy. Absolutely. Absolutely. No question. And listen, I'm a huge critic of central bankers. I think that they're largely unnecessary, but the fact is that they exist and I have to pay attention to them. Yeah. And so obviously we have to revisit the dollar milkshake theory. I've obviously studied it in the past, but I have not had the opportunity to ask you questions about it. But watching people discuss it, it seems like there are a lot of bad takes and misconceptions.

In my mind, reading it, it hasn't really happened yet. Right. Even though I think people are pointing it and saying strong dollar. He was right. Dollar milkshake. and some of that is playing out. We still don't really have a sovereign currency or debt crisis where we have the Dow going up and gold going up and the dollar going up all at the same time. That's absolutely right. So, you know, I've been fairly outspoken that the dollar was going to get stronger. That has largely been right, even though I was completely wrong at the beginning. But, you know, but to your point, the full on milkshake hasn't even happened. And, you know, I tweeted something out a month ago that said kind of when the dollar was at its peak and we thought it was due for a little bit of a pullback. I said, you know, this isn't the end, but it may be the beginning.

And it's not the beginning of the end, but it may be the end of the beginning. You know, the famous Churchill line. I think this is ultimately going to take two, three, four, five years to play out. I don't think this is going to go in a straight line. The dollar has gotten stronger and you can see that it's put incredible pressure on the rest of the world. You know, most notably, you know, the other major currencies, the yen, the euro and the pound. Right. We're headed towards a sovereign debt crisis, but it hasn't happened yet. And we haven't got into the heart, quote unquote, of the milkshake yet. This is maybe the early stages of it. This is how it would start if it starts. But, you know, I've said

this a million times. I don't know that I'm going to be right. I think I am. You know, I have conviction that I'll be right, but I don't know for sure. And even if I do, even if I am largely right, I'm not going to get it 100% right. There's no way I'm going to get it all right. And it may be that one thing happens before the other and it goes back and forth and, you know, I'll just have to kind of wait and see how it goes, but I just haven't been able to figure out how I'm wrong yet. So if somebody can finally convince me that I'm wrong, I will hold up my hand and say, you know what? Okay, I got it wrong. But as of right now, I don't think I am. The fun part has to be watching people analyze your theory based on what happens on any given

day or week or month as opposed to what happens over a decade, right? Yeah. Or it'll be funny. I'll get the questions like, what happens if the Fed devalues the dollar and the rest of the world goes to the BRICS currency? Well, if that happens, then yeah. If the Fed devalues the dollar, then the dollar is going lower, right? The question presupposes the answer already. But my analysis tells me that the rest of the there's nothing the rest of the world can do to push the dollar lower if the U.S. doesn't want it lower. The only way the dollar is going to go lower and stay lower is if the U.S. does it themselves. I think any moves that the rest of the world would take to push the dollar lower that would ultimately end up with the dollar lower, would in the short term, push it higher. Because I think, you know, a big move of de-dollarization, you know, a new

currency being launched and, you know, US dollar contracts being voided, I think that would cause a lot of volatility, not just from an economic perspective, but from a social perspective, from a military perspective. And I think that volatility associated with whatever transition this is, would at least in the short term cause the dollar to go higher. So anyway. It would also likely be suicide forever who tries it, even if it works. Well, that's the thing. Tell yourself on the way to victory.

That's the thing. For this to work, you have to get the whole world to pull it off and do it all in unison at the same time. And, you know, you can't even get people in the U.S. to agree. How are you going to get the rest of the world to agree? So what would be the clear tells that the dollar milkshake theory is exiting sort of that end of the beginning phase and it's really starting to play out aside from, oh crap, the DXY is pumping? Well, I think if you started to see more of a quote unquote meltdown in the rest of the world. So if you see Japanese yields jumping through 25 basis points and going to 50 basis points or 75 basis points, that's not a good sign. If you saw swap lines being extended in mass

to friends and neighbors, but not to enemies, I think that would be a sign. If you start to see European and Asian equity indices fall, but US indices start to rise, that would be, again, I think that would be the signs that it's starting to kick into the heart of it. Did you give the quick two minute rundown for those who maybe haven't read it or not familiar with exactly what the theory is? Maybe we're doing this a little bit backwards, but I think it's important for context to anyone who might be scratching their head. Sure. So I'll tell you what it is and then I'll tell you how I came up with it. I think that'll help people kind of conceptualize it. What it is, the dollar milkshake theory is a framework for how I see a sovereign currency

