We Study Billionaires - The Investor’s Podcast Network - TIP760: Dollar Dominance Decline w/ Lyn Alden

Episode Date: October 12, 2025

In this episode, Stig Brodersen welcomes back one of the most insightful voices in global macroeconomics, Lyn Alden. In this wide-ranging conversation, they explore the shifting landscape of the U.S. dollar and its role in a rapidly changing world. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 02:11 - Whether we’re moving from a US dollar system to a three-polar currency system 09:14 - The relationship between the fiscal deficit and the US dollar 18:51 - Why the US dollar may not go back to the strength it had in 2022 any time soon 22:23 - How to use US dollar sanctions (if at all) to achieve your goals 37:01 - Whether the US effectively implements capital controls 41:55 - What would happen if the Fed lost its independence 50:16 - Can the fiscal budget effectively balance? 57:18 - How to think about investing in high-quality equity investing in an era of fiscal dominance Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Lyn Alden’s book, Broken Money. Our interview with Lyn Alden about Investing during Fiscal Dominance.  Our interview with Lyn Alden about Gold.  Our interview with Lyn Alden about Currencies and Debt. Our interview with Lyn Alden about her book, Broken Money. Our interview with Lyn Alden about How the Fed Went Broke. Our interview with Lyn Alden about Macro and the Energy Market. Our interview with Lyn Alden about Money. Kenneth Rogoff’s book, Our Dollar Your Problem. Lyn Alden's free website. Related ⁠⁠⁠books⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses in just a few minutes each week through our newsletter, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠We Study Billionaires Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X (Twitter)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TikTok⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Browse through all our episodes (complete with transcripts) ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance Tool⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our sponsors: Simple Mining HardBlock AnchorWatch Human Rights Foundation Linkedin Talent Solutions Vanta Unchained Onramp Netsuite Shopify Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. With the US dollar shaping so much of the global economy, it seems timely to explore where the world's resurgence might be heading. As you learned this episode with always thoughtful Lynn Alden, one thing to keep in mind is that the dollar's dominance may be given way to a more multipolar currency system. At the same time, the US is facing persistent fiscal deficits and questions about the Fed's independence.

In this conversation, Lynn and I discuss the dollar's outlook, the impact of sanctions and Capital Control, and how investors can position themselves in an era of fiscal dominance. If you were a stock investor concerned about the global macro backdrop, this is an episode you don't want to mess. Since 2014 and through more than 180 million downloads, we've studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, State Brodison.

Welcome to The Investors podcast. I'm your host, Dick Bruterson, and today I'm back here with Lynn Alden. Lynn, how are you today? I'm good. How are you? I'm good, and thank you for making time. It's been way too long since we last chat, and my apologies, I should say. Well, I'm happy to.

I always have to come back on. So, Lynn, I'm going to put you a bit on the spot here with the very first question. So Rognov came out with this book, I'll Dollar Your Problem. And he argues that the US dollar has passed its peak dollar. dollar dominance. And so he would be the first to say that it's clear that the US dollar will still be very important, but the footprint is likely to decline. And so he predicts that the euro and the Remembe will increasingly have a share of your global reserve, trade invoicing, fiscal transactions, and so on and share that more with the US dollar. And so you can think about this as

moving toward a three pole currency system, if you like. And so, like I said here, I'm going to put your bit on the spot here whenever I say, do you agree? But I wanted to paint a bit more color around it. I know it's sort of like a not so modest question whenever I ask you, how the Fiat system look like in 10 years. But I kind of like wanting to use that also sort of like to set this scene and tee off the rest of the outline and sort of like give a broad overview of what we may be looking at.

Yeah, sounds good. So I mean, based on the description, I largely agree with it. I haven't read his book, but I've been aware of his arguments before. And I've been making similar kind of observations for the past five or six years about kind of this more tripolar or multipolar world that we seem to gradually be shifting toward. So the parts I agree with, I do think that the dollar quantitatively has reached peak level of dominance.

That was, you know, basically somewhere in the early 2000s or so. By many metrics, the U.S. kind of reached peak dominance at that point. So those are peak labor participation rate, basically our peak demographics. That was, of course, also the dot-com boom. So it kind of tech and demographics all kind of aligned. That was, you know, a decade after the, you know, the fall of the Soviet Union. So it's kind of the peak hyperpower moment, you could say, kind of, you know, kind of the quote-unquote end of history, people like to call it. It's like basically it seemed like a lot of issues were fixed.

That was kind of the peak moment based on a number of things. It's some of these things are rolling over. And when we look out forward, basically, and it's already been the case, we see a gradual broadening of reserve currency holdings. And so people often ask, if it's not the dollar, what could possibly replace it? And the first answer is that nothing individually can replace it. Even the dollar itself can no longer really replace itself. And that's because the current status of the dollar really came into being after World War II

when the world was devastated, the United States was kind of the last, you know, big thing standing, mostly untouched by the war. We had the gold, we had the manufacturing base, we had the military dominance, we had over 40% of global GDP. And so we basically could become the world's ledger. And over time, obviously, it shifted after Bretton Woods ended, but it took a new form and it's kind of remained in effect. And so that's the world we've been in. But the issue is that the United States has paid a cost, which you've talked about before, kind of these trade deficit and other things to maintain that reserve currency status. And so after decades of this, we have been kind of hollowed out. The U.S. is only, depending on how you measure it,

perching power parity or not, some are in the ballpark of 15 to 25 percent of global GDP, which is still a lot considering we're 4% of the population, but we're much smaller than that kind of 40 plus percent, which is a normal state of affairs. The rest of the world has recovered and grown. If you look long back in history, I mean, India and China were always very big percentages of GDP, especially given their population size and just the long history of innovation there. And so that was kind of an anomalous period in many ways. We're kind of returning to a more normal period. And so there's really no currency big enough. I mean, China is the only other currency of similar scale, really, but for a variety of reasons, they're not really big enough

to take on the mantle that the US had after World War II or after the bread and wood system ended. And so I think we're entering a more multi-polar world. And that can mean one of two things. Either more fiat currencies become used for trading, which we're generally seeing, and or neutral reserve assets like gold, for example, or in some smaller countries, Bitcoin, but currently mostly gold, they can kind of reenter the system in a way that gold used to be. And we've seen this quantitatively. Gold kind of bottomed, you could say, depending on if you look at price or tonnage in the 2000s and the 2010s in terms of its share of global reserves. And it's been increasing ever since then,

both in terms of central banks buying more tonnage of it, as well as, of course, the outperformance, the price appreciation, kind of by extension, making it a bigger share of their portfolio. If you don't rebalance the one thing outperforms, that becomes a bigger share. So I think we are entering that more multipolar world. Perhaps the one area where I would somewhat see things differently

is I think that of that tri-polar setup, Europe seems to be on the weaker side of that. So that's one area where I've kind of revised my outlook over the past five or six years. So if you asked me five or six years ago, I would have said, I do think the euro is going to increase and share. That somewhat changed and that was happening. So for example, like if you look at, say, Russian gas back when that was flowing to Europe readily, the percentage of that that was like denominated in euros was increasing over time. That connection was kind of strengthening.

