Luke, welcome to the New York State Podcast.
Great to have you here. It's great to be here.
Thanks for having me on Blagi. Yeah.
So you know, we have been carry on a fairly long running
conversation, a sidebar on the world stage.
You know one of the things just as a meta comment like the group
chats are actually good because they are it's it's like
everybody's busy. So you can have like an
asynchronous conversation and then you can, you know, hang out
in person. Like, you know, sometimes you'll
see Kathleen Tyson or some other people from the group.
And it's always great because you could pick up right where
you left off. And everybody knows all the same
references over the last several months.
So anyway, so welcome, Great, great to great to have you here.
It's great to talk to you. I know we've talked before
offline, but it's it's, I've been looking forward to this.
Awesome. So OK, so you are, you know,
you've got force for the trees. LC, do you want to just give you
a quick bio? You're pretty, you know, big
account on Twitter, but just for those people are X.
You know, I should say nowadays give give the give the Luke on
Luke spiel if you wouldn't mind. Yeah, sure.
I'll give you that the elevator pitch.
So nearly 30 years in finance, started out in investment
research, was a partner at two different firms that were
pioneers in bottoms up fundamental channel check
research. At both of those places I was
one of the founding editors of a weekly piece that basically
aggregated the bottoms up fundamental research we were
doing into sort of a macro thematic piece that became one
of the more widely read research pieces on Wall Street heard in
the Midwest. And then straight from the
source at the at the at the two different shops hung out my own
shingles. FFTT in 2014, doing the same
type of work with publicly available information and what
we do is I, I have what I think is the best job in the world.
I get to sit around, read, comprehend, think all day and
aggregate large amounts of publicly available data into
what I'm looking for are developing economic bottlenecks.
Because for me, my 30 years in finance have taught me that how
a developing economic bottleneck will affect various sectors in
the economy is the biggest attribution for investment
outperformance. Perfect example, in the housing
downturn, it didn't matter if you owned the best home builder,
it was only down 90% while all the others went down 95 to 100%,
right. And maybe not home builder, but
mortgage broker, you get it right.
The most important thing was getting them the, the bottleneck
correct in that time. And that's something we try to
do. So that's the short version of
of where I've come from, my background and and what we do
today. So it's funny you say finance in
the East Coast way as supposed to finance which is the West
Coast issue way of saying it was funny so.
It continues our our thing, right?
It's like almost instead of flashing gang signs, we'll just
it's. How you Yeah, yeah, yeah,
exactly. It's funny.
So but the it's interesting you say economic bottlenecks because
So what, what you mean by that? Do you mean, do you mean macro
trends or do you mean a bottleneck in like a chemistry
sense where there's genuinely a scarcity of some compound or raw
material or something in the economy?
Explain me how you think about. That with at the risk of being
flipped yes, it's a little bit of both right.
I am when I when I read and read and read and read, I don't know
what I'm looking for right. I'm, I, I've equated myself to
be in like a, you know, a giant catfish at the bottom of the
Ohio River just waiting for stuff to kind of come downstream
to me. And sort of the secret sauce in
it is when I see something that interests me, it's like a
splinter in my brain and I kind of go, OK.
And I don't most of the time, I don't know, it's sometimes like,
oh, well, that's important. Other times it's like that feels
like it could be important. And I don't know why.
I don't know when. And then I put that in what I
call my cutting room, which is I set it aside, I save it and, and
as things, especially for the things I don't know exactly
where they fit, but I just have a feeling, almost an intuition
that they're important. Possibly for whatever reason, I,
I retain a lot of what I read for long, long periods of time.
And so it might be 24 hours later, it might be 24 days
later, it might be 24 years later and it'll be like
something else triggers. And I go, oh, that reminds me of
this. And this is related to that.
And you start sort of putting pieces together in a way that
starts to build a mosaic of something that's happening.
And I kind of see things in these, these trends of where I
get really excited because not only am I reading for what is
happening, what interests me, but for what I call the dog that
doesn't bark, right? When you're when for what's not
happening or for what people are not reacting to that they should
be. And so when I get really excited
and when I talk about a bottleneck, what I'm most
excited about is when I've got and have read for investing
consensus, which is over here, right?
And everyone thinks this is going to happen.
And I've got this big body of evidence way over here saying
this is actually going to happen.
Not that I mean another. Yeah.
So and that's the it's the conflict of those two.
And that's why I say, yes, it's both is it's, it's, it's more
sort of sort of fundamental macro driven, but it is almost
like a, you know, a chemical reaction of sorts.
When you've got in, you know, when you've actually got the
people, you know, when you, we have positioning in assets and
flows, physical flows on the wrong side of things and they
need to move somewhere else to adjust to what's happening.
There's actually, you know, a kinetic movement of positioning
of money. And that's what I mean by
bottleneck. Yes, this is interesting.
So you know, one of the things I want to do is I want to go
through some of you know you and I have come from I mean I think
we're somewhat similar in that I also just like digest giant
quantities of information. I come at it from maybe a more
tech in Asia standpoint, and you have a lot of experience on the
ground in the Midwest and you've actually seen, you know, the
other side of that, like the deindustrialization and so and
so forth. And you see what, you know,
what's happened with the the factories and and whatnot.
But we've come to, I think, pretty similar conclusions on on
a lot of things, right. And do you want to give the
unified Luke theory of the world?
I mean, you know, the money printer subsidizing things gold
is going to get repriced. You know, financial repression
is really already ongoing, but it's going to become more like
harder to deny. I don't know.
Give me give me the Luke macro. The the Luke macro is really, I
think the fundamental case is that post 2008 it became
apparent to what we will call the bricks or the Global South.
I'll just say bricks for ease that the status quo monetary
system could no longer work after the US basically got out
of it by printing money for a simple reason, which is the
Global South in 2008 was only 10 years past the Asian the Asian
financial crisis, which was essentially they ran out of
dollar reserves. And once they did, they had to
devalue and go through a lot of pain and austerity and they
never wanted to do that again. And what 2?
1000 the way US got out of 2008 showed them.
Was that ultimately as long as commodities are only priced in
dollars and the Americans are always going to print rather
than take pain then as. A. $100 trillion plus of US
entitlement promises go cash flow negative and go from on off
balance sheet to on balance sheet.
The Americans are going to print the money for that and that is
going to export dollar inflation that shows up in commodities
that basically runs down global S FX reserves and puts them
right back to the problem they had in the late 1990s and
including China. And that was simply a political
and economic red line. They weren't going to allow that
to happen. And so the reaction to 2008,
which was seen in Beijing, Moscow and other places around
the global. South as as basically.
A financial attack on Beijing, Moscow, etcetera.
They began not necessarily doing because they wanted to hurt
America or hate America per SE, but simply out of enlightened
self-interest, which is if we don't do this, we are going to
have another Southeast Asia financial crisis and right then
we need to start de dollarizing our global commodity markets.
And the real you know, that's what we've been seeing happen as
a shift to gold and a pricing in in outside the dollar, primarily
in yuan China setting up different offshore you want
clearing banks and gold hubs around the world, etcetera.
And the other side of that same coin that's part of this unified
theory is the actions, the enlightened self-interest
actions. Of the bricks.
