1 00:00:10,440 --> 00:00:13,720 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:13,800 --> 00:00:17,400 Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't they Joe, You're 3 00:00:17,400 --> 00:00:22,239 Speaker 1: in Vegas, right, I am. I decided to take a 4 00:00:22,239 --> 00:00:25,000 Speaker 1: little break from life and be in the desert for 5 00:00:25,000 --> 00:00:27,200 Speaker 1: a couple of days in the place, so it's pretty 6 00:00:27,280 --> 00:00:30,440 Speaker 1: nice out here. Commun If I sound a little weird, 7 00:00:30,640 --> 00:00:33,320 Speaker 1: it's because I'm not in the studio with you. Do 8 00:00:33,360 --> 00:00:35,479 Speaker 1: you know this is kind of weird? But whenever I 9 00:00:35,520 --> 00:00:39,200 Speaker 1: think of poker nowadays and poker chips, I always think 10 00:00:39,520 --> 00:00:42,120 Speaker 1: this is probably just me, but I always think of 11 00:00:42,360 --> 00:00:46,360 Speaker 1: Sultan posars analogy of how reserves are kind of like 12 00:00:46,560 --> 00:00:49,000 Speaker 1: poker chips. Do you remember that we have lots of 13 00:00:49,040 --> 00:00:51,960 Speaker 1: different kinds of money is in the existing system, and 14 00:00:52,120 --> 00:00:54,680 Speaker 1: they might even have the same name, like dollars, dollars, dollars, 15 00:00:54,840 --> 00:00:56,480 Speaker 1: but a lot of them are sort of like all 16 00:00:56,520 --> 00:01:00,200 Speaker 1: pegged to each other one to one cash money your 17 00:01:00,200 --> 00:01:03,400 Speaker 1: bank account, bank account, money held at the federal reserve. 18 00:01:04,000 --> 00:01:07,800 Speaker 1: Not that the similar from dollar poker chips in the casino, right, 19 00:01:08,040 --> 00:01:10,720 Speaker 1: But this is something that's been coming up in various 20 00:01:10,720 --> 00:01:14,080 Speaker 1: ways on recent episodes of Odd Lots. This idea that 21 00:01:14,120 --> 00:01:16,880 Speaker 1: you do have different types of money, and at any 22 00:01:16,920 --> 00:01:20,280 Speaker 1: one point of time there could be changes in how 23 00:01:20,360 --> 00:01:23,800 Speaker 1: the world thinks of that money or how it uses it. 24 00:01:24,160 --> 00:01:26,319 Speaker 1: And you know, for years and years we've had the 25 00:01:26,360 --> 00:01:29,760 Speaker 1: euro dollar system, basically the synthetic dollars that are sort 26 00:01:29,800 --> 00:01:33,319 Speaker 1: of slashing around in the global financial system. We've had 27 00:01:33,400 --> 00:01:37,680 Speaker 1: reserves courtesy of the central banks and quantitative easing and 28 00:01:37,840 --> 00:01:41,120 Speaker 1: things like that. And now I hesitate to use the 29 00:01:41,200 --> 00:01:44,560 Speaker 1: term inflection point, but once again it feels like a 30 00:01:44,680 --> 00:01:47,760 Speaker 1: central banks begin to tighten as we see this big 31 00:01:47,840 --> 00:01:50,560 Speaker 1: question mark over the role of the dollar. Given the 32 00:01:50,640 --> 00:01:55,240 Speaker 1: sanctions against Russia, it feels like this question of what 33 00:01:55,440 --> 00:01:59,080 Speaker 1: is money, what could a new monetary system actually look like? 34 00:01:59,400 --> 00:02:03,280 Speaker 1: Is coming at into the four Yeah, exactly right. And 35 00:02:03,320 --> 00:02:06,880 Speaker 1: then the other element that's extremely big right now is 36 00:02:07,360 --> 00:02:10,120 Speaker 1: and that the Russian sanctions were part of this. But 37 00:02:10,400 --> 00:02:15,519 Speaker 1: it's clear that, like FX, reserves aren't enough security, especially 38 00:02:15,560 --> 00:02:19,320 Speaker 1: in a world of commodity disruption, supply chain breakdowns, things 39 00:02:19,320 --> 00:02:21,840 Speaker 1: like that. It's great to have money, it's great to 40 00:02:21,919 --> 00:02:26,160 Speaker 1: have foreign currencies, particularly if you're a vulnerable emerging market 41 00:02:26,160 --> 00:02:28,680 Speaker 1: and so forth. But he is Russia is discovered, you 42 00:02:28,680 --> 00:02:31,840 Speaker 1: could lose access to your fex reserves. But more importantly 43 00:02:32,760 --> 00:02:35,920 Speaker 1: and Afghanistan, that's right, but more importantly like even if 44 00:02:35,960 --> 00:02:39,240 Speaker 1: you having for reserves, you also need food. You also 45 00:02:39,280 --> 00:02:42,320 Speaker 1: need wheat, you also need natural gas. If you're in Canada, 46 00:02:42,360 --> 00:02:45,200 Speaker 1: maybe you need a maple stockpile. In the US, of course, 47 00:02:45,200 --> 00:02:47,640 Speaker 1: we just saw the announced release of some of the 48 00:02:47,800 --> 00:02:50,720 Speaker 1: spr oil. These are also very important. So we're also 49 00:02:50,760 --> 00:02:54,360 Speaker 1: in a regime in which physical things really matter again 50 00:02:54,440 --> 00:02:57,960 Speaker 1: big time, right, And there's not necessarily a guarantee that 51 00:02:58,080 --> 00:03:01,880 Speaker 1: you know, the financialized oddities are going to be I 52 00:03:01,880 --> 00:03:04,880 Speaker 1: guess redeemable one for one against the physical commodities. It 53 00:03:04,919 --> 00:03:08,000 Speaker 1: feels like that's what we're learning right now. Well, whenever 54 00:03:08,040 --> 00:03:11,480 Speaker 1: we're talking about big money ideas, there is of course 55 00:03:11,520 --> 00:03:14,200 Speaker 1: one person who we turned to and I already mentioned 56 00:03:14,240 --> 00:03:16,600 Speaker 1: his name, but we are going to be speaking once 57 00:03:16,639 --> 00:03:20,000 Speaker 1: again to re Sultan Posar. He's a strategistic credit Swiss 58 00:03:20,520 --> 00:03:23,959 Speaker 1: multi time odd lots guest at this point, and he's 59 00:03:24,000 --> 00:03:28,120 Speaker 1: been writing about these themes, including an earlier note a 60 00:03:28,160 --> 00:03:33,320 Speaker 1: few weeks ago talking about the threat to the dollar's dominance, 61 00:03:33,360 --> 00:03:37,640 Speaker 1: and he's back to go into further detail about how 62 00:03:37,680 --> 00:03:42,080 Speaker 1: he sees a new monetary system actually evolving. I feel 63 00:03:42,120 --> 00:03:44,120 Speaker 1: like after we did that last episode with him a 64 00:03:44,120 --> 00:03:46,960 Speaker 1: few weeks ago, bam, everyone wanted to like, Okay, the 65 00:03:47,000 --> 00:03:49,720 Speaker 1: dollar system is in trouble, yeah, but what's next? And 66 00:03:49,720 --> 00:03:52,960 Speaker 1: then he published what's next? Talk to us next? But 67 00:03:53,320 --> 00:03:55,920 Speaker 1: we're having a faster because there's so much demand for 68 00:03:56,000 --> 00:03:58,920 Speaker 1: like the next chapter of this story. It's the natural 69 00:03:59,000 --> 00:04:01,040 Speaker 1: cycles Alton right something. And then he comes on All 70 00:04:01,080 --> 00:04:03,040 Speaker 1: Thoughts to talk about it. So Re Sulton, thank you 71 00:04:03,080 --> 00:04:06,680 Speaker 1: so much for for coming back on the show. Very 72 00:04:06,720 --> 00:04:09,520 Speaker 1: nice to be back. Instead of looking forwards, why don't 73 00:04:09,520 --> 00:04:12,120 Speaker 1: we begin by looking backwards, and why don't you give 74 00:04:12,200 --> 00:04:16,799 Speaker 1: us your overview of what the existing monetary system actually 75 00:04:16,839 --> 00:04:18,600 Speaker 1: looks like, because I think that's going to help us 76 00:04:18,640 --> 00:04:23,400 Speaker 1: frame your vision of the future. Yes, so so before 77 00:04:23,440 --> 00:04:26,120 Speaker 1: we before we look at the existing system, let's just 78 00:04:26,320 --> 00:04:28,159 Speaker 1: you know, go all the way back to the Second 79 00:04:28,160 --> 00:04:30,799 Speaker 1: World War and you know what, you know the system 80 00:04:30,880 --> 00:04:33,360 Speaker 1: that grew out of that, and that was the original 81 00:04:33,400 --> 00:04:37,440 Speaker 1: Breton Woods three Breton Woods system. You know, this was 82 00:04:37,520 --> 00:04:41,680 Speaker 1: the unipol or world where the US basically shaped the 83 00:04:41,720 --> 00:04:44,400 Speaker 1: course of things to come. You know, the euro dollar 84 00:04:44,640 --> 00:04:49,039 Speaker 1: was not a dominant currency back then immediately after the 85 00:04:49,160 --> 00:04:51,680 Speaker 1: end of the Second World War, but it became the 86 00:04:51,720 --> 00:04:56,280 Speaker 1: dominant reserve currency and a dominant phenomenon over the forty 87 00:04:57,000 --> 00:05:02,000 Speaker 1: forty fifty UH years. And so you know, Breton Woods 88 00:05:02,360 --> 00:05:06,599 Speaker 1: was about gold. Everything was linked to gold. And then 89 00:05:06,800 --> 00:05:10,880 Speaker 1: Invent one, we took the dollar of gold and then 90 00:05:11,040 --> 00:05:14,320 Speaker 1: we basically said that we will guarantee price stability, and 91 00:05:14,360 --> 00:05:17,360 Speaker 1: that's what became the FEDS mantra and everything in in 92 00:05:17,680 --> 00:05:21,640 Speaker 1: the fiscal and monetary domains was about making sure that 93 00:05:21,640 --> 00:05:25,880 Speaker 1: that price stability is there as an anchor to a 94 00:05:26,000 --> 00:05:30,480 Speaker 1: currency that was only a paper form of money. UH. 95 00:05:30,520 --> 00:05:34,240 Speaker 1: And then the system evolved further within the stable prices 96 00:05:34,640 --> 00:05:37,440 Speaker 1: nominal world that we had. Once we removed the peg 97 00:05:38,640 --> 00:05:43,240 Speaker 1: to gold, we had a crisis in seven or fixed 98 00:05:43,240 --> 00:05:47,280 Speaker 1: exchange rates. Southeast Asia then started to accumulate reserves. As 99 00:05:47,320 --> 00:05:49,920 Speaker 1: a lesson from that. In two thousand, three years later 100 00:05:50,200 --> 00:05:53,200 Speaker 1: China UH joined the w t OH. They started to 101 00:05:53,839 --> 00:05:57,000 Speaker 1: export and manufacture everything for the rest of the world. 102 00:05:57,440 --> 00:06:00,800 Speaker 1: They accumulated a huge amount of f express serves. All 103 00:06:00,839 --> 00:06:04,520 Speaker 1: of these reserves basically were recycled into U S treasuries. 