Of course, after the war, that whole component was of course disrupted. Europe became more energy insecure. It's also not been a very big tech innovation area compared to the United States and China, whether it's AI, a bunch of other things. And so for a variety of reasons, I think that's kind of the weakest of those three big currency blocks. So I think that the other two are probably the bigger more relevant ones, even though currently, obviously Europe has a much bigger share of reserves than China. but in terms of kind of this, you know, where the puck is headed, I think that's got the most

growth in it. But I do think, yeah, we're entering a multipolar world, which basically means we use multiple ledgers, the big powers are able to kind of settle trades in their own currencies, global funding gets more diversified, and neutral reserve assets reenter in a way that historically they always have been. Yeah. Thank you, Lynn. I really appreciate that response. And there's probably also a natural, I don't think inflation. is right where because now that we are talking about the financial system, we have to be aware of the exact definition. But whenever you look at some of like Euro's role, just by having a number of countries and would be different countries, you will also see inflated numbers in

how much of that is cross-border, because by definition it would be. But anyways, I kind of felt it was an interesting way of going about it. And I'll also be the first one. We just briefly touched on this year before we had recorded about Roeb's book where I also mentioned that I don't really agree too much with the book, but I really try not to read too many books I agree too much with. Like, it can't be something that's completely outrageous, and I think he has a lot of great points, but we also generally don't get smarter if we only read books that we completely agree with. I agree, yeah. Yeah, so with that said, I don't know if that's a good jump here, but I wanted to, you didn't pay me to say this,

But I want to say, Lynn, that together with Radalia, at least in my book, you have the most eloquent writing on macro. I appreciate that. I appreciate that. Yeah. I mean, it's so, it's so profound, but it's also like, it's very, and I mean, this is the best possible way. It's very easy to understand. Whereas I do think that there's a lot of academic writing, and I kind of feel like I can throw them under the bus because I still used to be part of it myself. But like a lot of that is just more like showing off.

Like, how can I use more difficult words for something that's very simple? That's, anyways, that's a different discussion. But I think you write very eloquently when it comes to macro. And a few months ago, you wrote this. I'm just going to read this up here. So foreign demand for the dollar may weaking over time. Ungoing budget deficits and increasingly captured Fed may result in gradual, accelerating money supply growth and financial repression.

Our structural deficit provides us with a currency vulnerability that countries with structural trade surpluses don't have." So, Lynn, could you please unpack this for us and what is the implication for the US dollar? Sure. So I guess the way to summarize it is the U.S. has one really big strength and one really big weakness in this regard that are kind of balanced against each other, like two things leaning on each other.

Another way to put it is if someone's kind of standing straight, they're pretty stable. if you're leaning against a wall or pushing against a wall really hard, and that wall breaks or vanishes, you're going to stumble and potentially fall. So the U.S. is kind of in that situation where we have the global reserve currency, which basically means four major things. A lot of international contracts are priced in dollars as kind of the neutral global ledger of choice. Also, it's like 90% of currency trades, the dollars on one side of it, because out of the over 100 currencies in the world, many of them don't have a liquid market with other currencies directly, say Egypt and Korea, unlikely to have a, you know, if you pick two countries that are not, you know, the top five or so,

they're unlikely to have particularly liquid currency markets, but all of them are pretty liquid with the dollar. So you can always go from one to the dollar and then dollar to the one you're going after. Three countries hold it as they're one of their biggest reserve holdings. And then four, it's the principal currency used for cross-border debt, so funding in various capacities. And so it's the most used ledger, and therefore it has by far the most global demand for it. So for most currencies, obviously people in the country demand it. Entities trading with that country might temporarily demand it. Certain traders might trade in and out of it. But the dollar and a couple other currencies have structural persistent demand for that currency, even if the entity

in question has no intention to trade with the U.S. They're using it for other purposes. And that has pros and cons. So the pro is it artificially strengthens the dollar. So many currencies trade on interstate differentials, trade balances, things like that. The dollar does, but it also has this extra structural component to it. By default, the best ledger to use. And so that artificially boosts our dollar, that makes us, it gives us lots of importing power. It gives us lots of military dominance.

It makes it easier to maintain our like seven or 800 foreign military bases. But it hollows out our industrial base. It makes some of our lower margin physical stuff less competitive. Another way of putting it is if the whole world needs dollars and has dollars, how do they get all those dollars and how do they get more of those dollars to keep using them? And the answer is structural trade deficits. The U.S. by strengthening the dollar, boosting our import power, hurting our export competitiveness, we spew dollars into the world every year basis.

We've been doing this for decades. That's how all those dollars get out there. Most of them get out there. And so we've got this kind of position of both strength and weakness. And that persists as long as that extra demand for dollars exists globally. If something changes either suddenly or gradually, and the world shifts toward not needing as many dollars anymore, maybe they shift toward gold for a bigger share of their reserves. Maybe they shift toward that multipolar world for contracts and trade settlement, as we talked about, just for a variety of reasons. Maybe there's

less demand for dollars, we're set up with that kind of excess demand in mind, which means we could go through a kind of a painful transition should that structurally change. And it's not all bad because like I said, there's some that are disadvantaged by the current situation. But transitions like that do tend to be particularly painful. And so that's kind of the risk that the U.S. has, especially as over decades, we become increasingly more politically polarized. So when you have peers of high inflation or transitions while you're already on edge, that's kind of like where the shields are down, things are vulnerable, even though it's kind of in some ways just going back to the structural norm.

But that's basically what I mean when I say that it's, that's our weakness, basically. We're kind of built with that in mind. So things get kind of interesting if that situation changes. So, Len, I'm going to tell you something that I'm sure you already know. Whenever I say that we're all driven by incentives. and one of the things I love doing without coming up with any good alternative, I like to knock democracy once in a while. And it's kind of like terrible because one of the wonderful things about democracy

is that politicians have to be elected and reelected. And they had to earn your vote to stay in office. That's why it's so wonderful. And of course, that's also the problem. You know, I'm sure behind closed doors, you would find some politicians who would say, okay, if we did XYC and then we would balance the budget, then someone else would just come in and be like, hey, let's spend more money than we actually bring in and then, you know, be voted.

So it's not a perfect system and I for sure can't come up with anything better. But so going back to this idea here of the US dollar and how that works in a democracy, you know, it's easy to say, for example, hey, I'm embarrassed on the US dollar. But then, of course, you also have to say, how do you define being embarrassed? what's the time horizon. And I can come out, which I've probably already done here so far, and say that the mighty always fall. And especially if you look decades or certainly centuries,

I took the opportunity to include a quote by Hemingway in our outline, just because I don't know, I probably started to start of saying, how can they include Hemingway a quote? To be honest, that was how it started. He, in his book, The Sun also rises. He says about bankruptcy, gradually and then suddenly. It's just, I don't know, it's just so eloquent. So, of course, the US dollar is highly unlikely to lose his status as the world's reserve

currency and look like, say, the Argentine peso within the next election cycle. But there might still be good reason to be bearish. And so I'm kind of curious to hear someone in your position, Lynn, do you discuss the US dollar with politicians? And if yes, are they interested in your perspective? And are they interested in learning how to sustain US dollar dominance? So I have discussed it with some politicians. More broadly, I know that there are a lot of politicians that have read broken money. There are some kind of prominent people that have given it to members of Congress, other members of Congress find it themselves. In addition, Canadian politicians, European politicians. There's kind of a funny picture where the central bank governor of Ethiopia had a picture of him in his office and broken money was kind of there pretty prominent. At least it was kind of a proud moment. So politicians, many of them are familiar with it. I have not kind of cordial. politicians in a way that I could have. There are a lot of events in D.C. that I've been invited to

that I've kind of declined. Just partially bandwidth and partially, it's just not what I've kind of chosen to put my time into, but maybe some of the ways that I've influenced of others have gone there, certainly colleagues that I'm close with have gone to do things like that. When we think of kind of dollar bearishness, I mean, there's kind of three levels we could consider. So we back up, I mean, ever since we ended the Bretton Woods era and we went to, we entered this more floating currency regime. There's really only been $3 cycles. So if anyone is kind of familiar with the 50 plus year dollar chart, it spiked in the 80s and then fell after the plazzo cord. Then it started rising again in the 90s, peaked around 2000, rolled over again. And then ever since 2014,

