WEBVTT - The Fake Crisis Behind Trump's Tariffs 0:00:01.720 --> 0:00:04.960 All Zone Media. 0:00:06.600 --> 0:00:10.640 Welcome to it could happen here a podcast about tariffs 0:00:10.640 --> 0:00:13.800 and how to justify them. I am your host, Mio Wong, 0:00:14.680 --> 0:00:19.000 and today we are talking about tariffs, the Supreme Court 0:00:19.079 --> 0:00:24.480 ruling and how Trump is manufacturing a crisis to justify 0:00:24.520 --> 0:00:28.240 the next set of tariffs that he has imposed. Oh boy, 0:00:28.400 --> 0:00:32.440 so all right to recap our last tariffs segment so 0:00:32.440 --> 0:00:35.040 people understand what I'm talking about when I talk about 0:00:35.080 --> 0:00:38.040 the Supreme Court ruling from a few weeks ago. So 0:00:38.640 --> 0:00:41.720 Trump had been claiming the ability to do tariffs under 0:00:41.760 --> 0:00:46.000 the International Emergency Economic Powers Act, an act that famously 0:00:46.080 --> 0:00:50.440 never says the word tariff, and the Supreme Court was like, no, actually, 0:00:50.479 --> 0:00:53.680 that the International Economic Powers Act does not give you 0:00:53.840 --> 0:00:56.240 the power to levy tariffs, a thing that it does 0:00:56.280 --> 0:00:59.760 not say that you can do. So Trump got extremely 0:00:59.800 --> 0:01:03.760 mad about this, and he imposed a ten percent tariff 0:01:03.800 --> 0:01:07.119 across the board using a different law, as he said 0:01:07.160 --> 0:01:10.040 he was going to do. Now, this ten percent across 0:01:10.040 --> 0:01:12.840 the board tariff was run through section one twenty two 0:01:13.120 --> 0:01:16.080 of the Trade Act of nineteen seventy four. We're going 0:01:16.120 --> 0:01:18.720 to get into that, okay. So he imposes a ten 0:01:18.760 --> 0:01:22.039 percent tariff using this like different authority from Section one 0:01:22.120 --> 0:01:25.520 twenty two and the next day he goes, I'm going 0:01:25.560 --> 0:01:27.560 to raise the tariff right to fifteen percents and this 0:01:27.640 --> 0:01:30.560 is the terriff rate on the entire world. But then 0:01:30.560 --> 0:01:32.560 he just forgot to do it because he got distracted 0:01:32.560 --> 0:01:36.600 by i think invading Iran. So he has never actually, 0:01:36.880 --> 0:01:39.520 you know, raised the teriff rate to fifteen percent, which 0:01:39.520 --> 0:01:42.679 he said that he had done. So it's now just 0:01:42.720 --> 0:01:45.760 at ten percent on the entire world instead of you know, 0:01:45.920 --> 0:01:48.480 all of the sort of individual country teriffs that had 0:01:48.480 --> 0:01:51.880 been in place before. And that's sort of the focus 0:01:52.000 --> 0:01:55.480 of today's episode is about these tariffs, because these tariffs 0:01:55.480 --> 0:02:00.400 are already being challenged in court, and I think that 0:02:00.400 --> 0:02:03.240 that challenge has a very very good chance of winning 0:02:03.480 --> 0:02:08.000 fairly easily. And the reason that those tariffs have a 0:02:08.080 --> 0:02:10.400 very good chance of being overturned by the courts is 0:02:10.440 --> 0:02:16.160 that unlike the IEPA tariffs that he was using, where 0:02:16.440 --> 0:02:19.880 he was claiming illegally the authority to just do whatever 0:02:19.919 --> 0:02:22.079 he wanted. This is why you would wake up in 0:02:22.120 --> 0:02:24.400 the morning and there's like one hundred percent tariff on China, 0:02:24.639 --> 0:02:26.840 like seven hundred percent tariff of Vietnam. Blah blah blah 0:02:26.840 --> 0:02:30.000 blah blah. Trump was claiming that that act let him 0:02:30.000 --> 0:02:32.640 do whatever he wanted. It did not. The court found 0:02:32.680 --> 0:02:36.120 that he did not. But that was how he was 0:02:36.200 --> 0:02:37.920 using teriffs, and he was the basis of how he 0:02:37.960 --> 0:02:41.200 was using terris for diplomacy, right. You know, he would 0:02:41.200 --> 0:02:43.520 put a tariff on someone at random, claiming this power, 0:02:43.560 --> 0:02:46.000 and then he would like enter negotiations with them. And 0:02:46.040 --> 0:02:48.920 he can't do that anymore. Now what he's done in 0:02:48.960 --> 0:02:52.919 its place is again imposed this terroriffs using Section one 0:02:53.000 --> 0:02:57.240 twenty two of the Trade Act. Now this authority is very, 0:02:57.880 --> 0:03:01.600 very different than the authority Trump was claiming before. I'm 0:03:01.639 --> 0:03:04.359 just going to read it because it mostly explains itself. 