We Study Billionaires - The Investor’s Podcast Network - TIP457: Why the Dollar Is Not Collapsing w/ Jeffrey Snider

Starting point is 00:00:00 You're listening to TIP. On today's episode, I sit down with Jeff Snyder. Jeff is the head of global research at Alhambra Investments. He's developed a working model for the global monetary system that is unlike anything else I've seen to date. The general thesis is that the euro dollar system is working behind the scenes to soak up dollar liquidity, which results in a global dollar shortage. A lot of his point you'll hear today fly in the face of other narratives we've discussed

Starting point is 00:00:26 on the show, which is why I was so excited to present it. It's always fun and healthy to find new frameworks to stress tests your own. In this episode, you will learn what the Eurodollar slash shadow money system actually is, what the petro dollar is and why Jeff thinks it's illusory, how the global monetary system actually works according to Jim's research, why the Russian rubble is rising despite being cut off from the SWIFT system, why the dollar continues to rise, what Zoltan Pazar gets wrong in his latest report and a whole lot more.

Starting point is 00:00:55 I hope you enjoy this fresh perspective as much as I did, so sit back and enjoy my conversation with Jeff Snyder. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Welcome to the Investors Podcast. I'm your host, Trey Lockerbie, and today we have Jeff Snyder on the show.

Starting point is 00:01:31 Welcome to the show, Jeff. Thanks for having me, Trey. Really looking forward. to chatting here today. Well, I always love finding people who have a very contrarian take, especially to my own worldview. And that's actually what I try and seek out the most. And I find it to be the most entertaining and interesting conversations for things like

Starting point is 00:01:48 this show. And you are quite the contrarian. I'm going to provide a couple of examples of things that you've said. And I hope I'm not out of context here. But just to give some people an idea of where you're coming from, I have a quote here of, the Fed is not a central bank. And also 2008 was not about the housing crisis. These are just a couple of quotes from you that kind of showcase what we're going to get

Starting point is 00:02:11 into today. And I'm really excited about it. So we have a whole global monetary system right now that I think a lot of people would call a petro dollar system. And we're going to work a little bit backwards from what that means. There's also the euro dollar system in play that people may or may not be as familiar with. So I want to actually start there with the euro dollar.

Starting point is 00:02:32 And it's a big loaded question. But going back to basics here, just simply tell us what is the euro dollar? Well, technically speaking, and going back all the way to the beginning, Eurodollar refers to a very specific term. And it means U.S. dollars on deposit outside the United States. And in the early days, it actually took the form of actual cash deposit, physical Federal Reserve notes, you know, bills, cash bills and things like that, that found their way mostly to Europe, but not just exclusively to Europe, thus the term Eurodoll. It doesn't have anything to do with the European common currency. It is, again, the term euro simply means offshore because this goes way back to the 1950s and 1960s, long before the European common currency was ever introduced.

Starting point is 00:03:16 So whenever you hear the term euro and then attached to a currency denomination, what that simply means is money that the banking system uses outside the jurisdiction of the United States or even any of the other currency denominations that are floating around in it. So there are things like Euro yen, for example, which means yen outside of Japan that's in this offshore currency system, or even something like the Euro Euro, which is offshore euros. So essentially, after beginning sometime in the 1950s and spreading through the 1960s, we have a huge, very much comprehensive global monetary system that undertook the roles of the reserve currency, global reserve currency, but it's not actual cash. it's not actual currency. There's no money in it. It's a virtual ledger system, a distributed ledger system that the global banking system operates and therefore has undertaken the roles of a reserve currency because its banks have been able to flexibly and dynamically respond to the

Starting point is 00:04:17 world in which they live in. And so for the last 60 years, this euro dollar system has been essentially the global monetary reserve. And it's been, because it's offshore, it's outside the jurisdictions, not just the U.S., but pretty much anywhere, which is kind of a strange concept because these banks are located and doing business someplace. They're physically located somewhere, but they have located and they have been able to take advantage of various regulatory blank spots, regulatory boundaries. So this currency system has been able to grow and expand basically outside the reach of national governments, national regulators, bank regulators, whatever it may be, and operate throughout the rest of the world. Again, so the point being,

Starting point is 00:04:59 to create this global reserve currency arrangement that goes back a long, long time. That last point there, what I hear you describing would maybe otherwise be called something like shadow banking, right? Or is that correct? And if not, what is a shadow bank and what is the shadow economic system? Well, shadow banking is part of it. And that's really, that's more about some of the non-bank participants who actually in this global monetary arrangement.

Starting point is 00:05:24 I like to use the term shadow money because they're actually monetary forms that, that they don't show up any of the statistics. They don't show up in any regulatory discussions. They're not involved in any of the mainstream policy framework because, again, this is outside the United States. It's outside of every regulatory regime on earth. And regulators are not too keen about people knowing about this vast, huge monetary system existing outside of their reach when their entire monetary policy and really

Starting point is 00:05:51 political existence, it relies upon the idea that they are very much in control of this system and this arrangement. So it's outside of. of everyone's reach, but also the ways in which these banks operate monetarily as well as credit has evolved and changed so that you have monetary forms like currency swaps, for example, that function every bit the same as cash would, except a currency swap doesn't fit into a monetary aggregate. It doesn't fit into any sort of quantitative measure nor qualitative understanding. It doesn't even fit into the bank balance sheets in a intuitive way.

Starting point is 00:06:24 In essence, this is a virtual ledger money system. It's a shadow money system because of the way the banks operate on their balance sheet. We're going to explore the significance of that in a minute. But let's keep with the basics for a minute. So let's say the U.S., we were on a gold standard for a very long time. We had to pay for some wars and stuff. And we had to kind of break our promise that was the dollar was backed by a goal. We kept changing the money multiplier over time.

Starting point is 00:06:48 And at some point, it was unfeasible to continue on with the gold standard. And so like 71-ish-Nixon says, hey, you know what? We're going off the gold standard into this fiat. system. And a lot of people said, okay, well, there was this meeting with Saudi Arabia. And we developed this agreement with them to now produce something called the petro dollar system. That's what a lot of people believe we're operating on today. But is that correct? Jeff, what's your opinion? The short answer is no. And it's a common misperception because you can understand why.

Starting point is 00:07:16 The Brettonwood system, which was a quasi-goldback system, a commodity-based monetary system that grew out of World War II and Nash's World War II, where Harry Dexter White and John Maynard Keynes in particular said, we can't just have an international currency arrangement because nobody will accept it. So we need to tie this international currency to some national reserve. And historically speaking, you know, people wanted to use gold because gold for various reasons that we don't need to get into here. So you had the Bretton Wood system, 1944, which always had this inherent flaw or inherent tendency in it, as Robert Triffon called it in the late 1950s, eventually become called the Triffon's paradox or Triffon's dilemma, which was that in order

Starting point is 00:07:55 to operate a global reserve currency, you need to have enough currency floating around the world to be effective. Because what is a global reserve currency? It's a mediating currency where vastly different systems can connect to each other through this third party mediating system or mediating currency so that trade, financial flows, you know, all the free market capitalism that we've come to love and honor, those things can happen in a very efficient fashion so that we can have a globalized, highly efficient economic system. The problem was by tying this international currency in using, for example, the U.S. dollar or the British pound in backing that currency with national stores of physical bullion, there was always going to be the problem where there'd be too much currency needed