it's kind of been in the third strong dollar period. So that's kind of the big picture. And there's kind of three levels we can think of on that chart. So one is cyclically. So even within a week or a strong dollar environment, a 5, 10, 15% fluctuation in the dollar index relative to other major currencies, that's kind of that first level. That's like one of those like 12-month trading calls, 18-month trading calls that people might have. So for example, 2017 was a weaker dollar year, good for emerging markets. 22 was a very strong dollar year, you know, to the painful for a lot of asset classes. This calendar year so far has been a weak dollar year. That's all in the context of those wiggles on that chart. That kind of when you zoom out,

they're not structural. They're more trading calls. The second level would basically be a call on one of those major dollar cycles. So if the dollar is weak and you're thinking it's going to have one of those big strong periods, that's a more decade-long call, you know, because we're only talking three cycles in a 50-plus year history. Again, and also if it's a strong dollar period and you're talking about a breakdown, a fall to another kind of structurally weak dollar period, that's, yeah, I mean, that's a pretty big call, but that's still in the context of just another dollar cycle. So you can certainly, I mean, the dollar index could go down to 70, and it wouldn't be the quote, end of the dollar. It would be kind of the third downleg in this system. It wouldn't be

something entirely new, even though people might treat it as though it's the end of the world or something because it hasn't really happened in a lot of traders' lifetimes, or maybe for the older ones happen once in their trading careers. But it's still in the grand scheme of things normal. The third level would basically be something structurally different, that it breaks out of that trend, enters some sort of crisis, and or we do enter a more structurally multipolar world, and the U.S. doesn't really account for that in its policies, and some of those kind of hit us painfully. So on the near-term timeline, I do think we could potentially, you know, have more weakness ahead, which is to say, I do think there's a reasonable chance that we've seen the peak

of this current dollar strength cycle. I don't think we're getting up to 2020 highs anytime soon. And that I do think we could break out of this current range and test falling out into the, basically the third major dollar cycle in the years ahead. We'll have to see. That's probably my base case. it's not a super high conviction one, but it's a base case. I think we'd have to look farther out to see something more of a true crisis, unless we bring it forward with a political crisis. Because politics and currency can kind of feed on each other, so nonlinear things can happen, like you mentioned gradually, then suddenly.

But looking at the numbers, I think we're still further away from something truly outside of the band. And part of that, to quantify it, I mean, there is 18 trillion or so, according to the BIS and similar estimates, for offshore dollar denominated debt. And that's mostly not even owed to the U.S. That's like mostly owed because it's the global funding currency. That's like owed from an entity in country X to an entity in China or owed from another country to an entity in France.

It's this kind of big intertwined cross-border funding environment. All of that represents inflexible demand for dollars, which is larger than the dollar's monetary base. and almost as large as the broad money supply. So there's a lot of structural demand for dollars, which is, you know, that doesn't just kind of change on a whim. That's not like a choice. That's a contract.

And so that's part of what gives the dollar kind of a lot more strength than a lot of the bears that always seem to think it's going to blow up around the corner. They see not to account for that, those kind of nuances. Yeah, I think that's such a good point. if I can just add a few more pointers here to your point, actually, so much of this is entrenched into the system. It would be a bit of a fallacy to say, biggest economy, that's the world reserve currency. And of course, you know, it does rhyme to some extent, but if you look at the British pound, you know, that was still the reserve currency even after it got, even after

the British economy got eclipsed by the US, it was just the system, at least for some time. going back to this gradually and then suddenly and then we have the First World War and a bunch of a bunch of other things. And the other thing, the other fallacy also wants to say is that it is not as simple as saying if anyone was thinking strong dollar, good, weak, dollar, bad. Like there have been many examples of why politician would want a weak dollar for the good of the country, depending on how you define for the good of the country and how weak a dollar is a weak dollar. And there's a lot of moving parts whenever we talk about that. So I I just wanted to mention that.

Yeah, absolutely. And when we look at, and Dahlia had really good charts on this, which is when you look at the rise and fall of a major power, it's not like all the metrics go up and down together. Some of them are kind of more forward, things like education, technology. They start to kind of get better than the rest of the world. A lot of things are kind of coming together. That's kind of early catalysts. And then one of the lagging things is the reserve currency.

Basically, once the other power is get in the place. So biggest economy, biggest military, biggest, you know, innovation, vibrancy, things like that, strongly educated, that's when, and it's been in place for a while, that's when that kind of, that ledger becomes more dominant with a lag. And then similarly, when those things have rolled over already for years, in many cases, decades, that reserve currency has a network effect, kind of like how if a social network is not really growing anymore, but it's still got the self-reinforcing network effect, everyone's still there because everyone else is still there. That's how reserve currencies work as well. So even though many other metrics for the U.S. have

already rolled over, the dollar is kind of, I mean, it's rolled over a little bit, but it's still closer to the apex than a lot of its other things. So whether it's economic size, whether it's especially things like education, certain other places have kind of firmly eclipsed us, whereas the dollar is that lagging network effect later variable that they rolled over more slowly. 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 saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through

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That's Shopify. com slash WSB. All right. Back to the show. Yeah. And Lynn, thank you for seeing up my next question

because I'm curious to hear how you think the U.S. should use dollar sanctions, if at all. And it might sound a bit controversial of saying,

if at all, like if you have the dollar, why wouldn't you use that? And so, you know, there's this interesting dynamic where the more you use a weapon in some situations, that it is less useful it becomes. And so, you know, famously the US, Iran off from the global dollar system, also Swift. And, and, you know, Russia saw that. And whenever they hit by some of the same sanctions back in 2022, you know, they already

build up some reserves in gold and in the one. And they also expanded SPFS. And I still think the Russians were probably surprised by how many sanctions they got hit by, but it looked like that they did anticipate at least some sanctions. And so if we fast forward then and say, okay, so what about China? Well, you know, they've certainly accelerated the internalization of their currency. Today, over 30% of goods and services are done in Juan, and it sells more than 50% of cross-border beseeds, so that's also inclusive financial flows in their own current.

And perhaps with everything that's going on in China, perhaps a lot of that would have happened in any case. I mean, I can speculate that some of that has been speeded up because they've seen what happened to Russia. But perhaps you could outline the advantages and disadvantages of weaponizing the dollar and what policies would achieve with outcomes short and long term. Right. I think we opened it well, which is the more you use it, the more you weaken it.

And then also the bigger adversary you target with one, the less likely. it is to be effective. So where it historically has worked somewhat well is when you pick a smaller prior estate and you sanction them, you're basically cutting them off from the world's biggest ledger. You're adding all sorts of frictions for them to trade with other countries, extra costs, risks, things like that. Even the effectiveness of those have been somewhat constrained. I mean, how long has North Korea been under sanctions and their regime still operating or similar Iran, these kind of countries, Venezuela? So there's even, I mean, People can debate around the effectiveness of even those types of sanctions, but clearly they

ricocheted back into the U.S. less severely than when they try to either use them more frequently or go after a bigger entity like Russia. During the opening phase of that war, I mean, I saw people say, you know, Russia's only this share of GDP, global GDP, it's kind of like Italy. That's not a giant deal. But not all GDPs created equal. And especially, I mean, when it comes to economic size, in many cases, purchasing power parity, GDP matters more, because that's kind of the amount of of actually goods and services they can bring to bear. Another thing to look at is just energy production or electricity generation. These kind of harder metrics of an economy, I think, are a better descriptor of their size,

especially when it comes to war, but also just economic weight as a whole. A place that's got a decent GDP because of tourism and services is different than a country that has a big GDP because of energy production arms, raw commodities, so all sorts of metals and stuff that the world needs. And if even 10% of those metals goes offline, it's like a kind of catastrophe for the world. And so I think we were less effective there than many people thought. And to your point, where I think it surprised Russia was I think that Europe got involved more than Russia would have guessed. So I think they fully expected the U.S. to sanction them. I didn't think they expected Europe to go as hard, given that intertwined energy situation we talked

about before. And one of the ramifications was, like I mentioned that Europe used to price a lot of it's Russian gas trades increasingly in euro. Of course, when that went away, one thing that China and Russia did was they increasingly priced them in China's currency. So what was kind of a loss for Europe was a gain for China in that regard. And it's, you know, in many ways out of necessity. If they can't use the sanctioned ledger, well, they have these other big ledgers. They always kind of wanted to use anyway. And now it's like instead of us doing over the next three years, let's just do it now. And so that's kind of the situation we found ourselves in. Basically, as you're no longer the biggest trading partner, that's another giant factor.