To basically avoid what is a guaranteed repeat of Southeast
Asia crisis the late 90s the other side of that is it means
the price insensitive buyer of treasuries global central banks,
these tend to be all the creditor countries, the bricks
and global S stop buying treasuries on net while US
deficits didn't stop growing right and So what you end up
with is a treasury supply situation that starts to look
like the famous Lucy and I can't think of her name I Love Lucy
episode, right where the chocolates just keep coming
faster and faster right so the US deficits keep coming down the
line faster and faster and you know you stuff the banks with
them you stuff the US pensions with them you stuff US retail
with them and the ultimate problem is these bricks creditor
nations their central banks are no longer buying treasuries as
the reserves they're buying gold or in the.
Case of China, actually, I want to pause you there for a second.
So some premises that maybe we both agree on, I'll go kind of
one by one, get your thoughts first.
The currency of bricks is gold bricks.
Or it's going to be, if it isn't already.
Like that's the one that's traded between them, right?
100% Yep. OK.
And then #2 is gold physical gold, like not, not GLD, not all
the virtualizations of gold, but like physical gold bricks that
you can put in an armored car is going to, that's just going to
become more important because it's there when all kinds of
abstractions go away. That's like physical that you
can touch and feel and it's at record highs, but it's nowhere
near where it's going to be. I think we both agree on that.
Agree. OK.
And you know, an interesting thing, I'm not sure it was you
and I have both done this calculation.
If you actually revalued all of the you know, they it's funny
this is being talked about. I don't know if you have a
theory on this. I don't I don't have a strong
opinion. Is the Golden Fort Knox really
there? I think at least some of it,
maybe all of it, maybe more than all of it.
I, I don't have a strong view on it.
I think a bunch of guys who have haircuts like mine with big guns
say it's there and, you know, and.
You know this Ron Paul types who say it's not and so on.
I I am rationally ignorant. I think it might be there, but
I've also wouldn't be surprised if it was misaccounted for like
you saw this jobs report. It's it's really genuinely
Potemkin American where for years remember how mad they got
at David Sacks and a few other people who pointed out that
these jobs numbers seem really wishy washy and weird during the
Biden administration. It was like 17 like months
straight of like up into the right job numbers.
Remember that like of job growth and then every absolutely.
Yeah, yeah, I was going to say too, as you look back to summer
2022, like I remember saying early in 22, I'm like, they
can't tighten because the debt situation will put us into a
recession really quick. And they tightened.
I was wrong. I was, I, I immediately pivoted
like, OK, well, they're tightening.
Well, this would be really bad for risk.
So that was correct. And then you saw all of these
sort of data series that had always.
Foreshadowed recession and employment loss, you know ISM
and and and industrial production and.
All of these things and it was chapter and verse through second
quarter, third quarter dollars rising like you'd get into a
recession. The only thing that didn't move
was employment. And so people were saying, aha,
see, there wasn't a receipt, tax receipts.
How how do you have tax receipts fall as dramatically as they did
in 2022-2023? And I call it a recession.
You thought of that graph that. 'D be a great graph to show.
Can you share that graph? This is this is going back to
1947 and so right anytime you get receipts down year over year
about 5% like the only time you didn't have a recession down
more than 3% on receipts was sorry, 64 was 2, but that was
down only down 2% right recession, recession.
Wow, what a great charge. And, and look at this, we've got
receipts in the, you know, down 8% and we're not in a recession.
And the only reason we weren't in a recession, if you go back
and read at the time, was all the economists were like, well,
it's not technically a recession even though GDP fell.
If you remember, they revised GDP decline in two Q and three Q
22 away, but initially it was reported as a decline.
So they why, why was it because the jobs numbers had gotten, you
know, whether you call it faked, whether you call it massaged,
whatever, what have you is that. I don't I don't know like I
looked at that like you get receipts down 8 now a big chunk
of that was withheld, right. So the as reported, the reason
why, why receipts fell and employment didn't was because a
about $500 billion of that decline, 450 billion was what
they call non withheld, right. So non withheld is just stock
based comp. And so as stocks fell in 2022,
it's a huge, you know, stop the stock market is the key marginal
driver to to consumer spending and therefore U.S. tax receipts.
So it's, it's for me, I don't think the job revision is, you
know, it, it's not necessarily that we didn't have a that we,
that we had a recession there, a job recession.
But I think it supports the view that it was much softer in 2022.
Everything else was recessionary except jobs, including this, the
the decline in receipts, which was like I said, heavily non
withheld. It was stock based, comp driven.
Very interesting. I mean, the, the, the thing
that's really fascinating about this is there's almost a
reflexivity to it of if you can sort of fake enough people into
thinking it's not a recession, then they might act if it's not
a recession and then they come out of recession.
Or at least that was the, I think that was probably what the
Biden and men people were thinking.
They can just skate by it and so on.
But I think what actually happens is they just are hiding
the stick of dynamite under more and more pillows and then it
blows up in a you know, I don't know if kicking the can, but
then it can't be kicked. It the duration of can kicking
or the distance you kick it, it reduces each time, you know, So
OK, that was a great graph. So, OK, now your conclusion from
that is what? That essentially, the economy is
in much worse shape than it actually looks.
My conclusion from that graph was at the time and continues to
be that stocks are the US economy on the margin and you
know if we if we go back to sharing that right and screen.
So I've got a graph for you, also from 2023.
Let me show you one which maybe you've seen.
Oh, actually, actually go, go, go show your screen.
Then I'll show you something. We go to the same chart here and
it's this is now I've overlaid total equity market cap year
over year over that same tax receipt number, right?
And so I'm going to go 1966. Through. 1995, right?
And there's, there is in the inflationary 70s, there is some
rhyming, right? But then when we get into the
financialized 80s, let's go 82 to 95, you know, stocks go up,
stocks go down. But receipts are just, you know,
there's, there's, yeah, they're, they, they continue to chug
along no matter what it, you know, call it zero, you know, 5
to 10% year over year. Now in 1995, President Bill
Clinton signs tax legislation. And in that tax legislation he
says we are going to, we're going to make non deductible to
the corporation cash compensation over $1 million per
year. We basically we're going to try
to fight wealth inequality, right.
We executive comp, CEO comps getting too far away from
workers. So we're going to we're going to
make non deductible to the corporation cash comp and the
lobbyists were able to change that to say.
To to exclude. Stock based comp And so guess
how corporate America started getting paid post 1995?
CEO, C-Suite, middle managed. They all went to equity and now
this is the same chart 1995 to present.
This is in blue U.S. Federal tax receipts year over
year all in and red is U.S. stock market equity market cap
year over year. You tell me where the stock
market? The three big crashes correspond
to the downturns in the.com crash, the 2008 financial
crisis, and then the 2022-2023 correction.
There's a decline in the corporate equities liability
level and a corresponding decline in current receipts.
And the first two of them correspond to a recession, but
the third one doesn't. And the third one doesn't.
And this is super, super powerful chart because this
tells us you look at this chart and I, you know, we were hearing
Scott Besson saying January and February and Elon Musk and
Trump, we're going to take some pain.
It's OK if the stock market falls, we're going to get the
deficit down. And you.
Look at this chart and you go. No, you're not.
Anything that drives stocks down is going to blow out the
deficit, which given our fiscal position is a huge problem.
It's why we have repeatedly seen and since 2018 these periods
that are very confusing to most market participants still, which
is stocks go down 1020% and the 10 year treasury yield comes
down like it always has a little bit and then all of a sudden it
starts. Taking off like a scalded cat.
And this is one of the reasons that has happened, The reason 10
year yields have gone up in equity downturns after a brief
decline since 2018-2019. Certainly 2020 is exactly this
is. The US economy is the stock
market. The stock market is the US
economy because so much of the marginal shift in marginal
amount of consumer spending. Consumer spending in 2/3 of GDP
is driven by stocks. You know, we have a charge
shows, you know, we've looked at the IRS data.