Starting point is 00:08:39 outside the U.S., which would then lead to anyone ending up with that currency, redeeming the paper for national reserves. And eventually, the national reserves of gold would be drained from the system. And that would, Triffin's paradox would be that once those reserves were drained, the whole thing would just fall apart, which by the way, came close to happening in the late 1950s. So we're talking about not even really 15 years into Bretton Woods. It was already falling apart. So this is where the euro dollar steps into it because it divorces the national currency from the national store of reserves. And so long before 1971, you had this global monetary arrangement because it was reserveless, because it was. it was ledger money, that it began to undertake the roles of the former Bretton Woods system as it broke apart. So by the time you get to August of 1971 and President Nixon closing the gold window,

Starting point is 00:09:31 the Eurodollar had long undertaken all of those roles of the reserve currency before that. So August of 1971 represented nothing more than the symbolic end in Bretton Woods when the functional end started a decade and a half before that. So in terms of the petro dollar, it wasn't like we moved from a commodity gold-based monetary system to a oil-based system in the 1970s. We moved off of the commodity-based monetary system long before then. And it had superseded the petro dollar, you know, the stuff that happened in 1973, for example. And basically all of the functions of the euro dollar were up and running for more than a decade by then. And even the euro dollar system itself had become absolutely huge and immense by the early

Starting point is 00:10:14 1970s. So the transition took place into something that was a ledger virtual currency system long before then, and it took place into this offshore bank-centered sort of blank canvas where banks could experiment in all different types of money so that we transitioned long before from a commodity gold exchange system to Bretton Woods to this virtual reserveless currency system under the euro dollar over a long period of time before we even get to 1973. So as we're kind of walking through this and trying to understand exactly how money works today, because that's a big theme of what we're talking about here. I just have a lot of questions that come up. So for one, a lot of people operate on narratives, right? And narratives get kind of passed around. We're human

Starting point is 00:10:56 beings. We love stories. And that's how we kind of translate information to each other. So this petrodollar is really interesting. It seems, is it purely symbolic in your opinion? Or is there some truth in it that has just been sort of misunderstood or mis-extrapolated over time? It's a little bit of both, Trey, because you think about it, you're right. As human beings, we're not specialists, most of us. Most of us don't spend their life like I do digging through historical statements and doing all the research. You can't.

Starting point is 00:11:24 And so in one sense, you have to sort of take the word for other people about what's going on and particular subjects because you just don't have the time to do the research yourself. And so, yeah, this idea of a petrodollar starts from that very natural, very understandable, illiteracy and ignorance because it's a complex world. this is a complex monetary system, a complex subject operated by, you know, hidden shadow forces, not conspiratorial, but, you know, forces that are operating outside of, you know, the global regulatory framework outside of monetary definitions and everything else. So it's very understandable why people would say the Petro Dollar took over from Breton Woods because that seems to be what

Starting point is 00:12:00 everybody says and that seems to be, it looks like that's what actually what happened. And there is a kernel of truth to the Petro Dollar because it's essentially the public or people who we're paying somewhat attention to the monetary system, understanding and seeing the tip of the iceberg. They can see that there's some money, there's some kind of monetary activity taking place outside the United States. I don't know what it is. It seems to be pretty big. And I do know that there's this relationship between oil producing countries. Somehow they're ended up with U.S. Treasuries. We've heard about the conspiracy, about the political, you know, the hidden agreement in 1973. So you're looking at something. You don't really know what it is, this offshore system.

Starting point is 00:12:40 And you're kind of doing the best you can to put together an explanation for what you can see. And the petrodollar in some ways is sort of the understandable way to make sense of what is really the euro dollar system. So in one sense, it's like the tip of the iceberg. It's the tip of the iceberg that you can see. It's the really it's the euro dollar system part that you can see and make sense of. But when you actually look at underneath the surface of the water, at the full iceberg, what you find out is, oh, there's a lot more going on. And a lot more that was going on long before Saudi Arabia and the oil embargo of 1973, there's this whole other monetary ecosphere, this whole other monetary arrangement that

Starting point is 00:13:18 goes back into the 1950s that did all of the things that we assigned with the petro dollar. It was doing, you know, countries that were buying and holding U.S. treasuries and using them as reserves. That long predates 1973. That goes back to the early days of the euro dollar system. So the petro dollar, you can understand why the public, some parts of the public have said, there must be something to it because I know there's money. I know there's something going on outside the United States. I know it involves countries buying and holding U.S.

Starting point is 00:13:45 treasuries, but there's no answers other than that. So it makes perfect sense by people would say that's a petro dollar. When we're really glimpsing is a very small section, a very small slice of the overall Eurodollar system. So how much of the narrative that we're currently operating on comes to us from our actual own Federal Reserve or even say the media or education around the system that we're currently in, because as I understand it, your research has led you to study papers from internal employees at the Fed and elsewhere. And some of them know what's going on. Some of them are discovering what's going on through their work.

Starting point is 00:14:21 And others just have no clue maybe because they're in the system and they have that kind of myopic view. So from the research you've done, what's the sort of takeaway of how informed the people within the system even understand how the global system is operating? The funny thing is, you know, we always think scientific progress is linear. It always goes in one direction. But here's an example of how monetary scholarship, academic scholarship about money actually move backwards.

Starting point is 00:14:47 When you go back in time and do the historical research, you see there's much more awareness, much more understanding, not the whole thing, but much more understanding about at least the basics of the Eurodala system in contemporary time. So back in the 1960s, for example, it took international authorities and national authorities, about a decade after the Eurodala system began, to really start investigating it because it had become that big of an issue, even for national authorities like the Federal Reserve. But when they did, you know, they were sort of putting bits and pieces of it together through time, I mean, which makes sense because it's a brand new development.

Starting point is 00:15:18 Banks were doing things. They were not sharing the information with anybody, which is, again, why we call it shadow money. And so there was a huge, huge blind spot for even regulators and officials to try to deal with. But at that time, they did attempt to try to understand. this euro dollar system. But then they just, they stopped and they gave up, which begs the question, what is it the Fed did? You know, what does the Fed actually do now, which goes back to, you know, one of the initial quote that you said at the top when I say the Fed is in the central bank, this is the reason why. Because what happened was in the 1960s and 1970s, federal reserve officials,

Starting point is 00:15:52 treasury officials, government officials at the BIS or the IMF realized this monetary and banking evolution that was going on through the euro dollar system made it almost important. possible to define, let alone measure and regulate and keep on top of the monetary system. And if you're a central bank, if you're a legitimate central bank, whose job it is is to regulate the monetary system as we all believe going back to Walter Badgett in the 19th century, how do you do that when the monetary system has evolved? And it has evolved in these offshore outside of regulation spaces that make it almost impossible for you to have much of an influence, let alone direct relationship with the bank's operating there. So what ended up happening was

Starting point is 00:16:32 around the turn of the decade in the 1970s and 1980s, central bankers decided they just kind of, you know, throw up their hands and said, well, the monetary thing, it's too complicated. It's outsider jurisdiction. So we can't really do money anymore. Instead, we're going to try to make it so that people believe we do money, this expectations-based policy where we'll communicate to the public that we're doing something and hope that the public and banking system and business people all around the world or inside the United States will behave in ways that we want them to behave. For example, it became commonplace that

Starting point is 00:17:04 Alan Greenspan, for example, would raise or lower the federal funds rate whenever he wanted to do something. So if he wanted to, quote, unquote, tighten credit and tighten the monetary system, would he actually tighten the monetary system? Would he go into the monetary system and take money out? No, he raised the federal funds rate, which was nothing more than a signal to the economy at large, and try to get the economy and try to get the markets to tighten conditions based on that signal based on expectations. As he said during that time, as his predecessor has said before, we just can't treat track of the monetary system. Therefore, this is sort of what we have left to be able to do to try to get some form of control over the economy and the marketplace.