or a sovereign debt crisis play out. I think that by and large, the world has borrowed way too much money. We've kicked all these cans down the road and now we're coming up to the cans. And I don't think the world is equipped to handle it. And as such, I think we're going to have a not just a, you know, an individual or a corporate crisis, we're going to have a sovereign countrywide, you know, a crisis on a country, countrywide basis, currency wise basis. I think the what the dollar milkshake there explains how that plays out. And I think what happens in that environment is that it's bad for everybody. There's no real safe haven. But I think the US

and the US dollar will perform better than the rest of the world. And as that starts to happen, it actually, for many reasons, which we can go into if you want to, many reasons, it kind of starts a vicious loop or a vicious cycle where dollar strength begets more dollar strength, US market strength pulls more capital in the United States. When capital gets pulled into the United States, that means it's leaving the rest of the world. So then the rest of the world has liquidity constraints, a liquidity crisis, which causes them have to print more currency. And then they print that currency that gets converted to dollars and it just keeps… You get the exponential blow off top in the dollar,

US dollar assets, and while the rest of the world is melting down. That's what I think ultimately happens. Where I came up with the name was a movie called There Will Be Blood. Lewis is this oil executive and he's negotiating this piece of land that his neighbor is trying to sell him. And he ultimately says, you know, I don't really need to buy your land. I can just stick a straw down into the ground and I can drink up all your oil. He said, you know, if you had a milkshake, I could drink your milkshake. And I think by and large, you know, post global financial crisis 15 years ago, we could take it back actually much further than that. But if we just focus on the last 15 years, all of the problems that the world's run into have been responded to by printing more money, providing more liquidity, spending more fiscally, just extensive and more extensive Keynesian monetary policy that's flooded the world with liquidity. And that's the milkshake, right? And not only have they done that, I think

as we get into this crisis, they'll have to do more of it. And for several reasons, some of them deserved, maybe some of them not deserved. I think the U.S. has the straw, or at least has a bigger straw than the rest of the world. And so I think the U.S. is going to drink that milkshake that the rest of the world is going to have to print. I mean, it sounds like a massive short squeeze. Well, it essentially is. It really is. And the thing is, is that in many ways, the whole theory really just describes how the system is designed.

You know, it's not, I didn't just make this up out of the blue, right? I didn't just wake up some mornings and let me figure out some crazy, ridiculous, you know, thesis that nobody will believe and you know give it a stupid name like this whole theory is based off my understanding of how the system is designed how money flows through it and what the what the factors are that influence uh you know currencies rise and fall and you know when people push back on it and they tell me the dollar is going to you know going to fall and that nobody wants it. It's just like what?

I mean, I get it theoretically, what you're saying. But in reality, that's not how it is. You know, the fact is, is that there is huge demand for dollars all over the world. You may not like it. You may not think that it should have that demand. You may think it's that demand is received by ill-gotten means. But the fact is, is that it's there. There's more US dollar debt outside the United States than there is inside the United States. And it's owed by entities outside the United States. And it was loaned by entities outside the United States.

So if all of that debt were to just get defaulted on, they're not defaulting on the US. They're defaulting on each other. So if they get rid of their liabilities, that's fine, but they're also getting rid of their own assets. And it's a real big catch-22. It's the ultimate Gordian knot. Like, how do you get out of it? It's just the more you mess with it,

the higher the knot gets. And it's all serviced in dollars. And it's all serviced in dollars. Yeah, they can't pay with other assets. They need to buy dollars to service the debt. Right, right. I recently read that, though, speaking of debt, that the United States now just paying the interest on our own debt has reached a trillion dollars a year or is about to reach a trillion dollars a year. Yeah, yeah. I mean, yeah. And that's just the federal debt for, you know, forget about the corporate debt, the individual debt,

the credit card debt, the auto loan debt. I mean, it's just, yeah. Interestingly, Bitcoiners have always pointed to all of the things that we're discussing here and saying in a foreign country, a person, a government, an entity should just buy Bitcoin, right? Popped out of this dollar system, go to Bitcoin. I've kind of made the argument that perhaps a stable coin actually should be in place