So it used to be a couple decades ago, U.S. was the biggest trading partner with the vast majority of countries in the world. Over the past 20, 25 years, China has greatly eclipsed us. The vast majority of countries, China is a bigger trading partner with them than the U.S. And there's still a handful of countries we have a bigger deals with, but it's China. And so when sanctions fly, when things like that, the U.S. is ledgers. just weaker than it used to be in this regard. And so I think we are kind of past our prime in terms of sanctioning ability. But again, it's I don't view maintaining dollar dominance as the number one variable to optimize. Because as I talked about before, there are pros and cons to

having an artificial demand for your domestic ledger. There are certain winners and certain losers. And we've had 40 plus years of one side winning and the other side kind of manufacturing and and the things on the wrong side of this kind of hollowing out of our industrial base, losing. So in some ways, losing dollar dominance is not a bad thing. I think the bad thing would be losing it while trying to gain it. Like, if you do everything in your power to maintain it and it gets taken away from you, that's kind of like you're pushing into the wall and the wall vanishes. It's better to start easing away from the wall so that by the time the wall's not there,

you're standing on your own two feet. So what I worried about is not losing dollar dominance. It's losing it inelegantly. Another way, another analogy I've used is typically when an empire gets too big, instead of drawing back gracefully, you know, some sort of the leader saying, you know, humbly, we have gotten too big. Let's pull back something more sustainable. They often try to spend all their blood and treasure maintaining every border they have as the barbarians are, you know, knocking on too many gates at the same time, and they kind of fall back weekly instead of falling back from a position of strength. So that's, you know, if I give advice to, you know, policymakers, it'd be something like that, which is some of the, a lot of this is structural. It's inevitable. A lot of

it's not even a bad thing. And it's mostly about how it's handled and whether it's prepared for correctly or not. I absolutely love that you say that, Lynn. And it's also incredible challenging. because you really need to understand it so well. Whenever you are on the other side of it, and in today's world, most things just have to fit into like a 30-second clip. And so it seems like, of course, you want US dollar dominance, but then you're saying, well, yes, but also no.

And if you are going to lose the dominance, how are you going to do it? And I was about to go on a long rant about the UK and in Egypt and everything that was going on. Sort of like, you know, whenever you have that pivotal moment, we're like, oh, we got a new sheriff in town and it's the U.S. And it's incredible difficult to do it gracefully because you're getting, you're getting used to it. And you saw what happened after the Second World War. And there was not graceful. And I think, I don't think there's controversial to say that at all.

It happened very fast and probably a lot faster than what the UK. thought, which is also why it happened the way it did happen. Then I wanted to talk a bit more about China and I wanted to talk about swap lines. I have this fascination with swap lines and it kind of like a, I don't necessarily know if it always hits home, but it's interesting. So China has extended more than $600 billion worth in its domestic currency. So by definition, this is not in dollars, but people are familiar with what that is. but it's more than 600 billion, it's like more than 4 trillion, Juan.

And they've extended that to 32 central banks, and they're not used significantly, because by definition, you generally don't use a swap line unless you really need to. And typically in a state of crisis. And so, but it is a signal that they're building up their own fiscal plumbing around the legacy US-led system. The ECB has increased their swap lines geographically and the type of facility that they're not offering. And so I'm kind of curious to hear from where you're sitting, which role do you expect swap lines to have in the three major currencies

or the next decades less crisis? Yeah, good question. I talked before about how trade deficits are mostly how the reserve currency gets out into the world for the world to use during crises, because at any given time there's more debt denominator in that currency than there are units to that currency floating around. if cash flows dry up for any reason, let's say, you know, 2020 or any sort of other major economic contraction, there suddenly becomes a shortage of the reserve currency, let's say dollars

in this case. And so another way of getting dollars out there temporarily is swap lines. And that's not giving them out in a similar way that trade deficits are. It's loaning them out until the crisis is over and the music keeps playing. Any sort of debt-based system is kind of like musical chairs where it works, you know, there can be more kids than chairs as long as the music's playing. And when the music stops or slows, that's when suddenly it's a problem. And swap lines are meant to, when the music gets off, to bridge the gap so it doesn't become

a crisis until the music starts playing again on its own. So that's kind of the main purpose. For China, because they run structural trade surpluses, they don't really get a lot of their currency out there. So, I mean, that's part of why, you know, we don't see a much larger share of Chinese currency in reserves is because they're not spewing it into the world. They don't really want to replicate the exact U.S. system. they just want to denominate a lot of their own trade in their currency, which they're effectively doing.

So I think swap lines are for that purpose. It's mainly for those countries that have a lot of dollar debt, I mean, a lot of currency debt relative to their units floating around in crises. Because China doesn't have a ton of that, it's not surprising to see that swap lines are not greatly used. One thing I think we could see over time is that we have this Gordian nod, I mentioned before, of 18 trillion in dollar-dumid debt outstanding in the world. And that, for some of the dollar bulls, that's kind of viewed as like this invincible thing. Like you just have to, there's nothing that can get around that. Well, one of the things they can get around it is that countries can kind of refinance their debt in another currency.

So, say, China has some dollars, you know, is there reserves and elsewhere? Because they've run such surpluses with the U.S. and others, they've gotten a lot of dollars. And, you know, if there's smaller entities, smaller countries that are struggling with their dollars in a debt, especially if the dollar gets too strong or otherwise, they're they want to change their orbit, China can offer to pay off their dollar debt in exchange for having it now in their currency. So it's not that they pay off their debt, but they basically swapped the domination of their debt.

And there's a certain capacity to do this. But that could be something we see along the margins, whether it's swap lines helping with that or other types of contracts. I think that's kind of more the multipolar playbook. Now, it could happen in Euro too, but again, I think that's kind of the weakest of the three major currencies. China is certainly more kind of outwardly engaged in all this type of stuff. So I do think that you could see around the margins that kind of shift toward the Chinese currency. Now, again, they don't necessarily want a lot of, you know, their currency being used for things

not related to China per se because they're not trying to replicate the advantages and disadvantages of the U.S. system. But it is a really powerful tool they have to keep countries in their orbit or bail countries out of struggling in the U.S. orbit. So instead of getting IMF support, for example, they can say, well, if you want to play with a different set of players, we're here. That's kind of an option. So, Lynn, I'm going to say something that's probably very unpopular with their U.S. listeners.