0:03:04.600 --> 0:03:07.240 Do not worry about the international payment problems or balance 0:03:07.280 --> 0:03:09.920 payments deficit that it mentions at the beginning. We're going 0:03:09.960 --> 0:03:12.200 to go over that in a second. What's important for 0:03:12.240 --> 0:03:15.320 our purposes here is that in order to put tariffs 0:03:15.360 --> 0:03:22.079 into effect, quote, whenever fundamental international payment problems require special 0:03:22.160 --> 0:03:26.680 import measures to restrict imports one to deal with large 0:03:26.680 --> 0:03:31.240 and serious United States balance of payments deficits. Two to 0:03:31.360 --> 0:03:34.920 prevent an imminent and significant appreciation of the dollar, in 0:03:35.040 --> 0:03:39.000 foreign exchange markets, or three to cooperate with other countries 0:03:39.000 --> 0:03:43.400 in correcting an international balance of payments disequilibrium. The President 0:03:43.480 --> 0:03:46.600 shall proclaim for a period not exceeding one hundred and 0:03:46.680 --> 0:03:49.920 fifty days, unless such a period is extended by an 0:03:49.960 --> 0:03:53.520 Act of Congress, a temporary sarch charge not to exceed 0:03:53.560 --> 0:03:56.280 fifteen percent out of lorum in the form of duties 0:03:56.680 --> 0:03:59.640 in addition to those already opposed if any articles imported 0:03:59.640 --> 0:04:02.120 into the U s Okay, So let's look at the 0:04:02.120 --> 0:04:07.240 limits first, right, Instead of any rate of tariff on 0:04:07.320 --> 0:04:09.960 any country, which is what Trump had been doing, Section 0:04:09.960 --> 0:04:12.560 one twenty two only lets you set an up to 0:04:12.600 --> 0:04:15.560 fifteen percent tariff on every country in the world and 0:04:15.760 --> 0:04:18.560 only lasts for one hundred and fifty days unless Congress 0:04:18.600 --> 0:04:20.960 votes to approve it. This sets up a giant fight 0:04:21.000 --> 0:04:23.760 in Congress that Trump is not going to win. Now. 0:04:23.839 --> 0:04:25.880 We may never get to that point because the same 0:04:26.000 --> 0:04:28.680 right wing legal group who funded the lawsuit that overturned 0:04:28.680 --> 0:04:32.159 the IEPA stuff is going after Section one twenty two 0:04:32.760 --> 0:04:35.080 and they're going to win now. They're going to win 0:04:35.200 --> 0:04:38.400 because Section one twenty two has literally never been implemented 0:04:38.440 --> 0:04:42.360 before the tariffs specifically never been implemented. There is a 0:04:42.760 --> 0:04:47.360 reason for that, and the reason is that to even 0:04:47.640 --> 0:04:50.479 deploy Section one twenty two tariffs in the first place, 0:04:51.200 --> 0:04:56.640 you need quote fundamental international payment problems. One to deal 0:04:56.720 --> 0:04:59.919 with large and serious United States balance of payments deficits 0:05:00.640 --> 0:05:03.440 to the print dollar depreciation, and cooperation with other countries 0:05:03.480 --> 0:05:07.680 to correct international balance of payments this equilibrium. So those 0:05:07.680 --> 0:05:10.240 are very specific conditions. What does that mean? What does 0:05:10.240 --> 0:05:11.839 it mean for there to be a problem with balance 0:05:11.880 --> 0:05:16.120 of payments? This requires us to understand what the fuck 0:05:16.200 --> 0:05:18.120 balance of payments is. And it is here where I 0:05:18.120 --> 0:05:21.240 am fulfilling my promise from that Executive Disorder episode where 0:05:21.240 --> 0:05:22.960 I said I will explain it in the full episode. 