WEBVTT - This Is Zoltan Pozsar's Vision For Bretton Woods III 0:00:10.440 --> 0:00:13.720 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:13.800 --> 0:00:17.400 I'm Tracy Alloway and I'm Joe. Wasn't they Joe, You're 0:00:17.400 --> 0:00:22.239 in Vegas, right, I am. I decided to take a 0:00:22.239 --> 0:00:25.000 little break from life and be in the desert for 0:00:25.000 --> 0:00:27.200 a couple of days in the place, so it's pretty 0:00:27.280 --> 0:00:30.440 nice out here. Commun If I sound a little weird, 0:00:30.640 --> 0:00:33.320 it's because I'm not in the studio with you. Do 0:00:33.360 --> 0:00:35.479 you know this is kind of weird? But whenever I 0:00:35.520 --> 0:00:39.200 think of poker nowadays and poker chips, I always think 0:00:39.520 --> 0:00:42.120 this is probably just me, but I always think of 0:00:42.360 --> 0:00:46.360 Sultan posars analogy of how reserves are kind of like 0:00:46.560 --> 0:00:49.000 poker chips. Do you remember that we have lots of 0:00:49.040 --> 0:00:51.960 different kinds of money is in the existing system, and 0:00:52.120 --> 0:00:54.680 they might even have the same name, like dollars, dollars, dollars, 0:00:54.840 --> 0:00:56.480 but a lot of them are sort of like all 0:00:56.520 --> 0:01:00.200 pegged to each other one to one cash money your 0:01:00.200 --> 0:01:03.400 bank account, bank account, money held at the federal reserve. 0:01:04.000 --> 0:01:07.800 Not that the similar from dollar poker chips in the casino, right, 0:01:08.040 --> 0:01:10.720 But this is something that's been coming up in various 0:01:10.720 --> 0:01:14.080 ways on recent episodes of Odd Lots. This idea that 0:01:14.120 --> 0:01:16.880 you do have different types of money, and at any 0:01:16.920 --> 0:01:20.280 one point of time there could be changes in how 0:01:20.360 --> 0:01:23.800 the world thinks of that money or how it uses it. 0:01:24.160 --> 0:01:26.319 And you know, for years and years we've had the 0:01:26.360 --> 0:01:29.760 euro dollar system, basically the synthetic dollars that are sort 0:01:29.800 --> 0:01:33.319 of slashing around in the global financial system. We've had 0:01:33.400 --> 0:01:37.680 reserves courtesy of the central banks and quantitative easing and 0:01:37.840 --> 0:01:41.120 things like that. And now I hesitate to use the 0:01:41.200 --> 0:01:44.560 term inflection point, but once again it feels like a 0:01:44.680 --> 0:01:47.760 central banks begin to tighten as we see this big 0:01:47.840 --> 0:01:50.560 question mark over the role of the dollar. Given the 0:01:50.640 --> 0:01:55.240 sanctions against Russia, it feels like this question of what 0:01:55.440 --> 0:01:59.080 is money, what could a new monetary system actually look like? 0:01:59.400 --> 0:02:03.280 Is coming at into the four Yeah, exactly right. And 0:02:03.320 --> 0:02:06.880 then the other element that's extremely big right now is 0:02:07.360 --> 0:02:10.120 and that the Russian sanctions were part of this. But 0:02:10.400 --> 0:02:15.519 it's clear that, like FX, reserves aren't enough security, especially 0:02:15.560 --> 0:02:19.320 in a world of commodity disruption, supply chain breakdowns, things 0:02:19.320 --> 0:02:21.840 like that. It's great to have money, it's great to 0:02:21.919 --> 0:02:26.160 have foreign currencies, particularly if you're a vulnerable emerging market 0:02:26.160 --> 0:02:28.680 and so forth. But he is Russia is discovered, you 0:02:28.680 --> 0:02:31.840 could lose access to your fex reserves. But more importantly 0:02:32.760 --> 0:02:35.920 and Afghanistan, that's right, but more importantly like even if 0:02:35.960 --> 0:02:39.240 you having for reserves, you also need food. You also 0:02:39.280 --> 0:02:42.320 need wheat, you also need natural gas. If you're in Canada, 0:02:42.360 --> 0:02:45.200 maybe you need a maple stockpile. In the US, of course, 0:02:45.200 --> 0:02:47.640 we just saw the announced release of some of the 0:02:47.800 --> 0:02:50.720 spr oil. These are also very important. So we're also 0:02:50.760 --> 0:02:54.360 in a regime in which physical things really matter again 0:02:54.440 --> 0:02:57.960 big time, right, And there's not necessarily a guarantee that 0:02:58.080 --> 0:03:01.880 you know, the financialized oddities are going to be I 0:03:01.880 --> 0:03:04.880 guess redeemable one for one against the physical commodities. It 0:03:04.919 --> 0:03:08.000 feels like that's what we're learning right now. Well, whenever 0:03:08.040 --> 0:03:11.480 we're talking about big money ideas, there is of course 0:03:11.520 --> 0:03:14.200 one person who we turned to and I already mentioned 0:03:14.240 --> 0:03:16.600 his name, but we are going to be speaking once 0:03:16.639 --> 0:03:20.000 again to re Sultan Posar. He's a strategistic credit Swiss 0:03:20.520 --> 0:03:23.959 multi time odd lots guest at this point, and he's 0:03:24.000 --> 0:03:28.120 been writing about these themes, including an earlier note a 0:03:28.160 --> 0:03:33.320 few weeks ago talking about the threat to the dollar's dominance, 0:03:33.360 --> 0:03:37.640 and he's back to go into further detail about how 0:03:37.680 --> 0:03:42.080 he sees a new monetary system actually evolving. I feel 0:03:42.120 --> 0:03:44.120 like after we did that last episode with him a 0:03:44.120 --> 0:03:46.960 few weeks ago, bam, everyone wanted to like, Okay, the 0:03:47.000 --> 0:03:49.720 dollar system is in trouble, yeah, but what's next? And 0:03:49.720 --> 0:03:52.960 then he published what's next? Talk to us next? But 0:03:53.320 --> 0:03:55.920 we're having a faster because there's so much demand for 0:03:56.000 --> 0:03:58.920 like the next chapter of this story. It's the natural 0:03:59.000 --> 0:04:01.040 cycles Alton right something. And then he comes on All 0:04:01.080 --> 0:04:03.040 Thoughts to talk about it. So Re Sulton, thank you 0:04:03.080 --> 0:04:06.680 so much for for coming back on the show. Very 0:04:06.720 --> 0:04:09.520 nice to be back. Instead of looking forwards, why don't 0:04:09.520 --> 0:04:12.120 we begin by looking backwards, and why don't you give 0:04:12.200 --> 0:04:16.799 us your overview of what the existing monetary system actually 0:04:16.839 --> 0:04:18.600 looks like, because I think that's going to help us 0:04:18.640 --> 0:04:23.400 frame your vision of the future. Yes, so so before 0:04:23.440 --> 0:04:26.120 we before we look at the existing system, let's just 0:04:26.320 --> 0:04:28.159 you know, go all the way back to the Second 0:04:28.160 --> 0:04:30.799 World War and you know what, you know the system 0:04:30.880 --> 0:04:33.360 that grew out of that, and that was the original 0:04:33.400 --> 0:04:37.440 Breton Woods three Breton Woods system. You know, this was 0:04:37.520 --> 0:04:41.680 the unipol or world where the US basically shaped the 0:04:41.720 --> 0:04:44.400 course of things to come. You know, the euro dollar 0:04:44.640 --> 0:04:49.039 was not a dominant currency back then immediately after the 0:04:49.160 --> 0:04:51.680 end of the Second World War, but it became the 0:04:51.720 --> 0:04:56.280 dominant reserve currency and a dominant phenomenon over the forty 0:04:57.000 --> 0:05:02.000 forty fifty UH years. And so you know, Breton Woods 0:05:02.360 --> 0:05:06.599 was about gold. Everything was linked to gold. And then 0:05:06.800 --> 0:05:10.880 Invent one, we took the dollar of gold and then 0:05:11.040 --> 0:05:14.320 we basically said that we will guarantee price stability, and 0:05:14.360 --> 0:05:17.360 that's what became the FEDS mantra and everything in in 0:05:17.680 --> 0:05:21.640 the fiscal and monetary domains was about making sure that 0:05:21.640 --> 0:05:25.880 that price stability is there as an anchor to a 0:05:26.000 --> 0:05:30.480 currency that was only a paper form of money. UH. 0:05:30.520 --> 0:05:34.240 And then the system evolved further within the stable prices 0:05:34.640 --> 0:05:37.440 nominal world that we had. Once we removed the peg 0:05:38.640 --> 0:05:43.240 to gold, we had a crisis in seven or fixed 0:05:43.240 --> 0:05:47.280 exchange rates. Southeast Asia then started to accumulate reserves. As 0:05:47.320 --> 0:05:49.920 a lesson from that. In two thousand, three years later 0:05:50.200 --> 0:05:53.200 China UH joined the w t OH. They started to 0:05:53.839 --> 0:05:57.000 export and manufacture everything for the rest of the world. 0:05:57.440 --> 0:06:00.800 They accumulated a huge amount of f express serves. All 0:06:00.839 --> 0:06:04.520 of these reserves basically were recycled into U S treasuries. 