104 00:06:04,880 --> 00:06:08,279 Speaker 1: This is you know Greenspan's conundrum, you know, his hiking rates, 105 00:06:08,360 --> 00:06:10,719 Speaker 1: but the back end of the curve doesn't move. Ben 106 00:06:10,760 --> 00:06:14,760 Speaker 1: Bernankey called it the global savings clot Before Ben Bernankey, 107 00:06:14,839 --> 00:06:18,200 Speaker 1: David Folkers Landau at Deutsche Bank, and Mike Dooley they 108 00:06:18,240 --> 00:06:21,920 Speaker 1: call this breton Woods too. So basically, the shift from 109 00:06:21,920 --> 00:06:26,560 Speaker 1: Breton Woods the breton Woods two is the shift from 110 00:06:26,600 --> 00:06:32,800 Speaker 1: a gold backed dollar to a a dollar governed by 111 00:06:32,960 --> 00:06:36,040 Speaker 1: the idea that the guarantee price stability. And because the 112 00:06:36,120 --> 00:06:40,479 Speaker 1: guarantee price stability, it's okay to accumulate your dollar reserves 113 00:06:40,600 --> 00:06:45,000 Speaker 1: in treasury securities. And you know that system was fine. 114 00:06:45,080 --> 00:06:48,680 Speaker 1: But again, you know, you have Minsky moments and Paul McCulley, 115 00:06:48,839 --> 00:06:52,600 Speaker 1: and you know, stability gets instability and shadow banking. So 116 00:06:52,640 --> 00:06:55,680 Speaker 1: all that system blew up in two thousand and eight, 117 00:06:56,480 --> 00:07:00,560 Speaker 1: and then accumulation of U S treasury securities stopped in 118 00:07:00,600 --> 00:07:02,640 Speaker 1: certain parts of the world, and then the big central 119 00:07:02,640 --> 00:07:05,000 Speaker 1: banks like the SET and the ECB started to buy 120 00:07:05,839 --> 00:07:10,160 Speaker 1: the depth of their own governments, and that, you know, 121 00:07:10,280 --> 00:07:14,680 Speaker 1: led to income inequality and soaring stock prices and some 122 00:07:14,760 --> 00:07:16,760 Speaker 1: of the things that we are kind of dealing with 123 00:07:16,800 --> 00:07:18,600 Speaker 1: at the present. I mean, you know, the last time 124 00:07:18,640 --> 00:07:21,360 Speaker 1: I was on the show, you know, we talked about 125 00:07:21,360 --> 00:07:23,680 Speaker 1: this piece that I wrote about how we need a 126 00:07:23,680 --> 00:07:26,400 Speaker 1: new Vulcar moment and a little bit of volatility and 127 00:07:26,520 --> 00:07:29,240 Speaker 1: risk assets and wealth destructions you can bring people back 128 00:07:29,280 --> 00:07:31,200 Speaker 1: into the labor force and all that stuff. And so 129 00:07:31,280 --> 00:07:34,440 Speaker 1: then then instead of a Vulcar moment, we got a 130 00:07:34,480 --> 00:07:38,760 Speaker 1: Puchin moment, and we basically have war. And out of 131 00:07:38,800 --> 00:07:43,600 Speaker 1: this war something will will also emerge. Um And and 132 00:07:43,680 --> 00:07:46,640 Speaker 1: you know, out of this I think this Breton Woods 133 00:07:46,720 --> 00:07:51,280 Speaker 1: three framework that I um that I started to kind 134 00:07:51,280 --> 00:07:53,960 Speaker 1: of develop and and run with is a is a 135 00:07:54,000 --> 00:07:57,480 Speaker 1: world where we are again going to go back to 136 00:07:57,920 --> 00:08:02,680 Speaker 1: commodity backed money, where gold once again is going to 137 00:08:02,760 --> 00:08:06,160 Speaker 1: play a big role, and not not just gold, but 138 00:08:06,240 --> 00:08:09,440 Speaker 1: I think all forms of commodities, because you know, this 139 00:08:09,600 --> 00:08:13,280 Speaker 1: crisis is about commodities. This is about you know, the 140 00:08:13,360 --> 00:08:19,000 Speaker 1: largest commodity exporter. This is about metals and rains and 141 00:08:19,040 --> 00:08:22,440 Speaker 1: and energy, and so in a way, you're back to 142 00:08:22,560 --> 00:08:25,640 Speaker 1: where you started from after the Second World War, but 143 00:08:25,760 --> 00:08:29,160 Speaker 1: it's going to be a little bit more different and 144 00:08:29,200 --> 00:08:31,080 Speaker 1: a little bit a little bit more complex. Is not 145 00:08:31,160 --> 00:08:34,160 Speaker 1: just gold, but it's commodity, is more broadly, and it's 146 00:08:34,240 --> 00:08:37,920 Speaker 1: not just one currency that's dominance, but there is going 147 00:08:38,000 --> 00:08:40,360 Speaker 1: to be you know, as a reflection of a multiple 148 00:08:40,440 --> 00:08:44,800 Speaker 1: or world, a multitude of currentcies. You know, rubles if 149 00:08:44,840 --> 00:08:47,920 Speaker 1: you want to get Russian oil, um r and B. 150 00:08:48,120 --> 00:08:50,680 Speaker 1: If you want to get stuff out of China, you 151 00:08:50,760 --> 00:08:52,840 Speaker 1: have the dollar, and you know if you trade the 152 00:08:53,040 --> 00:08:58,800 Speaker 1: US and and so it's a fragmented system where commodities 153 00:08:58,880 --> 00:09:02,760 Speaker 1: play much big a role and their price stability is 154 00:09:02,800 --> 00:09:05,240 Speaker 1: a big issue in certain parts of the world. So 155 00:09:05,240 --> 00:09:09,600 Speaker 1: so this is a very complex mosaic that they need 156 00:09:09,640 --> 00:09:13,679 Speaker 1: to navigate here. And you know, um, that's what breton 157 00:09:13,720 --> 00:09:17,240 Speaker 1: Wood is about. That that was fantastic. I wanna you know, 158 00:09:17,400 --> 00:09:20,480 Speaker 1: before we even dive further into what this Breton would 159 00:09:20,600 --> 00:09:23,640 Speaker 1: three looks like. I was reading your latest note and 160 00:09:23,800 --> 00:09:28,000 Speaker 1: it's you cite some ideas from your sometimes co author 161 00:09:28,000 --> 00:09:30,320 Speaker 1: and one time cocus on this podcast of Kerry Maryland, 162 00:09:30,800 --> 00:09:33,160 Speaker 1: which talks about is actually the four prices of money. 163 00:09:33,200 --> 00:09:35,480 Speaker 1: And I don't think many people really think about that. 164 00:09:35,480 --> 00:09:38,440 Speaker 1: I think, okay, maybe the interest rate or the risk 165 00:09:38,520 --> 00:09:40,480 Speaker 1: free rate at a given country is sort of a 166 00:09:40,559 --> 00:09:43,520 Speaker 1: price of money, so to speak. The adjust that but 167 00:09:43,559 --> 00:09:46,080 Speaker 1: if you point out like money is priced in many 168 00:09:46,120 --> 00:09:48,520 Speaker 1: different ways, can you talk a little bit about that? 169 00:09:48,559 --> 00:09:51,720 Speaker 1: Why is that an important idea to understand that any 170 00:09:51,760 --> 00:09:55,679 Speaker 1: given currency has so many different inherent prices? Yes? Yes, Well, 171 00:09:55,960 --> 00:09:59,679 Speaker 1: actually I think the next guest you should have uh 172 00:10:00,040 --> 00:10:02,559 Speaker 1: for me is Perry, because from what I understand, he 173 00:10:04,240 --> 00:10:07,400 Speaker 1: doesn't agree with me. He thinks he doesn't. Yes, so 174 00:10:07,440 --> 00:10:10,719 Speaker 1: that's interesting the dollar rates agreement. And obviously he's going 175 00:10:10,760 --> 00:10:13,400 Speaker 1: to have his beautiful new book, Money and Empire, which 176 00:10:13,440 --> 00:10:20,360 Speaker 1: is well Charlie Kindleberger and the birth of the Dollar system, 177 00:10:20,480 --> 00:10:23,120 Speaker 1: and you know, that's that's about, you know, why the 178 00:10:23,160 --> 00:10:25,360 Speaker 1: dollar is the dominant currents and how it became the 179 00:10:25,400 --> 00:10:27,959 Speaker 1: Dominican And from what I understand, having caught up with 180 00:10:28,040 --> 00:10:31,000 Speaker 1: him in a couple of months, he does not agree 181 00:10:31,000 --> 00:10:33,040 Speaker 1: with Breton Street. So it will be a one of 182 00:10:33,080 --> 00:10:36,400 Speaker 1: the full kind of counter counter pieces. I pretty much 183 00:10:36,520 --> 00:10:39,959 Speaker 1: owe the structure of my understanding of the world to 184 00:10:40,679 --> 00:10:43,840 Speaker 1: to Paris writings and Paris teaching, So so I think 185 00:10:44,520 --> 00:10:47,560 Speaker 1: he has done a tremendous service, I think, to to 186 00:10:47,679 --> 00:10:51,280 Speaker 1: anyone who's trying to understand monitory frameworks and money markets 187 00:10:51,320 --> 00:10:55,599 Speaker 1: and whatnot. So with that So the four prices of Perry. 188 00:10:56,160 --> 00:10:59,760 Speaker 1: So there's four prices which are par interest for an 189 00:10:59,760 --> 00:11:02,640 Speaker 1: ext change and the price level. So what what do 190 00:11:02,679 --> 00:11:06,000 Speaker 1: I What does he mean by this? Par basically means 191 00:11:06,080 --> 00:11:09,240 Speaker 1: that currency and a bank deposit and a bank deposited 192 00:11:09,360 --> 00:11:12,640 Speaker 1: jpmore again and a bank deposited city bank always traight 193 00:11:12,679 --> 00:11:15,800 Speaker 1: at one. Okay, So money fund shares and banking all 194 00:11:15,840 --> 00:11:20,920 Speaker 1: that stuff, right, poor broke in two thousand and eight, right, 195 00:11:21,000 --> 00:11:24,040 Speaker 1: the money fund money funds broke the box. You know, 196 00:11:24,160 --> 00:11:27,440 Speaker 1: bank deposits were not certain, so you need to increase 197 00:11:27,440 --> 00:11:32,720 Speaker 1: the positive insurance all that stuff. Interest is about the 198 00:11:32,800 --> 00:11:36,560 Speaker 1: time value of money, money today versus money tomorrow. You 199 00:11:36,600 --> 00:11:39,280 Speaker 1: know what it costs for me to part with my 200 00:11:39,360 --> 00:11:42,560 Speaker 1: liquidity if I lend it to you for three months 201 00:11:42,600 --> 00:11:47,520 Speaker 1: to go play in a desert in Vegas. I'm good, yes, yes, yes. 202 00:11:48,360 --> 00:11:51,440 Speaker 1: And then so that's the time value. That's the basic idea. 203 00:11:51,440 --> 00:11:55,000 Speaker 1: And then there's obviously different money market. So there's the 204 00:11:55,000 --> 00:11:57,600 Speaker 1: repo market, the epic spot market on secure money, goold 205 00:11:57,679 --> 00:12:00,560 Speaker 1: you know, these all have like you know, the crisis, 206 00:12:00,640 --> 00:12:04,000 Speaker 1: and so there is spreads between oh i s curbs 207 00:12:04,000 --> 00:12:09,920 Speaker 1: and these other other money markets. Interests interests. You think 208 00:12:09,960 --> 00:12:12,840 Speaker 1: about two ways. You either trade it in terms of 209 00:12:12,880 --> 00:12:15,640 Speaker 1: O I s you know how many times the feed 210 00:12:15,800 --> 00:12:19,080 Speaker 1: is going to hike, are gonna hike cavery gonna cut rates? 211 00:12:19,600 --> 00:12:22,640 Speaker 1: Or you trade the basis around O I s you 212 00:12:22,679 --> 00:12:26,000 Speaker 1: know cruss currency basis blows out because it's money fund reform, 213 00:12:26,320 --> 00:12:29,400 Speaker 1: or it goes out because COVID nineteen hits and everybody 214 00:12:29,440 --> 00:12:33,199 Speaker 1: needs to fund credit lines that corporations are taking down. 215 00:12:33,640 --> 00:12:35,319 Speaker 1: You know, this is where you think about the bond 216 00:12:35,360 --> 00:12:39,719 Speaker 1: basis that blew up in early twenty when the pandemic hit. 217 00:12:40,280 --> 00:12:42,680 Speaker 1: So you know this is this is about basis between 218 00:12:42,760 --> 00:12:47,040 Speaker 1: various money market curves and various prices of money. Foreign 219 00:12:47,040 --> 00:12:51,440 Speaker 1: exchange is uh, you know, fixed or floating exchange rates, 220 00:12:51,440 --> 00:12:54,240 Speaker 1: the price of dollar versus the price of other currencies. 221 00:12:54,960 --> 00:13:00,000 Speaker 1: You know, foreign exchange is what broke in for example, 222 00:13:00,840 --> 00:13:05,840 Speaker 1: when when South Korea abandoned its sixx sec. And then 223 00:13:05,880 --> 00:13:08,439 Speaker 1: there's the price level, which is basically the price of 224 00:13:08,559 --> 00:13:13,120 Speaker 1: commodities in terms of money. And by that, you know 225 00:13:13,320 --> 00:13:17,440 Speaker 1: we mean basically energy, grains, metals and all the goods 226 00:13:17,720 --> 00:13:21,360 Speaker 1: that get created from the drawn materials and so so, 227 00:13:21,480 --> 00:13:25,320 Speaker 1: once again the par interest foreign exchange and price level 228 00:13:25,400 --> 00:13:29,480 Speaker 1: prices of money, as Perry has taught us, is the 229 00:13:29,559 --> 00:13:35,439 Speaker 1: four prices. And basically this little historical review that I 230 00:13:35,520 --> 00:13:40,600 Speaker 1: gave you tells you that crisis that happened, the big 231 00:13:40,800 --> 00:13:46,040 Speaker 1: crisis that have happened since, which again Southeast Asia two 232 00:13:46,120 --> 00:13:50,360 Speaker 1: thousand and eight and March twenty twenty, these were all 233 00:13:50,559 --> 00:13:56,120 Speaker 1: crises of money. Was about a broken ffex bag. Two 234 00:13:56,200 --> 00:13:59,520 Speaker 1: thousand and eight was a crisis of par and March 235 00:13:59,640 --> 00:14:02,079 Speaker 1: twenty TWANTU when the bond basis blew up, that was 236 00:14:02,160 --> 00:14:06,199 Speaker 1: a crisis of interest, price level type stuff. You know, 237 00:14:06,360 --> 00:14:10,800 Speaker 1: the price of commodities in terms of money hasn't really 238 00:14:10,840 --> 00:14:15,679 Speaker 1: been a big deal since ninete. So we were lucky 239 00:14:16,160 --> 00:14:19,840 Speaker 1: and and we basically had only those types of crises 240 00:14:20,720 --> 00:14:23,800 Speaker 1: where the central bank has to step in because it's 241 00:14:23,800 --> 00:14:26,600 Speaker 1: a nominal exchange rate and it's a nominal bond basis, 242 00:14:26,680 --> 00:14:29,720 Speaker 1: and it's a nominal thing that you know, the reserve 243 00:14:29,840 --> 00:14:34,200 Speaker 1: primary fund cannot pay part back. And so it was 244 00:14:34,360 --> 00:14:37,600 Speaker 1: a dollar problem and a Euro problem. And in the 245 00:14:37,680 --> 00:14:41,880 Speaker 1: case of the sovereign debt crisis, and a central bank 246 00:14:42,000 --> 00:14:46,600 Speaker 1: that deals with a nominal crisis in its own currency 247 00:14:47,080 --> 00:14:49,160 Speaker 1: has it easy because what do you do as a 248 00:14:49,200 --> 00:14:52,400 Speaker 1: central bank? You provide emergency licuity to people that have 249 00:14:52,560 --> 00:14:56,400 Speaker 1: the trouble assets and can't fund, and you also buy 250 00:14:56,520 --> 00:15:00,160 Speaker 1: the trouble assets, which is either some peripheral sovereign at 251 00:15:00,280 --> 00:15:03,080 Speaker 1: or stuff prime mortgages or treasury securities. And in March 252 00:15:03,200 --> 00:15:07,800 Speaker 1: twenty twenty, I mean with South Korea is different because 253 00:15:07,840 --> 00:15:09,280 Speaker 1: it was the I m F that had to step 254 00:15:09,360 --> 00:15:11,320 Speaker 1: in to provide the dollars dollars because they didn't have 255 00:15:11,360 --> 00:15:13,920 Speaker 1: the spot lines. But the bottom line is these are 256 00:15:14,000 --> 00:15:17,720 Speaker 1: all crises where someone has to put balanceet on the 257 00:15:17,800 --> 00:15:22,800 Speaker 1: line by the trouble assets pumping the couidity and problem solved. Today. 