The annual net capital gains plus taxable IRA distributions
alone are 200% of the annual growth in personal consumption
expenditures, which is a 17 or $18 trillion line item in the US
economy. Like literally the US economy
mathematically cannot grow if stocks fall.
And so it's enormously powerful because what it tells you is
unless they are willing to stand aside and let the Treasury
market blow up, to let rates rise in a recession, in a
inequity downturn and let let the US go into a debt death
spiral, they can't let equities fall for, you know, this chart
tells you they'll never let them fall and stay down at 20% for
more than a week or two, maybe 3 weeks.
Very powerful. Well, it's interesting.
There's, there's a very, there's a guy
stephen.randywaldman@interfluidity.com and I, I'm not sure I can find
the post, but essentially he makes a very similar point to
you. It might be a year or two years
ago and so and sober, maybe AI could find it if you look for
it. But essentially his point was
something like the economy is a stock market because so many
upper middle class people have their money in index funds that,
that it has become an expectation of the kinds of
people that take government jobs, especially senior
government jobs, that the market will be going up and that if
it's going down too much, then it needs to be propped up.
And as you're aware, you, you know, the Plunge Protection
team, you've probably written about it quite a bit.
Right. And not in those words, but
certainly, yeah. Yeah.
So that's actually, you know, that's actually Greenspan's name
for it in the 90s. So if you if you that's it's a
term. The Plunge Protection Team is
the informal name of taking printed paper from the Fed,
printed money from the Fed and directly or indirectly,
sometimes they literally directly buy assets, like they
directly bought mortgage-backed securities.
But often other times they will indirectly do it through some
shell game or they have some bank go and buy the assets so it
doesn't look like the direct hand of the Fed or they'll spot
a bunch of people to go and do it.
And to them, these kinds of shell games are extremely
meaningful. And if you phrase it even
slightly wrong, like if you say, oh, you know, the Fed is issuing
debt, No, no, no, it's a Treasury that's issuing debt and
not the Fed directly. As if Fed and Treasury aren't
really joined at the hip for many purposes, right?
I'm saying, right, they're really 100.
Percent. I am.
Oh, yeah, I get absolutely browbeaten by some people on
Twitter because like, oh, he's a clown.
Because technically and like, I think you and I, one of the
reason we get along so well is we're functionalists, right?
It's like, like, I don't care. Like I want.
If this happens, then this happens.
I don't care how you shell it in between.
That's right. So, so much of the system has
evolved to be a shell game to defeat, for example, the whole
concept that, oh, you can just hold treasuries until maturity
and it doesn't matter that they've been devalued so much by
these rate hikes. But the whole point was that
they're supposed to be the most liquid acid in the world.
And if you have to hold them maturity and you can't sell
them, then they've obviously been devalued.
So you've given up the liquidity and you get a one very valuable
property of it. And you and you're saying that,
oh, it's, it's just fine. It's the same thing as it is,
and they have to monkey with it and they have to say, Oh no,
actually we're going to value it on the books for what you bought
it for, not what you can sell it for.
OK, just as one example, you know.
Anyway. Yeah, just for the banks, right?
Yeah, that was BTFP in one Q 23. It was like, well, you banks,
you know, I know you're these are at $0.70 on the dollar in
the market, but we're going to, we'll buy them from you and swap
them out at $100, you know, at par exactly so that you are not
insolvent or and more importantly, you don't have to
sell these into a falling market.
That's right. So, so essentially all of these
shell games, these people have persuaded themselves that
they're real and that they just want to avoid the accounting
markdown. And it gets more and more
complicated because to even understand that they're actually
insolvent requires you to just tear through several layers of
self and other obfuscation, you know, but but you know, the
here, the point being that if you take this intrafluity
article and I'll find the exact title of it, but you can
probably find it with AI. It's something along the lines
of because so many upper middle class people have their
portfolios in index funds, they expect the government to keep
propping that up. They think of the stock market
as economy, just as you said. And the way they control that
directly or indirectly is when it goes down too much, the Fed
prints and props assets back up. And what that means when the Fed
prints, it's not something that people, it's not cost less.
It is diluting down. If you have let's say there's a
trillion dollars in assets or in in just if it was like Bitcoin,
you can actually count how many dollars there are.
I know there's M naughty and M1 and M2.
Again, the obfuscation is there on purpose, in part so that
people don't even know what the denominator is.
And they stopped reporting M3 and O6 by.
The way, yeah, exactly. So this is all this, all these
shimmy games where they make. It I would commend slightly just
to say it probably in the short run tactical sense is probably
more Treasury and some of that like the Treasury markets room
exchange stabilization fund, but the Fed absolutely is in my.
Opinion. So there's multiple pockets they
can do it out. Of right, of course.
OK, fine. That's right.
The, the Plunge Protection team is a cross agency team.
And what do they do with this pocket?
So, but the, the net of it, it is that the population and
really the world is taxed via, let's say to simplify dollar
inflation. Is global taxation the issue?
These dollars, they dilute everybody down who is a dollar
holder or a treasury holder or indirectly a holder of other
instruments. And then they use that to prop
up the US stock market. And one way I think about it,
and maybe you'd like this analogy, I'm not sure, actually,
we discussed this. Have you seen those deep sea
vents, like which have like sulfur coming out the deep sea
and there's like bacteria, right?
So I think of that as like the Fed and it's like belching the
printed paper out. And then there's various
financiers that are clustered around it.
And that's Wall Street, right? And the, the reason that that I
think is a good analogy is I don't think that the Wall Street
guys like, why would they be able to make money on net?
Trading should be a 0 sum activity, right?
Building is positive sum. So why are they able to make
money on net answer Because the Fed is taxing the world via
dollar inflation. And then that in a sense, stolen
money is coming up through this sulfurous event and then they're
feeding off of it over here. But that's not actually due to,
I mean, I'm not saying that these guys are dumb and so on
and so forth. They're not necessarily all bad
guys. And so, so Jim Simon's the
smarter, you know, whatever, I'm not attacking them for that
sake. You know, they're playing the
game that's on the field. However, that game just goes
like when people talk about a financialized economy.
If you have this mental model, dollar inflation, global
taxation, the Fed is propping up asset prices, this plume of
sulfur, this printed papers coming up, the bacteria are
feeding on it. This explains a lot about why
the world is the way it is, where everybody who's not in
finance or in tech is seeing their real purchasing power
erode, at least in the West, and they're getting diluted down
every day by this printed money. And they don't understand
exactly why because they're like, I'm making more money than
I ever could, than I ever had before.
But everything is so expensive. And it's like, you know that
saying, like water, water everywhere, but not a drop to
drink. The, the, you know, right.
The poem. Yeah.
So printer, printer everywhere but no money for anything.
And that's exactly it. And it's where that that's that
Cantalon effect, right? That that kind of described
where that ultimately when when you said that they start to
believe the shell game is, I think, very, very powerful
observation because they've believed the shell game in this
unipolar world that has existed since the fall of the Soviet
Union. Like, so the Soviet Union and
sort of this opposing block kept them honest for years and years.
And so as soon as that the USSR collapsed, there was no one left
to keep them honest on sort of the amount being belched out for
almost 40. Well, sorry, 3035 years now,
right? So, yeah, so I guess almost 40
years. So the point being is that.