0:06:04.880 --> 0:06:08.279 This is you know Greenspan's conundrum, you know, his hiking rates, 0:06:08.360 --> 0:06:10.719 but the back end of the curve doesn't move. Ben 0:06:10.760 --> 0:06:14.760 Bernankey called it the global savings clot Before Ben Bernankey, 0:06:14.839 --> 0:06:18.200 David Folkers Landau at Deutsche Bank, and Mike Dooley they 0:06:18.240 --> 0:06:21.920 call this breton Woods too. So basically, the shift from 0:06:21.920 --> 0:06:26.560 Breton Woods the breton Woods two is the shift from 0:06:26.600 --> 0:06:32.800 a gold backed dollar to a a dollar governed by 0:06:32.960 --> 0:06:36.040 the idea that the guarantee price stability. And because the 0:06:36.120 --> 0:06:40.479 guarantee price stability, it's okay to accumulate your dollar reserves 0:06:40.600 --> 0:06:45.000 in treasury securities. And you know that system was fine. 0:06:45.080 --> 0:06:48.680 But again, you know, you have Minsky moments and Paul McCulley, 0:06:48.839 --> 0:06:52.600 and you know, stability gets instability and shadow banking. So 0:06:52.640 --> 0:06:55.680 all that system blew up in two thousand and eight, 0:06:56.480 --> 0:07:00.560 and then accumulation of U S treasury securities stopped in 0:07:00.600 --> 0:07:02.640 certain parts of the world, and then the big central 0:07:02.640 --> 0:07:05.000 banks like the SET and the ECB started to buy 0:07:05.839 --> 0:07:10.160 the depth of their own governments, and that, you know, 0:07:10.280 --> 0:07:14.680 led to income inequality and soaring stock prices and some 0:07:14.760 --> 0:07:16.760 of the things that we are kind of dealing with 0:07:16.800 --> 0:07:18.600 at the present. I mean, you know, the last time 0:07:18.640 --> 0:07:21.360 I was on the show, you know, we talked about 0:07:21.360 --> 0:07:23.680 this piece that I wrote about how we need a 0:07:23.680 --> 0:07:26.400 new Vulcar moment and a little bit of volatility and 0:07:26.520 --> 0:07:29.240 risk assets and wealth destructions you can bring people back 0:07:29.280 --> 0:07:31.200 into the labor force and all that stuff. And so 0:07:31.280 --> 0:07:34.440 then then instead of a Vulcar moment, we got a 0:07:34.480 --> 0:07:38.760 Puchin moment, and we basically have war. And out of 0:07:38.800 --> 0:07:43.600 this war something will will also emerge. Um And and 0:07:43.680 --> 0:07:46.640 you know, out of this I think this Breton Woods 0:07:46.720 --> 0:07:51.280 three framework that I um that I started to kind 0:07:51.280 --> 0:07:53.960 of develop and and run with is a is a 0:07:54.000 --> 0:07:57.480 world where we are again going to go back to 0:07:57.920 --> 0:08:02.680 commodity backed money, where gold once again is going to 0:08:02.760 --> 0:08:06.160 play a big role, and not not just gold, but 0:08:06.240 --> 0:08:09.440 I think all forms of commodities, because you know, this 0:08:09.600 --> 0:08:13.280 crisis is about commodities. This is about you know, the 0:08:13.360 --> 0:08:19.000 largest commodity exporter. This is about metals and rains and 0:08:19.040 --> 0:08:22.440 and energy, and so in a way, you're back to 0:08:22.560 --> 0:08:25.640 where you started from after the Second World War, but 0:08:25.760 --> 0:08:29.160 it's going to be a little bit more different and 0:08:29.200 --> 0:08:31.080 a little bit a little bit more complex. Is not 0:08:31.160 --> 0:08:34.160 just gold, but it's commodity, is more broadly, and it's 0:08:34.240 --> 0:08:37.920 not just one currency that's dominance, but there is going 0:08:38.000 --> 0:08:40.360 to be you know, as a reflection of a multiple 0:08:40.440 --> 0:08:44.800 or world, a multitude of currentcies. You know, rubles if 0:08:44.840 --> 0:08:47.920 you want to get Russian oil, um r and B. 0:08:48.120 --> 0:08:50.680 If you want to get stuff out of China, you 0:08:50.760 --> 0:08:52.840 have the dollar, and you know if you trade the 0:08:53.040 --> 0:08:58.800 US and and so it's a fragmented system where commodities 0:08:58.880 --> 0:09:02.760 play much big a role and their price stability is 0:09:02.800 --> 0:09:05.240 a big issue in certain parts of the world. So 0:09:05.240 --> 0:09:09.600 so this is a very complex mosaic that they need 0:09:09.640 --> 0:09:13.679 to navigate here. And you know, um, that's what breton 0:09:13.720 --> 0:09:17.240 Wood is about. That that was fantastic. I wanna you know, 0:09:17.400 --> 0:09:20.480 before we even dive further into what this Breton would 0:09:20.600 --> 0:09:23.640 three looks like. I was reading your latest note and 0:09:23.800 --> 0:09:28.000 it's you cite some ideas from your sometimes co author 0:09:28.000 --> 0:09:30.320 and one time cocus on this podcast of Kerry Maryland, 0:09:30.800 --> 0:09:33.160 which talks about is actually the four prices of money. 0:09:33.200 --> 0:09:35.480 And I don't think many people really think about that. 0:09:35.480 --> 0:09:38.440 I think, okay, maybe the interest rate or the risk 0:09:38.520 --> 0:09:40.480 free rate at a given country is sort of a 0:09:40.559 --> 0:09:43.520 price of money, so to speak. The adjust that but 0:09:43.559 --> 0:09:46.080 if you point out like money is priced in many 0:09:46.120 --> 0:09:48.520 different ways, can you talk a little bit about that? 0:09:48.559 --> 0:09:51.720 Why is that an important idea to understand that any 0:09:51.760 --> 0:09:55.679 given currency has so many different inherent prices? Yes? Yes, Well, 0:09:55.960 --> 0:09:59.679 actually I think the next guest you should have uh 0:10:00.040 --> 0:10:02.559 for me is Perry, because from what I understand, he 0:10:04.240 --> 0:10:07.400 doesn't agree with me. He thinks he doesn't. Yes, so 0:10:07.440 --> 0:10:10.719 that's interesting the dollar rates agreement. And obviously he's going 0:10:10.760 --> 0:10:13.400 to have his beautiful new book, Money and Empire, which 0:10:13.440 --> 0:10:20.360 is well Charlie Kindleberger and the birth of the Dollar system, 0:10:20.480 --> 0:10:23.120 and you know, that's that's about, you know, why the 0:10:23.160 --> 0:10:25.360 dollar is the dominant currents and how it became the 0:10:25.400 --> 0:10:27.959 Dominican And from what I understand, having caught up with 0:10:28.040 --> 0:10:31.000 him in a couple of months, he does not agree 0:10:31.000 --> 0:10:33.040 with Breton Street. So it will be a one of 0:10:33.080 --> 0:10:36.400 the full kind of counter counter pieces. I pretty much 0:10:36.520 --> 0:10:39.959 owe the structure of my understanding of the world to 0:10:40.679 --> 0:10:43.840 to Paris writings and Paris teaching, So so I think 0:10:44.520 --> 0:10:47.560 he has done a tremendous service, I think, to to 0:10:47.679 --> 0:10:51.280 anyone who's trying to understand monitory frameworks and money markets 0:10:51.320 --> 0:10:55.599 and whatnot. So with that So the four prices of Perry. 0:10:56.160 --> 0:10:59.760 So there's four prices which are par interest for an 0:10:59.760 --> 0:11:02.640 ext change and the price level. So what what do 0:11:02.679 --> 0:11:06.000 I What does he mean by this? Par basically means 0:11:06.080 --> 0:11:09.240 that currency and a bank deposit and a bank deposited 0:11:09.360 --> 0:11:12.640 jpmore again and a bank deposited city bank always traight 0:11:12.679 --> 0:11:15.800 at one. Okay, So money fund shares and banking all 0:11:15.840 --> 0:11:20.920 that stuff, right, poor broke in two thousand and eight, right, 0:11:21.000 --> 0:11:24.040 the money fund money funds broke the box. You know, 0:11:24.160 --> 0:11:27.440 bank deposits were not certain, so you need to increase 0:11:27.440 --> 0:11:32.720 the positive insurance all that stuff. Interest is about the 0:11:32.800 --> 0:11:36.560 time value of money, money today versus money tomorrow. You 0:11:36.600 --> 0:11:39.280 know what it costs for me to part with my 0:11:39.360 --> 0:11:42.560 liquidity if I lend it to you for three months 0:11:42.600 --> 0:11:47.520 to go play in a desert in Vegas. I'm good, yes, yes, yes. 0:11:48.360 --> 0:11:51.440 And then so that's the time value. That's the basic idea. 0:11:51.440 --> 0:11:55.000 And then there's obviously different money market. So there's the 0:11:55.000 --> 0:11:57.600 repo market, the epic spot market on secure money, goold 0:11:57.679 --> 0:12:00.560 you know, these all have like you know, the crisis, 0:12:00.640 --> 0:12:04.000 and so there is spreads between oh i s curbs 0:12:04.000 --> 0:12:09.920 and these other other money markets. Interests interests. You think 0:12:09.960 --> 0:12:12.840 about two ways. You either trade it in terms of 0:12:12.880 --> 0:12:15.640 O I s you know how many times the feed 0:12:15.800 --> 0:12:19.080 is going to hike, are gonna hike cavery gonna cut rates? 0:12:19.600 --> 0:12:22.640 Or you trade the basis around O I s you 0:12:22.679 --> 0:12:26.000 know cruss currency basis blows out because it's money fund reform, 0:12:26.320 --> 0:12:29.400 or it goes out because COVID nineteen hits and everybody 0:12:29.440 --> 0:12:33.199 needs to fund credit lines that corporations are taking down. 0:12:33.640 --> 0:12:35.319 You know, this is where you think about the bond 0:12:35.360 --> 0:12:39.719 basis that blew up in early twenty when the pandemic hit. 0:12:40.280 --> 0:12:42.680 So you know this is this is about basis between 0:12:42.760 --> 0:12:47.040 various money market curves and various prices of money. Foreign 0:12:47.040 --> 0:12:51.440 exchange is uh, you know, fixed or floating exchange rates, 0:12:51.440 --> 0:12:54.240 the price of dollar versus the price of other currencies. 