The only thing I can hope for is that once they heard me talk about swap lines, they already turned off. But I'm going to first talk about a bit more about China and then transition into the U.S. and make a cell phone popular. So one of the things that always concerns me as an investor is whenever a country imposes capital controls. And so one of the most famous examples that would be China, you know, they have this $50,000 rule or equivalent of $50,000 that you could, there are some approved purposes

such as travel, study, medical expenses, but there was like this tight control of the currency. And of course, you know, in the style of the local government, they were talking about securing stability. But at least for me, as a capitalist who have this bias for free and open markets, to me, that's just capital controls. And also because whenever you read wonderful books such as broken money, you sort of like will also learn how governments have an incentive very much to control currencies. And so I saw this 3.5% remittance tax here that was a part of the one big beautiful, bill back in May and then there was some pushback and then it was a 1% and so on and so forth. And so many are listening to this would be like, whoa, whoa, whoa, whoa, you're mixing up two completely different things.

I don't do any remittances. So why would I even care? It has nothing to do what's what's going on in China. And that's probably true. But as the investor, I always looking for signals of what's going to happen in the future. I want to capture the best returns. and I'm always concerned whenever I see signs of capital control. And so, of course, as an investor, you can still invest in that country, especially if you get an adequate risk premium.

But with all of that being said, do you expect capital control in the U.S. to come? Are you concerned about the U.S. being less investable when you look five and ten years out? And then the last thing I would say, before I get too many nasty tweets, is that technically you would not call this a capital control. In my very subjective book, it is because you constrain capital from flowing, and I probably have this capitalist bias, but I'm kind of curious to hear how you look at it, Lynn. So I think that I agree with the broad view of capital controls or capital frictions. I do think those will probably increase over time. A couple of reasons. And it might not just be the U.S. I think that could increase globally, whereas potentially China eases them from a very high

level, but still maintain them in place as well. And that's for a handful of reasons, with the main one being fiscal dominance. So I've talked before about the U.S. and many other developed countries are in fiscal dominance, which is to say we build up a very large stock of public debt, and we're also running structurally high fiscal deficits, and therefore adding to that debt, which limits some of our options. And historically, when you have fiscal dominance, capital controls more likely to come into the mix. And, you know, I'm not a fan of them either for similar reasons. as you are. I'm a fan of free and open markets. One of the, so when they, especially global investors, when they look where to put capital,

one of the biggest variables is can they get it out in a time frame that is relevant to them? So when they invest in China, they say there might be opportunities there, the equities might be cheaper, other things might be going well. But when I want to bring this capital back for one reason or another, am I going to get told no? That point is it even their capital anymore. whereas if there's a jurisdiction that is a very long history of just freely, you know, respecting property rights, rule of law, no kind of arbitrary, like, you know, if there's a country where the leader just doesn't like you and just says, nope, that entity can't get their capital out. This other entity can. You know, you're kind of like, well, do I want to do business

with that country or, you know, if I do business, do I want to minimize it because, you know, I don't want a certain percentage of my portfolio or a certain percentage of my corporation impaired for things that I can't predict. So it's, it's a certain percentage of my portfolio. So it, does potentially make a region less investable. Now, because of the dollar status, we're, I mean, one of the problems is we've been too investable. It's kind of like how Canada and Australia, their property markets get really hot because global capital goes into it, especially Chinese capital as like a store of value. And that's, there's winners and losers from that. So those who already own homes going into that kind of surge are loving it. Their home,

you know, they bought it for X and it's now worth 5x. People, that have trouble entering the home market, you know, they don't have one yet, they're impaired. I mean, just the cost of having reasonable shelter is just through the roof in those jurisdictions because it's not, you have a lot of empty houses used for store value purposes or apartments. In the U.S., that doesn't really happen to a real estate market as much, but it happens to our equity market and our capital markets as a whole, and that kind of overvalues the dollar, and therefore impairs our export competitiveness. So in some ways, making the U.S. less investibles not all bad, but I wouldn't like that path of saying,

you know, our capital controls are more whimsical. You don't know if you're going to get your capital out or not. Rule of law might not be respected. Property rights might and may not be respected. That's not, in my opinion, a great path toward making the U.S. stuffing the kind of less capital in the U.S. But it's not surprising in a period of fiscal dominance, which lasts years or decades. Yeah, and I'm very happy that you say that. And I should probably also clarify and say that I'm not comparing the U.S. to any kind of third world economy in terms of getting money out. But I do think that there is something to be said about sizing. So, for example, I have some of my investments in Turkey, which by definition is like real capital controls. But I can size that.

It's a very small part of my portfolio. And if I can't get my money out, it makes absolutely in no difference. So whenever I see different happening, different things happening in the states that I consider my home market and I live abroad, I'm also like, hmm, what does that mean? No, the probability of me running into any kind of issue is significantly lower, but my exposure is that much higher. Like, it would be absolutely detrimental for everything. So I am always thinking about what's happening on the long tail. And sometimes whenever you have extraordinary times, the shape of the long tail is a little bit different than what you look at at a normal distribution curve.

That was a very nerdy way of saying, I don't know. I always think of all scenarios, I guess. I agree. I agree. So, Lynn, I wanted to talk about if I can come up with a very rough oversimplification and then say afterwards to complete the wrong. So let me try to say that. Develop economies have independent central banks

and then developing countries do not. That is, of course, absolutely not true. It is proper directional correct, but it's not really true. Independence is never absolute. Politics still lean on them. You look at the Fed in the 1970s. You look at ECB during the sovereign debt crisis. Perhaps it's more accurate to say that the Fed is independent within government

rather than independent from it. And now, of course, we are discussing semantics. But it does seem like a shift may be happening in the world's largest economy, with some people calling for the government to lean more on money. policy either directly or indirectly. It could, for example, be replacing the current Fed Chair whenever his current four-year term expires in May, 2026. And also say, it is a committee that's setting the rate and it's not exclusively by the

chair, though that's typically like the face of it. And so there's a lot of moving parts here. And going back to this discussion about, is it political, is it not political? Every time you have a governor that's resigning for the board for whatever reason, It is always the sitting president who nominates, and then there is the Senate confirms by a majority vote. So it is, by definition, regardless of the administration, not completely independent. But I think what is interesting to discuss now, Lynn, is if the markets were to perceive the Fed as significantly less independent than it is today, how do you expect the S&P and the 10-year treasury yield to react to that fact?

Backing up, I point out that just historically maintaining separation of powers within a government is historically very hard. It's not really the historical state of affairs. In kind of modern times, it's more common. It's kind of what places strive toward, but it's hard to achieve. And kind of the difficulty of achieving it, especially in developing countries, they don't have a history of it in many cases. It's hard to just forge that out of nothing. And a lot of times you have an illusion of separation that quickly goes away because it was never really there in the first place. So actually having robust, stained, long-term separation of powers is really hard to do. And what it means in this context is the powers still lean on each other, but they have checks

and balances. So for example, the U.S. Supreme Court, one of the three branches of the government, the justices are put in place by the president and the Senate that once they're in, it's very difficult to remove them. And so they operate independently from that initial selection point, which basically tries to make it so that the whims of people or the whims of government can't change everything at once. So even if we have a crazy election one year, congressional terms last two years, presidential terms last four years, Senate terms last six years, and the Supreme Court is life until retirement or passing

away. The Fed can kind of be thought of as a fourth branch of government in the sense that the governors are put in place similar to Supreme Court justices. And then from there, they run these pretty long terms that are then supposed to be pretty much protected by political whims other than with cause. And so we have this kind of fourth branch. Now, historically, again, during fiscal dominance or war, whether it's the U.S. or elsewhere, independent central banking goes away pretty quickly during crises. Because the handful of things they won't let happen are, for example, a sovereign bond default in their own currency, just major unchecked financial plumbing issues, they will generally put out fires if it means debasement 99 times out of 100.