of the word Bitcoin when talking about that because people want dollars everywhere. Now, obviously, it's a nascent small market. Stable coins aren't nearly large enough for any of this. But do you believe that there is potentially a place for stable coins, at least for individuals or smaller entities to gain access to dollars where otherwise they would be unable to? Well, I think, yeah, I mean, I personally think that some people are not going to like me saying this, but I think that stable coins, specifically US dollar stable coins, will be in higher demand outside the United States than inside the United States, right? 100%. I think, you know, as currencies come under trouble, and listen, eventually, the dollar will eventually come under trouble. I'm not some like, you know, dollar maxi who thinks it's the

greatest currency ever, and it's never going to fail. All fiat currencies fail. So let's just get that off the table, right? It's just that I think there'll be a progression of dominoes, and the dollar will fall last. But as currencies start to fail, citizens, businesses, even governments start to look for alternatives, right? That's why governments hold gold is because if their currency fails, they have some kind of a reserve, right? But as currencies start to fail, I think that demand for alternatives will rise. And I'm not a huge proponent of Bitcoin and crypto, but I think that, you know, that doesn't mean that it's not going to go higher in those other countries' currencies terms, right? In other words, my point is you could be, and I'm not

saying that I am or you are, but you could be a Bitcoin bear in US dollar terms, but be a huge Bitcoin bull and, you know, Turkish lira. And ultimately, I think where we're going to end up is a stablecoin issued by either the Fed or the Treasury. To me, I'd actually like to get your thoughts on that. Because to me, once you have a US dollar issued, like a government issued US dollar stablecoin, then I don't really understand the need for a private market stablecoin. And I don't know why the government would allow a private market stablecoin to compete with its official US dollar stablecoin. I think that would be obviously problematic for private stablecoins. But I think the obvious answer is it depends on the structure of that central bank digital

currency and how much privacy it offers. If it's the worst version, China, for example, and they want your taxes, they remove the taxes for your wallet. They want stimulus. They airdrop you some coins. They want to know what transaction you sent to someone to buy some football tickets or share dinner and they can watch that. Well, I think that that's largely problematic. Well, I think that's where it's going, right?

I mean, the government issued stablecoin is like the ultimate form of control. And that's not that you asked this, but I think it's important for people to understand, if they don't already, is that currencies, and not just the US dollar, but any country's currency is one of, if not the biggest tools that that country has to influence the actions of their populace, right? It's what they can use to encourage people, to discourage people, to bring them in line, to allow them more, you know, rope. But money is the most political thing in the world that there is. Nothing is more political than money. And governments in general like to have control, right? Now, you know, I always kind of use the analogy of ranchers, you know, governments are essentially ranchers. You know, they're trying to grow their

livestock and make money off of it. And some ranchers are really strict and have them in really tight pens and other ranchers are free ranchers and just let the animals run all over the place. But ultimately, they're all ranchers. And ultimately, you will reach the fence, right? It's just a matter of how big the pen is. But ultimately, I think for countries to remain in control of their country, they need to remain in control, at least somewhat control of their currency. And that's why I think while they may end up being forced to go back to some kind of hard money standard if the currency fails, I don't think it's anything that they will willingly choose to do. I mean, listen, you're not a Bitcoiner, but you obviously believe in gold, right? Yeah. It makes, I think, your thinking more similar to probably the thinking of Bitcoiners than

different, although it's just a matter of the way that it happens. But you do then believe that hard assets or hard money at the end of the day are important and likely the most thing to replace fiat currencies. Yeah, I don't personally believe that we're going to end up going back to a gold standard or a Bitcoin standard or a hard money standard. But that doesn't mean that hard money won't go up a lot in value over the next several years, right? You know, I think as the whole fiat system comes under threat, gold is going to go through the roof.

Now, it doesn't need to become the official money again for it to be a competitor to it. Same with Bitcoin, same with any other diamonds, you know, land, whatever hard asset that can't be, you know, land, whatever, whatever hard asset that can't be, you know, created to infinity should hold its value. But, you know, the, I don't, again, I don't think the governments are just going to adopt it and willingly allow it. It might happen anyway, but I don't think that they will just allow it. I absolutely agree with that. And I think central bank digital currencies are somewhat inevitable, just a matter of whether it happens in the United States or not. Yeah. And honestly, you could make the argument that a stable coin like USDC could just become

regulated into effectively becoming a CBDC without them actually having to create one themselves. You know, about a year ago, and I haven't looked this up recently, so this may have changed or maybe I'm just way out of date, but about a year ago, there was a proposed legislation going around. And the language in it said that once the U.S. issues a government-issued stablecoin, at that point, the Secretary of the U.S. Treasury will have sole discretion to grant licenses to other stablecoins. So to your point, maybe they just license one or two stablecoins that are already in existence and regulate them the way they think it needs to be regulated. But regardless, it seems that that's where it's headed. So do you believe that Japan might be the first to go of the major nations? What's happening with the yen is pretty astounding, although not surprising.