0:12:54.960 --> 0:13:00.000 You know, foreign exchange is what broke in for example, 0:13:00.840 --> 0:13:05.840 when when South Korea abandoned its sixx sec. And then 0:13:05.880 --> 0:13:08.439 there's the price level, which is basically the price of 0:13:08.559 --> 0:13:13.120 commodities in terms of money. And by that, you know 0:13:13.320 --> 0:13:17.440 we mean basically energy, grains, metals and all the goods 0:13:17.720 --> 0:13:21.360 that get created from the drawn materials and so so, 0:13:21.480 --> 0:13:25.320 once again the par interest foreign exchange and price level 0:13:25.400 --> 0:13:29.480 prices of money, as Perry has taught us, is the 0:13:29.559 --> 0:13:35.439 four prices. And basically this little historical review that I 0:13:35.520 --> 0:13:40.600 gave you tells you that crisis that happened, the big 0:13:40.800 --> 0:13:46.040 crisis that have happened since, which again Southeast Asia two 0:13:46.120 --> 0:13:50.360 thousand and eight and March twenty twenty, these were all 0:13:50.559 --> 0:13:56.120 crises of money. Was about a broken ffex bag. Two 0:13:56.200 --> 0:13:59.520 thousand and eight was a crisis of par and March 0:13:59.640 --> 0:14:02.079 twenty TWANTU when the bond basis blew up, that was 0:14:02.160 --> 0:14:06.199 a crisis of interest, price level type stuff. You know, 0:14:06.360 --> 0:14:10.800 the price of commodities in terms of money hasn't really 0:14:10.840 --> 0:14:15.679 been a big deal since ninete. So we were lucky 0:14:16.160 --> 0:14:19.840 and and we basically had only those types of crises 0:14:20.720 --> 0:14:23.800 where the central bank has to step in because it's 0:14:23.800 --> 0:14:26.600 a nominal exchange rate and it's a nominal bond basis, 0:14:26.680 --> 0:14:29.720 and it's a nominal thing that you know, the reserve 0:14:29.840 --> 0:14:34.200 primary fund cannot pay part back. And so it was 0:14:34.360 --> 0:14:37.600 a dollar problem and a Euro problem. And in the 0:14:37.680 --> 0:14:41.880 case of the sovereign debt crisis, and a central bank 0:14:42.000 --> 0:14:46.600 that deals with a nominal crisis in its own currency 0:14:47.080 --> 0:14:49.160 has it easy because what do you do as a 0:14:49.200 --> 0:14:52.400 central bank? You provide emergency licuity to people that have 0:14:52.560 --> 0:14:56.400 the trouble assets and can't fund, and you also buy 0:14:56.520 --> 0:15:00.160 the trouble assets, which is either some peripheral sovereign at 0:15:00.280 --> 0:15:03.080 or stuff prime mortgages or treasury securities. And in March 0:15:03.200 --> 0:15:07.800 twenty twenty, I mean with South Korea is different because 0:15:07.840 --> 0:15:09.280 it was the I m F that had to step 0:15:09.360 --> 0:15:11.320 in to provide the dollars dollars because they didn't have 0:15:11.360 --> 0:15:13.920 the spot lines. But the bottom line is these are 0:15:14.000 --> 0:15:17.720 all crises where someone has to put balanceet on the 0:15:17.800 --> 0:15:22.800 line by the trouble assets pumping the couidity and problem solved. Today. 0:15:24.040 --> 0:15:27.720 It's different because you know, the price level is where 0:15:28.040 --> 0:15:31.760 real needs nominal You are talking about the price of 0:15:31.880 --> 0:15:36.240 real goods in nominal terms, and central banks can't do 0:15:36.360 --> 0:15:41.000 a bloody thing about commodity shortages. You know, the type 0:15:41.040 --> 0:15:43.320 of environment that we are that we are going through now. 0:15:44.120 --> 0:15:46.440 And I'm sure you'll ask next, you know, so there's 0:15:46.480 --> 0:15:49.080 the four four pillars of commodity trade, and will come 0:15:49.120 --> 0:15:51.800 to that next, but that's basically the four prices. You know, 0:15:51.880 --> 0:15:55.680 you've been running a lot about funding stresses showing up 0:15:55.880 --> 0:15:58.680 as a result of the volatility that we've seen in 0:15:58.800 --> 0:16:02.320 commodities recently. Yes, so, I guess I'm wondering is there 0:16:02.320 --> 0:16:07.800 a tension there between saying that commodities as funding collateral 0:16:08.200 --> 0:16:11.320 can suddenly decline in price and cause a lot of 0:16:11.400 --> 0:16:16.760 problems for people and including commodities as part of the 0:16:16.840 --> 0:16:20.560 sort of monetary framework of the future, Like, how do 0:16:20.640 --> 0:16:24.360 you sort of think about that tension? Yes? So, so, 0:16:24.480 --> 0:16:27.280 first of all, you always like to kind of ask 0:16:27.360 --> 0:16:33.120 me the things that I'm wrong about. But yes, I 0:16:33.200 --> 0:16:36.520 know this is this is very interesting because I was 0:16:36.680 --> 0:16:38.800 very right, but I was very wrong. You know, I 0:16:38.960 --> 0:16:43.080 was right that the commodity derivative complex and the commodity 0:16:43.080 --> 0:16:46.680 trading world is going to have liclarity crisis. We are 0:16:46.920 --> 0:16:50.440 having that liclarity crisis. Where I was wrong is that 0:16:50.680 --> 0:16:52.360 none of this is going to show up in traditional 0:16:52.440 --> 0:16:55.560 measures and fundings. Best and you know, you always learned 0:16:55.600 --> 0:16:58.840 from your mistakes what I have learned. The commodity trading 0:16:58.880 --> 0:17:06.200 world completely funds itself through bank credit lines. They do 0:17:06.359 --> 0:17:09.639 not tap the fx slock market, they do not issue 0:17:09.720 --> 0:17:12.440 cp they don't do anything in the report market because 0:17:12.480 --> 0:17:15.359 they don't have the type of financial assets that the 0:17:15.480 --> 0:17:19.639 repo market would accept as collateral for funding. So you 0:17:19.800 --> 0:17:24.960 then basically had a world where you have, okay, the 0:17:25.040 --> 0:17:27.320 two extremes. You know, you have the commodity treading world 0:17:27.400 --> 0:17:29.320 on left, and then you have one and a half 0:17:29.400 --> 0:17:34.080 brillion of cash in the resverse report facility sitting there. 0:17:34.760 --> 0:17:37.520 And then you have the big banks again the old 0:17:37.600 --> 0:17:40.200 visus JP Morgan as the posted child. You have five 0:17:40.680 --> 0:17:44.960 billion dollars that JP Morgan holds at the Federal Reserve 0:17:45.040 --> 0:17:49.440 Bank of New York. Again, the funding stresses that the 0:17:49.480 --> 0:17:53.639 commodity world is having are being lessened by more and 0:17:53.760 --> 0:17:56.719 more and more lending that the big banks provide two 0:17:56.760 --> 0:17:59.800 commodity traders. But because the big banks are sitting on 0:18:00.000 --> 0:18:04.040 piles of cash, okay, they can just lend that money 0:18:04.240 --> 0:18:06.959 to the commodity treators in need. But they don't need 0:18:07.040 --> 0:18:09.760 to raise that money on the margin. And so because 0:18:09.800 --> 0:18:12.040 they don't have to raise money on the margin, they 0:18:12.119 --> 0:18:14.200 just don't have the repo market or the fex pop 0:18:14.240 --> 0:18:16.480 and you don't have to issue cps. So, you know, 0:18:16.560 --> 0:18:21.440 the traditional kind of stirre domain of spreads is very calm. However, 0:18:22.880 --> 0:18:24.840 that doesn't mean that there is no stresses in the 0:18:24.880 --> 0:18:27.720 commodity treating. And we know that there are stresses because 0:18:27.800 --> 0:18:30.919 Pbody Energy had to pay ten pc interest when they 0:18:31.000 --> 0:18:33.840 took their credit line from Golden sectually being Bloomberg wrote 0:18:33.840 --> 0:18:36.560 an article about this right and and we know that 0:18:36.760 --> 0:18:39.719 you know traffic Gurro was in the news about taking 0:18:39.800 --> 0:18:43.920 credit line from a consortium of four banks, then trying 0:18:43.960 --> 0:18:47.879 to raise activity from black Stone. Then you know, a 0:18:48.000 --> 0:18:51.440 day later, all the commodity creators were basically writing a 0:18:51.560 --> 0:18:56.359 letter to central banks that they need emergency the curity support. 0:18:56.720 --> 0:18:59.800 So the strain is there. The strain has has a 0:19:00.040 --> 0:19:03.119 multitude of sources. Here again back to this idea that 0:19:03.480 --> 0:19:06.560 everything that the commodity traders do is financed by banks. 