And so especially during fiscal dominance, independence goes away. And I'm not surprised that now that we're back in fiscal dominance, you know, since the first time since like the, you know, the 1940s in the aftermath, that we see a arguable deterioration in central bank independence. And I think this is going to be sustained. One of the ways out of physical, dominance is yield curve control, which is basically a giving up of central bank independence for a period of time. The question is, can you ever get it back? After you burn away the debt, can you stick the landing and then go back to some state of more confidence? We did it before after the 40s, but that was a very different time. Can we do it again? We'll see. To answer your

question, if a country does lose confidence of investors in its current in central bank, you're more likely to get steeper yield curves, you're more likely to a capital flight, which then actually increase the probability of getting capital controls or capital frictions to try to slow it, which can then actually accelerate the capital flight where possible. And the way that can manifest is like the Fed could cut. And so if the market agrees with the Fed's cut, like let's say the economy is slowing and inflation is not a problem and labor markets are viewed as increasingly a problem. And then the Fed cuts, the market will say, okay, that makes sense.

and they might also be, you know, buying bonds and therefore driving bond yields down as well. If the market says, okay, inflation's kind of hot, the economy is not that slow, it would make sense to cut here. But then a politicized Fed or politicized central bank cuts, the market could say, I don't trust that they're going to, you know, maintain inflation at their target level. I don't trust they're going to try to get back to the 2% target the way they measure it. So maybe I want higher bond yields. So you can have a situation where the Fed cuts and longer duration assets, mortgage-backed securities or treasure bonds, go up in yields as people sell them. And the magnitude of that could depend on just how much competent. If they think,

okay, so there's maybe a couple politicized governors. That's one thing. If the whole thing's kind of captured, it's another thing. So there's a matter of degrees here. But I think it's unfortunately normal that as you enter fiscal dominance stay there for a while, whether it's capital controls, capital frictions, or a deterioration of central bank independence, these are symptoms of fiscal dominance. As the ledger gets structurally imbalanced, more kind of scaffolding goes up trying to keep the wheels on the track. And those are well-trodden tools that they have that they'll probably resort to over time. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect

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And whenever we say that, so we typically talk about the 10-year or the 30-year, whenever we talk about like a steepening curve, you can sort of like picture it as, like, how far do you go out in time and what kind of interest rate would the, or yield would the investors want to have. And it just, it seems like with everything that's going on, yes, we've seen some crazy moves, but perhaps we've seen nothing yet. And perhaps it's not even dependent on the Fed independence, some of the moves that you're going to see.

Who knows? Yeah, I think the problem is that during fiscal dominance, the Fed doesn't really have good moves anymore. You know, when they try to contain inflation, their main, what they're trying to do is accelerate or decelerate bank lending with their rate cuts or rate hikes. but when the, you know, when the call is coming from the inside, when inflation's from monetized fiscal deficits, raising and lowering rates is not as effective because if they raise rates, it actually blows out the deficit even more. That's kind of the problem, is that their tools are just,

they're not designed for fiscal dominance. And so that's part of why they lose independence at that point, because they don't really even have the tools to deal with the situation anyway. So then it's easy to say, well, look, they're not even effective. Let's just take them over, basically. And I, you know, kind of a key theme in broken money is that money is a ledger and there's different types of ledgers. So gold, for example, you're trusting nature and the difficulty of mining and refining to determine how much gold is in the world. And a key limiter is that it's slow, it's physical. Whereas with the dollar system, it's you're basically trusting the reliability of, the government and the central bank and the broader banking system to maintain this gigantic human-run ledger

effectively. And there are some ledgers, like a typical developing country, we don't particularly trust that ledger more than we have to or as a trade or something. Whereas these really big ledgers, you know, we're kind of out of necessity. We're kind of tied to. And so when they start to have problems, I mean, the problem is those big centralized ledgers are permissioned. So they can seize assets, they can do capital controls. And, you know, if they lose certain checks and balances, they can inflate quite rapidly. And then the third type would be, you know, code. So Bitcoin or other time chains in general, which is a bunch of users run a ledger. And in that sense, you're trusting the security of the code. You're trusting kind of the checks and balances that maintain the rule

set of that ecosystem. So instead of being one centralized entity, there's a handful of kind of of players that all, you know, lean on each other and that the incentives have to be in place to maintain either permissionlessness, the ability to transact without getting censored, or that your currency is not going to get bugged or debased in some way. So those are kind of three main ledgers, and the problem is during fiscal dominance, that middle type, that centralized ones starts to degrade. So people either flee to ones that are not quite as degraded, you know, maybe the Switzerland's of the world, or they flock into these other types

of neutral assets, these ones that are just governed in different ways, either by nature or by code or whatever else. Yeah, I would give my, well, I think legally I can't give any advice on the podcast. So I'd probably make the observation that you better be on the right side of the bond trade. And whenever you see what's going to unravel here. But I think if you ask politicians, like I haven't knocked politicians enough. I'm going to do it one more time. But I think if you ask them, probably most would say they want to balance the budget.

But politicians being both politicians also seek. election or re-election. And that is tough. In practice, they have four tools at their disposal, lower spending, raising taxes, printing money, and then restructuring debt. And some, especially politicians, would also say, well, you know, we can just grow out of this issue we have right now. And I just, I've just seen that movie play out too many times now and read too many history books that that's usually just not what's going to happen. So you typically have to use other tools. The world just isn't that kind. So I'm going to give you a very, very tough challenge here because it seems like the world's governments can't figure it out, but perhaps

you can lend. So politics aside, if you were in charge, and let's just say you could use, in this case, both fiscal and monetary tools, how would you balance those levers and what would the implications be? Yeah, so it's a set of question. I mean, that's kind of the trillion dollar question. First thing I would do is resign, because I don't think I would be able to fix it, to be honest. That's why I don't work in public office. I work in private markets, kind of handle my own situation as best I can rather than trying to govern everyone's ledger. I think that, you know, if I were to give advice or try to do it myself, if I was in sort of like a theory-crafting mindset, it would be some of the stuff we already talked about, which is

to recognize in the U.S.'s case that we are a fading empire and to say that is, I mean, empire is, again, there's those that are rewarded by it. So the military industrial complex is rewarded by being an empire versus the manufacturing base is not even helped by it. It's actually harmed by it, compared to countries that are leaning into that empire direction. So I basically say, okay, we're, you know, it's, we're in this fading empire path. How can we, most gracefully, you know, most gracefully transition in that regard. How can we pull back from position of strength? How can we continue being this, you know, shining republic on a hill that people want to immigrate to, that people want to do business with, that people want to innovate in,

that people, you know, that it's viewed as kind of the most free and pretty wealthy on a per capita basis and happy? How can we optimize toward that? So I, instead of trying to try to, to maintain dollar dominance, I would promote neutral reserve assets. So I think that's the, that's the natural state of affairs. I would support a more multi-currency world, and I would try to gear the domestic system more toward that. So one would be basically, whenever you have this much debt on the public ledger, you're going to default. The question is, how are you going to default, and who are you going to default to? So you can default nominally, which generally doesn't happen when the currency is in your own, when the debt's in your own currency.

Or you can default through purchasing power. In some way, we already have in the past five years of bonds, I mean, it's been absolutely lighting investor returns on fire in terms of purchasing power. We've already kind of done this like partial default compared to every other asset you could have owned pretty much. But I don't think we're done yet because we still have very high public debt and high interest expense. There's also just on like entitlement systems that are just completely just out of control.