258 00:15:24,040 --> 00:15:27,720 Speaker 1: It's different because you know, the price level is where 259 00:15:28,040 --> 00:15:31,760 Speaker 1: real needs nominal You are talking about the price of 260 00:15:31,880 --> 00:15:36,240 Speaker 1: real goods in nominal terms, and central banks can't do 261 00:15:36,360 --> 00:15:41,000 Speaker 1: a bloody thing about commodity shortages. You know, the type 262 00:15:41,040 --> 00:15:43,320 Speaker 1: of environment that we are that we are going through now. 263 00:15:44,120 --> 00:15:46,440 Speaker 1: And I'm sure you'll ask next, you know, so there's 264 00:15:46,480 --> 00:15:49,080 Speaker 1: the four four pillars of commodity trade, and will come 265 00:15:49,120 --> 00:15:51,800 Speaker 1: to that next, but that's basically the four prices. You know, 266 00:15:51,880 --> 00:15:55,680 Speaker 1: you've been running a lot about funding stresses showing up 267 00:15:55,880 --> 00:15:58,680 Speaker 1: as a result of the volatility that we've seen in 268 00:15:58,800 --> 00:16:02,320 Speaker 1: commodities recently. Yes, so, I guess I'm wondering is there 269 00:16:02,320 --> 00:16:07,800 Speaker 1: a tension there between saying that commodities as funding collateral 270 00:16:08,200 --> 00:16:11,320 Speaker 1: can suddenly decline in price and cause a lot of 271 00:16:11,400 --> 00:16:16,760 Speaker 1: problems for people and including commodities as part of the 272 00:16:16,840 --> 00:16:20,560 Speaker 1: sort of monetary framework of the future, Like, how do 273 00:16:20,640 --> 00:16:24,360 Speaker 1: you sort of think about that tension? Yes? So, so, 274 00:16:24,480 --> 00:16:27,280 Speaker 1: first of all, you always like to kind of ask 275 00:16:27,360 --> 00:16:33,120 Speaker 1: me the things that I'm wrong about. But yes, I 276 00:16:33,200 --> 00:16:36,520 Speaker 1: know this is this is very interesting because I was 277 00:16:36,680 --> 00:16:38,800 Speaker 1: very right, but I was very wrong. You know, I 278 00:16:38,960 --> 00:16:43,080 Speaker 1: was right that the commodity derivative complex and the commodity 279 00:16:43,080 --> 00:16:46,680 Speaker 1: trading world is going to have liclarity crisis. We are 280 00:16:46,920 --> 00:16:50,440 Speaker 1: having that liclarity crisis. Where I was wrong is that 281 00:16:50,680 --> 00:16:52,360 Speaker 1: none of this is going to show up in traditional 282 00:16:52,440 --> 00:16:55,560 Speaker 1: measures and fundings. Best and you know, you always learned 283 00:16:55,600 --> 00:16:58,840 Speaker 1: from your mistakes what I have learned. The commodity trading 284 00:16:58,880 --> 00:17:06,200 Speaker 1: world completely funds itself through bank credit lines. They do 285 00:17:06,359 --> 00:17:09,639 Speaker 1: not tap the fx slock market, they do not issue 286 00:17:09,720 --> 00:17:12,440 Speaker 1: cp they don't do anything in the report market because 287 00:17:12,480 --> 00:17:15,359 Speaker 1: they don't have the type of financial assets that the 288 00:17:15,480 --> 00:17:19,639 Speaker 1: repo market would accept as collateral for funding. So you 289 00:17:19,800 --> 00:17:24,960 Speaker 1: then basically had a world where you have, okay, the 290 00:17:25,040 --> 00:17:27,320 Speaker 1: two extremes. You know, you have the commodity treading world 291 00:17:27,400 --> 00:17:29,320 Speaker 1: on left, and then you have one and a half 292 00:17:29,400 --> 00:17:34,080 Speaker 1: brillion of cash in the resverse report facility sitting there. 293 00:17:34,760 --> 00:17:37,520 Speaker 1: And then you have the big banks again the old 294 00:17:37,600 --> 00:17:40,200 Speaker 1: visus JP Morgan as the posted child. You have five 295 00:17:40,680 --> 00:17:44,960 Speaker 1: billion dollars that JP Morgan holds at the Federal Reserve 296 00:17:45,040 --> 00:17:49,440 Speaker 1: Bank of New York. Again, the funding stresses that the 297 00:17:49,480 --> 00:17:53,639 Speaker 1: commodity world is having are being lessened by more and 298 00:17:53,760 --> 00:17:56,719 Speaker 1: more and more lending that the big banks provide two 299 00:17:56,760 --> 00:17:59,800 Speaker 1: commodity traders. But because the big banks are sitting on 300 00:18:00,000 --> 00:18:04,040 Speaker 1: piles of cash, okay, they can just lend that money 301 00:18:04,240 --> 00:18:06,959 Speaker 1: to the commodity treators in need. But they don't need 302 00:18:07,040 --> 00:18:09,760 Speaker 1: to raise that money on the margin. And so because 303 00:18:09,800 --> 00:18:12,040 Speaker 1: they don't have to raise money on the margin, they 304 00:18:12,119 --> 00:18:14,200 Speaker 1: just don't have the repo market or the fex pop 305 00:18:14,240 --> 00:18:16,480 Speaker 1: and you don't have to issue cps. So, you know, 306 00:18:16,560 --> 00:18:21,440 Speaker 1: the traditional kind of stirre domain of spreads is very calm. However, 307 00:18:22,880 --> 00:18:24,840 Speaker 1: that doesn't mean that there is no stresses in the 308 00:18:24,880 --> 00:18:27,720 Speaker 1: commodity treating. And we know that there are stresses because 309 00:18:27,800 --> 00:18:30,919 Speaker 1: Pbody Energy had to pay ten pc interest when they 310 00:18:31,000 --> 00:18:33,840 Speaker 1: took their credit line from Golden sectually being Bloomberg wrote 311 00:18:33,840 --> 00:18:36,560 Speaker 1: an article about this right and and we know that 312 00:18:36,760 --> 00:18:39,719 Speaker 1: you know traffic Gurro was in the news about taking 313 00:18:39,800 --> 00:18:43,920 Speaker 1: credit line from a consortium of four banks, then trying 314 00:18:43,960 --> 00:18:47,879 Speaker 1: to raise activity from black Stone. Then you know, a 315 00:18:48,000 --> 00:18:51,440 Speaker 1: day later, all the commodity creators were basically writing a 316 00:18:51,560 --> 00:18:56,359 Speaker 1: letter to central banks that they need emergency the curity support. 317 00:18:56,720 --> 00:18:59,800 Speaker 1: So the strain is there. The strain has has a 318 00:19:00,040 --> 00:19:03,119 Speaker 1: multitude of sources. Here again back to this idea that 319 00:19:03,480 --> 00:19:06,560 Speaker 1: everything that the commodity traders do is financed by banks. 320 00:19:07,040 --> 00:19:08,760 Speaker 1: And again I think you know, we all we all 321 00:19:08,840 --> 00:19:10,920 Speaker 1: live and learn and learn as we go. You know, 322 00:19:11,040 --> 00:19:13,639 Speaker 1: one thing, for example, I've learned from commodity traitors is 323 00:19:13,720 --> 00:19:15,639 Speaker 1: that you know, when when it comes to these credit 324 00:19:15,720 --> 00:19:19,040 Speaker 1: lines that the traitors used to finance themselves, is you know, 325 00:19:19,440 --> 00:19:21,640 Speaker 1: you get x amount of credit through a credit line 326 00:19:21,640 --> 00:19:25,240 Speaker 1: from a bank, you draw of it to lead the 327 00:19:25,280 --> 00:19:28,359 Speaker 1: ship to fill up the ship with cargo, but you 328 00:19:28,440 --> 00:19:30,720 Speaker 1: don't use a hundred percent of the credit line, because 329 00:19:31,080 --> 00:19:33,800 Speaker 1: while the goods are in transit, you will have to 330 00:19:33,880 --> 00:19:36,560 Speaker 1: pay variation mark right, I mean the prices go up, 331 00:19:36,600 --> 00:19:38,879 Speaker 1: prices go down, depending on the side of the physical 332 00:19:38,920 --> 00:19:41,320 Speaker 1: side of trade you are on. You will either get 333 00:19:41,400 --> 00:19:43,639 Speaker 1: paid money or you will have to pay money. And 334 00:19:43,880 --> 00:19:47,960 Speaker 1: for that too, you will tap a credit line from 335 00:19:48,000 --> 00:19:53,760 Speaker 1: a bank. Um. And so when you have a price shock, 336 00:19:54,200 --> 00:19:58,000 Speaker 1: and when you have all this volatility, you a need 337 00:19:58,119 --> 00:20:02,879 Speaker 1: more money to move the same amount of physical goods around, 338 00:20:03,280 --> 00:20:06,119 Speaker 1: and you also need more credit to be able to 339 00:20:06,200 --> 00:20:09,440 Speaker 1: pay margin on all this cargo as it is in 340 00:20:09,640 --> 00:20:11,920 Speaker 1: as it is in transit. So this is where the 341 00:20:12,000 --> 00:20:15,800 Speaker 1: liquidity strains are coming from. And you know it's a 342 00:20:15,880 --> 00:20:20,520 Speaker 1: mess because you know banks are basically facing credit risks 343 00:20:20,560 --> 00:20:22,960 Speaker 1: when when they are lending into the commodities world. And 344 00:20:23,720 --> 00:20:27,119 Speaker 1: and not only that, but basically you have a shock 345 00:20:27,480 --> 00:20:29,879 Speaker 1: in terms of the nominal amount of money you need 346 00:20:29,960 --> 00:20:33,600 Speaker 1: to land, the nominal amount of balance sheets that you 347 00:20:33,800 --> 00:20:36,960 Speaker 1: permit to this world. And and you know, I guess 348 00:20:37,040 --> 00:20:40,159 Speaker 1: one lesson from this and again conceptually and again in 349 00:20:40,440 --> 00:20:43,560 Speaker 1: extreme terms, just to concentrate the mind and two sparks 350 00:20:43,600 --> 00:20:47,359 Speaker 1: and thinking the value of say five billion dollars of 351 00:20:47,480 --> 00:20:51,800 Speaker 1: reserves at the FED, if you're a large bank, is 352 00:20:52,400 --> 00:20:56,440 Speaker 1: worth a lot more in a world where inflation is 353 00:20:56,800 --> 00:21:01,040 Speaker 1: low and stable, and commodity prices are low and stable, 354 00:21:01,840 --> 00:21:04,000 Speaker 1: where the only thing you have to worry about is 355 00:21:04,040 --> 00:21:05,680 Speaker 1: you know where am I going to lend my next 356 00:21:05,760 --> 00:21:08,360 Speaker 1: ten take the thirty billion dollars to harvest the next 357 00:21:08,400 --> 00:21:11,959 Speaker 1: crost currency basis, So five is worth a lot more 358 00:21:11,960 --> 00:21:14,320 Speaker 1: in the world like that, then in a world where 359 00:21:14,400 --> 00:21:16,840 Speaker 1: basically you need to lend an extra hundred billion dollars 360 00:21:16,920 --> 00:21:20,440 Speaker 1: to all sorts of commodity traders to move around and 361 00:21:20,600 --> 00:21:25,439 Speaker 1: to finance all commodities imagined. So that is happening now, 362 