0:19:07.040 --> 0:19:08.760 And again I think you know, we all we all 0:19:08.840 --> 0:19:10.920 live and learn and learn as we go. You know, 0:19:11.040 --> 0:19:13.639 one thing, for example, I've learned from commodity traitors is 0:19:13.720 --> 0:19:15.639 that you know, when when it comes to these credit 0:19:15.720 --> 0:19:19.040 lines that the traitors used to finance themselves, is you know, 0:19:19.440 --> 0:19:21.640 you get x amount of credit through a credit line 0:19:21.640 --> 0:19:25.240 from a bank, you draw of it to lead the 0:19:25.280 --> 0:19:28.359 ship to fill up the ship with cargo, but you 0:19:28.440 --> 0:19:30.720 don't use a hundred percent of the credit line, because 0:19:31.080 --> 0:19:33.800 while the goods are in transit, you will have to 0:19:33.880 --> 0:19:36.560 pay variation mark right, I mean the prices go up, 0:19:36.600 --> 0:19:38.879 prices go down, depending on the side of the physical 0:19:38.920 --> 0:19:41.320 side of trade you are on. You will either get 0:19:41.400 --> 0:19:43.639 paid money or you will have to pay money. And 0:19:43.880 --> 0:19:47.960 for that too, you will tap a credit line from 0:19:48.000 --> 0:19:53.760 a bank. Um. And so when you have a price shock, 0:19:54.200 --> 0:19:58.000 and when you have all this volatility, you a need 0:19:58.119 --> 0:20:02.879 more money to move the same amount of physical goods around, 0:20:03.280 --> 0:20:06.119 and you also need more credit to be able to 0:20:06.200 --> 0:20:09.440 pay margin on all this cargo as it is in 0:20:09.640 --> 0:20:11.920 as it is in transit. So this is where the 0:20:12.000 --> 0:20:15.800 liquidity strains are coming from. And you know it's a 0:20:15.880 --> 0:20:20.520 mess because you know banks are basically facing credit risks 0:20:20.560 --> 0:20:22.960 when when they are lending into the commodities world. And 0:20:23.720 --> 0:20:27.119 and not only that, but basically you have a shock 0:20:27.480 --> 0:20:29.879 in terms of the nominal amount of money you need 0:20:29.960 --> 0:20:33.600 to land, the nominal amount of balance sheets that you 0:20:33.800 --> 0:20:36.960 permit to this world. And and you know, I guess 0:20:37.040 --> 0:20:40.159 one lesson from this and again conceptually and again in 0:20:40.440 --> 0:20:43.560 extreme terms, just to concentrate the mind and two sparks 0:20:43.600 --> 0:20:47.359 and thinking the value of say five billion dollars of 0:20:47.480 --> 0:20:51.800 reserves at the FED, if you're a large bank, is 0:20:52.400 --> 0:20:56.440 worth a lot more in a world where inflation is 0:20:56.800 --> 0:21:01.040 low and stable, and commodity prices are low and stable, 0:21:01.840 --> 0:21:04.000 where the only thing you have to worry about is 0:21:04.040 --> 0:21:05.680 you know where am I going to lend my next 0:21:05.760 --> 0:21:08.360 ten take the thirty billion dollars to harvest the next 0:21:08.400 --> 0:21:11.959 crost currency basis, So five is worth a lot more 0:21:11.960 --> 0:21:14.320 in the world like that, then in a world where 0:21:14.400 --> 0:21:16.840 basically you need to lend an extra hundred billion dollars 0:21:16.920 --> 0:21:20.440 to all sorts of commodity traders to move around and 0:21:20.600 --> 0:21:25.439 to finance all commodities imagined. So that is happening now, 0:21:25.560 --> 0:21:27.800 which which is another way of saying that this lowest 0:21:27.840 --> 0:21:31.160 comfortable level of reserves that we like to think about 0:21:31.200 --> 0:21:33.640 in terms of how much q T can the FAT 0:21:33.720 --> 0:21:36.760 do and how much reserves can you take out that 0:21:37.560 --> 0:21:40.280 l C l o R again that the minimum level 0:21:40.359 --> 0:21:45.680 of reserves the banks feel comfortable of running with is 0:21:45.760 --> 0:21:48.240 going up as we speak. We don't know how much 0:21:48.320 --> 0:21:50.680 because it's unobservable, but you know, the FAT does this 0:21:50.840 --> 0:21:54.160 periodic surveys about l C l ORE. I think it's 0:21:54.200 --> 0:21:56.960 time to do a survey like that now, because these 0:21:57.000 --> 0:21:59.480 are these are issues, and I don't think that the 0:21:59.560 --> 0:22:02.880 issues and commodity world are are going to fade away 0:22:02.920 --> 0:22:06.159 anytime soon. They're probably gonna get much much worse. There 0:22:06.320 --> 0:22:09.360 is the community strange, they just don't show up as such. 0:22:09.680 --> 0:22:12.920 And by the way, the moment, some some big name 0:22:13.640 --> 0:22:18.240 can't pay and defaults as a result. And again you 0:22:18.320 --> 0:22:20.280 can use your imagination. It doesn't have to be a 0:22:20.320 --> 0:22:24.320 commodity trader. It can also be a CCP, the default 0:22:24.359 --> 0:22:26.879 fund of a CCP and if someone can't pay margin 0:22:26.960 --> 0:22:29.840 and in a futures exchange, you know, the Ellemys. The 0:22:29.920 --> 0:22:33.720 Ellemy case with Nicole is a interesting case in point. 0:22:33.760 --> 0:22:35.960 But and again the other thing that people like to 0:22:36.040 --> 0:22:38.000 rub in as well, this was not a Leman two 0:22:38.000 --> 0:22:41.800 point so after all, but give me a break, Lehman 0:22:42.240 --> 0:22:45.399 took a year to happen. You know, b MP couldn't 0:22:45.440 --> 0:22:48.600 fund the sub prime you couldn't value the subprime exposure 0:22:48.640 --> 0:22:50.879 and its county funds in August of oh seven, and 0:22:51.000 --> 0:22:53.400 by the time they got to be men, twelve months 0:22:53.440 --> 0:22:56.280 have passed. I think the writing is all over the 0:22:56.359 --> 0:22:58.840 wall that a lot of things are happening. A lot 0:22:58.880 --> 0:23:01.840 of things have happened in thirty days. This is like 0:23:02.080 --> 0:23:04.800 I think, two thousand and eight kind of compressed in time. 0:23:05.760 --> 0:23:07.960 Um and and again things can get first. So I 0:23:08.040 --> 0:23:11.760 think we need to be approaching this with an open mind. 0:23:12.359 --> 0:23:15.640 We need to be thinking about a lot of scenarios, 0:23:16.160 --> 0:23:19.040 and we should not assume that just because we haven't 0:23:19.080 --> 0:23:21.800 had any blow ups today, there won't be any. But 0:23:22.000 --> 0:23:24.639 once those blow ups come, the flavor in the markets 0:23:24.680 --> 0:23:26.959 are going to change, because then counterparty risk is going 0:23:27.000 --> 0:23:29.040 to be something to worry about, which is not something 0:23:29.119 --> 0:23:31.040 we have to worry about. Its two thousand and eight. 0:23:31.600 --> 0:23:33.720 So you know, keep an open mind, and I think 0:23:33.960 --> 0:23:36.280 I think we need to be humble. Uh you know, 0:23:36.600 --> 0:23:38.920 I'm the first thing to recognize keep an open mind 0:23:39.000 --> 0:23:41.240 about the awful things that could be coming in the 0:23:41.320 --> 0:23:44.400 next Yes, yes, and again I'm I'm I'm the first 0:23:44.440 --> 0:23:47.639 person to you know, admit you can be right but 0:23:47.760 --> 0:23:50.280 lose a lot of money because you express your views bongly. 0:23:50.440 --> 0:23:53.040 So yes, you know, for all I s and cross 0:23:53.080 --> 0:23:56.000 currentcies would not have been the right way to express 0:23:56.040 --> 0:23:57.879 any of these things, but they are happening on the 0:23:57.960 --> 0:24:14.159 last and things are not getting that Again, yours I've 0:24:14.160 --> 0:24:16.600 thought of this already to be incredibly helpful and just 0:24:16.720 --> 0:24:21.280 thinking about like, okay, a commodity price level shock, it's 0:24:21.440 --> 0:24:26.760 very different and fundamentally other types of like financial nominal shocks, 0:24:27.480 --> 0:24:30.160 it might be politically unpalatable. It might have been politically 0:24:30.280 --> 0:24:34.040 unpalatable to do TARP or maybe for the euro crisis, 0:24:34.119 --> 0:24:37.679 it might have been politically unpalatable to bail out peripheral spreads. 0:24:37.840 --> 0:24:39.399 But it could be done, and it can kind of 0:24:39.440 --> 0:24:41.080 be done at the push of a button, and it's 0:24:41.119 --> 0:24:43.160 kind of trivially simple if you build up the will 0:24:43.520 --> 0:24:47.440 and the fundamentally, commodity shocks are just not like that. 0:24:47.600 --> 0:24:49.600 They're not in a category where there's a button you 0:24:49.680 --> 0:24:52.560 can press and solve it. And so what do you 0:24:52.640 --> 0:24:55.480 talk about that further, because that's sort of the direction 0:24:55.560 --> 0:24:59.240 of this Britton Woods three vision is the challenge that 0:24:59.359 --> 0:25:03.160 arises in a period of commodity volatility. And you talked 0:25:03.200 --> 0:25:04.840 a little bit about it just now, with what it 0:25:04.960 --> 0:25:08.240 means to liquidity in the system and funding various margin 0:25:08.359 --> 0:25:10.399 positions and so forth. What do you sort of like 0:25:10.920 --> 0:25:14.080 build from there about the sort of implications and the 0:25:14.200 --> 0:25:20.000 different of of a sort of a commodity driven economy. Yes, 0:25:20.200 --> 0:25:22.680 so so yeah, so maybe we should we should just 0:25:23.280 --> 0:25:25.680 start from the four prices of money and then let's 0:25:25.720 --> 0:25:28.800 do that build you know, kind of build out the 0:25:29.560 --> 0:25:33.920 the mirror image of all that in the physical world exactly. 0:25:34.320 --> 0:25:37.640 You know, the fourth prices, the price level, the price 0:25:37.760 --> 0:25:40.800 of commodities in money, and then the commodities. So what, 0:25:41.080 --> 0:25:45.960 what's what's the thing about commodity as well commodities? You know, 0:25:46.040 --> 0:25:49.000 the dirty thing about commodity is the ugly thing about 0:25:49.040 --> 0:25:51.960 commodity is that most of it is coming from the 0:25:52.040 --> 0:25:55.560 developing world, and most of it is being consumed by 0:25:56.080 --> 0:26:01.040 the developed world. Right then Russia and China, OPEC countries, 0:26:01.520 --> 0:26:06.400 you know, you know the deal, right, um. First, second, 0:26:06.880 --> 0:26:10.760 all these commodities, not only that you can't print them 0:26:11.200 --> 0:26:16.040 like money, but you need to move them around. You know, 0:26:16.119 --> 0:26:18.240 you need to ship them. Most of this is cboard. 