Starting point is 00:17:44 So it's really about this evolution and money and banking that took place outside of their purview, which kind of left officials scrambling to try to do something else in order to at least attempt to maintain the role of what a central bank used to do. But it's not a monetary role. not involved in the monetary system itself. And so once that happened, monetary scholarship simply dried up. The term Eurodollar kind of disappeared, not just from internal discourse, but from public discourse, as well. So you have a wealth of scholarship up to around early 1980s and then just nothing, because what happened was we were told, we were all told, we were taught us in school. At that point, don't fight the Fed. Just whatever the Fed says, whatever the Fed, they must know what they're talking about when

Starting point is 00:18:28 it comes to money. You don't need to know, just trust Alan Greenspan and Ben Bernanke. They've got it all covered. And so once there was a vibrant monetary or debate and argument, it just kind of disappeared and dried up and went away. But it's not all an illusion, is it? Right. Because if we fast forward to today, we're seeing it happen play out in real time where inflation is now high again as it hasn't been for decades and they're raising interest rates. And now we're starting to see things like mortgage rates go up and home prices get underwritten in a new way. And we're seeing real economic impact from these decisions or actions from the Fed. So where does the detachment actually occur,

Starting point is 00:19:04 in your opinion? Well, because that isn't actually inflation. This isn't due to money printing. This is sort of the federal government. I mean, that's why you didn't see consumer prices react to QE6 back in 2020. Consumer prices didn't start to skyrocket until March and April of 2021, which was coincident to the U.S. Treasury's helicopter drops. So this wasn't money printing. This wasn't the Fed creating money. This wasn't the Fed being a central bank. was essentially a supply shock, which was the U.S. government redistributed borrowing through the Treasury, and mostly Treasury bills, actually, the U.S. government essentially redistributing cash into the pockets of consumers, and then consumers went nuts spending that cash at a time

Starting point is 00:19:44 when the ability of the global economic system to supply goods and then transport goods in particular was at its lowest point. So you see inventories of goods actually crashed during these periods because we had essentially a supply shock. And so it isn't inflation as much as it was consumer prices reacting to small e-e economics. Whenever you have a demand curve shift out to the right, especially when supply is as inelastic as it was during that time, consumer prices have to react. And I know most people are saying, who cares? Consumer prices went way up. What does it matter if it's inflation or what does it matter if we call it inflation or not? And the issue is how it ends. because if it's nothing more than a supply shock, it's always going to be temporary and transitory,

Starting point is 00:20:29 rather than something like the 1970s where you ignite the monetary spark of excessive currency that leads to all sorts of, you know, great inflation type of problems. And so, you know, how do we tell one from the other? And one of the things that consistent with excessive currency and money printing would have been destruction of the U.S. dollar has been long proclaimed, a long predicted, and long forecasted. But what you see ever since last year is the U.S. dollars exchange value going up against almost every currency because it wasn't money that was printed. It was simply a supply shock. And because it wasn't money printing, the way this is likely to end is in another bad way, which is a recession. And that's really what markets have been predicting

Starting point is 00:21:10 over the last more than a year, actually, because the yield curve has been flattening. So even as interest rates have been rising, the yield curve has been flattening, the euro dollar futures curves of flattening, all of the signals from the monetary system itself have been sending, hey, there's no money here. This is not money printing. This is a supply shock and this is going to end predictably in something like a contraction or recession. So it was never inflation to begin with. It was simply small the economics of a supply issue. Very interesting. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating

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Starting point is 00:25:40 That's Shopify.com slash WSB. All right. Back to the show. You mentioned the Fed tightening or not actually tightening earlier, but they are now on record saying not only that they're raising interest rates, but they're going to be tightening literally by taking money out of the system again. So how does that actually plan on all of this? Is that a new tool in their tool belt that we haven't seen before?

Starting point is 00:26:05 No, we've seen quantitative tightening just a couple of years ago. And the thing is, okay, it gets back to the original problem that we started with, which is what is money? What the Fed creates are bank reserves. Again, it's understandable why people will get this wrong because we're told bank reserves, the Fed, it's printing money. Bank reserves are base money, some people say. Is that actually true? You have to actually stop and think about what is it the Federal Reserve does. What is the role these bank reserves have, if any, in the actual monetary system?

Starting point is 00:26:32 And it goes back to expectations. Without thinking anything about it, the Fed expands its. balance sheet by buying assets, creating these bank reserves as an offset. And if you don't think any more about it, you think, well, the Fed printed money, I better act as if inflation's coming because the Fed just printed a bunch of money. That's what the Fed is actually counting on. They're counting on people looking at their balance sheet and only their balance sheet, not thinking about what bank reserves actually do, and acting as if that is money printing. That's expectations based policy. But when you actually stop and look at what quantitative easing is, first of all,

Starting point is 00:27:05 it's not really quantitative if you've got to do it more than once. And is it actually easing? From the perspective of the commercial banking system, bank reserves are not money. It's nothing more than another asset that's created that banks actually hold. And what quantitative easing actually amounts to to the commercial banking system is an asset swap. So it isn't actually money printing. And it can't be money printing. Just think about it this way. Have you or I ever been able to use a bank reserve and go to the grocery store or the gasoline station and buy goods or service with it? You can't. A bank reserve is. is nothing more than the interbank token. And it's only one form of interbank token alongside

Starting point is 00:27:40 many other forms of interbank settlement tokens that the private system, the private Eurodollar system had used and invented for decades before that. So we have to stop and think about what the Federal Reserve actually does in terms of bank reserves as well as quantitative easing. What are all these transactions do? And if quantitative easing isn't actually money printing, and spoiler it's not, then quantitative tightening isn't actually monetary. tightening. It's nothing more than expectations-based policy to get people to act in a specific way that policymakers have designed. So it makes sense why the Fed would raise rates and do quantitative tightening because if everybody believes that that's what's actually happening, then they're

Starting point is 00:28:21 going to act as if the Fed is tightening. But see, that's not actually how it works. And it's not actually an effective form of policy, which is why in 2022, 15 years after the first financial crisis, we're still dealing with the aftermath of the first financial crisis because QE, creation of bank reserves, didn't actually solve the original problem, which is the other quote that you picked out, 2008 was not about housing mortgage. It wasn't about subprime mortgages. It was a global dollar shortage. And the worst part about it was it wasn't a temporary one-off. It represented a paradigm shift in this global euro dollar system. So the Federal Reserve, like the ECB or the Bank of Japan, they're going to continue to do QE. They're going to run.