They were designed with the idea that. Every generation is going to be bigger than the next generation, so that you're always going to have a low retire to worker ratio, and that's just not the case. So it's just not geared correctly. So we have this gigantic insurance state. We also, the U.S. has the highest per capita healthcare costs in the world. So even though Japan on average is like 10 years older than us, they spend on average way less on health care than we do and longer life expectancy. So basically, and I would kind of do the opposite of what Doge did. So Doge, they went after, so if you look at the government spending pie chart, there's defense, there's Social Security, Medicare, you can put

veterans benefits in defense. And then there's a smaller part of the pie chart is like everything else. It's like the FAA. It's like the parks, you know, the rest of the pie chart. That obviously could be optimized, but that's that's kind of pretending that there's not a bigger problem. The bigger problem is the defense, the bloated healthcare system, imbalance social security. So basically, that's what I would try to right size. to try to clear out pork from the defense spending, actually focus more on defense, not on hundreds of military bases globally.

So I'd say pull back, make sure we, you know, speak softly and carry a big stick. So don't disarm ourselves, but, you know, have a military design toward defense of ourselves, occasional defense of our allies, global alliances, not just, you know, being everywhere all the time and not optimizing toward congressional pork. Two, I would stop subsidizing

like food policy was kind of geared toward making sure starvation doesn't happen. So subsidizing like unhealthy food, which then after decades gave us tons of health problems that then blows our healthcare system. And then in addition, our kind of hybrid public, private mess,

it makes it so price discovery doesn't happen. If someone goes for a procedure, they don't even know what the price is. There's no, the mechanism of kind of buyers and sellers setting prices. This doesn't really happen in the U.S. healthcare system. Many other places, too, but especially the U.S. So I don't think you can fix this without tackling the health care system, which is incredibly hard.

I mean, I wouldn't have any illusions that I would accomplish it, but that has to be accomplished eventually, either through crisis or preferably before this a crisis. And get back toward those areas of government being more limited. And then along with kind of a one-time major currency default, basically a currency devaluation. Now, where currency devaluations fail is basically when they don't get the problem under control. So after World War II, the U.S., I mean, they had a major currency devaluation, but then they did shift toward austerity.

They didn't keep running big deficits. They had, I mean, they had the benefit of really good demographics. They had an innovation boom, all of this. And they used that to shift toward austerity. So, okay, it's okay, bondholders got killed, but then it stabilized, rebuild confidence, go from there. That's kind of what you have to do is basically say we already have too much debt. We already, you know, generations have made promises we can't do. How can we default on some of this is in the fairest way possible and then stabilize to try

to keep it together for future generations? Those are the things I would be trying to do. But again, it's much easier said than done. It's much easier to get your own house in order than to try to fix the ledger that 300 plus a million Americans use and, you know, the whole world. is tied into as well. Yeah, and it's hard to be the emperor who scales back the empire. Like, there is a selection bias.

If you are the emperor, you probably didn't become the emperor by having that mindset in the first place. I don't want to derail the conversation too much, and I know I nerd out too much about history, but if anyone would study what happened September 2nd, 1940, with the Disority for Basis deal between the UK and the US, I think. I just think that it's a very different, very interesting case study in a lot of things that's going on and how to navigate empires for like a better words and a changing world order. Len, I am going to ask you and a reasonable question.

But I've done that so far throughout the episode, so I can't help myself. So aside from hard money, I'm going to constrain you to say you can't say hard money because I kind of felt you would go that route. But if some of listeners are tuning in here and they're like, what should we do here the next, say, five to ten years? We know that we have a lot of listeners who are mainly thinking about equities. How do you think about high quality equities in the era of fiscal dominance? So I'm bullish on high quality equities. I maintain a three-pillar portfolio, which is one is hard monies and commodity producers, things like that. The other one is profitable,

high-quality equities. And then the third smaller pillar is cash equivalence for liquid. and rebalancing and, you know, things like that. So the equity components is very large for me, and I try to be somewhat globally diversified. And quality is relative to price. So if something is extremely high quality, I'm willing to pay up for it a little bit more. If something is medium quality, I expect to get it at a bargain. The reason that equities can do pretty well in a fiscally dominant environment, especially if you don't overpay for them, is, I mean, in addition, just for all the reasons that

your listeners know equities are good. I mean, you're owning a profitable business that is, you know, it's doing more than a inert substance is doing. It's a bunch of people working every day to try to increase the value of your investment. But they're also, one of the, I've made the point before that one of the best products that Procter and Gamber ever sold was their bonds. Same thing for Coca-Cola. And another way of putting it is that, you know, Coca-Cola has been profitable like every year for like a century, more or less. And so why do they have 40 or 50, billion in debt. And the answer is because they can, because, you know, especially before the

current high rate environment, they could issue bonds at two or three percent for five, ten, twenty plus years. And they were basically shorting fee of currency for low single digits, while that currency was growing in broad supply by an average of seven percent per year. And so they have this big fee at currency short that unlike a hedge fund or something can't just be called back on them like a margin loan. They've got this kind of permanent short out there. there. And then they use it to buy anything that will give them a better return than two, three, four percent. They will buy back their own stock. They will make acquisitions. They will do all sorts of other things. And so one of the reasons why equities do well during currency debasement,

or at least hold that pretty well, is that they're shorting the currency and then they're long assets that are in general better than the currency. Now, if their revenue streams are denominated in foreign, so if you have a developing country equity, and then, let's say they get a lot of dollars in income and their expenses are in local currency and they're short in the local currency while they're earning dollars. That's a really good place for them to be in if the dollar strengthens relative to their currency. Whereas obviously the problem is if you have debasement, their own revenues are also being debased, which then they're trying to recoup with price increases over time. So it's not a perfect defense against, you know,

fiscal dominance and inflation and debasement capital controls and all these sorts of things. But it's one of the better things you could be in because unlike a bond that might pay you 4% a year with no growth. In many cases, I mean, you can get a, you know, an earnings yield of 5%, 7%, 10%, 12%, that also grows over time. And you either, you get dividends you can reinvest into owning more of the company or that you share buybacks and you own more of the company. And so I do find that high quality equities are useful in this environment. And sometimes even banks, for example, I mean, even though we're talking about currency problems, if a bank is shorting the currency at a lower rate than they're long of the currency and they're relatively cheap

relative to their earnings or assets, they can work well also. So I've been reasonably bullish on certain countries' financial sectors, even as I expect currency problems. So I do find the equities are a great balance with hard monies and other hard assets in most environments. Thank you, Lynn. I have a final question here for you before I let you go. You know, I look at you and I see that you're in such an inval position. You know, there's so many directions you could go. You know, you could do more research. You can write another fantastic book.

You're a GP at EcoDeath Capital. Full disclaimer, my co-founder, Preston, is also GP there. You could spend more time on the conference. There are so many things you can do. Of course, you could sit home with your husband and, you know, have tea and read a good book or what's TV, whatever. Like, giving all of these opportunities that you have, what do you find yourself optimizing for it in life right now and why?

I would say writing and work-life balance. There are different phases of a career. So during, at one point, my research business took off tremendously. And then also, you know, the pandemic happened. Macro was crazy. Everything was crazy. Money-printing was happening. I had to kind of lean into that really hard.

didn't really have a choice. It was just really hard to keep up with. But if you if you kind of run at full speed for a very long time, you burn out or like, you know, where you're one of those people like 40 years went by and you wondered, did you ever live? It's like, you know, it's kind of the classic trap that people could fall into. So especially after 2022 and 2023, I wrote broken money while doing many other things, like running my research business and other work, which was a, you know, very kind of all in period. So I kind of needed. a break for a period of time. And so I've been optimizing for health, optimizing for getting outside more, optimizing for, you know, just kind of having more balance of interest.

Sometimes things, like with broken money, for example, for years, I was hesitant to write a book because it's one of the lower ROI things you can do in many cases, especially if you work in finance. It's super tedious, anyone who's written a book. And so I resisted writing a book until a very clear picture of the book formed in my head. And then it was too distracting not to write it. I had to write it. And with every year that goes by, I mean, that's one of the happiest things I've done. That's one of the things I'm most proud of.