00:21:25,560 --> 00:21:27,800 Speaker 1: which which is another way of saying that this lowest 363 00:21:27,840 --> 00:21:31,160 Speaker 1: comfortable level of reserves that we like to think about 364 00:21:31,200 --> 00:21:33,640 Speaker 1: in terms of how much q T can the FAT 365 00:21:33,720 --> 00:21:36,760 Speaker 1: do and how much reserves can you take out that 366 00:21:37,560 --> 00:21:40,280 Speaker 1: l C l o R again that the minimum level 367 00:21:40,359 --> 00:21:45,680 Speaker 1: of reserves the banks feel comfortable of running with is 368 00:21:45,760 --> 00:21:48,240 Speaker 1: going up as we speak. We don't know how much 369 00:21:48,320 --> 00:21:50,680 Speaker 1: because it's unobservable, but you know, the FAT does this 370 00:21:50,840 --> 00:21:54,160 Speaker 1: periodic surveys about l C l ORE. I think it's 371 00:21:54,200 --> 00:21:56,960 Speaker 1: time to do a survey like that now, because these 372 00:21:57,000 --> 00:21:59,480 Speaker 1: are these are issues, and I don't think that the 373 00:21:59,560 --> 00:22:02,880 Speaker 1: issues and commodity world are are going to fade away 374 00:22:02,920 --> 00:22:06,159 Speaker 1: anytime soon. They're probably gonna get much much worse. There 375 00:22:06,320 --> 00:22:09,360 Speaker 1: is the community strange, they just don't show up as such. 376 00:22:09,680 --> 00:22:12,920 Speaker 1: And by the way, the moment, some some big name 377 00:22:13,640 --> 00:22:18,240 Speaker 1: can't pay and defaults as a result. And again you 378 00:22:18,320 --> 00:22:20,280 Speaker 1: can use your imagination. It doesn't have to be a 379 00:22:20,320 --> 00:22:24,320 Speaker 1: commodity trader. It can also be a CCP, the default 380 00:22:24,359 --> 00:22:26,879 Speaker 1: fund of a CCP and if someone can't pay margin 381 00:22:26,960 --> 00:22:29,840 Speaker 1: and in a futures exchange, you know, the Ellemys. The 382 00:22:29,920 --> 00:22:33,720 Speaker 1: Ellemy case with Nicole is a interesting case in point. 383 00:22:33,760 --> 00:22:35,960 Speaker 1: But and again the other thing that people like to 384 00:22:36,040 --> 00:22:38,000 Speaker 1: rub in as well, this was not a Leman two 385 00:22:38,000 --> 00:22:41,800 Speaker 1: point so after all, but give me a break, Lehman 386 00:22:42,240 --> 00:22:45,399 Speaker 1: took a year to happen. You know, b MP couldn't 387 00:22:45,440 --> 00:22:48,600 Speaker 1: fund the sub prime you couldn't value the subprime exposure 388 00:22:48,640 --> 00:22:50,879 Speaker 1: and its county funds in August of oh seven, and 389 00:22:51,000 --> 00:22:53,400 Speaker 1: by the time they got to be men, twelve months 390 00:22:53,440 --> 00:22:56,280 Speaker 1: have passed. I think the writing is all over the 391 00:22:56,359 --> 00:22:58,840 Speaker 1: wall that a lot of things are happening. A lot 392 00:22:58,880 --> 00:23:01,840 Speaker 1: of things have happened in thirty days. This is like 393 00:23:02,080 --> 00:23:04,800 Speaker 1: I think, two thousand and eight kind of compressed in time. 394 00:23:05,760 --> 00:23:07,960 Speaker 1: Um and and again things can get first. So I 395 00:23:08,040 --> 00:23:11,760 Speaker 1: think we need to be approaching this with an open mind. 396 00:23:12,359 --> 00:23:15,640 Speaker 1: We need to be thinking about a lot of scenarios, 397 00:23:16,160 --> 00:23:19,040 Speaker 1: and we should not assume that just because we haven't 398 00:23:19,080 --> 00:23:21,800 Speaker 1: had any blow ups today, there won't be any. But 399 00:23:22,000 --> 00:23:24,639 Speaker 1: once those blow ups come, the flavor in the markets 400 00:23:24,680 --> 00:23:26,959 Speaker 1: are going to change, because then counterparty risk is going 401 00:23:27,000 --> 00:23:29,040 Speaker 1: to be something to worry about, which is not something 402 00:23:29,119 --> 00:23:31,040 Speaker 1: we have to worry about. Its two thousand and eight. 403 00:23:31,600 --> 00:23:33,720 Speaker 1: So you know, keep an open mind, and I think 404 00:23:33,960 --> 00:23:36,280 Speaker 1: I think we need to be humble. Uh you know, 405 00:23:36,600 --> 00:23:38,920 Speaker 1: I'm the first thing to recognize keep an open mind 406 00:23:39,000 --> 00:23:41,240 Speaker 1: about the awful things that could be coming in the 407 00:23:41,320 --> 00:23:44,400 Speaker 1: next Yes, yes, and again I'm I'm I'm the first 408 00:23:44,440 --> 00:23:47,639 Speaker 1: person to you know, admit you can be right but 409 00:23:47,760 --> 00:23:50,280 Speaker 1: lose a lot of money because you express your views bongly. 410 00:23:50,440 --> 00:23:53,040 Speaker 1: So yes, you know, for all I s and cross 411 00:23:53,080 --> 00:23:56,000 Speaker 1: currentcies would not have been the right way to express 412 00:23:56,040 --> 00:23:57,879 Speaker 1: any of these things, but they are happening on the 413 00:23:57,960 --> 00:24:14,159 Speaker 1: last and things are not getting that Again, yours I've 414 00:24:14,160 --> 00:24:16,600 Speaker 1: thought of this already to be incredibly helpful and just 415 00:24:16,720 --> 00:24:21,280 Speaker 1: thinking about like, okay, a commodity price level shock, it's 416 00:24:21,440 --> 00:24:26,760 Speaker 1: very different and fundamentally other types of like financial nominal shocks, 417 00:24:27,480 --> 00:24:30,160 Speaker 1: it might be politically unpalatable. It might have been politically 418 00:24:30,280 --> 00:24:34,040 Speaker 1: unpalatable to do TARP or maybe for the euro crisis, 419 00:24:34,119 --> 00:24:37,679 Speaker 1: it might have been politically unpalatable to bail out peripheral spreads. 420 00:24:37,840 --> 00:24:39,399 Speaker 1: But it could be done, and it can kind of 421 00:24:39,440 --> 00:24:41,080 Speaker 1: be done at the push of a button, and it's 422 00:24:41,119 --> 00:24:43,160 Speaker 1: kind of trivially simple if you build up the will 423 00:24:43,520 --> 00:24:47,440 Speaker 1: and the fundamentally, commodity shocks are just not like that. 424 00:24:47,600 --> 00:24:49,600 Speaker 1: They're not in a category where there's a button you 425 00:24:49,680 --> 00:24:52,560 Speaker 1: can press and solve it. And so what do you 426 00:24:52,640 --> 00:24:55,480 Speaker 1: talk about that further, because that's sort of the direction 427 00:24:55,560 --> 00:24:59,240 Speaker 1: of this Britton Woods three vision is the challenge that 428 00:24:59,359 --> 00:25:03,160 Speaker 1: arises in a period of commodity volatility. And you talked 429 00:25:03,200 --> 00:25:04,840 Speaker 1: a little bit about it just now, with what it 430 00:25:04,960 --> 00:25:08,240 Speaker 1: means to liquidity in the system and funding various margin 431 00:25:08,359 --> 00:25:10,399 Speaker 1: positions and so forth. What do you sort of like 432 00:25:10,920 --> 00:25:14,080 Speaker 1: build from there about the sort of implications and the 433 00:25:14,200 --> 00:25:20,000 Speaker 1: different of of a sort of a commodity driven economy. Yes, 434 00:25:20,200 --> 00:25:22,680 Speaker 1: so so yeah, so maybe we should we should just 435 00:25:23,280 --> 00:25:25,680 Speaker 1: start from the four prices of money and then let's 436 00:25:25,720 --> 00:25:28,800 Speaker 1: do that build you know, kind of build out the 437 00:25:29,560 --> 00:25:33,920 Speaker 1: the mirror image of all that in the physical world exactly. 438 00:25:34,320 --> 00:25:37,640 Speaker 1: You know, the fourth prices, the price level, the price 439 00:25:37,760 --> 00:25:40,800 Speaker 1: of commodities in money, and then the commodities. So what, 440 00:25:41,080 --> 00:25:45,960 Speaker 1: what's what's the thing about commodity as well commodities? You know, 441 00:25:46,040 --> 00:25:49,000 Speaker 1: the dirty thing about commodity is the ugly thing about 442 00:25:49,040 --> 00:25:51,960 Speaker 1: commodity is that most of it is coming from the 443 00:25:52,040 --> 00:25:55,560 Speaker 1: developing world, and most of it is being consumed by 444 00:25:56,080 --> 00:26:01,040 Speaker 1: the developed world. Right then Russia and China, OPEC countries, 445 00:26:01,520 --> 00:26:06,400 Speaker 1: you know, you know the deal, right, um. First, second, 446 00:26:06,880 --> 00:26:10,760 Speaker 1: all these commodities, not only that you can't print them 447 00:26:11,200 --> 00:26:16,040 Speaker 1: like money, but you need to move them around. You know, 448 00:26:16,119 --> 00:26:18,240 Speaker 1: you need to ship them. Most of this is cboard. 449 00:26:18,480 --> 00:26:20,680 Speaker 1: You know, you don't fight commodities to ship them, you know, 450 00:26:20,760 --> 00:26:24,320 Speaker 1: wet cargo, dry cargo, much like in the world of money. 451 00:26:24,600 --> 00:26:27,360 Speaker 1: You know, when we think about you know, when when 452 00:26:27,440 --> 00:26:30,320 Speaker 1: we talked about you know, the token system and how 453 00:26:30,560 --> 00:26:33,520 Speaker 1: reserves move around in the money markets. You always need 454 00:26:33,680 --> 00:26:37,880 Speaker 1: balance sheets for some bank to borrow here and land 455 00:26:37,920 --> 00:26:40,960 Speaker 1: there and harvest some funding spread. You know, funding report, 456 00:26:41,040 --> 00:26:45,359 Speaker 1: landingfex wops make a spread. In the world of physical commodities, 457 00:26:45,480 --> 00:26:49,680 Speaker 1: you know that balance sheet is basically a ship to 458 00:26:49,840 --> 00:26:52,879 Speaker 1: load cargo in port A, you bring it to port B. 459 00:26:53,800 --> 00:26:56,639 Speaker 1: You know, the cargo is not money, The cargo is 460 00:26:56,680 --> 00:27:01,600 Speaker 1: a commodity. But you encumber capacity, you know, ship capacity 461 00:27:02,119 --> 00:27:04,760 Speaker 1: to move stuff around. So so there is that. And 462 00:27:04,840 --> 00:27:08,440 Speaker 1: then of course you know there's the par value of 463 00:27:08,520 --> 00:27:13,480 Speaker 1: money equivalent in the physical world, which is protection. Protection, 464 00:27:13,600 --> 00:27:17,160 Speaker 1: because you know, as as I've learned from Paul McCulley, 465 00:27:17,280 --> 00:27:20,639 Speaker 1: you know, money is either a purely public or a 466 00:27:20,680 --> 00:27:24,360 Speaker 1: public private partnership, which in English means banking doesn't work 467 00:27:24,480 --> 00:27:27,879 Speaker 1: unless there is a cential bank, right because nobody can 468 00:27:27,960 --> 00:27:30,040 Speaker 1: take their money out of a bank. All at the 469 00:27:30,080 --> 00:27:32,320 Speaker 1: same time, you need someone who's going to do the 470 00:27:32,359 --> 00:27:37,440 Speaker 1: protection if that happens. Similarly, when you move all these 471 00:27:37,760 --> 00:27:40,920 Speaker 1: all these foreign cargo from the developing world to the 472 00:27:41,000 --> 00:27:45,480 Speaker 1: developed world on ships, which are like balance sheets and 473 00:27:45,560 --> 00:27:47,960 Speaker 1: are like kind of banks in the in the bank 474 00:27:48,000 --> 00:27:51,400 Speaker 1: balance sheets in the real world, equivalence of phenomenal world 475 00:27:51,480 --> 00:27:55,440 Speaker 1: of money protection in the case of commodities is about 476 00:27:55,600 --> 00:28:00,240 Speaker 1: making sure that sea lanes are open, traits are open. 477 00:28:00,800 --> 00:28:03,080 Speaker 1: You know, there's no pirates, you know, no one's blocking 478 00:28:03,200 --> 00:28:06,040 Speaker 1: your the passage of your ships and that type of stuff. 