What they forgot in this ensuing 35 years is you need to ensure
to reinvest into your own infrastructure, physical
infrastructure, your own physical manufacturing, defense,
industrial base to be able to maintain that level of dominance
because if. For some reason, you lose your
ability to basically go pound people in the head, and nuclear
weapons are ultimately that sort of trump card.
Then all of a sudden you get what we have on that chart that
you're showing right there, right?
Which is exactly Saddam tried this, it didn't workout well.
Gaddafi tried a version of this, it didn't workout well.
Why? Neither had nukes.
Putin started doing in No 8 and China, and she followed shortly
thereafter. And you know, like you said in
your conversation with Peter McCormick, like key parts of the
US military are now made in China.
It's you. You can't go to war with China
to stop them from doing this because they won't sell you the
rare earth magnets that you need to make the weapons to point at
them. And the lead time on
redeveloping those capabilities is decades best, a decade best
case. And and yeah.
One thing you're saying that I wanted to point out on this
chart is the entire concept of the entire world being run on
dollars is really a kind of like a 80s to post 1990.
It's like as the Soviet Union fell, that's why USD just
massively expanded like this and gold shrank to such an extent
over here. And here is like, you can argue
like peak America is like right before the 2008 financial
crisis. Then it was kind of skittering
along like this and then it's become receding.
And, you know, we don't know the rate at which it's going to do
so, but it'll probably hit 50% in the next few years.
And but this is the graph that you're basically referring to
when you said it's been essentially a last 30 years
phenomenon. Yep, yeah.
And and this is goes back to my sort of initial overriding view,
which is post 2008, the world started going back to gold
because they simply had to. It wasn't an attack on America.
And quite honestly, what they're doing with gold will be very
good for the parts of America that have been hurt.
But that that implies a lot of inflation, right?
The winners. Yeah.
So go ahead. This is the thing where, so we
agree on a lot. I think the thing which I, I
wanted to discuss with you, so you've mentioned, for example, I
think it was 1982 or thereabouts, Israel had about of
very serious inflation that essentially like wiped out their
debts and they were able to reboot and, and get going,
right? Was it it, was it 82?
Did I get the date? Wrong.
It was like 84, 485, something like.
That OK in that ballpark, right, so.
Yeah, it was like, yeah, early to mid 80s, Yeah, something
like. That fine.
So shekel just got really inflated and so on.
And my view is that that'll be much, much, much worse in the US
for the following reasons. A, the shekel wasn't the global
reserve currency. B Israel at the time was not a
central hub of the world economy and even today is only 150th or
would have you the size of the USA, right?
C Lots of other countries weren't holding like shekels as
treasuries. And so like it was just very
much a spoke rather than a hub, you know.
So a spoke, you know, in the sense of like a hub and spoke
topology like for a wheel, right.
So a spoke can just go and kind of do it at once and it fails
doesn't matter. But a hub to fail in that way,
basically all kinds of spokes just blow up and so on and so
forth. And moreover, and I wanted your
SO first, tell me if you agree with that or not that it's much
worse for that to happen. I, I agree with that and I
would, I would say I think that gold chart exploit is sort of
the, the preparation for that, right?
So I think, I think your view of that is correct.
And I think ultimately, right. If you are a dollar asset holder
and you see the direction this is going, what do you start
doing, right? It's like what you do as a human
is like, hey, there's somebody over there with a bunch of
nitroglycerin and they're playing with matches and you
kind of slowly back away, right? And that it tells you two
things. Number one, that gold chart
turning back higher is the world slowly backing away, number one.
And then I think #2 I think it's, I do think it supports the
view that whenever it happens, because it is a hub, not a
spoke, that gold going to 50%, sixty percent, 80%, you know,
back to where it was when this whole thing started in late 60s.
People think that's going to happen linearly.
And I think the fact that it's a hub and not a spoke issue means
it's going to happen non linearly.
In other words, we're going to have a six month period and it's
going to be gold 36138 hundred 4100 something 4500, I don't
know, something happens 14,000 in six months, something like
that. And then all of a sudden you can
go, OK, well, all of those dollar holders balance sheets
are indifferent, right? They don't care if they owe $10
trillion or $8 trillion in in dollar FX reserves and 1
trillion in gold, or $10 trillion in gold and 0 in.
You know what's funny about this?
What's really funny about this is one of the counter arguments
I saw when I posted that chart that we just looked at.
People are like, that's just due to the price of gold going up
and the price of treasury is going down as if they were like,
oh, you know, rookie mistake. And I'm like but the whole.
Day. That's the whole shooting match,
That's the whole thing. That's the whole thing.
Why is the price going up so much?
Well, oh, it's only because, you know, it's actually did you see
that article the Fed tried to put out last year where they
said a a small group of countries he's buying gold
instead of treasuries. Did you see this thing?
I think I did, but remind me and like the small group of
countries is like 45% of global population or something.
Right. Yeah, yeah, yeah, yeah, yeah,
exactly. Other than that, how was the
play Mrs. Lincoln? Exactly, exactly what I was
thinking. Hold on.
Let me show you this one. This is a this is a banger.
All right, here we go. So the Fed, by the way, this is
my tweet. There was like 1.1 million views
of their like because you know how the QT of the post actually
gets most of the views or what have you, right?
So in Tate's post, authors note the narratives about declining
dollar share and increasing rolls for gold holdings by
central banks inappropriately generalized actions of a small
group of of countries, right? And a small group China, India,
Russia and Turkey. Exactly.
So it was like very close. Your is 37.5% of the world
population. Right.
And the world's factory and the world's manufacturing powerhouse
and the world's like IT outsourcing hub and the most
important part port in the world and it's.
Crazy. The world's biggest energy and
commodity producer. It's like, yeah.
And what they're what they're doing is they're taking all
these small euro states. This, by the way, is a common
thing that I observe is lots of see a lot of Americans think,
OK, there's US and then maybe Europe and they just completely
discount Asia and also like, you know, the Middle East and you
know, Latin America. Like they, they just part of the
reason for that, I think is as I mentioned on the McCormack
episode, you I think have a more global view than most, right?
But I think most people, many Americans have simply not seen
enough media or being physically overseas enough to see like it's
real, right? A lot of there's a lot of
amazing stuff that's happening overseas.
And so because of that, when they hear, oh, you know, for
example, Trump got all of Europe to go and sit in front of the
desk, they're like, well, we're dominating the world.
Everything else is a, you know, third world country and so and
so forth. Do you know what I'm saying?
Right. There's some, some of that maybe
maybe you go ahead. I.
I saw, Oh yeah, I saw it with Russia.
Right. Where at?
Where in 2022 it would be right? Well, Russia's GDP is less than
Italy's or Maine. Yeah, it's a gas station with
nukes kind of thing, right? And it's like there's a
fundamental first principle miscalculation around leverage.
And by that I mean Russia is, you know, if you take Russia's
oil production, they are roughly 1115% of global oil net exports.
If you took 11 to 14% of global oil net exports off the market,
oil would be, I don't know, 4, five, $600 a barrel.
The next day, every bond market in the West would have crashed.
What is the price sensitivity there?
I actually don't know what it is.
You know what? Someone ran it for me once it's
it's very inelastic. Demand destruction also and so
on. So it's complicated, but go
ahead. It's complicated, but it's
especially early on, it's extremely inelastic #1 but then
#2 it's that second derivative of the bond market, right?
Like everyone's like, oh, we survived the 70s.
Well, we survived the 70s oil spike because we had already
devalued the debt from 110% of GDP in 1946 to 30% by 1970.