Starting point is 00:29:01 raise and lower interest rates as they see fit. Raise or lower their benchmark rates. Market rates are a different story, but that doesn't necessarily mean they're doing exactly what they claim to be doing or what everybody says they're actually doing. Now, did all the speculation around the GFC, the global financial crisis, add to this dollar shortage? I mean, we'll break it down for us as far as where the dollar shortage at that time

Starting point is 00:29:22 actually came from. Oh, it came from any number of places. You had a collateral shortage, had a collateral breakdown. You had balance sheets, constraints that became unworked. You know, when you have a ledger system that operates outside the United States, you have all sorts of these shadow money conduits, shadow money of forms that take place. There was any number of possible fault lines. And part of it was, yes, participants in that Eurodollar system came to believe that if push came to shove, somehow, some way, Alan Greens, or Ben Bernanke, would be able to bail everybody out. So risk taking was paramount at is certainly in the last parts of the housing bubble.

Starting point is 00:29:57 The housing bubble being nothing more than a symptom of what was a global money and credit. expansion that happened over decades, especially from 1995 forward. And as all of those things began to contract, especially collateral, as collateral became hard to source and hard to get, there was really no way for any authority, whether it would be United States or the Federal Reserve or not, to deal with a collateral type shortfall, to deal with balance sheet constraints that limited the ability of dealers to act in all of these various markets to maintain liquid markets so that everything could price in predictable fashion. And when all of those capacity started to disappear in the financial crisis. It wasn't just, okay, we went through this.

Starting point is 00:30:36 It was bad. We had a great recession that transmitted globally. Everybody understood that the risks that they thought wasn't, they weren't there in the pre-crisis period, actually were pretty severe. Think about it from terms of just Bear Stearns. Bear Stearns is sold as some kind of success story. That the Fed, you know, didn't bail out Bear Stearns, but they got JP Morgan to buy it at the last minute to save it from insolvency and bankruptcy and worse. But if you're a Wall Street proprietor, not just Wall Street, but outside the United States, you look at Bear Stearns and think, all of that risky stuff that we've been doing for decades, I could be the next Bear Stearns. And it doesn't matter if we get bought out for, you know, what was it, a dollar or share by JP Morgan,

Starting point is 00:31:15 we're out of business. We're wiped out. So this is the worst to the worst case. For the money dealers operating this global shadow money system, they looked at the failures in 2008 as we could be next. And the Fed can't really stop it. We see how powerless the Fed is. It doesn't matter what the Fed does. There were overseas dollar swaps. There were, you know, the TAF, the term auction facility. There was a primary dealer credit facility, one after another, after another of these initialisms that all failed. They didn't keep the crisis from happening. So money dealers looked at the 2008 crisis and said, we need to change the entire way we manage our balance. We need to change the entire way we do money. And so everything has been different since then because there really is

Starting point is 00:31:56 no way to go back to the way it was before. And there's nothing that the quantitative easing or the Fed or any central bank is going to be able to do about it. Now, the shadow money system that you're describing, the euro dollar system, and that's become this huge global thing, could it actually be rebranded as a free market, the way you're describing it? I mean, if we're not in the central bank controlled global economy, are we actually a central bank controlled global economy? in a free market that we just don't know about? Yeah, I would say that, you know, in one sense, it was the free market solving Triffon's dilemma way back when in the 1950s

Starting point is 00:32:30 because governments could not solve Triffon's paradox because, you know, the Bretton Woods, without changing the Bretton Woods rules, which they tried to do with the London goal pool in 1960 and, you know, the two-tier price of gold later in the 1960. So governments attempted to deal with this natural and tendency, this inherent flaw in the Brettonwood system, but found that they could not solve the issue where the banking system stepped in

Starting point is 00:32:51 and said, there's opportunity here. As we all know, the free market loves opportunity. And so the Eurodollar system solved Triffin's dilemma and Triffin's paradox for governments. And as I said, you know, governments were aware that this was happening. And they were only too happy to let the banking system solve a problem that they couldn't possibly solve by looking the other way. Economist Paul Samuelson even called it benign neglect, which was the government's looking at it and saying, this banking system, they're doing the job for us. So let's just let it happen because we don't have to get involved and get blamed for when everything falls apart or if it doesn't work the right way or whatever. In one sense, it was the free market, but in another sense, was it really a free

Starting point is 00:33:29 market? Because it's more like a global banking cartel that has shown up and thrown up all sorts of barriers to entry. So it's not necessarily completely and fully competitive either. So it's sort of a quasi-free market response to a real monetary issue. And then because it was cartelized, I think that's where you ended up getting into the excesses of especially the 1990s and middle 2000s, because there was no way to stop it once it got loose and once it really started to produce excesses of money and credit all over the rest of the world. There was no way for regulators to step. And they couldn't do anything about it. They couldn't even admit it existed. And because the cartels were really enjoying themselves, partying it up as it were, they were not going to

Starting point is 00:34:09 stop it either. So yeah, it's sort of a quasi-partial free market response to an issue. But it wasn't, I don't think it was a fully, you know, when we certainly think about capitalism free markets, to me, competition always comes, you know, that's immediately part of it. But because this was basically a global banking cartel, it wasn't fully free market. I'm going to throw another rebrand option at you. So basically, would you say the Fed, the central banks globally are doing, are sort of enacting this placebo effect, meaning like, you know, that's where I get a little bit caught up here, because there's placebo studies that show even placebo surgeries actually healing the underlying

Starting point is 00:34:45 condition, which is just mind-boggling. So placebo can work, right? So if the Fed and their actions are the effect is taking place, even though if not technically speaking, the actions you're describing are taking place, is there such a difference, I guess my question to you? Well, I mean, certainly there's a reason why central banks have undertaken this expectations-based policy because they think it might work, right? They might be effective. And, you know, if you use the look back period to, you know, quantify the potential effect, as you described, Placebo effect is a perfect description here. If you want to quantify the placebo effect of monetary policy that has no money in it going

Starting point is 00:35:21 back to the 1980s, you're going to use the great moderation. So it's going to look like this works really well. Alan Greenspan, the maestro, he was a genius. All he had to do was move the federal funds rate at a quarter point here or there, and it produced this massive wave of global globalization, global trade, global financial flows, prosperity all over the world. It looked like, this is really good. This worked really well.

Starting point is 00:35:44 And then you get into the global financial crisis and suddenly everything that the Ben Bernanke's fed tried to do, none of it works. So in one sense, policymakers allowed themselves to be fooled into their own placebo effect. They thought, hey, we did a really good job through the 1990s and 2000s, which is really nothing more than the euro dollar system going forward and taking over the global reserve currency and then going the next step beyond it. It was a Eurodollar system and policymakers taking credit for what was going on in the shadows that led everybody to believe this expectations policy could actually work. And it started to break down. We found out, oh, no, this doesn't work at all because you can't have a placebo effect when you have a massive, sustained global, world-spanning monetary, real money breakdown in the monetary system. It doesn't do it. You know, fair tales and nice stories and soothing words don't amount to a hill of being.

Starting point is 00:36:40 when you have a real issue in the real economy. I mean, but after 2008, what are you going to do? Are you going to admit that you've been doing this expectations-based policy, which is really kind of just fairy tales for decades? No, you're going to keep at it with the expectations-based policy and hope that, as you said, Trey, the placebo effect actually works post-crisis when it didn't really work out all that well because, again, we have a real money problem.