Yeah, I think at this point, I think it's hard to bet against that being the case. I mean, Japan is just in so much trouble. For those who are not familiar with what's going on. Well, let me take it back one step. I think everybody who is either a gold proponent or a Bitcoin proponent understands all the reasons that the dollar could eventually lose value one day. We've borrowed too much. The debts are too big. Once interest rates start to rise, we can't pay it off, et cetera, et cetera, et cetera. Well, all of these things that people are worried about one day happening

to the dollar are happening right now today in the UK, Europe, and Japan. And that is that they're having to monetize the debt in those regions in order... They're having to take steps to monetize some of the debt. It should be a little bit more clear to keep the bond market from yields from going too high. And in Japan, for the last several years, they've had very low interest rate policy. And for the last five, it's maybe even 10, it's been either zero or even negative. The reason that's a problem is because as they've issued all this debt at either zero or negative rates, the buyers have been the institutions, the Japanese institutions, Japanese pension funds, Japanese banks, Japanese endowments. And so they've got all of these bonds sitting on their balance sheets. But now when interest rates go up just 25 basis points because of all the inflationary pressures, the balance sheets of all the banking system and the insurance companies and the funds over there are all upside down. So they can't let

interest rates rise without causing a banking system crisis. So when interest rates have gone up even just a little bit, the Bank of Japan has had to come in and do what's essentially yield curve control, which is essentially unlimited monetization. And that just puts more yen into the system. And so the yen is down like 20% year to date, 30% over the last 12 or 18 months. That's a huge move for a currency. That's a big move for an emerging market currency that goes through a crisis. For a currency like the yen to go through that, it's really rather incredible. And it's really hard to see how they get that under control. And my belief is that the yen is going to go over 200.

I just don't see how they can stop it. I agree. Only anecdotally, but I spent 2006, most of it in Japan. And obviously, I lived on ramen, gyoza, and beer. And a bowl of ramen, a gyoza, and a beer a beer was 15 16 bucks uh no it was like 30 bucks excuse me back then yeah i have a friend who is in japan right now and he messaged me because he was with me in 2006 and said the same thing we were paying 30 for you know 15 years ago is now 15 bucks wow 15 years ago you know in an inflationary environment and price of things

are half hotels are cheaper i mean it's it's really incredible, I think, if you're on the ground to see how impactful it is. Yeah, it really is. It really is. And it's kind of the ironic thing to me. And again, this is going to happen everywhere. And it'll probably eventually happen in the United States. But when interest rates started to go up in Japan, everybody kind of started to freak out because it was starting to cause this crisis in the banking system. So they basically come in and say, we're going to buy as many bonds as we need.

And that's that's what's that's what soothes the markets. But that's a nightmare. Right. That's that that's basically saying we're going to sacrifice the currency. And now subsequently, they've also had to come in and intervene in the currency market. But you can't save them both. It's a teeter-totter, right? You either save the bonds or you save the currency. And ultimately, governments always put up a big fight. They always put up a big protest. But ultimately, they always choose to save the banking system and the bond market because that's how they fund themselves. If those go, then you've got an even bigger crisis. So

it's hard to see how Japan gets out of this. You talk about their yield curve controls. Do you think that's effectively what we're going to see since maybe Japan is the test case for what's going to happen everywhere else, as you pointed out. Is that eventually where we I mean, I think literally maybe today or in the last few days, a three year is now yielding more than a 30 year in the United States. Well, so that's the thing. So I do think that ultimately that will happen in the US. But again, I think it happens in Asia. I think it happens in Europe. It happens in the UK before it happens in the US. And the reality is, I'm just saying what's already happened. Like that isn't some big prediction. This has already happened, right? The ECB has already had to step in and buy the buying the JGBs. The Bank of Canada has said they're going to slow rate hikes. Australia tried to do the same. And here we are, we're still trying to figure out whether or not Powell's going to pivot or not. So my point is, even if

Powell pivots tomorrow, he will still have pivoted after everybody else. So again, all of these central bankers, you know, they all know each other. They all go to the same schools. They all have the same models. They will all ultimately do the same thing. But so if you think they're all going to do the same negative thing, then you got to go and to figure out what's going to happen, you got to look at who has more advantages than the others. And again, for better or for worse, the US just has more advantages than the rest of the world. You mentioned the all-powerful pivot, right? Which is inevitable, right? At some point, it will happen. And I don't think there's really a point in trying to time it personally. But it's my opinion. A lot of people are looking for the pivot to go back to aggressive easing and printing and sort of loose monetary policy.