0:26:18.480 --> 0:26:20.680 You know, you don't fight commodities to ship them, you know, 0:26:20.760 --> 0:26:24.320 wet cargo, dry cargo, much like in the world of money. 0:26:24.600 --> 0:26:27.360 You know, when we think about you know, when when 0:26:27.440 --> 0:26:30.320 we talked about you know, the token system and how 0:26:30.560 --> 0:26:33.520 reserves move around in the money markets. You always need 0:26:33.680 --> 0:26:37.880 balance sheets for some bank to borrow here and land 0:26:37.920 --> 0:26:40.960 there and harvest some funding spread. You know, funding report, 0:26:41.040 --> 0:26:45.359 landingfex wops make a spread. In the world of physical commodities, 0:26:45.480 --> 0:26:49.680 you know that balance sheet is basically a ship to 0:26:49.840 --> 0:26:52.879 load cargo in port A, you bring it to port B. 0:26:53.800 --> 0:26:56.639 You know, the cargo is not money, The cargo is 0:26:56.680 --> 0:27:01.600 a commodity. But you encumber capacity, you know, ship capacity 0:27:02.119 --> 0:27:04.760 to move stuff around. So so there is that. And 0:27:04.840 --> 0:27:08.440 then of course you know there's the par value of 0:27:08.520 --> 0:27:13.480 money equivalent in the physical world, which is protection. Protection, 0:27:13.600 --> 0:27:17.160 because you know, as as I've learned from Paul McCulley, 0:27:17.280 --> 0:27:20.639 you know, money is either a purely public or a 0:27:20.680 --> 0:27:24.360 public private partnership, which in English means banking doesn't work 0:27:24.480 --> 0:27:27.879 unless there is a cential bank, right because nobody can 0:27:27.960 --> 0:27:30.040 take their money out of a bank. All at the 0:27:30.080 --> 0:27:32.320 same time, you need someone who's going to do the 0:27:32.359 --> 0:27:37.440 protection if that happens. Similarly, when you move all these 0:27:37.760 --> 0:27:40.920 all these foreign cargo from the developing world to the 0:27:41.000 --> 0:27:45.480 developed world on ships, which are like balance sheets and 0:27:45.560 --> 0:27:47.960 are like kind of banks in the in the bank 0:27:48.000 --> 0:27:51.400 balance sheets in the real world, equivalence of phenomenal world 0:27:51.480 --> 0:27:55.440 of money protection in the case of commodities is about 0:27:55.600 --> 0:28:00.240 making sure that sea lanes are open, traits are open. 0:28:00.800 --> 0:28:03.080 You know, there's no pirates, you know, no one's blocking 0:28:03.200 --> 0:28:06.040 your the passage of your ships and that type of stuff. 0:28:06.119 --> 0:28:09.320 And that's also something that the state needs to be 0:28:09.600 --> 0:28:12.240 involved in because you know, the high seas have to 0:28:12.320 --> 0:28:15.440 be policsed. I mean, it's it's basic stuff. You know 0:28:15.560 --> 0:28:19.320 what the Navy is to shipping lanes. You know, that's 0:28:19.359 --> 0:28:22.120 exactly the same as the FED is to the promise 0:28:22.240 --> 0:28:26.679 of a par value. But back and you know Breton 0:28:26.720 --> 0:28:29.480 would stu as a concept was born when when China 0:28:29.560 --> 0:28:32.719 started to accumulate the fex reserves, but really it existed 0:28:33.880 --> 0:28:36.720 much earlier, ever since you know the seven to three 0:28:36.960 --> 0:28:39.960 oil price shock, where you know, you ship oil, you 0:28:40.080 --> 0:28:43.120 get dollars and then you be invested those dollars into treasuries. 0:28:43.200 --> 0:28:45.640 You know, China did the same, but they did goods 0:28:46.040 --> 0:28:48.880 and so that. But that's basically Breton would do. That's 0:28:48.960 --> 0:28:52.040 euro dollars, that's petrol dollars, that's that's all of that. 0:28:52.520 --> 0:28:56.400 And you know, we had a unipolar world where everything 0:28:56.480 --> 0:28:59.640 flows to the US and everything was paid for in 0:28:59.760 --> 0:29:03.360 dollars and all those dollars were recycled back into treasuries, 0:29:03.960 --> 0:29:06.640 and so now there's a break in history. And now 0:29:06.800 --> 0:29:09.960 we are learning that all the commodities, I mean not 0:29:10.080 --> 0:29:11.440 all of them, but a lot of them in the 0:29:11.480 --> 0:29:14.800 case of Russia, come from you know, Russia is the 0:29:14.880 --> 0:29:19.280 single largest commodity exporters experts in the world. Russia and Ukraine, 0:29:19.360 --> 0:29:21.280 you know, beat and all that that comes from that 0:29:21.680 --> 0:29:25.440 is it is a very important look when it comes 0:29:25.520 --> 0:29:29.920 to the supply of physical commodities and things are getting 0:29:29.960 --> 0:29:34.560 gumed up. Commodity doesn't come out of that region as easily. 0:29:35.000 --> 0:29:37.840 If it comes out of that region easily, you know, 0:29:38.040 --> 0:29:40.520 now they don't accept dollars as a form of payment. 0:29:40.600 --> 0:29:44.479 They want googles as a form of payment. If Europe 0:29:44.560 --> 0:29:47.320 doesn't take the raw material you know, crude oil and 0:29:47.400 --> 0:29:50.920 whatnot that comes out of Russia, Russia will have to 0:29:51.080 --> 0:29:55.320 reroute the shipment of those to the East China, which 0:29:55.440 --> 0:29:58.640 is going to buy cheap Russian stuff. But if you 0:29:58.720 --> 0:30:02.840 do that, then you basically have to revamp shipping lanes. 0:30:03.120 --> 0:30:05.360 You basically end up, as I talked about this in 0:30:05.440 --> 0:30:09.760 my piece yesterday, with a severe shortage of vessels capable 0:30:09.920 --> 0:30:14.280 of moving oil cargo on long distances. You know, it's 0:30:14.320 --> 0:30:18.560 a there's a big difference between shuttling Baltic crew from 0:30:18.760 --> 0:30:22.360 Premors to Hamburg then it is to ship it from 0:30:22.400 --> 0:30:25.560 the same port to the somewhere in Shanghai. Okay. So 0:30:25.760 --> 0:30:28.960 so you end up with shipping capacity issues. If China 0:30:29.120 --> 0:30:31.920 is now buying cheap Russian oil, then they're going to 0:30:31.960 --> 0:30:34.400 buy less Middle Eastern oil and then you know, all 0:30:34.440 --> 0:30:36.440 the Middle Eastern oil do now have to go to 0:30:36.600 --> 0:30:39.640 Europe because you know, Europe finds it acceptable to buy 0:30:39.640 --> 0:30:41.080 it from the Middle East. But then all of that 0:30:41.200 --> 0:30:43.680 goes through the Sues Canal. You know, do you have 0:30:43.800 --> 0:30:46.520 the right ship, you know to transport that oil. If 0:30:46.560 --> 0:30:50.840 it's a VLCC Tannker, then that cannot pass through the canal. 0:30:51.040 --> 0:30:53.680 So you know, it's going to take more time to 0:30:53.760 --> 0:30:57.680 ship stuff around. It's going to take more types of 0:30:57.880 --> 0:31:01.440 specific types of ships. There will the ship shortages as 0:31:01.480 --> 0:31:05.040 a direct analog to balance sheet shortages and GESP shortages 0:31:05.480 --> 0:31:09.280 in the financial world. You will have issues of Suez 0:31:09.720 --> 0:31:14.240 Egypt wheat oil. Egypt was a huge importer of wheat 0:31:14.440 --> 0:31:17.680 from Ukraine, for example, and as any country that doesn't 0:31:17.720 --> 0:31:19.680 have a lot of wheat stockpiles are going to have 0:31:19.760 --> 0:31:21.960 to pay up for for wheat on the world markets. 0:31:22.480 --> 0:31:24.800 How do you extract the pand of flesh from somewhere 0:31:24.840 --> 0:31:27.840 else so that you can pay for your wheat. If 0:31:27.920 --> 0:31:31.520 there's a food shortage, you can hike the transit fees 0:31:31.840 --> 0:31:34.520 through the Suez Canal. When just think about the enormity 0:31:34.680 --> 0:31:37.840 and the whole plumbing that underne the physical movement and 0:31:37.920 --> 0:31:42.440 trading of commodities is extremely complex, and in two thousand 0:31:42.520 --> 0:31:45.520 and eight, nobody really understood the plumbing because you didn't 0:31:45.600 --> 0:31:49.080 have to, because it worked fine until it didn't. Okay, 0:31:49.120 --> 0:31:51.400 And I think we are again thirty days into this war, 0:31:51.480 --> 0:31:55.240 and we are thirty days into figuring out how basically 0:31:55.400 --> 0:31:58.200 all these things that we used to do very efficiently 0:31:58.360 --> 0:32:00.920 are going to be in the future. And how the 0:32:01.200 --> 0:32:05.000 rerouting of these ships and you know, boycotting commodities from 0:32:05.080 --> 0:32:07.640 here and giving it to their how that's all going 0:32:07.720 --> 0:32:11.560 to play with with the level of prices. But but basically, 0:32:12.080 --> 0:32:15.440 you know, Bretton Woods Tree is about that, and not 0:32:15.560 --> 0:32:20.200 only about that, but also redrawing the terms in which 0:32:20.320 --> 0:32:24.760 we accept payments. Russia is now selling Googles, the Saudias 0:32:24.800 --> 0:32:28.600 are going to sell consider selling oil to China and 0:32:28.760 --> 0:32:31.520 and invoicing it in in R and B. The big 0:32:31.600 --> 0:32:35.200 point about that is that when we have the petrol 0:32:35.280 --> 0:32:37.480 dollar and the euro dollar is the dominant form of 0:32:37.560 --> 0:32:42.120 international money. You guys know, probably everybody from who listens knows, 0:32:43.080 --> 0:32:47.440 banks make loans and create deposits, right, That's how things 0:32:47.520 --> 0:32:53.280 get done. When Glencore brings commodities from Port A to 0:32:53.440 --> 0:32:56.600 Port B, you know, they go to JP Morgan to 0:32:56.760 --> 0:33:00.120 borrow money to leave the ship then and not or 0:33:00.200 --> 0:33:03.840 pile of money to fill up the ship, then another 0:33:03.960 --> 0:33:07.960 pile of money to pay margin as that cargo is 0:33:08.200 --> 0:33:10.720 in transit and you need to post margin on on futures. 