479 00:28:06,119 --> 00:28:09,320 Speaker 1: And that's also something that the state needs to be 480 00:28:09,600 --> 00:28:12,240 Speaker 1: involved in because you know, the high seas have to 481 00:28:12,320 --> 00:28:15,440 Speaker 1: be policsed. I mean, it's it's basic stuff. You know 482 00:28:15,560 --> 00:28:19,320 Speaker 1: what the Navy is to shipping lanes. You know, that's 483 00:28:19,359 --> 00:28:22,120 Speaker 1: exactly the same as the FED is to the promise 484 00:28:22,240 --> 00:28:26,679 Speaker 1: of a par value. But back and you know Breton 485 00:28:26,720 --> 00:28:29,480 Speaker 1: would stu as a concept was born when when China 486 00:28:29,560 --> 00:28:32,719 Speaker 1: started to accumulate the fex reserves, but really it existed 487 00:28:33,880 --> 00:28:36,720 Speaker 1: much earlier, ever since you know the seven to three 488 00:28:36,960 --> 00:28:39,960 Speaker 1: oil price shock, where you know, you ship oil, you 489 00:28:40,080 --> 00:28:43,120 Speaker 1: get dollars and then you be invested those dollars into treasuries. 490 00:28:43,200 --> 00:28:45,640 Speaker 1: You know, China did the same, but they did goods 491 00:28:46,040 --> 00:28:48,880 Speaker 1: and so that. But that's basically Breton would do. That's 492 00:28:48,960 --> 00:28:52,040 Speaker 1: euro dollars, that's petrol dollars, that's that's all of that. 493 00:28:52,520 --> 00:28:56,400 Speaker 1: And you know, we had a unipolar world where everything 494 00:28:56,480 --> 00:28:59,640 Speaker 1: flows to the US and everything was paid for in 495 00:28:59,760 --> 00:29:03,360 Speaker 1: dollars and all those dollars were recycled back into treasuries, 496 00:29:03,960 --> 00:29:06,640 Speaker 1: and so now there's a break in history. And now 497 00:29:06,800 --> 00:29:09,960 Speaker 1: we are learning that all the commodities, I mean not 498 00:29:10,080 --> 00:29:11,440 Speaker 1: all of them, but a lot of them in the 499 00:29:11,480 --> 00:29:14,800 Speaker 1: case of Russia, come from you know, Russia is the 500 00:29:14,880 --> 00:29:19,280 Speaker 1: single largest commodity exporters experts in the world. Russia and Ukraine, 501 00:29:19,360 --> 00:29:21,280 Speaker 1: you know, beat and all that that comes from that 502 00:29:21,680 --> 00:29:25,440 Speaker 1: is it is a very important look when it comes 503 00:29:25,520 --> 00:29:29,920 Speaker 1: to the supply of physical commodities and things are getting 504 00:29:29,960 --> 00:29:34,560 Speaker 1: gumed up. Commodity doesn't come out of that region as easily. 505 00:29:35,000 --> 00:29:37,840 Speaker 1: If it comes out of that region easily, you know, 506 00:29:38,040 --> 00:29:40,520 Speaker 1: now they don't accept dollars as a form of payment. 507 00:29:40,600 --> 00:29:44,479 Speaker 1: They want googles as a form of payment. If Europe 508 00:29:44,560 --> 00:29:47,320 Speaker 1: doesn't take the raw material you know, crude oil and 509 00:29:47,400 --> 00:29:50,920 Speaker 1: whatnot that comes out of Russia, Russia will have to 510 00:29:51,080 --> 00:29:55,320 Speaker 1: reroute the shipment of those to the East China, which 511 00:29:55,440 --> 00:29:58,640 Speaker 1: is going to buy cheap Russian stuff. But if you 512 00:29:58,720 --> 00:30:02,840 Speaker 1: do that, then you basically have to revamp shipping lanes. 513 00:30:03,120 --> 00:30:05,360 Speaker 1: You basically end up, as I talked about this in 514 00:30:05,440 --> 00:30:09,760 Speaker 1: my piece yesterday, with a severe shortage of vessels capable 515 00:30:09,920 --> 00:30:14,280 Speaker 1: of moving oil cargo on long distances. You know, it's 516 00:30:14,320 --> 00:30:18,560 Speaker 1: a there's a big difference between shuttling Baltic crew from 517 00:30:18,760 --> 00:30:22,360 Speaker 1: Premors to Hamburg then it is to ship it from 518 00:30:22,400 --> 00:30:25,560 Speaker 1: the same port to the somewhere in Shanghai. Okay. So 519 00:30:25,760 --> 00:30:28,960 Speaker 1: so you end up with shipping capacity issues. If China 520 00:30:29,120 --> 00:30:31,920 Speaker 1: is now buying cheap Russian oil, then they're going to 521 00:30:31,960 --> 00:30:34,400 Speaker 1: buy less Middle Eastern oil and then you know, all 522 00:30:34,440 --> 00:30:36,440 Speaker 1: the Middle Eastern oil do now have to go to 523 00:30:36,600 --> 00:30:39,640 Speaker 1: Europe because you know, Europe finds it acceptable to buy 524 00:30:39,640 --> 00:30:41,080 Speaker 1: it from the Middle East. But then all of that 525 00:30:41,200 --> 00:30:43,680 Speaker 1: goes through the Sues Canal. You know, do you have 526 00:30:43,800 --> 00:30:46,520 Speaker 1: the right ship, you know to transport that oil. If 527 00:30:46,560 --> 00:30:50,840 Speaker 1: it's a VLCC Tannker, then that cannot pass through the canal. 528 00:30:51,040 --> 00:30:53,680 Speaker 1: So you know, it's going to take more time to 529 00:30:53,760 --> 00:30:57,680 Speaker 1: ship stuff around. It's going to take more types of 530 00:30:57,880 --> 00:31:01,440 Speaker 1: specific types of ships. There will the ship shortages as 531 00:31:01,480 --> 00:31:05,040 Speaker 1: a direct analog to balance sheet shortages and GESP shortages 532 00:31:05,480 --> 00:31:09,280 Speaker 1: in the financial world. You will have issues of Suez 533 00:31:09,720 --> 00:31:14,240 Speaker 1: Egypt wheat oil. Egypt was a huge importer of wheat 534 00:31:14,440 --> 00:31:17,680 Speaker 1: from Ukraine, for example, and as any country that doesn't 535 00:31:17,720 --> 00:31:19,680 Speaker 1: have a lot of wheat stockpiles are going to have 536 00:31:19,760 --> 00:31:21,960 Speaker 1: to pay up for for wheat on the world markets. 537 00:31:22,480 --> 00:31:24,800 Speaker 1: How do you extract the pand of flesh from somewhere 538 00:31:24,840 --> 00:31:27,840 Speaker 1: else so that you can pay for your wheat. If 539 00:31:27,920 --> 00:31:31,520 Speaker 1: there's a food shortage, you can hike the transit fees 540 00:31:31,840 --> 00:31:34,520 Speaker 1: through the Suez Canal. When just think about the enormity 541 00:31:34,680 --> 00:31:37,840 Speaker 1: and the whole plumbing that underne the physical movement and 542 00:31:37,920 --> 00:31:42,440 Speaker 1: trading of commodities is extremely complex, and in two thousand 543 00:31:42,520 --> 00:31:45,520 Speaker 1: and eight, nobody really understood the plumbing because you didn't 544 00:31:45,600 --> 00:31:49,080 Speaker 1: have to, because it worked fine until it didn't. Okay, 545 00:31:49,120 --> 00:31:51,400 Speaker 1: And I think we are again thirty days into this war, 546 00:31:51,480 --> 00:31:55,240 Speaker 1: and we are thirty days into figuring out how basically 547 00:31:55,400 --> 00:31:58,200 Speaker 1: all these things that we used to do very efficiently 548 00:31:58,360 --> 00:32:00,920 Speaker 1: are going to be in the future. And how the 549 00:32:01,200 --> 00:32:05,000 Speaker 1: rerouting of these ships and you know, boycotting commodities from 550 00:32:05,080 --> 00:32:07,640 Speaker 1: here and giving it to their how that's all going 551 00:32:07,720 --> 00:32:11,560 Speaker 1: to play with with the level of prices. But but basically, 552 00:32:12,080 --> 00:32:15,440 Speaker 1: you know, Bretton Woods Tree is about that, and not 553 00:32:15,560 --> 00:32:20,200 Speaker 1: only about that, but also redrawing the terms in which 554 00:32:20,320 --> 00:32:24,760 Speaker 1: we accept payments. Russia is now selling Googles, the Saudias 555 00:32:24,800 --> 00:32:28,600 Speaker 1: are going to sell consider selling oil to China and 556 00:32:28,760 --> 00:32:31,520 Speaker 1: and invoicing it in in R and B. The big 557 00:32:31,600 --> 00:32:35,200 Speaker 1: point about that is that when we have the petrol 558 00:32:35,280 --> 00:32:37,480 Speaker 1: dollar and the euro dollar is the dominant form of 559 00:32:37,560 --> 00:32:42,120 Speaker 1: international money. You guys know, probably everybody from who listens knows, 560 00:32:43,080 --> 00:32:47,440 Speaker 1: banks make loans and create deposits, right, That's how things 561 00:32:47,520 --> 00:32:53,280 Speaker 1: get done. When Glencore brings commodities from Port A to 562 00:32:53,440 --> 00:32:56,600 Speaker 1: Port B, you know, they go to JP Morgan to 563 00:32:56,760 --> 00:33:00,120 Speaker 1: borrow money to leave the ship then and not or 564 00:33:00,200 --> 00:33:03,840 Speaker 1: pile of money to fill up the ship, then another 565 00:33:03,960 --> 00:33:07,960 Speaker 1: pile of money to pay margin as that cargo is 566 00:33:08,200 --> 00:33:10,720 Speaker 1: in transit and you need to post margin on on futures. 567 00:33:11,120 --> 00:33:14,760 Speaker 1: So when everything is priced in dollars, you know, you 568 00:33:14,880 --> 00:33:18,120 Speaker 1: borrow dollars to move stuff around. The dollar deposits gets created, 569 00:33:18,680 --> 00:33:21,560 Speaker 1: glen Cork gives it to the Saudiast, Saudis give it 570 00:33:21,640 --> 00:33:24,400 Speaker 1: to Sama, and Sama shows up at a treasury auction. 571 00:33:25,040 --> 00:33:27,800 Speaker 1: You have Euro dollars that are created through this whole 572 00:33:27,840 --> 00:33:32,000 Speaker 1: process that will then get recycled into treasury. The US 573 00:33:32,080 --> 00:33:35,920 Speaker 1: didn't really have to think about demand for treasuries for 574 00:33:36,000 --> 00:33:38,720 Speaker 1: the past, I don't know, ever since nineteen seventy three 575 00:33:39,040 --> 00:33:42,320 Speaker 1: because this was the game we played. So now, if 576 00:33:42,360 --> 00:33:44,840 Speaker 1: all of a sudden somebody starts to price things in Google, 577 00:33:44,920 --> 00:33:47,240 Speaker 1: somebody starts to price things in in R and B, 578 00:33:47,840 --> 00:33:50,520 Speaker 1: the creation of euro dollars on the margin is going 579 00:33:50,560 --> 00:33:52,560 Speaker 1: to change. I'm not saying it's going to go down, 580 00:33:52,640 --> 00:33:54,680 Speaker 1: but the pace of it is definitely going to change. 581 00:33:55,480 --> 00:33:57,920 Speaker 1: And again, the US Treasury needs to think about this 582 00:33:58,080 --> 00:34:00,959 Speaker 1: because if you have less creative in the burial dollars, 583 00:34:01,480 --> 00:34:04,680 Speaker 1: you will have to change the way you found your issuance. 584 00:34:05,000 --> 00:34:07,560 Speaker 1: If the petrol dollar recycler is not going to show 585 00:34:07,640 --> 00:34:12,200 Speaker 1: up at auctions, someone will have to the feb otherwise 586 00:34:12,920 --> 00:34:15,359 Speaker 1: you have a failed auction. So I think these are 587 00:34:15,400 --> 00:34:18,520 Speaker 1: all things that you know. This is Breton would feed 588 00:34:18,560 --> 00:34:23,040 Speaker 1: basically right, and so this is not immediate, it's inevitable, 589 00:34:23,800 --> 00:34:27,200 Speaker 1: but it started. You just touched on demand for treasuries there, 590 00:34:27,280 --> 00:34:31,240 Speaker 1: and you touched on quantitative tightening earlier, and the idea 591 00:34:31,400 --> 00:34:34,960 Speaker 1: that given everything that's happening in the world right now, 592 00:34:35,400 --> 00:34:39,040 Speaker 1: you know, shipping is more expensive, commodities are more expensive, 593 00:34:39,880 --> 00:34:42,560 Speaker 1: there's lower risk appetite, you need to conserve balance sheet 594 00:34:42,680 --> 00:34:45,400 Speaker 1: things like that, that there's going to be higher demand 595 00:34:45,560 --> 00:34:49,480 Speaker 1: for bank reserves from the banks. Should the FED be 596 00:34:49,640 --> 00:34:53,160 Speaker 1: doing quantitative tightening at this moment in time? It seems 597 00:34:53,640 --> 00:34:58,919 Speaker 1: it seems like the timing isn't exactly optimal. Yes, well, sure, sure, 598 00:34:59,040 --> 00:35:01,960 Speaker 1: because there's a lot of X has liquidity in the system. 