0:05:23.040 --> 0:05:26.040 All right, we're doing it, and oh fucking boy, are 0:05:26.120 --> 0:05:30.359 you in for it, because Jesus Christ, oh my god, 0:05:31.120 --> 0:05:36.120 holy shit, this stuff is annoyingly convoluted. But it is 0:05:36.200 --> 0:05:39.480 also extremely important to how the global economy functions, how 0:05:39.480 --> 0:05:42.919 it's changed. And you know, it's not really relevant for 0:05:43.160 --> 0:05:45.400 the US at all, for reasons we will get into, 0:05:45.400 --> 0:05:47.800 but it is extremely relevant for the economies of a 0:05:47.839 --> 0:05:51.719 bunch of developing countries. So okay, let's start off with 0:05:52.120 --> 0:05:55.000 balance of payments. So what is the balance of payments. 0:05:55.400 --> 0:05:57.480 I'm just gonna start off by quoting the Saint Louis 0:05:57.520 --> 0:06:01.599 Federal Reserve Balance of payments quote is a summary of 0:06:01.680 --> 0:06:06.279 all the transactions involving goods, services, and investments between one 0:06:06.320 --> 0:06:10.080 country and all other countries over a given time. Any 0:06:10.120 --> 0:06:13.520 transaction that causes money to flow into a country is 0:06:13.560 --> 0:06:17.680 a credit to balance payment accounts, and any transaction that 0:06:18.279 --> 0:06:22.920 flows out is a debt. So this is a record 0:06:23.040 --> 0:06:26.159 of literally every purchase in capital movement that goes in 0:06:26.160 --> 0:06:29.240 and out of a country. Right, So it's goods services, 0:06:29.440 --> 0:06:32.799 debt payments, and things can either be credits or debts. 0:06:32.800 --> 0:06:36.080 This is the FED explains. You know things that are debts, right, 0:06:36.200 --> 0:06:38.880 things that like make your account go lower is you know, 0:06:38.960 --> 0:06:43.520 debt payments, capital transfer payments like buying imports. If you 0:06:43.520 --> 0:06:46.080 were importing stuff from China, that is a debit. And 0:06:46.120 --> 0:06:47.839 then there are things that are credits to make account 0:06:47.839 --> 0:06:51.120 go up. So it's other countries paying for exports, capital 0:06:51.160 --> 0:06:55.320 transfer receipts, and you know financial acsets and that's other 0:06:55.320 --> 0:06:58.599 countries paying for your exports. So this is tracked in 0:06:58.839 --> 0:07:03.040 like two accounts. There's a capital and finances account. I'm 0:07:03.040 --> 0:07:04.760 just gonna call it the capital account because that's the 0:07:04.800 --> 0:07:07.240 most common name for it, and it's shorter. So there's 0:07:07.240 --> 0:07:09.720 the capital accounts that is all movement of capital in 0:07:09.760 --> 0:07:12.480 and out of the country, and then there's a current account, 0:07:12.720 --> 0:07:15.560 which is like a trade record of all goods and services. 0:07:16.280 --> 0:07:19.000 Technically there's also stuff from like interest from an investment 0:07:19.080 --> 0:07:20.800 goes there, but we don't really care about that for 0:07:20.840 --> 0:07:24.679 our purposes. The current account is the account that's like trade, 0:07:25.160 --> 0:07:27.360 and then there's a capital account, which is the account 0:07:27.400 --> 0:07:31.240 that's all of the capital moving in and out. Now, importantly, 0:07:31.920 --> 0:07:36.120 these two accounts, right, these two accounts compose balance of trade. Right, 0:07:36.320 --> 0:07:38.080 this record has two accounts in it. Those are the 0:07:38.080 --> 0:07:40.440 two accounts. If you line up all the credits and 0:07:40.440 --> 0:07:43.200 debts and then they cancel out and equal zero, the 0:07:43.320 --> 0:07:46.160 value of all goods being imported or exported as services 0:07:46.160 --> 0:07:48.480 and stuff like that too, is the same as the 0:07:48.480 --> 0:07:50.520 amount of capital moving in and out of the country. 0:07:50.760 --> 0:07:53.360 The two accounts will cancel out. And this is what's 0:07:53.400 --> 0:07:56.320 really confusing about balance of payments, because why the fuck 0:07:56.400 --> 0:07:56.920 is that true? 0:07:57.280 --> 0:07:57.480 Right? 