Couldn't the pivot just be stopping what they're doing now, but not resuming the easy money that we had maybe ever or anytime in the near future? Absolutely. Absolutely. And that is likely what will happen. Now, I actually tend to think that Powell is going to be more hawkish tomorrow than the market now thinks that he's going to be. Can I be wrong on that? Of course, I can absolutely be wrong on that. But, you know, for years, you know, it started with Greenspan. Bernanke was pretty clever himself. And Neil and I just never knew what the hell she was saying. But, you know, there was all this like double speak and, you know, trying to figure out what the hell the central bankers are saying. But Powell, again, whether you like him or not, whether you think that he's smart or not, whether you think he will fail or not, he has been extremely clear what he's going to do. There's no confusion in his language, right? I'm going to raise rates. Inflation is more of a threat than a recession. You know, people will have to lose their jobs and wages will have to come down and house prices will have to fall. I mean, that's pretty clear,

right? And so, you know, if stocks keep front running every time he says this, it just gives him more fuel to be able to raise. You know, nobody said that he would be able to raise rates aggressively without crashing the economy and crashing the stock market. Well, as of today, he's raised rates three and a quarter percent and the Dow's down 10 percent for the year. I'd say he's done a pretty good job. Right. Nobody thought he could do it. So if if he is going to pivot here and equities take off, well, then he's pretty much engineered a soft landing for at least a year, right? Maybe it will, of course, it will ultimately fail. But you know, there was a lot of people earlier this year who didn't think he'd even be able to get to one or two rate hikes. And you

know, here we are. Yeah, I think that's absolutely accurate. And the funny thing is, you talk about how he's been extremely clear. Everyone says don't fight the Fed. But for years, that basically just meant buy everything, right? Because you know that the Fed is going to ease. I don't think people really, speaking of pivot, I don't think most investors pivoted to don't fight the Fed, meaning it's going to go the other way. But I think we're also so used to politicians, central bankers, whoever it is, speaking in double talk and not telling us what they're going to do that people just didn't believe them. Well, that's the thing. It's like, what trick is he playing on us? Right.

He obviously can't be telling the truth. But I really believe that's what people thought. Yeah, no, I agree. I agree. So the question is, I mean, personally, and this will come out after we've already seen what happens at the meeting, but it'll go another 75 basis points probably, then maybe 50 in December, maybe 25, 25, or the next three meetings, whatever. What happens if we get to that 5% and inflation's 8%? Then things get really, really hard. I mean, and I actually think that there's a bigger chance of that than many people think. I mean, there's a lot of people- Inflation hasn't budged. If you really dig in, inflation has not budged on the first 3.25%.

Now, I think my guess is what will happen is he will keep hiking as long as he can. And I'm going to tell you the reason I think this after I tell you. But I think that he's going to keep hiking. And I think he will eventually cause a recession. And he will eventually cause a big crisis. And that is not an out-on-the-limb opinion. Pretty much everybody has that opinion that he's just going to keep hiking until something breaks. But I think part of the reason that he will do that is, again, I think it's his, I think his personal legacy is at stake.

Horrible reason, but yes. No, I agree again. But, you know, these are psychopaths, right? These are not like normal people. And to further that point that these are not normal, they are arrogant enough this beautiful sculpture that they've built. And if something breaks, they'll just go put a new whistle on it or a new slide or a new rope and fix that problem that'll restabilize the system. And then we'll hit another problem. And I just think that they think that they can fix it if they break it. And they think breaking it is the it if they break it. And they think breaking it is the only way to get inflation under control. But do they have historical precedent to

believe that? I mean, we're still here. It's 2022, right? There's been some financial crises in the past. And we've seen austerity in Europe. And we've seen collapses left and right all over the world for hundreds of years. But here we are. Absolutely. Absolutely. So, you know, when people tell me that the Fed is out of bullets, I'm like, you're crazy. Fed's got a lot of bullets. That doesn't mean they're going to hit their target.