0:33:11.120 --> 0:33:14.760 So when everything is priced in dollars, you know, you 0:33:14.880 --> 0:33:18.120 borrow dollars to move stuff around. The dollar deposits gets created, 0:33:18.680 --> 0:33:21.560 glen Cork gives it to the Saudiast, Saudis give it 0:33:21.640 --> 0:33:24.400 to Sama, and Sama shows up at a treasury auction. 0:33:25.040 --> 0:33:27.800 You have Euro dollars that are created through this whole 0:33:27.840 --> 0:33:32.000 process that will then get recycled into treasury. The US 0:33:32.080 --> 0:33:35.920 didn't really have to think about demand for treasuries for 0:33:36.000 --> 0:33:38.720 the past, I don't know, ever since nineteen seventy three 0:33:39.040 --> 0:33:42.320 because this was the game we played. So now, if 0:33:42.360 --> 0:33:44.840 all of a sudden somebody starts to price things in Google, 0:33:44.920 --> 0:33:47.240 somebody starts to price things in in R and B, 0:33:47.840 --> 0:33:50.520 the creation of euro dollars on the margin is going 0:33:50.560 --> 0:33:52.560 to change. I'm not saying it's going to go down, 0:33:52.640 --> 0:33:54.680 but the pace of it is definitely going to change. 0:33:55.480 --> 0:33:57.920 And again, the US Treasury needs to think about this 0:33:58.080 --> 0:34:00.959 because if you have less creative in the burial dollars, 0:34:01.480 --> 0:34:04.680 you will have to change the way you found your issuance. 0:34:05.000 --> 0:34:07.560 If the petrol dollar recycler is not going to show 0:34:07.640 --> 0:34:12.200 up at auctions, someone will have to the feb otherwise 0:34:12.920 --> 0:34:15.359 you have a failed auction. So I think these are 0:34:15.400 --> 0:34:18.520 all things that you know. This is Breton would feed 0:34:18.560 --> 0:34:23.040 basically right, and so this is not immediate, it's inevitable, 0:34:23.800 --> 0:34:27.200 but it started. You just touched on demand for treasuries there, 0:34:27.280 --> 0:34:31.240 and you touched on quantitative tightening earlier, and the idea 0:34:31.400 --> 0:34:34.960 that given everything that's happening in the world right now, 0:34:35.400 --> 0:34:39.040 you know, shipping is more expensive, commodities are more expensive, 0:34:39.880 --> 0:34:42.560 there's lower risk appetite, you need to conserve balance sheet 0:34:42.680 --> 0:34:45.400 things like that, that there's going to be higher demand 0:34:45.560 --> 0:34:49.480 for bank reserves from the banks. Should the FED be 0:34:49.640 --> 0:34:53.160 doing quantitative tightening at this moment in time? It seems 0:34:53.640 --> 0:34:58.919 it seems like the timing isn't exactly optimal. Yes, well, sure, sure, 0:34:59.040 --> 0:35:01.960 because there's a lot of X has liquidity in the system. 0:35:02.040 --> 0:35:05.560 And and just to be clear, the knee jerk response is, yes, 0:35:05.680 --> 0:35:08.520 we need higher rates, we need to hike uh and 0:35:08.640 --> 0:35:11.280 we need to shrink the balanty, which makes sense because 0:35:11.360 --> 0:35:13.120 you know, we blew up the balance sheet for the 0:35:13.200 --> 0:35:17.080 past decade and a half because inflation was persistently too 0:35:17.160 --> 0:35:19.360 low and we try to reflate, right, so now the 0:35:19.440 --> 0:35:23.040 inflation is hearing, it's deeflate. Fine. And also, you know, 0:35:23.200 --> 0:35:25.320 before the war, I mean I wrote a lot about 0:35:25.400 --> 0:35:27.560 so how is this QUT gonna play out? There's gonna 0:35:27.560 --> 0:35:31.200 be beautiful QUT and I'll be qut active cut or 0:35:31.239 --> 0:35:34.000 sus passive duty. And now you just need to do 0:35:34.040 --> 0:35:38.040 a warrant peace edition. Um. You know. Bretton Woods three 0:35:38.120 --> 0:35:41.600 messages this up for two reasons. Number one, as we 0:35:41.719 --> 0:35:45.160 mentioned before, the lowest level of the lowest comfortable level 0:35:45.200 --> 0:35:47.840 of reserve is going up, so banks need more reserves 0:35:47.960 --> 0:35:51.200 all else equal, which means that when you think about 0:35:51.280 --> 0:35:55.959 the marginal buyer of treasuries as qute progresses, I would 0:35:56.000 --> 0:35:58.759 say that in this quote unquote new world order that 0:35:58.920 --> 0:36:03.359 we are in, banks will have less appetite to buy 0:36:03.440 --> 0:36:08.120 treasuries for their portfolios trade reserves for treasuries than before 0:36:08.200 --> 0:36:14.000 the war, because credit needs from the commodity treating world, 0:36:14.239 --> 0:36:17.120 you know, and from everybody else ultimately, right, because everybody 0:36:17.160 --> 0:36:19.279 will have to pay more for for goods and trade 0:36:19.320 --> 0:36:22.600 tenents and and and all that is going up. So 0:36:22.719 --> 0:36:25.400 if they will buy less than you know, all this 0:36:25.560 --> 0:36:28.759 money that's in the reverse report facility is going to 0:36:30.080 --> 0:36:33.640 be more important, much earlier on in the QT process 0:36:34.760 --> 0:36:36.960 than before. And so there we have one and a 0:36:37.000 --> 0:36:41.040 half Chilli and others orself and so fine. But then again, 0:36:41.680 --> 0:36:44.440 the other thing about Breton Woods three is that, you know, 0:36:44.560 --> 0:36:47.880 we're just talking about the creation of less euro dollars 0:36:47.920 --> 0:36:51.880 on the margin, and who creates money in the system, 0:36:52.120 --> 0:36:56.040 the central bank and private banks, and the standoff between 0:36:56.719 --> 0:36:58.879 you know, the feed shrinks the balance, she takes money 0:36:58.920 --> 0:37:02.040 out of the system. That always needs to be understood 0:37:02.080 --> 0:37:05.160 in the context of how much lending and money creation 0:37:05.280 --> 0:37:07.359 is in the system, because that can take out money. 0:37:07.440 --> 0:37:10.640 But if there's more private deposits and more private money 0:37:10.680 --> 0:37:13.359 getting created through the banking system, you know, the two 0:37:13.400 --> 0:37:15.879 things can offset each other. But now we are saying, 0:37:16.080 --> 0:37:20.080 is the fet is gonna take pipitity out. The creation 0:37:20.160 --> 0:37:23.280 of euro dollars is going to slow on the margin, 0:37:23.920 --> 0:37:28.360 So the OPEC countries and whoever used to recycle eurodators 0:37:28.400 --> 0:37:30.560 and petrol daughters is not gonna do as much of that, 0:37:31.080 --> 0:37:34.480 And so that's an issue. Then another issue, this whole 0:37:34.600 --> 0:37:37.680 whole idea of Okay, well, you know you just froze 0:37:37.680 --> 0:37:40.920 half a trillion dollars of G seven inside money. So 0:37:41.120 --> 0:37:45.520 maybe it's time to diversify away from our existing holdings 0:37:45.560 --> 0:37:48.399 of US treasuries. So maybe some reserve management not only 0:37:48.480 --> 0:37:51.880 not going to buy and recycle less eurodators, but they 0:37:51.880 --> 0:37:55.360 are going to trim their exposure to US treasuries. And 0:37:55.560 --> 0:37:58.920 so you know, I I say all this because you know, 0:37:59.040 --> 0:38:01.960 if the banks don't buy and the FED doesn't buy, 0:38:02.440 --> 0:38:05.120 and there is less petrol dollar recycling, and there is 0:38:05.760 --> 0:38:10.800 diversification from existing holdings of FEX reserves, it inevitably means 0:38:10.920 --> 0:38:16.359 that those balances in the overnight reverse report facility will 0:38:16.480 --> 0:38:21.520 be soaked up pretty quickly through poor quality demands, but 0:38:21.680 --> 0:38:24.680 demand nonetheless, the guys that fund in the report market 0:38:24.719 --> 0:38:27.520 are basically dealers that are getting backed up with treasury 0:38:27.600 --> 0:38:31.480 inventory and the RV funds which are in it for 0:38:31.600 --> 0:38:34.200 a basis. I mean, it's all a level position along 0:38:34.280 --> 0:38:37.000 the bond short the future funding repo. That type of 0:38:37.080 --> 0:38:39.960 stuff not a pretty form of demand, but a form 0:38:40.040 --> 0:38:44.880 of demand nonetheless. But again, you know, you go from steady, sleepy, 0:38:45.040 --> 0:38:50.800 reliable buyers in the Middle East and China two fast 0:38:50.880 --> 0:38:53.840 money stuff that is levered. But it's going to be 0:38:53.920 --> 0:38:56.439 fine because we have the standing report facility. So even 0:38:56.480 --> 0:38:58.560 if you end up with the report deficit, you know, 