0:07:57.800 --> 0:08:00.480 Why are the capital flows and trade balance white? Can't 0:08:00.520 --> 0:08:04.840 you have an imbalance, and the answer is that's how 0:08:04.840 --> 0:08:07.920 the accounting system works. And the reason the accounting system 0:08:07.960 --> 0:08:10.800 works like that is because of what balance of payments 0:08:11.040 --> 0:08:13.480 is now. Weirdly, if you want a more detailed explanation, 0:08:13.560 --> 0:08:16.720 there are a billion detailed explanations that are extremely convoluted 0:08:16.720 --> 0:08:20.480 and annoying. The Reserve Bank of Australia weirdly has like 0:08:20.520 --> 0:08:23.520 a readable one for people who aren't like engrossed and 0:08:23.560 --> 0:08:26.840 financial stuff however, come up, I'm going to try to 0:08:26.880 --> 0:08:30.360 explain it. So balance of payments is the record of 0:08:30.560 --> 0:08:34.320 everything that moves in and out of a country, you know. 0:08:34.400 --> 0:08:37.880 So that's goods, that services, that's money, it's stocked. When 0:08:37.920 --> 0:08:40.640 I say it tracks everything, right, was a record of everything. 0:08:40.960 --> 0:08:44.640 That means it's recording both sides of a transaction. So 0:08:44.679 --> 0:08:47.640 what does that mean? Okay, imagine a receipt, right, it's 0:08:47.640 --> 0:08:50.520 a receipt for a burger. You have bought one hamburger. 0:08:51.160 --> 0:08:54.439 On the receipt is the thing you bought the burger 0:08:54.880 --> 0:08:57.560 and how much it cost, which is the money you 0:08:57.559 --> 0:09:01.640 pay for it. Balance of payments track both the burger 0:09:02.200 --> 0:09:04.920 and the money you paid for it. Because it tracked 0:09:04.960 --> 0:09:08.960 international trade, right, it's tracking international movement of stuff. And 0:09:09.000 --> 0:09:14.240 because both the burger and the money changed hands across borders, right, 0:09:14.720 --> 0:09:18.640 it tracks both of them. And that is why when 0:09:18.679 --> 0:09:21.000 you put all the credits and debts from both accounts together, 0:09:21.080 --> 0:09:24.079 it adds up to zero, right, because you know, think 0:09:24.120 --> 0:09:28.600 about like the net transfer of funds on that burger. Right, 0:09:29.080 --> 0:09:31.800 on the one hand, there is the burger, and on 0:09:31.840 --> 0:09:34.600 the other hand there is you know, how much money 0:09:34.600 --> 0:09:37.360 you paid for the burger, and those two things are equivalent, right. 0:09:37.400 --> 0:09:38.920 The value of the burger is how much it's worth. 0:09:39.679 --> 0:09:44.160 So okay, that means that in the accounting of it, right, 0:09:44.400 --> 0:09:47.640 the account on the receipt, which shows both of these things, 0:09:47.800 --> 0:09:50.600 is balanced because it's tracking both of them, right. And 0:09:50.600 --> 0:09:52.920 this is the same way it works for an investment. 0:09:53.600 --> 0:09:56.800 You buy shares of a company, So okay, there's the 0:09:56.840 --> 0:09:59.679 money for the shares and the shares themselves, and they're 0:09:59.720 --> 0:10:02.720 both being tracked and they both go into the record 0:10:02.760 --> 0:10:06.679 that balance of payments keeps. So there are some convoluted 0:10:06.720 --> 0:10:09.080 things about this, and this is the reason why you 0:10:09.120 --> 0:10:11.719 need to combine both accounts instead of each account being 0:10:11.720 --> 0:10:16.160 balanced by themselves, because sometimes the record of the burger 0:10:16.760 --> 0:10:19.040 goes in one account and the record of the money 0:10:19.360 --> 0:10:22.360 for that burger goes at a different account. This is convoluted. 0:10:22.360 --> 0:10:25.400 It's because of how income is classified. It's a mess. 0:10:25.400 --> 0:10:27.200 You can go read the Berserve Bank of Australia. But 0:10:27.240 --> 0:10:30.800 that's why you need both accounts together to get the 0:10:30.840 --> 0:10:35.040 balance of payments, right, because both the burger and the 0:10:35.120 --> 0:10:38.720 money for the burger are in the balance of payments somewhere, 0:10:39.000 --> 0:10:40.760 but they might go in different accounts, so you need 0:10:40.800 --> 0:10:42.600 to put them together. And that's how you get the 0:10:42.640 --> 0:10:45.280 balance of payments. And see, that's why it's called the 0:10:45.320 --> 0:10:48.040 balance of payments, right, they balance out. See now you're 0:10:48.080 --> 0:10:49.680 getting it. Now you're getting it. This is why it 0:10:49.679 --> 0:10:52.200 always bounces out to zero because it's the balance of 0:10:52.280 --> 0:10:54.480 both the money and the object. 