It doesn't mean they're not going to kill somebody. Doesn't mean that they're going to be successful. But I think the Fed still has bullets. So what's the best case scenario? If inflation starts, I mean, it's very hard to even consider at this point because we've just seen inflation remain so sticky. I mean, apparently we live in a world where we need to see people losing their jobs and getting paid less for things to be good, right? It seems like you can just keep going. I mean, the best case scenario is probably he keeps hiking, inflation starts to come down, then the treasury comes in and does their buybacks, and that probably provides a little

bit more liquidity to the markets. And somehow, everything just kind of shrugs along. I mean, I don't think we're going back to any kind of massive growth without huge stimulus from all central banks around the world. I've used the analogy, it's like going to the mattresses in The Godfather, right? It's like everybody's just hunkering down, trying to survive the big battle that's going to come. And everybody knows that everybody's going to get hurt in that battle. It's just who's still on top at the end of it. But it's almost like there's no such thing as growth, right? That growth is simply a function of easy monetary policy

and printing money to buy things. What is growth if not that? Yeah, yeah. I mean, that's... Well, and here's the thing. This is the design of the system. The design of the system necessitates this. Right. This is this is not some crazy idea that you just have. Right. And it's like my whole my whole note. It's not some this is how the system is designed.

You let it play out. These things will happen. And, you know, ultimately, the central banks will have that. That is why they were created. That is their function. To think that they will not come in when the system comes under threat is silly. Of course they will. And if Powell doesn't do it, they'll get him out of there and they'll put somebody else in that will. But I do think that we need the crisis to allow them to pivot and pivot hard. I don't think they can pivot hard without a reason to do so, especially after the problems they caused with the COVID response. Yeah, I think that that's actually the consensus opinion. I mean, you brought up Janet Yellen before. She gave a recent interview and said she sees absolutely no signs of recession in the United States, right? No signs, nothing. Okay, so maybe... And then a couple of days later, she mentions... I thought that two consecutive quarters of negative GDP was a recession, but obviously we've changed that. But meanwhile, Bloomberg literally says there's a 100% chance of a recession in the United States at the same time as Janet Yellen to say no sign of recession. She didn't get that memo from who was the guy in Europe.

I don't remember. It was a central banker, a prime minister. And he said, you know, when it gets serious, you have to lie. Apparently she didn't. Or maybe she did get that memo. And that's why that's what she's doing. I was going to say, maybe that's the only thing she got was the memo. But she seems to be towing the line that everything is completely fine.

Yeah. And, you know, I haven't really talked about this too much. But I think that I personally think that there's a battle developing between the Fed and the Treasury. I think a lot of people assume that they just work hand in glove and that they're friendly neighbors. And that's sort of the case. But, you know, we're getting into a point now where the Treasury is considering doing buybacks, which is really their own form of QE.

And if you're doing QE, you're kind of setting monetary policy. But that's the Fed's job, right? And then you've got the Treasury, who maybe in conjunction with the Fed is talking about a digital stablecoin rather than physical dollars. But if you have that, then you don't need a bank. Well, if you don't need a bank, then you don't need the Fed. So there's all these potential battle lines. And Brainerd and Yellen don't get along particularly well on a personal level with Powell. And so you've got not only all these potential fiefdoms under attack, but you've got personalities as well. And so the idea that the only battle going on is external to the U.S. and not internal to the U.S. is, I think, incorrect.

I mean, we talked at length about how this is their function of the central banks, literally their purpose. I mean, this is the system, right? Is there a better system? What system would operate better in the modern world than the one that we have? Well, I guess it depends on your timeframe. And if you were starting from zero, from zero, you didn't have all the debts, then this fiat system works great because it allows for massive growth. And you could have 50, 60, 100 years of massive economic growth. But it leads to the same finish line. Assuming that we don't want this explosion.