Starting point is 00:37:04 We have a real breakdown in the bank balance sheet construction globally, and there's no way you can fix it with just sentiment. There have been pockets of where you can see some kind of relationship between the placebo effect and say, for example, the stock market. The stock market loves the placebo effect. The stock market love, you know, fund managers and people of financial services industry love to say the Fed is printing money, buy stocks. Jay Powell's got your back. Don't worry about a thing. Just buy shares. Buy, buy, buy, buy, buy, buy, because we don't know if it's true or not. At least there's a sentimental and psychological reaction from the financial services industry in particular, buying stock with whatever the Federal Reserve is doing.

Starting point is 00:37:41 So the placebo effect does have an effect in certain places, but does it have a powerful enough effect to offset what are really these drastic paradigm shifting breakdowns in the monetary system? And obviously, policymakers hope and expect that their sentimental, you know, their sentimental offsets or there's offsets in sentiment, really, are enough to overcome the real money deficits that are out there. But you look at the last 15 years and it conclusively shows, no, that's not the case. So what we're trying to do right now is stress tests are global framework because a lot of things happening recently are leaving a lot of people scratching their heads, myself included. So for example, if the narrative is that all this money printing that's been done is going to

Starting point is 00:38:23 depreciate the dollar and we're going to lose reserve currency status and inflation is going to run rampant, I mean, we're seeing the dollar strengthened to 20 year highs. And then similarly, we use our SWIF system or we cut Russia off. of the SWIF system and we say, okay, they're going to go into financial ruin. But yet the ruble, you know, while it did dip a little bit, is now climbing back and it's higher than it's been in, you know, pre-COVID even. So these are all things that you actually look at in reality and say, well, wait a second, this isn't adding up.

Starting point is 00:38:51 Maybe talk to us about Russia and what's happening with their ruble in particular. Well, yeah, what you're missing is the euro dollar system. Because like you said, like we said before, you think the Fed is printing money, debasing the currency ever since 2009. We've been hearing about how the dollar is going to crash and everything else is going to go along with it. But it never happens. The dollar goes the opposite way and nobody ever says why. The Fed is printing money.

Starting point is 00:39:14 The Fed is printing money, but the dollar keeps going higher. The dollar going higher is consistent with the breakdown in the monetary. A dollar shortage that isn't a one off. So what it is, you see the Fed's balance sheet go up. Like I said before, quantitative easing is nothing more than an asset swap. But if all you look at is the Fed's balance sheet, you think money was printed. What you don't see, which is vastly more important, is the monetary destruction that must have been taking place in the shadow money system.

Starting point is 00:39:40 So every time the Fed creates bank reserves and quantitative easing, it's in response to this other much larger, much bigger, much more relevant monetary destruction that you don't see. And so the dollar going up tells you monetary destruction to oversimplify quite a bit here. But the dollar going up is consistent with global dollar shortage. So you see the Fed doing something when something else in reality is taking place outside of your worldview or outside of your visible spectrum. And it's not just that. There's any number of other things, too.

Starting point is 00:40:07 You see the yield curve flattening interest rates falling. You can see in swaps markets and various derivative markets around the world in the US dollar system, outside the US dollar system. And they're all telling you the same thing. Over the last 15 years, dollar shortage. Don't pay attention to what the Fed does. Pay attention to what these markets are telling you about what's going on in the real money system. And where it comes in with Russia and the Swift and everything else is that remember what we said at the beginning. This is a bank-centered offshore monetary arrangement that has been developing over many decades.

Starting point is 00:40:41 So when the government says, the U.S. government, Treasury gets together and says, we're going to kick Russian banks out of the SWIFT system, for example, they can't. It isn't operated by the U.S. government or the U.S. Treasury. It is operated by a consortium of these Eurodollar banks that have been operating for decades. And even if these eurodollar banks agree to kick Russian banks outside of SWIF, Swift is nothing more than a messaging system, they can still operate, they can still transact with Russian banks through chips or something, or even just basic correspondent relationships that go back, you know, more than a century. So because we have this offshore bank-centered monetary system,

Starting point is 00:41:17 it's not up to anybody to kick anybody out of it. As long as banks are going to transact with certain countries or certain banks or companies in those countries, it doesn't matter what authorities say because this is a bank-centered money system. And really, this is one reason why, grew to be such a dominant force in the global world to begin with because it can respond through basically commercial interests rather than specifically political interests. In fact, that's one reason. One of the origin stories, we don't really know where the Eurodollar came from and what one of the origin stories was, believe it or not, the Soviet Union fearing confiscation of their U.S. dollars in the 1950s began to hold them in banks outside the United States so that

Starting point is 00:41:56 they wouldn't be confiscated or wouldn't be able to be confiscated by especially the increasingly hostile to the Eisenhower, then Kennedy administration. So that goes back to the very early days of the Eurodollar. These banks created all of these interbank network that would be able to respond to these commercial pressures, regardless of political issues. So it's money that operates free from these political influences and free from political discretions. And it was built in its entire design was to make sure that it would continue to operate regardless of those factors. So you and Brent Johnson, who we just had on episode 449, share the opinion or have a similar framework in that you're expecting this dollar to climb higher. But he would say, and I think a lot of

Starting point is 00:42:40 people would actually put this as the quote unquote why, as you mentioned, no one's saying, is every central bank around the world is operating on a fiat currency standard at this point. And they have to stay competitive. So they have to continually debase even faster than we do. So while the dollar is climbing, it's somewhat of an illusion, more or less it's just all the other currencies are failing, you know, quicker than the dollar is, right? So basically the dollar is the best of all of the worst, you know, things out there. So what do you say to that as far as like the just competitiveness, the debasement of other global currencies? I think it's the other way around that other currencies are reacting to the shortage in the dollar system. So the euro dollar system comes

Starting point is 00:43:19 harder to roll over funding. It becomes much harder to source collateral, participate in repo. You know, it's much harder to redistribute through Japanese banks and currency swaps and things like that all the shadow money stuff that becomes very hard to roll over and hard to source. You know, the dollar goes up as my podcast co-host, Emil Kalinowski likes to say, it's the cover charge for participating in this Eurodollar system rises when the system itself becomes that much harder to operate. So the U.S. dollar going up, obviously has nothing to do with the Fed, because the Fed has been quote unquote printing money since 2009 in excess of pretty much every other central bank outside maybe Japan. And yet the dollar goes up and up and up again, because the

Starting point is 00:43:56 cover charge goes up participating in it as the dollar system becomes much harder to continue to operate by the banks operating in it. And so the other side of that is other currencies are falling, not because of their central banks responding to, you know, by debasing their own currency, but we're actually saying is there's no debasement at all. It's simply dollar shortage. And, you know, for example, the Chinese you want, the Chinese are not debasing their currency whatsoever. In fact, they're doing the exact opposite. They're restraining their R&B because they have a Eurodollar problem. They have the People's Bank of China, for example, has the biggest dollar problem on the

Starting point is 00:44:31 planet. And it shows. And so what happens is the U.S. dollar exchange value goes up against the Chinese yuan, which crashes. And I think that's why, you know, you hear these stories about, you know, the dollar is going to be replaced and, you know, this beggar thy neighbor currency war. It never works out that way because you're missing the euro dollar part of it. You're missing the euro dollar story, which is the only story.