0:38:59.320 --> 0:39:01.440 thank god the spending people to say that things there 0:39:01.480 --> 0:39:03.239 so you can just kind of seed is that. You know. 0:39:03.520 --> 0:39:06.920 Another legacy of reaten with speed will be that all 0:39:07.000 --> 0:39:09.040 this is going to be less international and it's gonna 0:39:09.040 --> 0:39:11.640 be more domestic. It's gonna be some domestic people funded 0:39:11.680 --> 0:39:14.040 antity that's going to fund this, not the rest of 0:39:14.080 --> 0:39:33.480 the world. Let's talk about the other currencies in the 0:39:33.640 --> 0:39:36.239 roles that they'll play. And so, as you mentioned, okay, 0:39:36.320 --> 0:39:39.840 Russia is going to be selling its commodity exports and 0:39:40.000 --> 0:39:44.000 oil and gas, or maybe uh Saudi Arabia starts selling 0:39:44.320 --> 0:39:46.960 invoicing in R and B for sales to China, and 0:39:47.040 --> 0:39:50.040 so then the question naturally emerges like, well, how significant 0:39:50.440 --> 0:39:53.000 is this? There's a lot of arguments against the role 0:39:53.040 --> 0:39:56.320 of these currencies, playing big rule of law questions and 0:39:56.440 --> 0:39:59.399 market depths and the degree to which the Chinese will 0:39:59.440 --> 0:40:02.680 ever open up it's capital account. So where do you 0:40:02.760 --> 0:40:05.720 see these going? Like, because this is what these headlines 0:40:05.760 --> 0:40:08.120 get everyone excited about. Cost oil might be sold in 0:40:08.200 --> 0:40:09.880 R and B, what does it mean? But there are 0:40:09.960 --> 0:40:13.319 some difficulties for these currencies to overcome to have any 0:40:13.360 --> 0:40:17.520 more significant. Sure, people are not born who they become, right, 0:40:17.640 --> 0:40:20.000 So you're born as a baby and then you know, 0:40:20.120 --> 0:40:22.560 you learn to walk and talk, and then we all 0:40:22.800 --> 0:40:26.080 end up doing something with alliance. Right, So again back 0:40:26.120 --> 0:40:28.800 to back to where we started from. After the Second 0:40:28.840 --> 0:40:32.160 World War, the U. S. Dollar was not what it 0:40:32.280 --> 0:40:37.279 is today. It became that no currency is born a 0:40:37.360 --> 0:40:40.600 reserve currency, it becomes it. Sterling was what it was, 0:40:40.680 --> 0:40:44.320 and then the dollar came, and then dollars became euro dollars. 0:40:44.960 --> 0:40:47.160 The R and B is what it is, and then 0:40:47.200 --> 0:40:51.960 it will become something else. All these were It's kind 0:40:51.960 --> 0:40:54.080 of funny and it makes more sense in the present. 0:40:54.360 --> 0:40:57.600 But you know, we allll obsessed about, you know, the 0:40:57.680 --> 0:41:01.160 internationalization of the R and B and a correspondent banking 0:41:01.239 --> 0:41:03.600 stuff and all the Hong Kong on shore on shore 0:41:03.719 --> 0:41:06.040 and the offshore and the volumes are not that big. 0:41:06.440 --> 0:41:09.680 All that stuff was the baby is born, the baby 0:41:09.800 --> 0:41:13.000 is learning to walk, the baby is walking. That's the plumbing, 0:41:13.120 --> 0:41:16.880 that's the basic stuff. And then there's a catalyst like 0:41:17.200 --> 0:41:20.640 the war that we're looking at now and the whole 0:41:20.680 --> 0:41:24.080 conversation we are having now, and then things will change. 0:41:24.160 --> 0:41:26.719 But then you basically have an infrastructure to build up 0:41:27.200 --> 0:41:30.239 and then things can go very fast. I also get 0:41:30.320 --> 0:41:35.200 it that China has a closed capital account and people 0:41:35.280 --> 0:41:37.680 like to have open capital accounts, But for Christ's sakes, 0:41:38.120 --> 0:41:41.840 what's the difference between an open capital account that exposed 0:41:41.880 --> 0:41:45.040 can be shots the case with the CBR, versus an 0:41:45.040 --> 0:41:47.919 accently closed capital account that you know that over time 0:41:48.000 --> 0:41:50.920 is going to open up. People also tend to forget 0:41:51.280 --> 0:41:54.440 when China became a part of the World Trading Organization 0:41:54.520 --> 0:41:57.680 and you know, it started to accumulate surpluses. I mean 0:41:57.880 --> 0:42:01.640 I was the surpluses were first accumulative bank opposits, and 0:42:01.680 --> 0:42:04.120 then the Chinese started to buy bills, and then they 0:42:04.160 --> 0:42:06.759 started to buy two year, five year tenure trunches. Then 0:42:06.760 --> 0:42:09.600 they board mortgages, then they funded C I C, and 0:42:09.640 --> 0:42:12.799 then they started to do private equities. Right big stick 0:42:12.880 --> 0:42:15.280 in in black Stone, I think right in two thousand 0:42:15.280 --> 0:42:19.080 and eight they bought. The point is surpluses accumulate, and 0:42:19.160 --> 0:42:22.840 it's more and more accumulates, you change the way you 0:42:22.920 --> 0:42:27.560 do things. If the dollar became the dollar to lend lease, 0:42:27.680 --> 0:42:30.040 you know, we lend you money and then you lease 0:42:30.400 --> 0:42:32.920 stuff from us. You know, maybe the Chinese are now 0:42:33.000 --> 0:42:35.040 going to lend you money, and then maybe you buy 0:42:35.080 --> 0:42:37.920 our our corn and wheat reserves or something like that. 0:42:38.040 --> 0:42:41.400 It doesn't matter. The more trade the rest of the 0:42:41.480 --> 0:42:44.640 world is invoicing the Chinese R and B, the rest 0:42:44.719 --> 0:42:47.239 of the world is going to accumulate R and B surpluses. 0:42:47.880 --> 0:42:52.880 Those surpluses initially will inevitably accumulate on Chinese banks balance sheets, 0:42:53.280 --> 0:42:55.320 and then the Chinese banks get to a point that 0:42:56.000 --> 0:42:57.719 we just don't want to have all these surplus and 0:42:57.760 --> 0:43:00.320 our balance sheet because it's using too much capacities. State, 0:43:00.920 --> 0:43:03.919 please take it off our books. The state will start 0:43:04.000 --> 0:43:06.920 issuing debt to take all that liquity surplus off the 0:43:06.960 --> 0:43:09.719 balance sheet to the Chinese banks. And then as the 0:43:09.760 --> 0:43:11.640 rest of the world accumulates more, you know, and it's 0:43:11.640 --> 0:43:14.800 going to start with central bank bills again held by foreigners, 0:43:15.320 --> 0:43:17.600 and then you know, the foreigners they accumulate more, they 0:43:17.640 --> 0:43:20.279 would have more and more long term and so that's 0:43:20.280 --> 0:43:22.200 going to be the birth and the development of the 0:43:22.520 --> 0:43:25.600 of the debt securities market in China. I mean, all 0:43:25.640 --> 0:43:28.000 this stuff is a step by step process. Again, just 0:43:28.200 --> 0:43:30.239 as a child is born and learns to walk and 0:43:30.320 --> 0:43:33.520 talk and does other things in in life. So I 0:43:33.560 --> 0:43:35.920 think this is going to be a path. This is 0:43:36.600 --> 0:43:41.239 I think inevitable. I think it started already. The infrastructure 0:43:41.320 --> 0:43:43.120 for it has already been built, and I think this 0:43:43.280 --> 0:43:45.320 is going to pick up from here going forward. On 0:43:45.480 --> 0:43:50.040 the topic of alternate currencies, this is something that came 0:43:50.160 --> 0:43:53.279 up in one of your previous research items where you 0:43:53.360 --> 0:43:56.719 were talking about the possibility of people holding reserves in 0:43:56.800 --> 0:44:00.920 something other than dollars, and you mentioned bitcoin, but it 0:44:01.120 --> 0:44:04.359 had this big caveat around it, which was you put 0:44:04.400 --> 0:44:08.400 in parentheses if bitcoins still exists by then, what do 0:44:08.440 --> 0:44:11.480 you see as bitcoin's um utility here? If any? Joe 0:44:11.600 --> 0:44:15.480 sparked the kind of bilateral conversation on that too via email, 0:44:15.520 --> 0:44:17.919 which which was which was interesting. And by the way, Joe, 0:44:18.640 --> 0:44:22.120 my capslock got stuck. So whatever you said in your 0:44:22.239 --> 0:44:25.400 article is capitalized. It was not intentional. I thought you 0:44:25.440 --> 0:44:27.920 were very excited. No, no, no, I don't know. I 0:44:28.040 --> 0:44:32.240 was like, oh, there is extremely excited. It is beautiful. 