And it's partially because it's an artifact that is a self-contained thing that has kind of a life of its own now. More than a collection of articles, more than certain investment decisions. This is like an artifact that persists. and I find that interesting. I guess the funniest answer of how I'm spending my time is I've actually been writing a sci-fi book for similar reasons, which is, I mean, we talked about,

when you're in kind of a crazy environment, like, you know, we touched on, you know, not just finance here, but what happens geopolitically in these environments? There's also the question of how does tech change things? And so in this world of, you know, with AI making it so you can like say, especially in the future, make a deep fake video that you have a lot of, it's hard to even tell if it's true or not. It used to be the videos where

if you saw a video of something, it was obviously that thing happened. Increasingly, that's not necessarily the case. And so how do you even know what's happening in the world if it takes far more work to untangle lies than to spread them? In addition, in a world of capital controls or governments trying to seize power, what does that look like? And so I've actually been exploring that to some extent in fiction. So on one hand, it's hopefully entertaining, but then also touches on, you know, kind of extrapolates out current themes for many decades to kind of explore what things are like. And it kind of forces me to, you know, my background's engineering. I've always found technology interesting, obviously. But when you're so focused on macro, it's easy

to miss, you know, a couple of years worth of, you know, what tech's advancing pretty quick. You don't really have your finger on the pulse of it. So it's kind of like it forced me to do a check there on a bunch of, you know, technology related stuff. I also generally find, and Daly was kind of an exception in this. For a lot of people that work on finance, they become technicians, meaning they know how to trade the current market really well, but they can't really envision that structure structurally changing. They don't really picture an environment that they never knew. And one of the things is by having kind of diverse interests, you know, whether it's exploring fiction, science fiction, whether it's exploring philosophy,

whether it's exploring history, you either, either broading your scope forward or broading your go back or up or down, you have a bigger view. So instead of being a technician, it helps you kind of be a strategist or to have ideas in your head of how things could change that are maybe outside of the box. So I've been leaning a little bit to fiction, working on my second book, which will come out in 2026, while maintaining these other things. And I think it's partially just because, you know, I want to maintain flexibility and plasticity with my mind. I want to enhance the creativity. because I think creativity is one of the skill sets we need to cultivate in these kind of crazy times. When things are kind of more normal, it's more about operation and execution.

Whereas when things are more tumultuous, having ideas that are outside of the box and being aware of history and aware of possibilities for the future is maybe how you navigate that better. So, Linna, I wanted to ask you a very, very self-serving question, which I guess you can say I've done through most of the conversation anyway. But I was kind of curious, like, so I'm going to impose all my biases on you, which is not fair at all. So there are different stages of your life where it might be, life might be difficult. But knowing what to do, at least in my case, was somewhat easy in the sense of there was a time where, you know, you needed good grades, so you had to optimize for getting good grades. And then you needed to find a job and perhaps you wanted to advance in that job. And there were sort of like different things that was quite easy to identify as tricky as it was. You could identify what you're

supposed to do. Plus, perhaps at least in my case, I don't think I asked too many questions of what I was supposed to do. It was just quite clear, even though I might be misguided, that that was what I was supposed to do. And so whenever you then read a state of your life where you can do anything you want to do. And I don't necessarily think you have this issue of analysis paralysis. But what kind of framework do you use to figure out what to do next? Yeah, it's a good question. Like you, I mean, there's a period of time where I was on a pretty clear path. One of the frameworks I use is knowing whether you're in the yes phase or the no phase. So generally when you're in the yes phase, it means you're trying to expand. You've got more

energy and time, then you have other resources. And so when opportunities come your way, you generally have to lean into saying yes and or you have to pursue opportunities. And so, for example, when I was an engineer, I would go to my boss and say, you know, what tasks? I was like working on my engineering management master's degree, but I was also going to my boss and saying, oh, there's certain administrative tasks that you'd like off your hands that I could, I could learn and help you with. And I would kind of, I kind of slowly became the boss over time. That's kind of how it is a proactive way to say yes. Or if you'd come to me and say, hey, could you handle this? Yes. Or if employees have issues like yes. You kind of lean into overdoing.

And so there's certain, but of course, a lot of people don't get to that phase. You know, they wish they were doing more, but they're not. And so the answer is they probably should say yes more or they should proactively reach out more. But then there's a phase. Sometimes after a period a time, whether it's because you got older, your life became more complex, you were successful at saying yes so many times, you can do a thing where that's no longer your constraint anymore. Maybe you have other resources, but now time and energy are your constraints. And if you're bombard in too many directions, it's hard to focus and execute on the things that are actually really important for one reason or another.

And so you actually then have to realize that you're in more of a no phase. you're more of saying, you know, I appreciate what you're doing, but I can't, I don't, I don't have the bandwidth to do that properly right now. And you have to say that more and more. And that, that has been one of the things I've had to navigate to stay reasonably focused. I mean, as you point, I do research, I write books, I do venture capital. I have to then have a pretty big safeguard on my time and energy and attention because otherwise, if you do too many things, you don't do any of them well. So I think that's the biggest thing as a person. needs to know, are they leaning in toward yeses and seeking opportunities, or are they leaning

back toward picking the more cautious to see what they can do? And that can also include work, life balance, spending more time with families, spending more time outside, focusing in your health, physical health, mental health, all these things like that, having a more holistic balanced life. I think that's the biggest starting point that someone has to answer because everything else is kind of tactical from there. Then it's like, okay, what should I say yes to? How should I reach out or how do I say no more? How do I pull back more? But if you don't even know which direction you're going in, I think that's the biggest question to answer. Does someone want to expand or does someone want to, I don't want to say contract, but more like streamline,

optimize. And that's the biggest thing to get right first. And then it's, you know, what makes you happy? What has a blend of being economically sustainable but also rewarding and that you feel benefits yourself, benefits the world, and is economically viable to do? Yeah, I love that you're writing fiction. I need to pick that up. And it's such an interesting place, right? Because you can, to your point about being a technician, like you can specialize even more, you can be even better, and it's fun to be even better at something. But it's also fun to try something new, and then you put yourself in a completely new position where you're perhaps not as good, which is not the case with you, I'm sure. I'm sure, Len. So it's just, thank you

for sharing your journey. happy to. And I think, I mean, there's sometimes like when you pull away from something, you don't do it permanently. Like if you do, if you travel too much, like if someone doesn't travel, they have a travel bug. They travel a ton. And then, you know, the exhaustion of traveling and the franticness of also trying to maintain your home situation can get very complex. So they could be a period of time where traveling is no longer fun. Then you want to pull back. Then after a while, and you've got that stabilized, you get the travel bug again. And that can apply toward writing a book, that can apply toward operating in financial markets, that can operate, that can apply toward travel. There's all sorts of things. So it's kind of like realizing that as you shift around, it's not necessarily always permanent decisions. It's just kind of realizing that there's seasons to human life in a similar way that

there's real seasons. Wonderful, wonderful way to end the episode. Lynn, I wanted to give you the opportunity to give a hand off to whatever you want to give a hand off to. I can say, for one, I absolutely love your book, Broken Money. your newsletter, but whatever you want to point people to please do. I appreciate that. Those are it.

Check out broken money. If you haven't read it, and Lynn Alden.com, I have free newsletters and articles people can check out. Fantastic. Any concluding marks here before? We'll let you go, Lynn, for this time. I don't think so. I think stay open-minded.

Creativity is going to think be important in the years ahead because we're in, we live in interesting times. Boom. I have to end the recording with those words. All right. Thank you so much. Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes.

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