599 00:35:02,040 --> 00:35:05,560 Speaker 1: And and just to be clear, the knee jerk response is, yes, 600 00:35:05,680 --> 00:35:08,520 Speaker 1: we need higher rates, we need to hike uh and 601 00:35:08,640 --> 00:35:11,280 Speaker 1: we need to shrink the balanty, which makes sense because 602 00:35:11,360 --> 00:35:13,120 Speaker 1: you know, we blew up the balance sheet for the 603 00:35:13,200 --> 00:35:17,080 Speaker 1: past decade and a half because inflation was persistently too 604 00:35:17,160 --> 00:35:19,360 Speaker 1: low and we try to reflate, right, so now the 605 00:35:19,440 --> 00:35:23,040 Speaker 1: inflation is hearing, it's deeflate. Fine. And also, you know, 606 00:35:23,200 --> 00:35:25,320 Speaker 1: before the war, I mean I wrote a lot about 607 00:35:25,400 --> 00:35:27,560 Speaker 1: so how is this QUT gonna play out? There's gonna 608 00:35:27,560 --> 00:35:31,200 Speaker 1: be beautiful QUT and I'll be qut active cut or 609 00:35:31,239 --> 00:35:34,000 Speaker 1: sus passive duty. And now you just need to do 610 00:35:34,040 --> 00:35:38,040 Speaker 1: a warrant peace edition. Um. You know. Bretton Woods three 611 00:35:38,120 --> 00:35:41,600 Speaker 1: messages this up for two reasons. Number one, as we 612 00:35:41,719 --> 00:35:45,160 Speaker 1: mentioned before, the lowest level of the lowest comfortable level 613 00:35:45,200 --> 00:35:47,840 Speaker 1: of reserve is going up, so banks need more reserves 614 00:35:47,960 --> 00:35:51,200 Speaker 1: all else equal, which means that when you think about 615 00:35:51,280 --> 00:35:55,959 Speaker 1: the marginal buyer of treasuries as qute progresses, I would 616 00:35:56,000 --> 00:35:58,759 Speaker 1: say that in this quote unquote new world order that 617 00:35:58,920 --> 00:36:03,359 Speaker 1: we are in, banks will have less appetite to buy 618 00:36:03,440 --> 00:36:08,120 Speaker 1: treasuries for their portfolios trade reserves for treasuries than before 619 00:36:08,200 --> 00:36:14,000 Speaker 1: the war, because credit needs from the commodity treating world, 620 00:36:14,239 --> 00:36:17,120 Speaker 1: you know, and from everybody else ultimately, right, because everybody 621 00:36:17,160 --> 00:36:19,279 Speaker 1: will have to pay more for for goods and trade 622 00:36:19,320 --> 00:36:22,600 Speaker 1: tenents and and and all that is going up. So 623 00:36:22,719 --> 00:36:25,400 Speaker 1: if they will buy less than you know, all this 624 00:36:25,560 --> 00:36:28,759 Speaker 1: money that's in the reverse report facility is going to 625 00:36:30,080 --> 00:36:33,640 Speaker 1: be more important, much earlier on in the QT process 626 00:36:34,760 --> 00:36:36,960 Speaker 1: than before. And so there we have one and a 627 00:36:37,000 --> 00:36:41,040 Speaker 1: half Chilli and others orself and so fine. But then again, 628 00:36:41,680 --> 00:36:44,440 Speaker 1: the other thing about Breton Woods three is that, you know, 629 00:36:44,560 --> 00:36:47,880 Speaker 1: we're just talking about the creation of less euro dollars 630 00:36:47,920 --> 00:36:51,880 Speaker 1: on the margin, and who creates money in the system, 631 00:36:52,120 --> 00:36:56,040 Speaker 1: the central bank and private banks, and the standoff between 632 00:36:56,719 --> 00:36:58,879 Speaker 1: you know, the feed shrinks the balance, she takes money 633 00:36:58,920 --> 00:37:02,040 Speaker 1: out of the system. That always needs to be understood 634 00:37:02,080 --> 00:37:05,160 Speaker 1: in the context of how much lending and money creation 635 00:37:05,280 --> 00:37:07,359 Speaker 1: is in the system, because that can take out money. 636 00:37:07,440 --> 00:37:10,640 Speaker 1: But if there's more private deposits and more private money 637 00:37:10,680 --> 00:37:13,359 Speaker 1: getting created through the banking system, you know, the two 638 00:37:13,400 --> 00:37:15,879 Speaker 1: things can offset each other. But now we are saying, 639 00:37:16,080 --> 00:37:20,080 Speaker 1: is the fet is gonna take pipitity out. The creation 640 00:37:20,160 --> 00:37:23,280 Speaker 1: of euro dollars is going to slow on the margin, 641 00:37:23,920 --> 00:37:28,360 Speaker 1: So the OPEC countries and whoever used to recycle eurodators 642 00:37:28,400 --> 00:37:30,560 Speaker 1: and petrol daughters is not gonna do as much of that, 643 00:37:31,080 --> 00:37:34,480 Speaker 1: And so that's an issue. Then another issue, this whole 644 00:37:34,600 --> 00:37:37,680 Speaker 1: whole idea of Okay, well, you know you just froze 645 00:37:37,680 --> 00:37:40,920 Speaker 1: half a trillion dollars of G seven inside money. So 646 00:37:41,120 --> 00:37:45,520 Speaker 1: maybe it's time to diversify away from our existing holdings 647 00:37:45,560 --> 00:37:48,399 Speaker 1: of US treasuries. So maybe some reserve management not only 648 00:37:48,480 --> 00:37:51,880 Speaker 1: not going to buy and recycle less eurodators, but they 649 00:37:51,880 --> 00:37:55,360 Speaker 1: are going to trim their exposure to US treasuries. And 650 00:37:55,560 --> 00:37:58,920 Speaker 1: so you know, I I say all this because you know, 651 00:37:59,040 --> 00:38:01,960 Speaker 1: if the banks don't buy and the FED doesn't buy, 652 00:38:02,440 --> 00:38:05,120 Speaker 1: and there is less petrol dollar recycling, and there is 653 00:38:05,760 --> 00:38:10,800 Speaker 1: diversification from existing holdings of FEX reserves, it inevitably means 654 00:38:10,920 --> 00:38:16,359 Speaker 1: that those balances in the overnight reverse report facility will 655 00:38:16,480 --> 00:38:21,520 Speaker 1: be soaked up pretty quickly through poor quality demands, but 656 00:38:21,680 --> 00:38:24,680 Speaker 1: demand nonetheless, the guys that fund in the report market 657 00:38:24,719 --> 00:38:27,520 Speaker 1: are basically dealers that are getting backed up with treasury 658 00:38:27,600 --> 00:38:31,480 Speaker 1: inventory and the RV funds which are in it for 659 00:38:31,600 --> 00:38:34,200 Speaker 1: a basis. I mean, it's all a level position along 660 00:38:34,280 --> 00:38:37,000 Speaker 1: the bond short the future funding repo. That type of 661 00:38:37,080 --> 00:38:39,960 Speaker 1: stuff not a pretty form of demand, but a form 662 00:38:40,040 --> 00:38:44,880 Speaker 1: of demand nonetheless. But again, you know, you go from steady, sleepy, 663 00:38:45,040 --> 00:38:50,800 Speaker 1: reliable buyers in the Middle East and China two fast 664 00:38:50,880 --> 00:38:53,840 Speaker 1: money stuff that is levered. But it's going to be 665 00:38:53,920 --> 00:38:56,439 Speaker 1: fine because we have the standing report facility. So even 666 00:38:56,480 --> 00:38:58,560 Speaker 1: if you end up with the report deficit, you know, 667 00:38:59,320 --> 00:39:01,440 Speaker 1: thank god the spending people to say that things there 668 00:39:01,480 --> 00:39:03,239 Speaker 1: so you can just kind of seed is that. You know. 669 00:39:03,520 --> 00:39:06,920 Speaker 1: Another legacy of reaten with speed will be that all 670 00:39:07,000 --> 00:39:09,040 Speaker 1: this is going to be less international and it's gonna 671 00:39:09,040 --> 00:39:11,640 Speaker 1: be more domestic. It's gonna be some domestic people funded 672 00:39:11,680 --> 00:39:14,040 Speaker 1: antity that's going to fund this, not the rest of 673 00:39:14,080 --> 00:39:33,480 Speaker 1: the world. Let's talk about the other currencies in the 674 00:39:33,640 --> 00:39:36,239 Speaker 1: roles that they'll play. And so, as you mentioned, okay, 675 00:39:36,320 --> 00:39:39,840 Speaker 1: Russia is going to be selling its commodity exports and 676 00:39:40,000 --> 00:39:44,000 Speaker 1: oil and gas, or maybe uh Saudi Arabia starts selling 677 00:39:44,320 --> 00:39:46,960 Speaker 1: invoicing in R and B for sales to China, and 678 00:39:47,040 --> 00:39:50,040 Speaker 1: so then the question naturally emerges like, well, how significant 679 00:39:50,440 --> 00:39:53,000 Speaker 1: is this? There's a lot of arguments against the role 680 00:39:53,040 --> 00:39:56,320 Speaker 1: of these currencies, playing big rule of law questions and 681 00:39:56,440 --> 00:39:59,399 Speaker 1: market depths and the degree to which the Chinese will 682 00:39:59,440 --> 00:40:02,680 Speaker 1: ever open up it's capital account. So where do you 683 00:40:02,760 --> 00:40:05,720 Speaker 1: see these going? Like, because this is what these headlines 684 00:40:05,760 --> 00:40:08,120 Speaker 1: get everyone excited about. Cost oil might be sold in 685 00:40:08,200 --> 00:40:09,880 Speaker 1: R and B, what does it mean? But there are 686 00:40:09,960 --> 00:40:13,319 Speaker 1: some difficulties for these currencies to overcome to have any 687 00:40:13,360 --> 00:40:17,520 Speaker 1: more significant. Sure, people are not born who they become, right, 688 00:40:17,640 --> 00:40:20,000 Speaker 1: So you're born as a baby and then you know, 689 00:40:20,120 --> 00:40:22,560 Speaker 1: you learn to walk and talk, and then we all 690 00:40:22,800 --> 00:40:26,080 Speaker 1: end up doing something with alliance. Right, So again back 691 00:40:26,120 --> 00:40:28,800 Speaker 1: to back to where we started from. After the Second 692 00:40:28,840 --> 00:40:32,160 Speaker 1: World War, the U. S. Dollar was not what it 693 00:40:32,280 --> 00:40:37,279 Speaker 1: is today. It became that no currency is born a 694 00:40:37,360 --> 00:40:40,600 Speaker 1: reserve currency, it becomes it. Sterling was what it was, 695 00:40:40,680 --> 00:40:44,320 Speaker 1: and then the dollar came, and then dollars became euro dollars. 696 00:40:44,960 --> 00:40:47,160 Speaker 1: The R and B is what it is, and then 697 00:40:47,200 --> 00:40:51,960 Speaker 1: it will become something else. All these were It's kind 698 00:40:51,960 --> 00:40:54,080 Speaker 1: of funny and it makes more sense in the present. 699 00:40:54,360 --> 00:40:57,600 Speaker 1: But you know, we allll obsessed about, you know, the 700 00:40:57,680 --> 00:41:01,160 Speaker 1: internationalization of the R and B and a correspondent banking 701 00:41:01,239 --> 00:41:03,600 Speaker 1: stuff and all the Hong Kong on shore on shore 702 00:41:03,719 --> 00:41:06,040 Speaker 1: and the offshore and the volumes are not that big. 703 00:41:06,440 --> 00:41:09,680 Speaker 1: All that stuff was the baby is born, the baby 704 00:41:09,800 --> 00:41:13,000 Speaker 1: is learning to walk, the baby is walking. That's the plumbing, 705 00:41:13,120 --> 00:41:16,880 Speaker 1: that's the basic stuff. And then there's a catalyst like 706 00:41:17,200 --> 00:41:20,640 Speaker 1: the war that we're looking at now and the whole 707 00:41:20,680 --> 00:41:24,080 Speaker 1: conversation we are having now, and then things will change. 708 00:41:24,160 --> 00:41:26,719 Speaker 1: But then you basically have an infrastructure to build up 709 00:41:27,200 --> 00:41:30,239 Speaker 1: and then things can go very fast. I also get 710 00:41:30,320 --> 00:41:35,200 Speaker 1: it that China has a closed capital account and people 711 00:41:35,280 --> 00:41:37,680 Speaker 1: like to have open capital accounts, But for Christ's sakes, 712 00:41:38,120 --> 00:41:41,840 Speaker 1: what's the difference between an open capital account that exposed 713 00:41:41,880 --> 00:41:45,040 Speaker 1: can be shots the case with the CBR, versus an 714 00:41:45,040 --> 00:41:47,919 Speaker 1: accently closed capital account that you know that over time 715 00:41:48,000 --> 00:41:50,920 Speaker 1: is going to open up. People also tend to forget 716 00:41:51,280 --> 00:41:54,440 Speaker 1: when China became a part of the World Trading Organization 717 00:41:54,520 --> 00:41:57,680 Speaker 1: and you know, it started to accumulate surpluses. I mean 718 00:41:57,880 --> 00:42:01,640 Speaker 1: I was the surpluses were first accumulative bank opposits, and 719 00:42:01,680 --> 00:42:04,120 Speaker 1: then the Chinese started to buy bills, and then they 720 00:42:04,160 --> 00:42:06,759 Speaker 1: started to buy two year, five year tenure trunches. Then 721 00:42:06,760 --> 00:42:09,600 Speaker 1: they board mortgages, then they funded C I C, and 722 00:42:09,640 --> 00:42:12,799 Speaker 1: then they started to do private equities. Right big stick 723 00:42:12,880 --> 00:42:15,280 Speaker 1: in in black Stone, I think right in two thousand 724 00:42:15,280 --> 00:42:19,080 Speaker 1: and eight they bought. The point is surpluses accumulate, and 725 00:42:19,160 --> 00:42:22,840 Speaker 1: it's more and more accumulates, you change the way you 726 00:42:22,920 --> 00:42:27,560 Speaker 1: do things. If the dollar became the dollar to lend lease, 727 00:42:27,680 --> 00:42:30,040 Speaker 1: you know, we lend you money and then you lease 728 00:42:30,400 --> 00:42:32,920 Speaker 1: stuff from us. You know, maybe the Chinese are now 729 00:42:33,000 --> 00:42:35,040 Speaker 1: going to lend you money, and then maybe you buy 730 00:42:35,080 --> 00:42:37,920 Speaker 1: our our corn and wheat reserves or something like that. 731 00:42:38,040 --> 00:42:41,400 Speaker 1: It doesn't matter. The more trade the rest of the 732 00:42:41,480 --> 00:42:44,640 Speaker 1: world is invoicing the Chinese R and B, the rest 733 00:42:44,719 --> 00:42:47,239 Speaker 1: of the world is going to accumulate R and B surpluses. 