Right. So I personally favor a hard money system. You know, I don't think you need to have 100% gold backing on all your currency, but I think some kind of a hard money system where you can't just create money, add it to infinity, and there's no checks on the credit growth. I think that is a system that's doomed to fail. So that's what I would advocate. If I was running things, which I never would be, and I never will. But if I, if they put me in charge, I would slash the government budget by like 70%. I'd let companies fail. We'd go into a massive depression that would last two or three years. I would be shot or hung up and skinned alive. And then after that, we'd have fantastic

growth because everything would be clean. But doesn't that mean that we should have done that in 2008? Yeah, absolutely. We should have. But so I try not to get into too many of these. This is what we should have done things because it's never going to happen. That's not what they're, you know, I don't get to run things. The central banks are not going to let that happen. They're not going to willingly let it happen, I should say. It may happen anyway, but again, their function is to try to stop that. Yeah. Politicians really like to keep their jobs and not end up getting strung up in austerity and depression are very unpopular, but that's literally sadly the reason probably that doesn't happen. Couldn't you make the argument that in, let's go back to 2008, I know you hate that it should have, would have, could have, but if they had allowed a two to three year depression,

which is probably what it would have been, banks to fail, et cetera, we would be in a much better place in 2022 than we are now. No, no question. I mean, there's historical precedent for this. One of the most hated presidents in history is a guy named William Harding. And that's exactly what he did there was a stock market crash I can't remember if it was 1919 or 1920. and rather than bail out all the banks and do a bunch of stimulus he cut the budget by half there was massive unemployment there was massive deleveraging in the system it was really bad I think he I don't remember if he died or if he got voted out but but he was gone.

And then we had the we had the roaring 20s for 10 years. We had one of the fastest growing economies because he had gotten rid of all of the bad debts. Well, everybody knows everybody knows they don't remember him. Right. And so even if you can credit him for what happened, no politician wants to be him just for the sake of, I don't know, humanity and the future of the country. Yeah, to your point, like I, you know, in 2008, that's right when Obama came in and, you know, Obama had the opportunity to, you know, bring in all new people. But instead he brought in, you know, all the same people that had presided over 2008. And, you know, and then, you know, after that, you know, just this kind of perpetuated the system, you know, and, you know, Trump kind of did the same thing. Trump, I think Trump tried to turn some things over,

but he brought a lot of legacy people in as well. And it's just really hard to turn over the system, right? There's so many people that have just been there and run things. And how do you bring somebody in to run a system that you don't know how it works? And so you bring in the experts who have already done it. And it's a CYA thing, right? You cover your ass and you just don't want to be wrong. They're not trying to be right. They just don't want to be wrong.

So anyway. So assuming we see the dominoes fall, obviously the United States being last, which is basically the prevailing theory, what can your average individual human being do to protect themselves from that eventual future? diversified and don't be certain about anything. I've kind of been hammering this over the last years. I have conviction, but I don't have certainty. And I promise you, I've spent more time trying to figure this out than just about anybody. And I don't have certainty on it. So if you're an individual, you should have some cash on the sidelines. Even if we're a high inflationary environment and you feel like your cash is losing purchasing power, it gives you sleep at night money. It helps you stay more rational. Because if you're not rational and you're stressed, you're not going to make good decisions. So even if it's costing you a little

bit from an inflation perspective, it allows you to think more clearly, then keep some cash. I think everybody should have some hard assets, whether it's gold or land or your Bitcoin or whatever it is. I think everybody should have some equities. But I think in general, I think everybody should just don't try to be a hero right now. Survive in advance. Get through it. Don't be certain about anything. Stay flexible. I know I'm giving you too many reasons, actually. I like it. No, it's perfect. I mean, that's probably the best thing to do. Nobody wants to hear this. We could also just be in short-term bonds and earn your 4% or 5%.

And if you're going to be in cash anyways, you have to work to mitigate the downside. I'm glad you said that because for years and years and years, the problem was that interest rates were too low and they were artificially suppressing them and nobody could get a yield. Well, you know what? You can get 4% for a two-year treasury now. That's not horrible. It's not great, but it's not horrible. So yeah, that's not a bad idea either. Yeah. And the other final point about cash that people seem to forget who argue that you should be all in hard assets, et cetera, is you can't buy those hard assets if you don't have cash. Exactly. You can't take advantage of the drawdown because you were already drawn down right yeah yeah it's the old uh buy the dip meme and then it uh keeps on dipping yeah i've already bought the dip so that that's wonderful brett man thank you so much for

taking the time to do this it explains a lot and uh i'm not gonna say it's gonna be fun but i'll say it's gonna be interesting to see uh it as it plays out moving into the future, because I think you have the most rational and reasonable idea of what's likely to come than anybody I've certainly seen. Well, I appreciate you having me on. It's been fun talking to you. I'm happy to do it again. Thanks so much. Let's go.