0:10:54.840 --> 0:10:55.080 Right. 0:10:55.840 --> 0:10:58.400 So sharp eared listeners may be going, wait, hold on. 0:10:58.559 --> 0:11:00.560 So Section one twenty two, which is where the tariffs 0:11:00.600 --> 0:11:03.640 are from, is about a deficit in the balance of payments. 0:11:03.920 --> 0:11:06.320 How can you have a deficit if it always balances 0:11:06.320 --> 0:11:09.240 out to zero? And the answer is, technically speaking, you can't. 0:11:09.960 --> 0:11:12.120 So Okay, what the fuck is going on here? Why 0:11:12.240 --> 0:11:14.559 is Trump using and Trump stifically is claiming that there's 0:11:14.559 --> 0:11:16.800 a balance of payments deficit, and there's a crisis in 0:11:16.880 --> 0:11:20.440 order to impose these tariffs. So what is going on here? 0:11:20.960 --> 0:11:25.160 Why does this law exist? You will find out after 0:11:25.280 --> 0:11:42.320 these ads whoa cliffhanger A. So to explain what is 0:11:42.360 --> 0:11:45.480 going on here, we need to take a detour back 0:11:45.520 --> 0:11:48.280 in time to when this was written. This Act was 0:11:48.280 --> 0:11:50.560 written in nineteen seventy four, but we need to go 0:11:50.640 --> 0:11:54.199 back a little further to nineteen seventy one. Now, in 0:11:54.280 --> 0:11:59.120 nineteen seventy one, Richard Nixon makes probably the most consequential 0:11:59.200 --> 0:12:03.840 in a macro sense, change to like how currency functions 0:12:03.840 --> 0:12:07.320 on a global scale in probably half a millennia when 0:12:07.320 --> 0:12:10.560 he pulled the US off the gold standard. So what 0:12:10.600 --> 0:12:13.560 does this mean. It means that Nixon ended what was 0:12:13.600 --> 0:12:16.760 called dollar convertibility, or the ability to go to the 0:12:16.880 --> 0:12:20.079 government and trade your dollar for a certain amount of gold. 0:12:21.080 --> 0:12:24.360 So this fixes the value of the dollar to the 0:12:24.440 --> 0:12:26.480 value of gold. So the value of your currency is 0:12:26.520 --> 0:12:30.360 sort of relatively constant in that like it's this much gold, right, 0:12:31.080 --> 0:12:34.480 But it means that your macroeconomic policy is constrained by 0:12:34.520 --> 0:12:38.800 your gold supply. So why did Nixon take the US 0:12:38.840 --> 0:12:40.880 off the gold standard? And what does that have to 0:12:40.880 --> 0:12:46.600 do with balance of payments. Surprisingly everything, So okay, what 0:12:46.640 --> 0:12:49.400 I've been describing about balance of payments, I've been describing 0:12:49.559 --> 0:12:53.199 modern balance of payments. If you go back and read 0:12:53.320 --> 0:12:56.480 stuff from the FED from this era, when they talk 0:12:56.520 --> 0:12:59.960 about balance of payments or talking about flows of gold. 0:13:00.160 --> 0:13:03.080 In this period, every dollar that leaves the country represents 0:13:03.120 --> 0:13:05.840 an amount of gold, and the more of it that 0:13:05.960 --> 0:13:08.840 leaves the country, the more pressure that puts on the 0:13:08.920 --> 0:13:11.200 US gold reserves, because you know, there's less and less 0:13:11.200 --> 0:13:13.679 of it. This is what they're talking about when they 0:13:13.720 --> 0:13:17.800 talk about balance of payments. Right now. What's interesting here, 0:13:17.840 --> 0:13:20.280 and this is something that's important for our modern purposes, 0:13:20.360 --> 0:13:23.520 is that the problem that the US was facing in 0:13:23.559 --> 0:13:26.959 the fifties and sixties that causes Nixon to do this 0:13:27.400 --> 0:13:29.959 when they're talking about having balance of payments deficits, which 0:13:30.000 --> 0:13:31.800 they are in this period, right. And this is why 0:13:31.840 --> 0:13:33.600 this law is written, is because this is a period 0:13:33.640 --> 0:13:37.319 where this stuff is talked about. The problem isn't a 0:13:37.320 --> 0:13:40.120 trade deficit, right, and this is very important. Trade deficits 0:13:40.240 --> 0:13:43.480 and balance of payments deficits not the same thing at all. 0:13:43.520 --> 0:13:45.679 In fact, in this whole period when the US is 0:13:45.720 --> 0:13:48.400 running these massive balanced payments deficits to become a problem. 