734 00:42:47,880 --> 00:42:52,880 Speaker 1: Those surpluses initially will inevitably accumulate on Chinese banks balance sheets, 735 00:42:53,280 --> 00:42:55,320 Speaker 1: and then the Chinese banks get to a point that 736 00:42:56,000 --> 00:42:57,719 Speaker 1: we just don't want to have all these surplus and 737 00:42:57,760 --> 00:43:00,320 Speaker 1: our balance sheet because it's using too much capacities. State, 738 00:43:00,920 --> 00:43:03,919 Speaker 1: please take it off our books. The state will start 739 00:43:04,000 --> 00:43:06,920 Speaker 1: issuing debt to take all that liquity surplus off the 740 00:43:06,960 --> 00:43:09,719 Speaker 1: balance sheet to the Chinese banks. And then as the 741 00:43:09,760 --> 00:43:11,640 Speaker 1: rest of the world accumulates more, you know, and it's 742 00:43:11,640 --> 00:43:14,800 Speaker 1: going to start with central bank bills again held by foreigners, 743 00:43:15,320 --> 00:43:17,600 Speaker 1: and then you know, the foreigners they accumulate more, they 744 00:43:17,640 --> 00:43:20,279 Speaker 1: would have more and more long term and so that's 745 00:43:20,280 --> 00:43:22,200 Speaker 1: going to be the birth and the development of the 746 00:43:22,520 --> 00:43:25,600 Speaker 1: of the debt securities market in China. I mean, all 747 00:43:25,640 --> 00:43:28,000 Speaker 1: this stuff is a step by step process. Again, just 748 00:43:28,200 --> 00:43:30,239 Speaker 1: as a child is born and learns to walk and 749 00:43:30,320 --> 00:43:33,520 Speaker 1: talk and does other things in in life. So I 750 00:43:33,560 --> 00:43:35,920 Speaker 1: think this is going to be a path. This is 751 00:43:36,600 --> 00:43:41,239 Speaker 1: I think inevitable. I think it started already. The infrastructure 752 00:43:41,320 --> 00:43:43,120 Speaker 1: for it has already been built, and I think this 753 00:43:43,280 --> 00:43:45,320 Speaker 1: is going to pick up from here going forward. On 754 00:43:45,480 --> 00:43:50,040 Speaker 1: the topic of alternate currencies, this is something that came 755 00:43:50,160 --> 00:43:53,279 Speaker 1: up in one of your previous research items where you 756 00:43:53,360 --> 00:43:56,719 Speaker 1: were talking about the possibility of people holding reserves in 757 00:43:56,800 --> 00:44:00,920 Speaker 1: something other than dollars, and you mentioned bitcoin, but it 758 00:44:01,120 --> 00:44:04,359 Speaker 1: had this big caveat around it, which was you put 759 00:44:04,400 --> 00:44:08,400 Speaker 1: in parentheses if bitcoins still exists by then, what do 760 00:44:08,440 --> 00:44:11,480 Speaker 1: you see as bitcoin's um utility here? If any? Joe 761 00:44:11,600 --> 00:44:15,480 Speaker 1: sparked the kind of bilateral conversation on that too via email, 762 00:44:15,520 --> 00:44:17,919 Speaker 1: which which was which was interesting. And by the way, Joe, 763 00:44:18,640 --> 00:44:22,120 Speaker 1: my capslock got stuck. So whatever you said in your 764 00:44:22,239 --> 00:44:25,400 Speaker 1: article is capitalized. It was not intentional. I thought you 765 00:44:25,440 --> 00:44:27,920 Speaker 1: were very excited. No, no, no, I don't know. I 766 00:44:28,040 --> 00:44:32,240 Speaker 1: was like, oh, there is extremely excited. It is beautiful. 767 00:44:32,520 --> 00:44:34,960 Speaker 1: It's a sovereign has to be involved with the question 768 00:44:35,040 --> 00:44:38,560 Speaker 1: of money, and bitcoin is basically short the sovereign. You know, 769 00:44:38,640 --> 00:44:41,440 Speaker 1: bitcoin to short the sovereign, which is precisely which is 770 00:44:41,480 --> 00:44:45,239 Speaker 1: precisely why you can't have bitcoin in China, because you 771 00:44:45,280 --> 00:44:48,240 Speaker 1: can't be short the sovereign. In China. There's no outlet 772 00:44:48,320 --> 00:44:51,800 Speaker 1: for political frustrations. It's one party. Not not to be 773 00:44:52,400 --> 00:44:55,200 Speaker 1: facetious or anything here, but I mean, if we are 774 00:44:55,280 --> 00:45:00,040 Speaker 1: talking about commodity shortages and energy shortages, and if it 775 00:45:00,160 --> 00:45:04,080 Speaker 1: takes a tremendous amount of energy to mind the marginal bitcoin, 776 00:45:04,320 --> 00:45:07,120 Speaker 1: I mean that just makes no sense. You mean energy 777 00:45:07,239 --> 00:45:11,719 Speaker 1: is any your energy, energy is going to be wasted 778 00:45:12,040 --> 00:45:17,120 Speaker 1: on mining something that. Yeah, so the question is why 779 00:45:17,160 --> 00:45:23,920 Speaker 1: would governments who are already facing commodity shortages continue to 780 00:45:24,120 --> 00:45:27,560 Speaker 1: allow for the energy intensive mining of the thing the 781 00:45:27,600 --> 00:45:31,120 Speaker 1: short the sovereign. Yes, I mean if you are releasing 782 00:45:31,280 --> 00:45:34,560 Speaker 1: record amends from strategic patrollum reserve and like, I don't know, 783 00:45:34,680 --> 00:45:36,600 Speaker 1: we need you see what I mean? So it's like 784 00:45:36,960 --> 00:45:39,920 Speaker 1: if all the strategic patrolum reserves are empty, well, and 785 00:45:40,040 --> 00:45:42,760 Speaker 1: then you know people are using corn to make ethanol 786 00:45:43,000 --> 00:45:45,440 Speaker 1: and then people are hungry, and like you're burning ethanol 787 00:45:45,480 --> 00:45:48,560 Speaker 1: to mind bitcoin or something that makes no sense. But 788 00:45:49,160 --> 00:45:52,480 Speaker 1: that's one and the other thing, the whole central bank 789 00:45:52,520 --> 00:45:55,399 Speaker 1: digital currency. How does that fit into this? I think 790 00:45:55,640 --> 00:45:59,520 Speaker 1: Breton Woodstreet is not about that, because we are talking 791 00:45:59,600 --> 00:46:06,040 Speaker 1: about rethinking reserve assets. This is fex reserves, which is 792 00:46:06,120 --> 00:46:11,400 Speaker 1: a nominal pile of wealth versus commodity reserves, real versus nominal. 793 00:46:11,760 --> 00:46:15,360 Speaker 1: The center bank digital currency is a liability side question 794 00:46:15,440 --> 00:46:18,759 Speaker 1: for central banks, like what technology do I use to 795 00:46:18,880 --> 00:46:22,960 Speaker 1: distribute my liability? This is like landlines versus cell phones, 796 00:46:23,080 --> 00:46:25,800 Speaker 1: or you stream your movies, or you slept to a 797 00:46:25,880 --> 00:46:28,239 Speaker 1: video store and get a v statement, stick it into 798 00:46:28,280 --> 00:46:31,640 Speaker 1: a machine to watch it. That's that Breton Woods three 799 00:46:32,280 --> 00:46:35,600 Speaker 1: is about how do you invoice stuff? How do you 800 00:46:35,719 --> 00:46:38,359 Speaker 1: get stuff from a poort A to word B. Once 801 00:46:38,440 --> 00:46:42,040 Speaker 1: you get paid, what do you choose as your optimal reserve? 802 00:46:42,200 --> 00:46:44,080 Speaker 1: Is it a real asset? Is that a nominal asset 803 00:46:44,400 --> 00:46:47,040 Speaker 1: that type of stuff. You know, listening to this conversation, 804 00:46:47,360 --> 00:46:51,760 Speaker 1: it does not necessarily strike me as a negative environment 805 00:46:51,960 --> 00:46:54,920 Speaker 1: for the US, especially vius of the other rich countries, 806 00:46:55,000 --> 00:46:57,920 Speaker 1: because okay, maybe the dollar doesn't have the same status. 807 00:46:58,280 --> 00:47:03,480 Speaker 1: On the other hand, unlike other rich countries, tremendous ability, 808 00:47:03,560 --> 00:47:06,399 Speaker 1: at least in theory, to produce oil, tons of natural gas, 809 00:47:06,600 --> 00:47:09,600 Speaker 1: tons of open space for wheat, corn, and soy metals, 810 00:47:09,760 --> 00:47:13,160 Speaker 1: if we want to mind them. We have rare Earth's here. Uh, 811 00:47:13,320 --> 00:47:15,200 Speaker 1: you know, some of the more advanced tech. It's sort 812 00:47:15,200 --> 00:47:18,160 Speaker 1: of a political choice when we're going. It doesn't necessarily 813 00:47:18,280 --> 00:47:21,080 Speaker 1: seem like in a world in which and of course 814 00:47:21,120 --> 00:47:23,560 Speaker 1: our military and so that to the degree that the 815 00:47:23,680 --> 00:47:26,080 Speaker 1: military is the price of shipping or the price of 816 00:47:26,160 --> 00:47:28,839 Speaker 1: protection for a lot of shipping lines. Obviously, the US 817 00:47:28,880 --> 00:47:30,719 Speaker 1: far and away still the strongest military in the world. 818 00:47:31,160 --> 00:47:34,520 Speaker 1: It seems like even in a new regime, the US 819 00:47:34,560 --> 00:47:38,879 Speaker 1: has tremendous Milton advantages and stores of wealth. So yes, 820 00:47:38,960 --> 00:47:45,600 Speaker 1: when you think about let's say three regions, you know, US, Europe, Asia, China, Eurasia. 821 00:47:45,880 --> 00:47:49,720 Speaker 1: Again conceptually very high level. The country that's buying stuff 822 00:47:49,800 --> 00:47:53,319 Speaker 1: on sale cheaply stocking up is going to be China, 823 00:47:53,520 --> 00:47:57,000 Speaker 1: right because that's where all the Russian commodities you're going 824 00:47:57,040 --> 00:48:02,440 Speaker 1: to go. That's just the country that can fill some 825 00:48:02,680 --> 00:48:05,600 Speaker 1: of the you know, you can freck your way out 826 00:48:05,640 --> 00:48:08,680 Speaker 1: of this or throw your wheat out of this. US 827 00:48:08,800 --> 00:48:11,840 Speaker 1: is fine. I think Europe is in a very delicate 828 00:48:11,880 --> 00:48:16,560 Speaker 1: position because this is basically you know, between Russia and Europe, 829 00:48:16,640 --> 00:48:20,360 Speaker 1: and you know, the German reliance in Russian fossil fuels 830 00:48:20,400 --> 00:48:23,080 Speaker 1: and and so yes, you know, I think this is 831 00:48:23,480 --> 00:48:26,919 Speaker 1: you know Bretton Woods three. I think is is also 832 00:48:27,000 --> 00:48:31,680 Speaker 1: a world where the East certainly has some i don't know, 833 00:48:31,760 --> 00:48:35,279 Speaker 1: quote unquote renaissance and it has it better and inflation 834 00:48:35,560 --> 00:48:40,200 Speaker 1: is less of a problem there. The West has quote 835 00:48:40,239 --> 00:48:43,440 Speaker 1: unquote some relative decline. It's not going to go down 836 00:48:43,480 --> 00:48:47,000 Speaker 1: the tubes. But you know, this is a multipolar world, 837 00:48:47,080 --> 00:48:49,960 Speaker 1: which is not meant to be you know, status quo. 838 00:48:50,160 --> 00:48:53,800 Speaker 1: But you know, someone rises, someone declines, but still too dominant. 