So like blowing up, you know, having oil quadruple overnight
basically, or in six months didn't blow up the bond mark
because they could raise rates to basically, you know, we still
have the inflation, but it prevented that you couldn't have
a debt death spiral in the Treasury market, in the
fundamental asset of the world at 7%, eight percent, 10
percent, 15% fed funds rate. We haven't devalued the debt.
So like if you tried to take Russian oil off the market,
completely off the market, you would spike oil up several $100
a barrel and you would literally blow up the treasury market
within hours, if not minutes, which is the fundamental
collateral underpinning the entire banking system, the
entire Western financial system, the entire Western financialized
economy. And so it's that second and and
3rd derivative when you're starting from the wrong first
principle where you say, well, Russia's not that important.
Russia, Russia's like critically important because people, you
know, these are the arguments you get from people like, well,
where's electricity come from, from a wall?
And where's food come? Well, it comes from a grocery
store. You know, how big is Russia's
GDP? Oh, it's smaller than Maine.
Like it's the same like level of of understanding.
But, but if you, if you look at it, have you seen the PPP chart,
the World Bank PPP chart? They had to grudgingly admit
last year that if you look at them purchasing power parity
terms, China #1, USA #2, India #3, Russia #4.
It's it's astounding. Like literally the, the four
bricks are the bit for the brick, right?
Yeah, the. 3 The Ric of bricks are #1 #3 and #4 and now the
administration has managed to put them all.
At least partially adverse to the US for whatever, you know,
you know what it is. I think Democrats just were just
like, in my view, irrational about Russia.
And I think there could have been a way to avoid a war.
And now unfortunately, a lot of Republicans are, in my view,
irrational in India and the domestic sentiment is pushing a
it's definitely provoked by the like, India was fine.
India was actually one of the few countries in the world that
was still very pro American, you know, and now they just managed
to push them against the US, unfortunately, which is very
unfortunate because I, you know, I know I have a lot of friends
over there. You should get the noble piece
to the under pushing and go together.
Yeah, exactly. That's right.
So. But, and the problem is here,
the problem is that the current admin in many ways treats its
enemies better than its friends. So, yeah, it, it, it's sort of
and you know, it's fascinating. I read, I've seen that pursing
power parity chart. I would, I would add on two
things. First, there was a new Asia
Times article this week highlighting, I think it's
called the skull chart or something.
And and what the Trump, you know why Trump keeps the.
Unfazy one. Yeah.
Yeah, exactly. And it was incredible to me.
He lays out that I don't know if it's the IM FS calculation of of
PPPGDP but but they look at it per capita and even as much as
they begrudgingly admitted it, apparently the PPP per capita
GDP of China is still basically on par with Mexico.
And he's like are you crazy? Go to the top 100 cities in
China and look at it relative to Mexico City and tell me.
It's obviously the numbers like whatever it is that I, I don't
know exactly how the numbers are being manipulated because China,
as I said, has an interest in sandbagging and America has
interests also in in. Sandbagging finest numbers for
him, right? Like, yeah.
Exactly. So America's just something
China's sandbagging. And the combination is China
wants to appear weak and America wants to appear strong.
And so exactly how China is coming in at like this very low
GDP per capita number. If you've been to China, it's
obviously a very wealthy society.
Like it's obviously ahead in many ways.
Go ahead. Yeah, I was going to say, you
know, the other thing I'd highlight within that is, and
this speaks to the fundamental, A fundamental problem with the
strategy Visa V Russia and China and now, now India.
But Russia and China particularly, which is if you go
to your average Western, particularly neoliberal
economist and talk about PPPGDP, they'll tell you it's bullshit,
right? It's a bullshit number, blah
blah blah. Yeah, they always say that.
Yeah, exactly. They always say always, but
there's a there is you. When it stops being bullshit is
when the bullets start flying because in the end, whether
you've got $100 really nifty missile or you can make 100 just
slightly less nifty missiles for that same $100, the guy with the
bigger PPP GDP wins going away exactly just in Russia.
And so like, you know, in this negotiation, if you're Russia
and China, we literally can't go to work.
Like, you know, if, if war is the, if politics by other means
or the continuation of, of politics by other means, PPGDP
metrics means this has to stop at either short of conventional
war or nuclear war. And Russia and China have to
know this. You know, and it's saying like
PPP is Pew Pew Pew, you know, like the pistol.
Right. Yeah, yeah, yeah, yeah.
Right. So it's a good mnemonic or
something. You know, two other addendums
where you just said, which are all the people who are
complaining about Chinese overproduction, they're like, Oh
my God, China's dumping it's stuff and so on.
What they what they really mean is China has such insane
manufacturing scale that they can crank out very sophisticated
kinds of things like electric cars.
They're not easy to make right, especially not easy to make
cheaply and not easy to make cheaply and at a profit while
doing so. You know, positive margin, low
cost is very, very, very hard to do.
They can make all of this stuff at such enormous scale and this
is so-called overproduction supposedly bad that they're
doing it. But imagine, I mean, in like
when the US is fighting World War 2, everybody complained
about American overproduction because America had all the
factories just crank out everything and solid everything
with just artillery rounds and just, you know, just had this
absolutely enormous, you know, could have like an ice cream
ship and so on and so forth. As people talked about that
time. That's what overproduction
means. It means that imagine
complaining about overproduction of war exactly as you're saying,
right. Or similarly with the tariff
thing, it's related to the the point on the drones, which is if
you're just protecting the American home market, that is an
admission that the American product is not price competitive
abroad in some neutral market, right.
If if it's a Morocco or Mexico or, or you know, I don't know
the Middle East and you've got an American product on the shelf
and the Chinese product on the shelf.
If the American product is not price competitive there, then
that means it's like not price competitive in the physical
world. Like you can't crank out enough
at a low enough price and high enough quality.
And so the home tariff, you know, anyway, go ahead.
So Josh Wolf testifies to Congress in summer 2023.
And I think it's a super illustration of what you just
described of if we need the protection, we can't compete on
a scale standpoint. And right, so he highlighted
that the cost of AUS nuclear power plant, which takes far
longer to build, is still six to seven times more expensive than
a Chinese one per per GW. And to me.
Yeah, that was, that was the whole, like it was a huge
admission, which is a GW in the US is a GW in China.
There's no special physics in the US or China, right?
A GW is a GW. Exactly the cost structure in
the USA. It tells you that the yuan is
90% like the dollar is 90% overvalued versus the yuan
because if the Chinese in the yuan market can build a GW for
1/6 that the Americans can, it tells you that the the dollar is
85% overvalued, 83% overvalued against the yuan.
That's right. That's right.
And you know, there's another piece of this that it took me a
long time to articulate properly.
Let me give two or three pieces. And again, just premises and you
shoot at them. You tell me if I'm wrong and you
disagree or something. So China's stock market is being
flat for a long time. Flatish, right?
Recently, Chinese tech stocks have started to run.
But overall, I would say China saves in factories, not
equities. Like for example, if you had a
stock that was increasing, you could sell that stock and take
the cash and then go and invest in physical plant and so on and
so forth. In theory, you know, Amazon did
this for a long time, even though their stock has run quite
a bit, they would take their free cash flow and keep
reinvesting it. So they have very low profit
margins, but they had enormous scale.
So that's why the Street would keep investing in their scale,
right? So.