0:13:48.880 --> 0:13:53.240 They have a trade surplus, right, they have a trade surplus, 0:13:53.280 --> 0:13:57.720 So like, okay, how are they like losing gold then, right, like, 0:13:57.760 --> 0:14:00.760 how are dollars flowing out of the country. Well, it 0:14:00.800 --> 0:14:04.559 turns out that what's actually making this a balance of 0:14:04.600 --> 0:14:07.480 account deficit, where like dollars are leaving the economy, which 0:14:07.480 --> 0:14:11.199 means golds leaving the US's vaults, is that the US 0:14:11.280 --> 0:14:13.800 is spending too much of this military. It's always speaking 0:14:13.840 --> 0:14:17.520 military spending. It is always fucking military spending. Holy shit, 0:14:17.640 --> 0:14:21.000 it's the reason everything is broken. It it's literally just 0:14:21.000 --> 0:14:23.400 always military spending. We're spending too much gold on the 0:14:23.440 --> 0:14:24.160 damn military. 0:14:24.840 --> 0:14:25.000 Right. 0:14:26.040 --> 0:14:28.720 So the deficit, and we we're talking about a bounced 0:14:28.720 --> 0:14:31.480 payments deficit. The actual deficit is that in order to 0:14:31.760 --> 0:14:34.600 pay for wars and to do military bases, they are 0:14:34.640 --> 0:14:38.640 spending money in other countries. And this is technically like 0:14:38.720 --> 0:14:40.280 part of the bounce of payments, right, because it's money 0:14:40.320 --> 0:14:43.720 leaving the country. And you know, like technically speaking the 0:14:43.720 --> 0:14:46.440 balance of payments as we've been talking about it, right, 0:14:46.480 --> 0:14:50.600 like the account is balanced, but we keep spending dollars 0:14:50.680 --> 0:14:52.960 in order to obtain military bases, and then also in 0:14:53.080 --> 0:14:55.880 order to bomb Korea and Vietnam, and the dollars have 0:14:55.960 --> 0:14:59.040 to come from somewhere. Now, again, the dollar at this 0:14:59.080 --> 0:15:03.240 point is goal. It represents a fixed amount of gold 0:15:03.520 --> 0:15:07.560 that the US has, and those dollars are coming from 0:15:07.600 --> 0:15:09.880 the US government, so that that's what the actual quote 0:15:09.960 --> 0:15:12.840 unquote deficit is in this case. Right, you will see 0:15:12.840 --> 0:15:14.720 this described as like, oh my god, they're paying for 0:15:15.320 --> 0:15:17.760 stuff from the current account from the Capitol count. No. No, no, 0:15:17.800 --> 0:15:21.840 technically yes, but what's actually happening here is that the US. Right, 0:15:22.000 --> 0:15:24.200 it's gold leaving the country because the US is having 0:15:24.240 --> 0:15:27.720 to buy shit for a military basis, right, and it's 0:15:27.720 --> 0:15:30.640 not getting enough gold back from trade to replenish the 0:15:30.640 --> 0:15:33.120 amount of gold that the US is spending on these 0:15:33.120 --> 0:15:37.400 military bases. Now, in theory, this is fine because it's 0:15:37.440 --> 0:15:40.080 technically speaking, you're spending dollars, and as long as no 0:15:40.120 --> 0:15:45.080 one tries to actually convert those dollars into gold, you'll 0:15:45.120 --> 0:15:49.160 be okay. Enter one Charles de Gaulle, President of France, 0:15:49.480 --> 0:15:53.200 who begins to unmass convert American dollars into gold in 0:15:53.280 --> 0:15:55.880 order to end the dollar's reign as the world deserve 0:15:55.920 --> 0:15:57.840 currency because it was pissed off at the US running 0:15:57.840 --> 0:16:01.359 the world. This is not like Charlos the gall Anti imperialists. 0:16:01.480 --> 0:16:04.080 De Gaull does not want like the end of imperialism. 0:16:04.080 --> 0:16:06.640 Degaull wants there to be equal footing or more equal 0:16:06.680 --> 0:16:08.680 footing between the different imperialist powers. 0:16:08.760 --> 0:16:08.880 Right. 0:16:08.920 --> 0:16:12.160 He just wants France to be like a major world power, 0:16:12.280 --> 0:16:13.600 imperialist power as well. 0:16:14.280 --> 0:16:24.360 Right. 0:16:25.520 --> 0:16:28.000 The power of the US gets from being the world 0:16:28.040 --> 0:16:32.520 reserve currency is extremely important. So what is the reserve currency? 