839 00:48:54,040 --> 00:48:56,840 Speaker 1: Inflation is probably more of a problem in the West, 840 00:48:57,520 --> 00:49:00,560 Speaker 1: and then I think Europe is very much in the middle. 841 00:49:00,719 --> 00:49:03,800 Speaker 1: So now when we think about this medium term, what 842 00:49:03,960 --> 00:49:07,920 Speaker 1: it means for commodities and inflation and who wins who loses. 843 00:49:08,200 --> 00:49:10,239 Speaker 1: Some of the themes that come out of this is 844 00:49:10,760 --> 00:49:14,640 Speaker 1: Learry think is right. For rather, it's probably more informed 845 00:49:14,719 --> 00:49:16,840 Speaker 1: than all of us on this forum. I do agree 846 00:49:16,920 --> 00:49:19,800 Speaker 1: that globalization as we know it is probably over. So 847 00:49:20,239 --> 00:49:21,879 Speaker 1: what are some of the things that are coming out 848 00:49:21,960 --> 00:49:26,640 Speaker 1: of that? And and some of this conversation resource nationalism 849 00:49:27,680 --> 00:49:30,960 Speaker 1: is a part of Breton Woods three. More military spending, 850 00:49:31,120 --> 00:49:34,200 Speaker 1: you know Europe for sure, in the US least sea lanes, 851 00:49:34,280 --> 00:49:37,920 Speaker 1: but not is definitely coming out of this. Stockpiling of 852 00:49:38,040 --> 00:49:42,480 Speaker 1: commodities definitely coming out of this. Rethinking supply chains is 853 00:49:42,520 --> 00:49:45,480 Speaker 1: definitely coming out of this. Breton Woods two was about 854 00:49:46,000 --> 00:49:50,120 Speaker 1: a singular supply chain, Fox com making everything and breton 855 00:49:50,160 --> 00:49:53,239 Speaker 1: Woods three. If all that world orders torn up and 856 00:49:53,360 --> 00:49:56,120 Speaker 1: we have to duplicate production facilities and supply chains and 857 00:49:56,120 --> 00:49:58,600 Speaker 1: always that, we need to provide a lot of investment 858 00:49:58,680 --> 00:50:01,600 Speaker 1: and capital into that. So you know, not to mention 859 00:50:01,640 --> 00:50:04,000 Speaker 1: all the E S G and cutting, uh, you know, 860 00:50:04,080 --> 00:50:07,720 Speaker 1: the investments related to that. I think the investment needs 861 00:50:08,719 --> 00:50:13,239 Speaker 1: for for the world that threatened what's three reflect is 862 00:50:13,280 --> 00:50:17,120 Speaker 1: going to need more commodities, It's going to need more capital. 863 00:50:18,000 --> 00:50:20,880 Speaker 1: And so you know, the West I think has things 864 00:50:21,000 --> 00:50:24,400 Speaker 1: to worry about because you know, we are basically talking 865 00:50:24,440 --> 00:50:28,360 Speaker 1: about opping investment in the West at the expense of consumption, 866 00:50:29,040 --> 00:50:32,080 Speaker 1: which is exactly a mirror image of the problem China has, 867 00:50:32,160 --> 00:50:35,520 Speaker 1: which is they had too much investment and too little consumption. 868 00:50:36,560 --> 00:50:39,040 Speaker 1: Like even kicking it even higher in the higher get 869 00:50:39,080 --> 00:50:42,560 Speaker 1: the whole conversation. I think China needs a stronger exchange 870 00:50:42,640 --> 00:50:45,600 Speaker 1: rate and the US needs to reaper exchange rate kind 871 00:50:45,640 --> 00:50:49,920 Speaker 1: of more consumption, less investment there, more investment, less consumption. 872 00:50:50,040 --> 00:50:53,120 Speaker 1: Here the types of investment that we are talking about, 873 00:50:53,800 --> 00:50:56,640 Speaker 1: our investments that are going to be driven by the 874 00:50:56,760 --> 00:51:01,760 Speaker 1: States and by corporations as they any things there exist. Sultan, 875 00:51:01,880 --> 00:51:04,080 Speaker 1: I feel like we could talk about this for hours. 876 00:51:04,160 --> 00:51:07,040 Speaker 1: Big so much for coming back on Fantastic. Yeah, that 877 00:51:07,120 --> 00:51:21,600 Speaker 1: was really good. Thank you very much. Guys. It's always 878 00:51:21,600 --> 00:51:24,400 Speaker 1: great having Sultan on the show. And one of the 879 00:51:24,480 --> 00:51:26,360 Speaker 1: things that came out of that is, I mean, I 880 00:51:26,440 --> 00:51:28,759 Speaker 1: really think the sort of summary of all of it 881 00:51:28,880 --> 00:51:32,000 Speaker 1: is that if you're interested in interest rates and the economy, 882 00:51:32,320 --> 00:51:35,000 Speaker 1: you know, say you're a short term interest rate strategist 883 00:51:35,080 --> 00:51:37,719 Speaker 1: or sturred trader or whatever, you're gonna have to start 884 00:51:37,760 --> 00:51:40,800 Speaker 1: paying attention to shipping and commodities and all the micro 885 00:51:41,000 --> 00:51:43,640 Speaker 1: in order to do the macro. You know what, I 886 00:51:43,719 --> 00:51:46,600 Speaker 1: thought that was one of the best conversations ever to think. 887 00:51:46,800 --> 00:51:48,960 Speaker 1: You know, people always talk about turning points, right, Oh, 888 00:51:49,040 --> 00:51:51,880 Speaker 1: it's a deflection points, the turning point post dollar. It's 889 00:51:51,960 --> 00:51:53,600 Speaker 1: you know, we've been talking about for years. I thought 890 00:51:53,640 --> 00:51:55,520 Speaker 1: that was one of the best conversations I've ever heard 891 00:51:55,600 --> 00:51:57,759 Speaker 1: that actually put some like meat on the bone, so 892 00:51:57,880 --> 00:52:01,440 Speaker 1: to speak of what that looks like. Thinking about what 893 00:52:01,680 --> 00:52:07,080 Speaker 1: are the price equivalents when it comes to commodities, storage protection, uh, 894 00:52:07,200 --> 00:52:10,400 Speaker 1: the equivalent of maintaining par and then what are the 895 00:52:10,560 --> 00:52:13,719 Speaker 1: institutions that have to build up around that to sort 896 00:52:13,760 --> 00:52:17,040 Speaker 1: of recreate a more commodity centric world economy is like 897 00:52:17,360 --> 00:52:21,120 Speaker 1: extremely extremely interesting, right, and then just underscoring in what 898 00:52:21,239 --> 00:52:23,839 Speaker 1: a poor position a lot of the central banks are 899 00:52:24,160 --> 00:52:27,520 Speaker 1: in order to do this, because under Sultan's framework, you know, 900 00:52:27,640 --> 00:52:32,400 Speaker 1: this idea of you have the sort of nominal monetary stuff, 901 00:52:32,600 --> 00:52:35,960 Speaker 1: things like price levels, and par and interests or the 902 00:52:36,040 --> 00:52:39,360 Speaker 1: future value of money, stuff like that. But the problem 903 00:52:39,480 --> 00:52:42,319 Speaker 1: is emanating from the real which, of course central banks 904 00:52:42,480 --> 00:52:46,439 Speaker 1: don't really have any control over. Right. We can hope, okay, 905 00:52:46,480 --> 00:52:49,200 Speaker 1: if we slow things down a little bit, tap the brakes, 906 00:52:49,280 --> 00:52:51,520 Speaker 1: maybe things are okay and we get some easing in 907 00:52:51,600 --> 00:52:53,560 Speaker 1: the price of world. But everybody knows it. I mean, 908 00:52:53,640 --> 00:52:56,000 Speaker 1: everybody knows that the issues that are arising right now, 909 00:52:56,040 --> 00:52:57,959 Speaker 1: at least some of them, like particularly on the food 910 00:52:58,000 --> 00:53:02,160 Speaker 1: and energy side, are pretty far from like something that 911 00:53:02,680 --> 00:53:05,759 Speaker 1: the FED, any central bank, let alone even the FED 912 00:53:06,120 --> 00:53:09,680 Speaker 1: can handle. Yeah, and all. The other point he made 913 00:53:09,880 --> 00:53:12,239 Speaker 1: is that the last time the FED really had to 914 00:53:12,360 --> 00:53:16,080 Speaker 1: fight inflation um, which would have been with vulcer in 915 00:53:16,160 --> 00:53:18,480 Speaker 1: the sort of late seven days early nineteen eighties, that 916 00:53:18,600 --> 00:53:21,279 Speaker 1: it was such a different world than and a lot 917 00:53:21,360 --> 00:53:23,760 Speaker 1: of the problems were sort of emanating from a space 918 00:53:23,840 --> 00:53:26,120 Speaker 1: where the central bank could have an impact, and it 919 00:53:26,280 --> 00:53:29,160 Speaker 1: was doing it in a sort of maybe not totally 920 00:53:29,280 --> 00:53:33,919 Speaker 1: unilateral world, but a more cohesive West certainly, and people 921 00:53:33,960 --> 00:53:36,680 Speaker 1: could sort of follow on follow suit, And now that 922 00:53:37,040 --> 00:53:40,600 Speaker 1: might not be as possible. And I'm just trying. I 923 00:53:40,719 --> 00:53:44,000 Speaker 1: love this the analogy. So it's like what is the 924 00:53:44,120 --> 00:53:47,680 Speaker 1: commodity equivalent of balance sheet space? And you talked about 925 00:53:47,719 --> 00:53:51,359 Speaker 1: like space on ship shipping. It's so interesting, like try 926 00:53:51,520 --> 00:53:53,680 Speaker 1: It's like, I find it to be a very useful 927 00:53:53,800 --> 00:53:57,600 Speaker 1: exercise to think about these different things like interest rates 928 00:53:57,640 --> 00:54:00,200 Speaker 1: and obviously curves or that's the equivalent of the old 929 00:54:00,239 --> 00:54:03,400 Speaker 1: curve and obviously like a commodities futures curve. Things like that. 930 00:54:04,040 --> 00:54:06,400 Speaker 1: It's a very useful thought exercise to think about how 931 00:54:06,520 --> 00:54:09,320 Speaker 1: strange might emerge and how government policies might have to 932 00:54:09,400 --> 00:54:12,080 Speaker 1: be different in this in this new world. And poker 933 00:54:12,200 --> 00:54:16,799 Speaker 1: chips as poker chip tokens synthetic dollars still peg one 934 00:54:16,840 --> 00:54:20,200 Speaker 1: to one against the dollar at this point. Excellent, All right, 935 00:54:20,200 --> 00:54:22,719 Speaker 1: shall we leave it there? Let's leave it there. This 936 00:54:22,840 --> 00:54:25,520 Speaker 1: has been another episode of the All Thoughts podcast. I'm 937 00:54:25,560 --> 00:54:28,240 Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy 938 00:54:28,320 --> 00:54:31,120 Speaker 1: Alloway and I'm Joe Why Isn't Though? You can follow 939 00:54:31,200 --> 00:54:34,200 Speaker 1: me on Twitter at the Stalwart Big Thanks to our 940 00:54:34,400 --> 00:54:38,680 Speaker 1: producers Magnus Hendrickson and Colin Tipton. Followed the Bloomberg head 941 00:54:38,680 --> 00:54:42,239 Speaker 1: of podcast Francesca. Leave at Francesca Today and check out 942 00:54:42,280 --> 00:54:45,919 Speaker 1: all of our podcasts under the handle at podcasts. Thanks 943 00:54:45,960 --> 00:54:50,000 Speaker 1: for listening. Hey, there are all thoughts listeners. We are 944 00:54:50,400 --> 00:54:52,960 Speaker 1: very happy to let you know that we've been nominated 945 00:54:53,120 --> 00:54:57,000 Speaker 1: for a Webby Award. Yeah I'm not you know, Tracy, 946 00:54:57,280 --> 00:54:59,759 Speaker 1: I'm not normally like a big awards person, but now 947 00:55:00,000 --> 00:55:02,440 Speaker 1: it were nominated for one. I'm really excited. You really 948 00:55:02,480 --> 00:55:04,799 Speaker 1: wanted Yeah, I kind of really want to win. Okay, Well, 949 00:55:04,920 --> 00:55:07,480 Speaker 1: on that note, we would very much appreciate if you 950 00:55:07,560 --> 00:55:09,759 Speaker 1: can take two minutes of your time and head over 951 00:55:09,920 --> 00:55:15,000 Speaker 1: to vote dot Webby Awards dot com and vote for us. 952 00:55:15,120 --> 00:55:19,239 Speaker 1: You'll find us nominated in the business podcast category. Yeah, 953 00:55:19,480 --> 00:55:23,880 Speaker 1: very competitive business podcast category. Were one of five nominees, 954 00:55:23,960 --> 00:55:26,399 Speaker 1: So if you so choose, if you like, if you're 955 00:55:26,400 --> 00:55:28,359 Speaker 1: a fan of onlocks, if you want to help us 956 00:55:28,560 --> 00:55:31,440 Speaker 1: raise our profile a little bit, please go check out 957 00:55:31,520 --> 00:55:33,879 Speaker 1: the Webby nominees in book. Thanks very much,