And I would add to that, that the other side of that same coin
and I'll let you continue is the world, because the Americans
don't make anything the world wants on net save in American
stocks as the dollars are currency and they can't save in
Chinese factories with American dollars or Chinese yuan since
obviously of capital control. So what we end up with is often
saying is we'll look at our stock market to their stock
market we're dominating. And that's not exactly the
message in my view. It's an apples to oranges
message. There's another piece of it that
again, it took me a while to figure out which is, and if you
talk about how the US is printing money, somebody who's
smart would say, well, China's also printing money.
They're printing quite a lot. So why is it bad if they're
becoming so strong with it? And my answer to that now, my
tentative answer, which I which I reserve the right to revise,
but what I think is actually the case is if you think of
inflation as taxation without legislation, you know, Milton
Friedman's line, right, where basically by money printing you
are effectively seizing a bunch of the assets of the population.
In theory, you could actually spend that well.
And what the Chinese government did is it spent it on roads and
bridges and automated ports and gleaming this and gleaming that.
And so all of this public infrastructure that increased
the Chinese people's productive capacity.
Yeah, and standard of. Living, but yes, but and what
they also did is they also kept prices down or the the RMB
exchange rate down so that you exports could work, right.
So they, the, the part that I think I hadn't fully
conceptualized is inflation is taxation, but taxation could be
used in a positive some way because in the US it's, it's
just not like the 100 billion is taxed in California.
It's all just stolen and it's just all radical, radical waste
beyond anybody can imagine, right?
But in global War on Terror, right, we spent $8 trillion, and
what do we have to show for that?
Like, nothing. That's right.
Even even this whole build up to fight China is, you know, I, I
could tell from the beginning honestly, you know, that that
that chart of the supply chain like the US military is made in
China. Yep, it.
Is the one that we both. Right.
Yeah, Go, yeah, go. Yeah, yeah.
Govani, I think is the source of it.
Govani Exactly. Good memory.
Exactly. That's right.
So there is a $400 million Pentagon study that basically
showed that these famous American weapons, the Tomahawk
and the J Dam, their supplier supplier is in Shenzhen or
Shanghai or something like that for hundreds of different kinds
of companies, right? So and of course China has a
full database of every part that's going out there.
And so, you know, there's a button they can press that says
shut off the American economy, right, which is why Trump had to
blink on this trade war. And he's been up lots of other
countries, but he keeps extending the 90 day thing with
with China or what have you, because he can't cut it off,
right? And now you're seeing headset
basically saying in this very, I don't think it's the the defense
strategy being publicly confirmed yet.
But that thing you tweeted and the thing I tweeted, right, you
posted, if I'm not mistaken, that headset that told China
there's no conflict with them. Yeah, they're turning away and
to refocus on basically rebuilding here.
I think it's, well, I think it is the biggest development since
the fall of the Berlin Wall from a.
Absolutely. It is that big.
And the stuff about the Department of War and so on and
so forth, it's almost like a shouting retreat, right?
Like in the sense of mega and look, I'm sympathetic to some.
I mean, you know, I understand why where they are and where
they're coming from. So I'm sympathetic in some ways.
But they're conflicted because on the one hand, they want
America to be great, which is this giant empire that has, you
know, all this strength and this number one and so on.
On the other hand, they wanted to be just a country again, not
an economic zone, which means like withdrawal from the whole
world and everybody else. You go and do your thing, stop
exploiting us and so on and so forth.
They don't understand the tension between these two world
views, which is to say that pull back is actually in some real
sense a weakening of the empire. And then the question is, will
Sanders living persist and and may.
Now here's a point that maybe you'd agree with.
Maybe. But I think it's very difficult
for them to do this pull back because the US can't tolerate A
decline to like #2 since its business model is money printing
that requires you to be global #1 you can if you stop, if you
pull back from Asia and now you're just doing the Western
Hemisphere, and you may pull back from Europe and just let
Russia have that, OK, Now everybody reassesses where they
want. It's no longer a global reserve
currency. It's only has some historical
kind of traction to it. All kinds of people move into
gold. There's a repricing thing you're
talking about. the US loses control.
The dollar is no longer the reserve currency.
And that means prices explode in the US upward because the
dollar's purchasing power drops and they could explode upward as
a very rough estimate. This is extremely rough.
There's 300 million Americans. How many people worldwide are
currently using the dollar? Maybe 1 to 2 billion, Maybe 8
billion at the Max, right? Some billion, let's say 3
billion, OK. And if that shrinks back to just
U.S. citizens or even just U.S. citizens plus some Canadians and
so and so forth, that could be like a 90% decline in the tax
base. You could, if even if it went
from 700 million to 330 million, it'd be a 50% decline in the tax
base. It'd be a 50% devaluation of the
dollar, right? That's like a radical.
Then on top of that, all these countries will stop sending
parts and so on so forth. So you can see a stacking of
tariffs plus rise of Bitcoin, rise of gold, plus other
countries pulling out effectively of the dollar
taxation union. And so I think it's very hard to
see a good outcome for that, though I also don't see any
other possible outcome. Let me let me know your
thoughts. I agree with your framing of it
and I think I agree with your conclusion around we're at this
point where we don't really have a choice.
If we continue this business model, we we literally cannot
produce the weapons we need to enforce this business model.
So this business model is de facto dead.
It just hasn't been fully marked to market yet.
I think your math. Around the marking to market of
it is, is directionally accurate and we can debate, you know,
various, various whatever it is. You know, as you were saying
that I'm reminded of a of a of a great meme.
I've posted it Once Upon a time. But if you go back in the US
economic data, you can go to 1963 right before we took silver
out of quarters and Dimes and you can go look at what like
the, the minimum wage is for, you know, what minimum wages.
And I want to say it was like $1.25 or something like that.
Or you know, in 1963, that's 5 silver quarters.
Well, if you look at the silver melt value of a 1963 quarter
today, I want to say it's like 5 bucks or something, 4 bucks, 6
bucks, right. So when you say, OK, well then
in real money terms, if we had stayed on a gold standard,
right? Just let let me go with the gold
silver, right. But a real money standard then
minimum wage in the United States should be 5 quarters, 6
bucks, 30 bucks, 25 bucks, whatever it is.
What is it really? It's like less than half that.
And. That's the whole grift.
Post 71 in a meme and it
describes exactly what you're saying, which is.
You should post that. That's a good one, yeah.
Yeah, right. So it's and I've posted before I
can repost. It and it's.
It's it. Is exactly what's about to
happen. And I think ultimately what we
are watching from the Trump administration and key economic
officials, what we are watching with the the brow beating and
discreditation of the Fed. I don't think in this is my view
of it. I could be wrong.
I think Wall Street is entirely too focused on sort of the the
short term tactical reasons for why Trump wants to do this.
Oh, it's, you know, he has bad polls or this isn't going well
or China's beating them. I don't think that's what it is.
I mean, I'm sure it's probably a part of it, But I think the real
reason they're beating the heck out of the Fed is they need to
change this system. They need the Fed to help them
basically start this boulder, this dollar boulder rolling down
the hill in terms of, you know, if continuing on sort of US as
empire where China makes the weapons for the empire to
threaten China with is a dead business model.
And it is then we have to move to something else or else if
things get really bad. And so like the least worst
option is you devalue the dollar.
You have the Fed help. The issue with this though, is
there's so many graphs I can post and I'm sure you've seen a
bunch of them on the level of polarization in the US.
And it's not just it is of course blue versus red, but it's
also women versus men. It's young versus old because of
the Social Security issue, Medicare, Medicaid.
It is unfortunately for for some like white, non white, it is,
you know, American citizen versus foreigner.
It is also in a sense, American versus other countries, you
know, and so and so forth, right.