0:16:32.520 --> 0:16:35.040 The reserve currency is the currency that, like all global 0:16:35.080 --> 0:16:38.800 trade is done in. And because it's the currency that 0:16:38.840 --> 0:16:41.040 all global trade is done in, all of the world's 0:16:41.080 --> 0:16:44.080 central banks have to hold like a bunch of that currency, right, 0:16:44.080 --> 0:16:47.080 And that's why it's called the reserve currency. But I 0:16:47.160 --> 0:16:49.680 say all of the world's central banks have to hold it, 0:16:50.000 --> 0:16:52.080 except for the United States, which does not have to 0:16:52.120 --> 0:16:54.360 hold dollars because it's our fucking currency. And if we 0:16:54.400 --> 0:16:58.160 want more, we can just print more. Right. So this 0:16:58.200 --> 0:17:00.920 is time they called like seniorage privilege. But like that, 0:17:00.920 --> 0:17:04.040 the power of this right is enormous and the dollar 0:17:04.119 --> 0:17:06.800 status of the reserve currency is actually really important to 0:17:06.880 --> 0:17:09.240 us in terms of explaining these sort of balance of 0:17:09.240 --> 0:17:13.040 payments deficits and crises. So, okay, here's a Saint Louis 0:17:13.040 --> 0:17:16.200 fed on why countries have to hold wood reserve currencies. 0:17:16.600 --> 0:17:19.679 Quote governments and or es central banks keep you know, 0:17:19.760 --> 0:17:24.400 like reserve currency on hand for several reasons, including exchange management, 0:17:24.960 --> 0:17:28.400 insurance against sudden loss of ability to pay for imports 0:17:28.440 --> 0:17:31.919 caused by a halt capital inflows such as foreign direct 0:17:31.920 --> 0:17:35.439 investment to the domestic market, foreign purchases of domestic stocks 0:17:35.480 --> 0:17:38.159 or balls, or domestic borrowing from the rest of the world. 0:17:38.920 --> 0:17:43.720 Insurance for other economic contingencies such as wars or natural disasters. Now, 0:17:44.000 --> 0:17:47.720 the second one is what's of concern to us, right, 0:17:47.800 --> 0:17:51.680 it's insurance against sudden loss of ability to pay for imports. 0:17:52.240 --> 0:17:55.240 And that's what's commonly known as a balance of payments 0:17:55.240 --> 0:17:57.960 crisis in the current day, when you run out of 0:17:58.000 --> 0:17:59.920 dollars to pay for your imports or to pay for 0:18:00.080 --> 0:18:02.360 your foreign debt, which is a real issue too, right, 0:18:02.480 --> 0:18:04.280 Usually your money goes to the foreign debt and then 0:18:04.320 --> 0:18:06.479 you're out of currency and then you can't you know, 0:18:06.560 --> 0:18:09.760 like import more shit. This is a bounce of payments crisis, 0:18:10.280 --> 0:18:13.880 and they're actually pretty common, decently common in a bunch 0:18:13.920 --> 0:18:17.720 of developing countries, and they are almost always completely catastrophic. 0:18:18.000 --> 0:18:20.720 It's one of the foremost causes of modern revolutions because 0:18:20.720 --> 0:18:22.439 when you have one of these bounds of payments crises, 0:18:22.480 --> 0:18:24.920 you can't afford to fucking import things because you don't 0:18:24.920 --> 0:18:27.359 have enough dollars. You can't import oil or you know, 0:18:27.520 --> 0:18:30.840 fertilizer or food because you don't have enough dollars to 0:18:30.880 --> 0:18:32.480 do it, and your government has gone through all of 0:18:32.480 --> 0:18:34.800 the dollar reserves. As I talked about in the ED, 0:18:35.440 --> 0:18:38.120 Sri Lanka is probably the most recent example. The country, 0:18:38.320 --> 0:18:40.840 you know, just ran out of dollars to purchase shit with, 0:18:41.000 --> 0:18:44.520 and the ensuing unbelievably hideous shit that everyone had to 0:18:44.520 --> 0:18:47.640 suffer through cause people to burn down the president's fucking mansion. 