Starting point is 00:44:50 And again, China is a very good example of this because they're not the basis. their currency. They're trying to stabilize their currency. And there's a direct relationship between dollar supply and R&B conditions internally that shows that the dollar goes up. That's dollar shortage. And it has all of these various consequences to all the counterpart currencies around the world. So I would say there's no debasement about Eurodollar sufficiency or in most cases, Eurodollar insufficiency. Fascinating. Well, I mentioned earlier you study a lot of insiders and sometimes point out how they're dead wrong, right? And one I want to speak about here is Zoltan Pazar, which I'm terrible with names. So excuse the pronunciation there. But he's obviously spent a lot

Starting point is 00:45:31 of time at the Treasury Department. He has a very, you know, pedigreed resume. And he comes out with this paper that is talking about Bretton Woods three. So we talked a little bit about Bretton Woods one a minute ago. What was Bretton Woods two? And what is he talking about with Bretton Woods three and then most importantly, why is it dead wrong? What is Bretton Woods 2? He gets Bretton Woods 2 wrong. His thing is that Bretton Woods 2 is something that happened in the 2000s, or after the 1997-98 Asian financial crisis, which was essentially a regional dollar shortage in the euro dollar system. So he gets that wrong too, where it basically says that the countries around the world, national systems around the world, basically responded

Starting point is 00:46:09 to the Asian financial crisis by deciding, well, to protect ourselves from this dollar shortage outside the U.S., wink, wink, wink, we need to hold lots of reserve assets so that we have insurance against the type of development in the future. And so he connects that with foreigners holding U.S. treasuries in the same way that, for example, Ben Bernanke did in the middle 2000s when he called it a global savings glut, which was utterly preposterous and ridiculous, but still. So Bretton Woods, too, in Zoltan's view, is this foreigners are going to hold lots of U.S. treasuries because they think they need insurance against dollar shortage. Didn't really work all that well in 2008. didn't work all that well, especially again in 2013, 2014, 2015, when we had another episode

Starting point is 00:46:50 of Dollar Shords that hit China in particularly very hard, but also all the emerging markets. But it's, you know, he doesn't really factor those things. And what he says is that there's this emerging Brettonwood's three consensus where because the Fed has become more and more presence in his mind, in his worldview, that these countries around the world won't need to hold liquid U.S. Treasury assets. They can just depend on the Fed's overseas dollar swaps or FEMA, which is FIMA, which is a way to liquidize U.S. Treasury securities that they're holding and all sorts of other programs that the Fed could possibly implement so that they can ditch their U.S. treasuries and do this global settlement on a commodity-based system, which is the way he sees it. And where I think he's very wrong is that he gets, obviously, Bretton Woods too wrong. I think he doesn't see the entire system as it actually is, including how the fact how he never factors how collateral is such. an important part of not just settlement, but the basic redistribution of liquidity throughout the

Starting point is 00:47:47 entire global monetary system. And so commodities don't work well as an instantaneous settlement mechanism. So that's not really going to work either. What I think he's really said, to be fair, to Zoltan's view, is that he doesn't expect this to happen tomorrow, but he expects that over time we're going to migrate away from the euro dollar system toward this commodity-based system and where I think that's just nuts because the system itself is telling you, no, we want to stick with treasuries because, again, long story short, we don't believe the Fed is capable of making the system and keeping the system liquid. And so we're going to need our insurance policies over time. We're going to need these massive stores of reserve assets, number one, because of the collateral,

Starting point is 00:48:26 but number two, because we don't really trust the Fed to maintain a orderly and liquid marketplace. So long story short, I think Zoltan looks at, he's only looking at a small part of the overall Eurodollar system, which again is understandable. We talked about that before. in concluding that the level of bank reserves plus all these Federal Reserve programs mean that we can move into a somewhat of a different system when, to me, the system is absolutely rejecting that and moving even further in the direction of holding liquid asset. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:52:14 This is a paid advertisement. All right. Back to the show. Is Zoltan's view at all based in this idea that we're going to de-globalize over time as well and everyone's going to get back to less import, export, globally and putting our own oxygen mask on first, if you will, as a country? Is that kind of part of this whole thing or is that totally separate? No, I think that's part of it.

Starting point is 00:52:34 And I would agree with that part of it too because historically speaking, globalization is nothing more. I mean, this is not the first time we've seen the world globalized. And there usually isn't a lasting process. It usually is based on oversupply of money. You have a wave of down and usually the cleanup from it takes as long as the globalization itself. And so it's not unusual to see the world globalize and then something happens. and it de-globalizes over time. And it essentially devolves into everybody for themselves, which is, I think what Zoltan is trying

Starting point is 00:53:05 to put together is what does this everybody for themselves actually look like in concluding that, you know, commodity-based settlement would be one way to deal with everybody for themselves kind of an arrangement when I think that's probably not the way that's going to go. In fact, I think the system has already evolved. It has already told you that's continuing to move in the other direction. As we discussed, you know, the U.S. dollars exchange value continues to go up rather than down. When U.S. Treasury prices are hanging in there despite the, yes, the bond yields are up over the last couple of months. But, you know, the yield curve flattening and everything else, short-end rates starting

Starting point is 00:53:37 to fall. There's tremendous demand for these safe and liquid assets because safety and liquidity is on the minds of everybody participating in the monetary system for reasons of the short run as well as the long run. So part of that long-run reason is how do you protect yourself to operate in a de-globalizing, fragmenting type of world? I think we'll see. more demand for things like U.S. Treasuries rather than less because, let's face it, uncertainty and unpredictability are a huge part of what is driving demand and safety and liquidity. Well, what we're doing right now is trying to just keep an eye on indicators, you know, to inform us as investors of how to either flock to safety as you're kind of putting it or

Starting point is 00:54:16 know when to participate and go bigger on bets. So one thing you mentioned there is a dollar going higher and that's happening. And it's important to know that that's putting a lot of stress on the rest of the world. It's creating the debt around the world to be more expensive for a lot of these companies holding U.S. denominated debt. And it starts to create sometimes these margin calls around the world where people have to liquidate in order to just cover their debt. So that's why you sometimes see the market's correct because of that. So is what I'm describing still accurate because it's part of my initial framework here? Or is there something else to this that I'm missing? I think that's an accurate framework. And I think it's just, it's a simplified framework. But it's

Starting point is 00:54:52 largely, that is the correlation you'll see. When the dollar goes up, it's like a wrecking ball. It's a wrecking ball for financial markets and financial participants as much as it is for real economy participants that are, you know, global trade merchants, for example, that have a difficulty in paying off trade debts when the dollar's going up. And the reason the dollar is going up is because it's much harder to borrow in US dollars, which means it's much harder to maintain the levels of leverage and money and credit that you had beforehand. Because everybody operates on a short-term lending relationship. And so So if you're trying to roll over short-term funding, interbank funding, for example, one day you've

Starting point is 00:55:27 got X terms that are reasonable, you think they're great. And then the next day, your dollar counterparty says, I need you to put up more collateral, I need you to put up more margin, I need you to put up something else because I view you as risky. Your exchange value is going down. Whatever it happens to be, it becomes that much harder to just do what you did yesterday, just to do the same amount of stuff that you did yesterday. So as the dollar goes up and that signals all of these problems in the Eurodala system, funding deficits, funding shortfalls, increased costs just to maintain the same things that you're doing before. That's where you can see these correlations as you described, T, Tray, that dollar goes up and then all sorts of these other problems that are very real.