And and on and on and on. The thing is just riven by, you
know, I'm starting to see people even fighting over religion in a
way that I actually hadn't seen before in my life, like actual,
real fights between Catholics and Protestants, for example.
On my feet. I was like, this is like pre 90.
This is something I just never seen in your in my lifetime,
like passionate kinds of arguments on this kind of thing,
right? And it didn't look like they
were joking around either, which is which is new to me, you know,
And so the from my standpoint, the only thing that is keeping
this fragile, like just take Democrat, Republican Democrats.
There's a study shows only 4% of Democrats are married to
Republican. Obviously, Democrats don't vote
for Republicans. Now with blue sky, they don't
even socialize with Republicans. The one thing they still do and
only barely is they still trade with Republicans because the
dollars. So so it's like, you know, to
reverse the mag of saying it actually is an economic zone,
not a country, because it's a bi national thing where blue
American and red American are as different as North Korean and
South Korean. Like they don't agree on whether
men or women exist, right? Like fundamental, you know,
that's just like one huge obvious, you know, visceral
example, right? But such huge gaps are like
North Korea and South Korea, but they have a fundamentally
different conception of how the economy works, the world works,
what should be legal, what should be illegal, totally,
totally, totally different. And they're getting more
different. And, you know, some people say
wokeness is being beaten because it's being beaten on X, which is
true. That's like saying, you know,
like communists have been beaten.
Yes, after the Soviet Union fell, not everyone had to be
communist. But North Korea and Cuba
continued being communist, actually, right?
And that's a good example. That's a good way of thinking
about like, blue America. A lot big chunk of us continue
to being communist. What's my point?
My point is, I don't think you can just retire the dollar and
then ship a new script like what happens?
Let's say that happens, OK, what happens the next day?
First, blue America and Red America would not be able to
agree on a currency union after that number.
One see, I don't think I, I reject the premise a little bit
in in that I don't think anything's going to happen to
the dollar. So like you go to Latin America,
right? They've, you know, they've added
zeros forever and they still use the same currency.
It's just, you know, how many zeros does it have today?
So I, I think the dollar will remain.
Now, what do I think is a distinct possibility is let's
continue with the, with the USSR example, right?
I've got, I've got friends from Ukraine who emigrated from
Ukraine after the USSR fell. And they, they, they told me
this great story. They said, look, my family was
the richest family in the village.
My father was a doctor. We had enough in our bank to buy
5 cars. And so we were rich.
And they closed the banks on a Friday and then two weeks later
they opened them back up. And the money that on that
Friday when it closed, bought 5 cars, bought a month's of
grocery, same currency, same register, like it just the real
purchasing power was taken away like that, you know?
And when I say, well, what? You know what?
You know, my hit her, her husband was like, yo, yeah, I
was saving to buy a motorcycle, close the banks, reopen the
banks. I buy a carton of cigarettes
with the money I had saved up to buy a motorcycle.
How do people holding gold and silver do right, and they're
like, oh, everyone who held gold and silver is fine and like your
purchasing power is maintained right.
Presumably, you know, Bitcoin, I think would would do be more
than fine, but I think that's a much more likely Rep some
version of that right of bank holiday, close it down, reopen
up and you know, you've got and however they deal with it on the
other side of it, you could do a wealth tax.
You can do capital controls. The whole world's going to be
different on the other side of it, But I think it's still going
to be dollars. I think it's still going to be
dollars. And then I can see your
political your political that thing.
Things get tricky from a political standpoint, right?
Do we fight or do we do after 911 where it's like, Oh my God,
we're all going to starve if we don't friggin you know?
You know. You know, I, I, but I, I think
COVID showed that like, you know, the disaster doesn't make
Americans come together anymore. It just pulls them apart and
they just fight more. Right, it it's fair, it's fair.
It would you would have to be you would have to have a great
leader because I think you're to your point, the time, you know,
the time of when 911 happened. Think about America, totally
different area. I tell my boys, all right, my
boys are are are in their early 20s, late, late teens.
And I tell them, like you cannot fathom how amazing America.
Was how unified it was. 85 to like 2000, like 2001, 2002 even.
It was it was friggin amazing. And yeah, we're not there now.
We are absolutely not there. We can't agree on facts.
We can't agree on pseudo facts. We can't agree on science.
We can't we like we can't agree on anything.
And it to your point, it makes it very dangerous.
I fully concede it makes it. It would make it.
Very dangerous. Let me make a second point,
which is orthogonal to the first, but adds to it, which is
if you were picking a tech stack from scratch today, OK, forget
about the political, just technological because of how the
dollar was started when it was started.
And when I say the dollar, it's like, ACH, it's swift, it's a
suite of technology, it's it's fed wire and so on and so forth.
That tech stack was when it was started, cutting edge, leading
edge. But because it was all set up
pre Internet, other countries now that have kind of got all
this stuff only going post Internet, like, you know, China
has very sophisticated with WeChat and Alipay.
And so it's over India's UPI, you know, POG Seguro in, in
South America. And you know, there's this very,
there's very sophisticated intranet native payment systems,
obviously cryptocurrency, but also all of the fintech
companies, right? Like 18 years ago, in 2817 years
ago, there there weren't that many people around the world who
knew how to stand up a new currency to run payment rails,
to do fintech crypto, that that was actually a relatively rare
skill set. There were like, you know, a few
100,000 people with a Bloomberg Terminal.
Now that is a very widespread skill set.
I can do that. I mean, you know, you know, I
launched USDC at Coinbase, right?
That's number seven, you know, asset, right?
That by the way, that's a counter argument.
Some people will give, they'll say, well, dollars will continue
to get adopted because stable coins are going to grow.
And I actually do agree with that.
So the timing on all this is TBD.
It could be that everything dies against the dollar and then the
dollar, you know, collapse against Bitcoin and gold, just
like all local newspapers died against MIT and Wall Street
Journal in Washington Post. And then they died against, you
know, social media and. X that might be a right model.
I think that might be a right model, right?
Yeah, yeah. So, so that's that's possible,
which will be a lot of instability in its own right,
right. But the so anyway, so the
technological point, I think if you have the dollar no longer
being stable, it's so easy for people to set up an Internet
based thing, whether it's a cryptocurrency or fintech or a
cryptocurrency backed fintech, like a lot of stripes, new
products, new products are kind of in that line of thing, right?
Then no one would adopt the dollar again after it was
delegitimized or partially de dollar.
It's like you wouldn't choose it from you'd only use the dollar
as an incumbent technology. You wouldn't pick it from
scratch if if everybody's picking again.
Let me pause there. Yeah, it's a fascinating point
because there was a, you can call up on China scope the a
speech given by General Kiao Liang of the People's Liberation
Army. And this is this is the same guy
who when he was a Colonel, wrote Unrestricted Warfare in 1999,
which was a book that I believe still never been published in
English, kind of laying out, hey, we got to go against the
Americans all these different ways and in unconventional ways.
So by 2015, he's now a general and he gives a speech to senior
CCP party members. One of the thing in the name of
the speech is the US uses its dollar to dominate the world,
and it gives a Chinese version of events of US going off the
gold standard and weaponizing the dollars through various
cycles over the ensuing 50 years 40.
Five years? What article is this?
It's called US uses its dollar to dominate the world.
It's on China scope. It was published in April 2015.
Interesting. And so one thing as it relates
to what what you you said there that I think is very powerful
is, is towards the end of the speech, he says the Americans
made a mistake by thinking that China's their enemy.
The American we're not their enemy.