0:18:48.280 --> 0:18:50.040 You will know, and I said this is before you 0:18:50.080 --> 0:18:52.639 will know if the US has a bounce of payments crisis, 0:18:52.640 --> 0:18:54.679 because you will see the smoke and flames outside of 0:18:54.680 --> 0:18:57.000 your window, and it's such. It's like Sri Lanka, right, 0:18:57.040 --> 0:18:59.040 like the revolution in Sudan. Like the reason that there's 0:18:59.040 --> 0:19:01.679 a civil war in Sudan now so some extent is 0:19:01.680 --> 0:19:04.200 because of one of these crises that set off a revolution, 0:19:04.359 --> 0:19:08.120 even though you know what usually happens in these cases, right, 0:19:08.240 --> 0:19:10.600 is that a country has one of these crises and 0:19:10.640 --> 0:19:14.680 then someone, usually the International Monetary Fund, will give them 0:19:14.680 --> 0:19:16.320 a loan, and so they will give them dollars in 0:19:16.359 --> 0:19:19.119 exchange for you know, like turning the entire economy of 0:19:19.119 --> 0:19:22.359 that country into a debt servicing machine, which means, you know, 0:19:22.400 --> 0:19:24.440 like taking food out of the mouths of babies to 0:19:24.480 --> 0:19:28.520 pay that debt back. And this also often causes revolutions, right, like, so, 0:19:28.600 --> 0:19:30.679 like Sudan had a balance of payments crisis and in 0:19:30.760 --> 0:19:33.480 like twenty eighteen, late twenty eighteen, twenty nineteen, and they 0:19:33.520 --> 0:19:36.320 eventually got an im A bailout deal, but like the 0:19:36.359 --> 0:19:38.280 price of bread increased by two hundred and fifty percent 0:19:38.359 --> 0:19:42.080 and people drove over al basher out of power. However, 0:19:42.400 --> 0:19:44.600 come you will note that I have been saying that 0:19:44.640 --> 0:19:47.480 these crises are caused because countries are run out of dollars. 0:19:48.720 --> 0:19:51.359 But we can't run out of dollars because those are 0:19:51.600 --> 0:19:54.879 United States dollars. We can just fucking print them. We 0:19:55.000 --> 0:19:58.280 literally cannot have this kind of bounce of payments crisis 0:19:58.840 --> 0:20:02.639 because it's all our own money, and we can just 0:20:02.880 --> 0:20:08.520 print shit in our own money. Jesus Christ, this is 0:20:08.720 --> 0:20:12.800 so silly, losing my mind, Like it's not possible, you 0:20:12.840 --> 0:20:16.800 can't do it. Oh my god. Now, however, why is 0:20:16.840 --> 0:20:18.919 the law like this, right, Like, why why is there 0:20:18.960 --> 0:20:21.560 a law written talking about the US as if it 0:20:21.600 --> 0:20:24.840 could have a bouts of payments deficit? Again, Like, right 0:20:24.920 --> 0:20:27.880 up until nineteen seventy one, when Nixon took the US 0:20:27.920 --> 0:20:32.919 off the gold standard, it actually was possible to, you know, 0:20:33.000 --> 0:20:34.720 make the US run out of dollars because you could 0:20:34.760 --> 0:20:36.199 run out of gold. And this is what like the 0:20:36.240 --> 0:20:38.120 goal was trying to do, you know, by like making 0:20:38.119 --> 0:20:41.040 the US convert all his dollars into gold. But Nixon 0:20:41.080 --> 0:20:43.000 just said, fuck it. The dollars of floating currency now, 0:20:43.440 --> 0:20:46.399 and since its value isn't pegged to a certain amount 0:20:46.440 --> 0:20:49.159 of anything else, right, And that's the way it's been 0:20:49.160 --> 0:20:50.919 ever since, we can't have these crises. 0:20:50.920 --> 0:20:51.040 Now. 0:20:51.040 --> 0:20:53.800 The countries that have these crises in modern day are 0:20:53.880 --> 0:20:57.640 ones that peg their currency to like a specific amount 0:20:57.720 --> 0:21:00.960 of dollars, right, And they tend to run out of 0:21:01.000 --> 0:21:03.280 the reserves trying to like stabilize the value of their 0:21:03.320 --> 0:21:07.200 currency by offering conversions of their currency into the dollar 0:21:07.240 --> 0:21:09.960 at the official rate by like letting people go convert 0:21:10.080 --> 0:21:14.119 their currency into dollars. But again, we can't have that 0:21:14.320 --> 0:21:18.280 because it's dollars. We owe shit in dollars. And also, 0:21:18.320 --> 0:21:20.040 in order to have like a full on balance payments 0:21:20.080 --> 0:21:23.520 crisis where you can't pay for things right, it requires 0:21:23.960 --> 0:21:26.359 no one to be like willing to lend you money. 0:21:26.560 --> 0:21:29.159 And it's like, okay, like who is not going to 0:21:29.280 --> 0:21:31.720