Starting point is 00:56:02 They're not just theoretical or on somebody's piece of paper. There are actual collateral calls going out. We know that because of the price of T bills, for example. So we can see these things happening in real time. I think what you just said is really what we're trying to do here. Because we're talking about a shadow money system that nobody has really been investigated, nobody has been monitoring. There's certainly no quantitative measures to go in there and say, what is, how many euro dollars are there? Because there's no such thing as a euro dollar, really. All we have to go on is the euro dollar system telling us what must be happening in the shadows. And that's where we look to these various market prices and saying, what are the market

Starting point is 00:56:39 prices actually telling us about what must be happening in this system? So the dollars exchange values is an oversimplified one, but it is a very good one that tells us what must be happening in the shadow money system out there in these vast offshore spaces. So obviously a lot of this narrative that you're putting forth, which, again, for lack of a better name, is flying directly in the face of a lot of narratives used around things like Bitcoin, where the expectation is that we're losing reserve currency status and the dollar is depreciating and people are going to flock to something that is finite and is going to be a better store of value. And, you know, they're going to build things on top of it to make it more

Starting point is 00:57:16 of an interoperable currency, but am I wrong to suggest that you're probably not as bullish on Bitcoin or walk us through how this plays into your narrative and framework? I think it's exactly what, you know, the narrative that's driving cryptocurrency interest and investment is that. It's the wrong one. It's the idea that the dollar's going down and bad, but as we said before, the dollar keeps going up, not down. And so every time we have these periods where the dollar sort of goes down for a little bit, like in 2017, for example, everybody says, okay, this is the dollar crash. Here it comes. And everybody piles into crypto because they've been told you need to protect yourself against the dollar crash. But then 2018, the dollar suddenly goes higher in the

Starting point is 00:57:55 middle of 2018 and you think, well, wait a minute, the dollar didn't crash. It's going the other way. We're not seeing an eruption of currency. We're seeing the exact opposite. We're seeing deflationary money break out all over the global economy. And everybody piles out of crypto. Repeat in 2020, 2021. Everybody's going to crash this time for sure. Have you seen what the Fed? have you seen what the federal government has been doing and everybody piles into the crypto assets because the dollar's going to crash at this time for sure we're telling you it's going to crash just wait and see but then it doesn't the dollar starts to level off and continue higher than of course later in 2021 and especially in 2022 the dollar starts to skyrocket and everybody says well wait a minute

Starting point is 00:58:34 we were told the dollar is going to crash it's not crashing it's doing something the opposite no by the way we just did this a couple years ago suddenly not as many people are interested in cryptocurrency anymore. So for my own personal view, a short run cryptocurrency, I think, again, they have the placebo effect in mind. They have this idea, the federal government together have devalued the dollar, but you can never square that circle because the dollar never goes down. It only goes up over time. And so you have this influx of interest into crypto and then this outflow of interest into crypto. So short run, you have this massive volatility in price, which is not what you want from a competing or an alternate currency system, which has kind of opened the door to other forms

Starting point is 00:59:15 of crypto, like stable coins, which to me is really what's going on in cryptocurrency and digital currencies and defy and everything else has nothing to do with store or value. It's all about medium of exchange and elasticity. So if the general thesis and the general condition in the monetary system, and I think I'm right about this, in fact, I'm really sure I'm right about this, since 2007 is we have a shortage of money. We have an inelastic currency system. It's a very important. It's Historically speaking, whenever you have an enelastic currency system that doesn't supply the money that the economy needs to grow and be efficient, competing currencies will evolve because human beings are ingenious. And digital currencies in the underlying basic fundamental capacities are ways to solve this inelasticity medium of exchange and have nothing to do with store of value. So you have these competing tensions where digital currencies are evolving toward a medium of exchange that's useful in parallel or in competition to the euro.

Starting point is 01:00:10 the system, but investors are taking the placebo and running with it and running wild with the cryptocurrency prices, which is sort of not what's going on in actual, you know, the development, the technology, and innovation in the crypto space. So you have one thing that's sort of a long-run trend where digital currencies are trying to solve elasticity in the medium of exchange, where investors and speculators are running into cryptocurrency on the other side, because they wrongly conclude that crypto is about store value when it's really not. So long run, I think, there's value there. The long run, there's potential there, even though the prices have been extremely volatile and wild. And I think that, you know, current prices in crypto are way overvalued

Starting point is 01:00:50 because we don't really know what that elasticity solution might look like when we get to the long run. Well, I want to be careful about lumping Bitcoin in with all crypto because I do think there are a lot of differences there. Well, one of the billionaires we study a lot on the show is Ray Dalio. And Ray Dalio was just in Davos, again, pontificating on the fact that cash is trash, and he was even propping a Bitcoin or promoting it a little bit more, that he's become a big advocate seemingly over the last year or two. And he has also said that when you're comparing the dollar, for example, you have to compare it to financial assets, not just other currencies. And this is something that I think is, you know, sometimes left out of the debate. But if you

Starting point is 01:01:29 look at this currency shortage that you're talking about, how do you then explain asset prices going up? I mean, it seems like there's more of an asset shortage, right? Whether the stocks, even, or the housing or, et cetera, then there are seemingly a dollar shortage. Well, you have the placebo effect of markets, as I said, but you also have, again, small the economics too, especially in real estate in the United States. We haven't been building houses. We haven't been building enough apartments. So wealthy people who tend to be more liquid have been piling into assets based on the

Starting point is 01:01:58 placebo effect, including cryptocurrencies, including digital currencies, as well as real estate, even though there's nowhere near as much real estate being built, especially on a population an adjusted basis as there was in the 1990s, for example. Again, you have the demand curve shift to the right supply and elastic. Prices have to adjust. As you said, there's an asset shortage, a liquid asset shortage that has spilled over into things like real estate. It's no different than collateral and safe and liquid assets because in a safe and liquid

Starting point is 01:02:24 environment, those are the things that are in demand. Those are the assets that are in demand. What we don't see is all the liquid assets that don't get markets anymore, that don't get price that don't get the same sort of considerations that liquid markets do. So I think it's not necessarily the case. In fact, I know it's not the case that there's an oversupply of money propping up markets. There's an under supply of assets because of that same problem. We have a global monetary liquidity problem that is forcing essentially the system to restrain itself and it's sort of a self-reinforcing spiral. And there's really no way out of it, at least no way under the current

Starting point is 01:02:58 framework where the Fed's not going to solve it. It's not going to solve itself. I mean, it's been 15 years, it's not going to just randomly fix itself one day or the other. And so you have this volatile system where we all run into one class or another over time based on mistaken identity, based on mistaken impressions, or as you said, Trey, based on nothing more than the placebo effect. All right. So in wrapping up here a little bit, I want to talk about the end game. And if I'm talking with Brett and his milkshake theory, he says this is a story that ends badly. And you've kind of alluded to the same thing during this discussion. So what are we? as investors through your framework, what should we expect to come next based on what you know

Starting point is 01:03:37 and what you're seeing happen in the markets? Number one question I get all the time, too, is how does this all end? And I think the human mind we immediately go to while the system just crashes and we have to reset from there, when the euro dollar itself provides us with another example because the euro dollar system took over from a grossly malfunctioning system. Hardly anybody knew it did. In fact, it did his job so well. we transitioned from the 1960s and Trippin's paradox to the great inflation of the 1970s, which