The enemy of America and the American dollar are the
technological platforms that the Americans are leading the world
in pushing out, he said. What is the dollar?
The dollar is a currency. When we start to settle trade
without the dollar payment rails, will the dollar currency
hegemony still exist? This is the question the
Americans should be thinking about now.
He said this 10 years ago and then he cited the 2014 payment
statistics all done without dollar rails on Alipay in at the
end of 14 on, you know, Taobao and you know, whatever other
Chinese consumer websites. And they were already doing
staggering levels of consumer volumes outside the dollar in
non dollar rails. And he's warning America like,
hey, you guys are rushing headlong to push these
technologies that are literally undermining the branch.
You're cutting off the branch that you're sitting on as it
relates to the dollar. And so when I hear you say what
you laid out, it's exactly what he warned about 10 years ago.
And I think we're watching it in real time.
And I think not only is it gaining critical mass by virtue
of China's mass and global usage of things like Alipay and
WeChat, but also with U.S. policy where, you know, after
you weaponize the dollar enough times, You know, to me, I think
when the history books of the last 152025 years are written,
you know, I think, I think the, the kicking Iran out of Swift in
2012 will go down as one of the great strategic mistakes in
history. It was like, you know, it was
like being Alabama playing a team that you're already up 70
to nothing and running a trick play that you need to use
against LSU, you know, in a close game and, and getting it
on film. So the whole world, Russia,
China, everybody watched that and went, Oh my God, they can
hyperinflate us overnight. Within a year, the Chinese were
saying we're done buying treasuries and then began.
And that was peak treasuries, and it started falling their
whole. Treasuries.
Though I am surprised they haven't liquidated more than
they have because they still hold whatever, 100 billion of
them. But maybe, you know, I don't
know, but maybe it doesn't matter.
It's only 100 billion. I think they, I think they have
on net. The thing we never see, right
think about that's simply an asset side of a balance sheet,
right? We don't know if those are
pledged as collateral against the Pinterest.
Day so that's that's right you're right they could have
virtually sold it already and. That's how I would do it if I
was them. Because look, if you sell them
out, right, you're going to get a knock on the door from the
American Embassy and it's just an assay, right?
Hey, but if we use them in collateral, they love you.
Hey, great. I'll take Piraeus, I'll take
that oil field, I'll take that copper mine.
I'll take all that goal and the and the again, it's kind of like
when it's good for same way of of of, you know, the Chinese
want to understate their strength.
The Americans want to overstate it like the American banks are
happy to take this dollar collateral and the Chinese got
to be on. Clever point, very clever point.
So that because The thing is the reason I always thought that
this is the table that you and I are referring to, it's the
treasury table of like countries and their treasury holdings.
And one of the weird things about that is it has like Cayman
Islands and Belgium and these really small countries
supposedly have a lot of treasuries.
And what's actually going on there is it's, there's some
funny business with like banks in those countries that hold
treasuries on behalf of somebody else.
And obviously treasuries are especially the 10 year it's a,
it's collateral that is pledged and re pledged over and over
again and all kinds of fancy things around the world.
And so of course, you're right that China can get liquidity on
its treasuries without actually selling them.
They just pledged them and and you can send.
A chart of that, Yeah, is is. I would argue that I have a
chart. Let me see if it goes.
And that's all just private paper.
They don't have to disclose any of that, right?
No. And you can see it with GDP to
FX reserves, right? So like US, you know.
That's it. That's that's yeah, that's very
clever. It's I mean, maybe obvious,
maybe somebody else discussed about it.
It's the first time I've heard that particular argument.
Very good point. You know, I want to kind of give
one more tech lens on this to what you said, which is the
dollar as a database is a natural view of like crypto and
blockchain people, because that's what a blockchain is.
A blockchain is a, a new kind of database, right?
And in a sense, I think of, you know, the Fed and then the, you
know, Royal Bank of Canada and, or that was Royal Bank of it,
basically the Fed, the Bank of Canada, Bank of England, I
forget all the official names are the Bundesbank of Germany
and so on. All of those central banks and
then all the banks underneath them and all of those people
under those. So it's like 4 layers of Fed,
all of the US colonies basically, right, including Bank
of Japan, then all the banks that are licensed by those
central banks and then all of the citizens under them, right?
That sort of four layer structure.
That is what I think of as the Feds video game, right?
Because they control all the points.
They can freeze, they can seize, they can rewind a transaction,
they have root access over everything in this database,
right? So and they they use this
against Russia and actually this book called Treasuries War.
Juan Zarate. Great book.
Juan Zarate, right? It was actually a smart guy, I
think. I think he actually worked at
Coinbase at one point. So he basically pointed out
that, you know, because the US had control and so much of the
world's value flowed through this database that the US had
control over, they could freeze and seize and use it for anti
terrorists. And that fine, OK.
What's happened is you have two contenders, let's call them
crypto in China, that a larger one is kind of inside the empire
and one is outside the empire, right?
That our databases that the Fed does not have root access over.
So it cannot freeze and seize things on the Bitcoin blockchain
and other blockchains, not too easily at least.
And it cannot freeze and seize things in the digital yuan or on
the Russian ruble or the Indian INR or, you know, AED or Sud or
other currencies that some of these are soft peg to the
dollar. Some of these are hard peg like
HKD and AED are peg to the dollar.
But they could remove the peg if they needed to and they could go
to gold because they run their own Ledger, right?
So the the database aspect of this, you can the the big thing
about is these two economies, that which I called the Internet
economy, the crypto economy and the Chinese economy or the BRICS
economy, right? Those are growing and then
squeezing in the feds video game over here.
Let me know your thoughts on that.
So just another lens on the whole thing.
Yeah. No, I think that's, I think that
makes sense and I think it's, it's, it's enforced by
particular in the BRICS side and lever.
You know, the leverage is the physical world, right, It is.
You know, we are, we're leveraging manufacturing
dominance, we are leveraging energy, we are leveraging the
realpolitik of we have nukes and the United States has never
attacked a nuclear power country.
And then and then the population side, right.
You have a, a high, you know, enormous, highly educated,
highly motivated and, and, and rapidly moving up in terms of
living standards per capita, right consumption there.
There's a they, they have the physical world backfill.
So as they squeeze right, what do we hear so much of?
Well, they can't live without our consumers.
Well, you know, 15 years ago, 20 years ago, 100% ten years ago.
Yeah, yeah. Now, you know, it's gotten to
the point where we can see it in sort of where the pain has been
with post liberation day. Treasury market blew up in seven
days, seven trading days and and Trump was getting warned by
major US retail CE OS like there are going to be empty shelves
for Christmas if you don't stop this back in April.
I hear he was warned and so they are backfilling the entire.
Thing is so crazy, like you saw the manufacturing jobs print of
you know how many. Anyway, go ahead, you were
saying sorry. Yeah, no, I think it's this
physical world is is bad. They're leveraging that against
that sort of those those other two video games, if you will,
squeezing the Feds video game. I think that's.
I think it's. It's a model I hadn't heard
before, but that makes sense to me.
Cool, awesome. All right, Sir, Well, I think we
covered a lot. Anything that you want to say
you have, you know people should go and check out your sub stack
or. No, Yeah, Yeah, they're
interested. Yeah, interested in learning
more about our research, fftt-llc.com, different
institutional and mass market products.
And as as you know, I've got a fairly active feed on exit at
Luke Groman. But so, yeah, I appreciate it.
Cool. This is great.
Awesome. Thank you, Sir.
Likewise talk. Soon, really enjoyed it, thank
you very much.