Starting point is 01:04:05 today people still understand what the hell happened in the 1970s either. So it isn't necessarily the case that we should expect this dollar shortage to produce something like 2008 or worse. We'll never see another 2000 again. I don't even think we'll see a rash of bank failures or any bank failures because part of the problem here is that banks have been fortifying their own balance sheets so that they don't fail. They don't end up becoming Bear Stearns, which is deprive the entire system of monetary resources. So while banks are safe, we're left scrambling with the shortfall of money. So that doesn't necessarily mean we get into another banking crash or banking gross failure like that. It could just be we continue on this Japanification trend for quite a lot

Starting point is 01:04:47 longer. I mean, how long does it has Japan been on its current track? Going back to the early 1990s, as frightening as that is, you know, they're more than 30 years into this and they're still going. I know if everybody says we're not Japan, we're not the same type of system. We can't possibly be Japan, but it's 15 years already. And we've basically replicated everything that Japan did as well as all the results in terms of financial, as well as real economy outcomes, too. So it could be that we end up with another systemic rupture. I don't think that's the case. I think we continue along being squeezed by lack of economic growth, lack of liquidity, lack of money.

Starting point is 01:05:23 And then there's actually a number of potentially positive outcomes. outcomes where we have one of these alternative cryptocurrencies or digital assets that actually does produce, you know, evolves a couple more steps, a couple more orders of magnitude, it gets a couple orders of magnitude better. And then we have a competing currency that just like the Eurodollar system does, slowly absorbs the roles of the monetary system over time so that we don't even notice, hey, the Eurodollar system just kind of disappeared or now we're doing this other thing. That's possible.

Starting point is 01:05:51 It's maybe not the most likely scenario, but there's really a spectrum of potential outcomes in between the really positive and maybe the real not necessarily the worst negative, but somewhere in between where we could have, we continue on as we are, you know, we go through these recessions, lack of recovery, it kind of gets worse slowly over time, but we never seem to get out of it. I think eventually that that leads to a bunch of bad consequences, not necessarily in the marketplace, but more dealing with social and political issues than anything else. And, you know, somehow, some way we actually do solve the euro dollar system,

Starting point is 01:06:26 I mean, even if nobody's actually setting out to solve that particular problem, but it actually happens. And it's really difficult to say what is the most likely scenario? Because in some ways, this is unprecedented times, unprecedented problems where we don't really know. I'd like to be more long run optimistic than not, which is eventually we get our stuff together here and really do look at the problem in terms of how it actually is. Stop looking at central banks and governments to try to fix it because they're not going to be able to. and start looking at a realistic alternative, maybe digital currencies or something like that, I'd like to believe that we get to that scenario before something like 2008 happens again. So that's really interesting.

Starting point is 01:07:08 So what I'm hearing you say is we can kick the can on this for a lot longer than people expect. And just a fact there that Richard Duncan brought up on our show, we could currently create $10 trillion more of debt. And we'd only be at where Japan was, I think, 15 years ago or so. you know, they are so much farther ahead and we could potentially do what we're doing much longer, you know, in a vacuum, let's say. But what I've also heard you say about the Euro dollar is that it's not working as well as it used to. I want to ask why you think that. And then what you're saying there is, do you think this crypto market, you know, Bitcoin aside, has popped up because,

Starting point is 01:07:44 almost like as a solution to why the Eurodollar is not working as well as it used to? Yeah, as I said, I think the cryptocurrency and digital currencies in general, and I will lump Bitcoin into that, even though Bitcoin has trended more towards store of value than medium exchange. And in my personal opinion is I don't think Bitcoin is a usable global medium of exchange because you have a fixed finite system or a fixed finite amount, which doesn't really work well, historically speaking. But that's, you know, overall digital currencies, yes, I think they came about as a potential answer. And that's really why they proliferated as a potential answer to the inelasticity in the Eurodollar system. And I do think the Eurodollar has become more and more

Starting point is 01:08:21 dysfunctional over time. Again, just look at the U.S. dollars exchange value. I'll go up and up and up. It almost goes up, you know, not all at once, not in a straight line, but over the last 15 years, it's only gone in the one direction because more and more malfunctioned, more and more dysfunctioned within the system, more and more attention only on safety and liquidity when money, real economy, with sustainable economic growth, as John Maynard Keynes said a long time ago, we need animal spirits, we need risk taking. And that's just not going to take place in this malfunctioning currency system until we solve the inelasticity issue. So yeah, I think cryptocurrency, digital currencies have potential to solve that issue. They're not anywhere close to there just yet,

Starting point is 01:09:01 but potentially, you know, if allowed to go further, if governments don't come in and strangle them in the crib, then potentially there's actually a solution there. Well, Jeff, a lot of this stuff is over my head. And when I'm studying billionaires as we do on the show, I'm constantly, I feel like after these discussions retreating back to my the Buffett and me or the philosophy because all I want to do right now after exploring all this is just go by Dairy Queen, right? That's like, that's just, I'm like, you know what? I can understand that much at least. But Jeff, of all people putting up this argument and not many are, I really appreciate how articulately you did. And I really did learn a lot. And I think our listeners will as

Starting point is 01:09:39 well. So before I let you go, I want to make sure I give you an opportunity to handoff where people can follow you and learn more about you and the content you're putting it will really research you're putting out into the world and any other resources you want to share. Sure. And what I tell people is that, you know, you don't have to take my word for it. Maybe I'm just the guy bringing up the issues and raising these possible questions and connecting some of these dots that maybe have bothered people, like the rising dollar versus all these other kinds of things. But you really don't have to take my word for it. You can just do a little bit of research, a little bit of scholarship, uncover the same things that I have over time. You can see the euro dollar emerge. You can even see central bankers like Alan Greenspan and Ben Bernanke admit that they're not really central bankers and the Fed isn't actually a central bank. They don't want to. like to say these things in public, but the quotes are out there and there are a lot of them. So you don't have to take my word for it. But in case you want to, you can find me at, as I said, I do a podcast with my co-host, Camille Kalanowski. It's called Eurodollar University. You can find that on YouTube. You can find it at Spotify, iTunes, wherever you get your podcast from. I also

Starting point is 01:10:40 publish a lot of stuff on the blogs. I do a weekly column at a place called Real Clear Markets. I have a weekly column at the Epic Times. There's lots of research on the Eurodollar system and the macro and financial consequences of it that they're all over the internet. So it's pretty easy to find if you are interested in taking my word for it. Well, Jeff, I'm really excited to have you back on the show and let's keep monitoring the situation as it unfolds and get the evidence in place to make a decision once and for all what is really happening with our global monetary system. So, Jeff, thank you so much for your time. I really appreciate and all the wisdom you share with us today. My pleasure, Trey. And thanks for having me on.

Starting point is 01:11:16 All right. That's all we had for you guys today. If you're loving the show, don't forget to follow us on your favorite podcast app. And lastly, we always love hearing from you. So either leave a review or reach out to me on Twitter at Trey Lockerbie. And with that, we will see you again next time. Thank you for listening to TIP. Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, Before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network.

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We Study Billionaires - The Investor’s Podcast Network - TIP457: Why the Dollar Is Not Collapsing w/ Jeffrey Snider

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