0:44:32.520 --> 0:44:34.960 It's a sovereign has to be involved with the question 0:44:35.040 --> 0:44:38.560 of money, and bitcoin is basically short the sovereign. You know, 0:44:38.640 --> 0:44:41.440 bitcoin to short the sovereign, which is precisely which is 0:44:41.480 --> 0:44:45.239 precisely why you can't have bitcoin in China, because you 0:44:45.280 --> 0:44:48.240 can't be short the sovereign. In China. There's no outlet 0:44:48.320 --> 0:44:51.800 for political frustrations. It's one party. Not not to be 0:44:52.400 --> 0:44:55.200 facetious or anything here, but I mean, if we are 0:44:55.280 --> 0:45:00.040 talking about commodity shortages and energy shortages, and if it 0:45:00.160 --> 0:45:04.080 takes a tremendous amount of energy to mind the marginal bitcoin, 0:45:04.320 --> 0:45:07.120 I mean that just makes no sense. You mean energy 0:45:07.239 --> 0:45:11.719 is any your energy, energy is going to be wasted 0:45:12.040 --> 0:45:17.120 on mining something that. Yeah, so the question is why 0:45:17.160 --> 0:45:23.920 would governments who are already facing commodity shortages continue to 0:45:24.120 --> 0:45:27.560 allow for the energy intensive mining of the thing the 0:45:27.600 --> 0:45:31.120 short the sovereign. Yes, I mean if you are releasing 0:45:31.280 --> 0:45:34.560 record amends from strategic patrollum reserve and like, I don't know, 0:45:34.680 --> 0:45:36.600 we need you see what I mean? So it's like 0:45:36.960 --> 0:45:39.920 if all the strategic patrolum reserves are empty, well, and 0:45:40.040 --> 0:45:42.760 then you know people are using corn to make ethanol 0:45:43.000 --> 0:45:45.440 and then people are hungry, and like you're burning ethanol 0:45:45.480 --> 0:45:48.560 to mind bitcoin or something that makes no sense. But 0:45:49.160 --> 0:45:52.480 that's one and the other thing, the whole central bank 0:45:52.520 --> 0:45:55.399 digital currency. How does that fit into this? I think 0:45:55.640 --> 0:45:59.520 Breton Woodstreet is not about that, because we are talking 0:45:59.600 --> 0:46:06.040 about rethinking reserve assets. This is fex reserves, which is 0:46:06.120 --> 0:46:11.400 a nominal pile of wealth versus commodity reserves, real versus nominal. 0:46:11.760 --> 0:46:15.360 The center bank digital currency is a liability side question 0:46:15.440 --> 0:46:18.759 for central banks, like what technology do I use to 0:46:18.880 --> 0:46:22.960 distribute my liability? This is like landlines versus cell phones, 0:46:23.080 --> 0:46:25.800 or you stream your movies, or you slept to a 0:46:25.880 --> 0:46:28.239 video store and get a v statement, stick it into 0:46:28.280 --> 0:46:31.640 a machine to watch it. That's that Breton Woods three 0:46:32.280 --> 0:46:35.600 is about how do you invoice stuff? How do you 0:46:35.719 --> 0:46:38.359 get stuff from a poort A to word B. Once 0:46:38.440 --> 0:46:42.040 you get paid, what do you choose as your optimal reserve? 0:46:42.200 --> 0:46:44.080 Is it a real asset? Is that a nominal asset 0:46:44.400 --> 0:46:47.040 that type of stuff. You know, listening to this conversation, 0:46:47.360 --> 0:46:51.760 it does not necessarily strike me as a negative environment 0:46:51.960 --> 0:46:54.920 for the US, especially vius of the other rich countries, 0:46:55.000 --> 0:46:57.920 because okay, maybe the dollar doesn't have the same status. 0:46:58.280 --> 0:47:03.480 On the other hand, unlike other rich countries, tremendous ability, 0:47:03.560 --> 0:47:06.399 at least in theory, to produce oil, tons of natural gas, 0:47:06.600 --> 0:47:09.600 tons of open space for wheat, corn, and soy metals, 0:47:09.760 --> 0:47:13.160 if we want to mind them. We have rare Earth's here. Uh, 0:47:13.320 --> 0:47:15.200 you know, some of the more advanced tech. It's sort 0:47:15.200 --> 0:47:18.160 of a political choice when we're going. It doesn't necessarily 0:47:18.280 --> 0:47:21.080 seem like in a world in which and of course 0:47:21.120 --> 0:47:23.560 our military and so that to the degree that the 0:47:23.680 --> 0:47:26.080 military is the price of shipping or the price of 0:47:26.160 --> 0:47:28.839 protection for a lot of shipping lines. Obviously, the US 0:47:28.880 --> 0:47:30.719 far and away still the strongest military in the world. 0:47:31.160 --> 0:47:34.520 It seems like even in a new regime, the US 0:47:34.560 --> 0:47:38.879 has tremendous Milton advantages and stores of wealth. So yes, 0:47:38.960 --> 0:47:45.600 when you think about let's say three regions, you know, US, Europe, Asia, China, Eurasia. 0:47:45.880 --> 0:47:49.720 Again conceptually very high level. The country that's buying stuff 0:47:49.800 --> 0:47:53.319 on sale cheaply stocking up is going to be China, 0:47:53.520 --> 0:47:57.000 right because that's where all the Russian commodities you're going 0:47:57.040 --> 0:48:02.440 to go. That's just the country that can fill some 0:48:02.680 --> 0:48:05.600 of the you know, you can freck your way out 0:48:05.640 --> 0:48:08.680 of this or throw your wheat out of this. US 0:48:08.800 --> 0:48:11.840 is fine. I think Europe is in a very delicate 0:48:11.880 --> 0:48:16.560 position because this is basically you know, between Russia and Europe, 0:48:16.640 --> 0:48:20.360 and you know, the German reliance in Russian fossil fuels 0:48:20.400 --> 0:48:23.080 and and so yes, you know, I think this is 0:48:23.480 --> 0:48:26.919 you know Bretton Woods three. I think is is also 0:48:27.000 --> 0:48:31.680 a world where the East certainly has some i don't know, 0:48:31.760 --> 0:48:35.279 quote unquote renaissance and it has it better and inflation 0:48:35.560 --> 0:48:40.200 is less of a problem there. The West has quote 0:48:40.239 --> 0:48:43.440 unquote some relative decline. It's not going to go down 0:48:43.480 --> 0:48:47.000 the tubes. But you know, this is a multipolar world, 0:48:47.080 --> 0:48:49.960 which is not meant to be you know, status quo. 0:48:50.160 --> 0:48:53.800 But you know, someone rises, someone declines, but still too dominant. 0:48:54.040 --> 0:48:56.840 Inflation is probably more of a problem in the West, 0:48:57.520 --> 0:49:00.560 and then I think Europe is very much in the middle. 0:49:00.719 --> 0:49:03.800 So now when we think about this medium term, what 0:49:03.960 --> 0:49:07.920 it means for commodities and inflation and who wins who loses. 0:49:08.200 --> 0:49:10.239 Some of the themes that come out of this is 0:49:10.760 --> 0:49:14.640 Learry think is right. For rather, it's probably more informed 0:49:14.719 --> 0:49:16.840 than all of us on this forum. I do agree 0:49:16.920 --> 0:49:19.800 that globalization as we know it is probably over. So 0:49:20.239 --> 0:49:21.879 what are some of the things that are coming out 0:49:21.960 --> 0:49:26.640 of that? And and some of this conversation resource nationalism 0:49:27.680 --> 0:49:30.960 is a part of Breton Woods three. More military spending, 0:49:31.120 --> 0:49:34.200 you know Europe for sure, in the US least sea lanes, 0:49:34.280 --> 0:49:37.920 but not is definitely coming out of this. Stockpiling of 0:49:38.040 --> 0:49:42.480 commodities definitely coming out of this. Rethinking supply chains is 0:49:42.520 --> 0:49:45.480 definitely coming out of this. Breton Woods two was about 0:49:46.000 --> 0:49:50.120 a singular supply chain, Fox com making everything and breton 0:49:50.160 --> 0:49:53.239 Woods three. If all that world orders torn up and 0:49:53.360 --> 0:49:56.120 we have to duplicate production facilities and supply chains and 0:49:56.120 --> 0:49:58.600 always that, we need to provide a lot of investment 0:49:58.680 --> 0:50:01.600 and capital into that. So you know, not to mention 0:50:01.640 --> 0:50:04.000 all the E S G and cutting, uh, you know, 0:50:04.080 --> 0:50:07.720 the investments related to that. I think the investment needs 0:50:08.719 --> 0:50:13.239 for for the world that threatened what's three reflect is 0:50:13.280 --> 0:50:17.120 going to need more commodities, It's going to need more capital. 0:50:18.000 --> 0:50:20.880 And so you know, the West I think has things 0:50:21.000 --> 0:50:24.400 to worry about because you know, we are basically talking 0:50:24.440 --> 0:50:28.360 about opping investment in the West at the expense of consumption, 0:50:29.040 --> 0:50:32.080 which is exactly a mirror image of the problem China has, 0:50:32.160 --> 0:50:35.520 which is they had too much investment and too little consumption. 0:50:36.560 --> 0:50:39.040 Like even kicking it even higher in the higher get 0:50:39.080 --> 0:50:42.560 the whole conversation. I think China needs a stronger exchange 0:50:42.640 --> 0:50:45.600 rate and the US needs to reaper exchange rate kind 0:50:45.640 --> 0:50:49.920 of more consumption, less investment there, more investment, less consumption. 0:50:50.040 --> 0:50:53.120 Here the types of investment that we are talking about, 0:50:53.800 --> 0:50:56.640 our investments that are going to be driven by the 0:50:56.760 --> 0:51:01.760 States and by corporations as they any things there exist. Sultan, 0:51:01.880 --> 0:51:04.080 I feel like we could talk about this for hours. 0:51:04.160 --> 0:51:07.040 Big so much for coming back on Fantastic. Yeah, that 0:51:07.120 --> 0:51:21.600 was really good. Thank you very much. Guys. It's always 0:51:21.600 --> 0:51:24.400 great having Sultan on the show. And one of the 0:51:24.480 --> 0:51:26.360 things that came out of that is, I mean, I 0:51:26.440 --> 0:51:28.759 really think the sort of summary of all of it 0:51:28.880 --> 0:51:32.000 is that if you're interested in interest rates and the economy, 0:51:32.320 --> 0:51:35.000 you know, say you're a short term interest rate strategist 0:51:35.080 --> 0:51:37.719 or sturred trader or whatever, you're gonna have to start 0:51:37.760 --> 0:51:40.800 paying attention to shipping and commodities and all the micro 0:51:41.000 --> 0:51:43.640 in order to do the macro. You know what, I 0:51:43.719 --> 0:51:46.600 thought that was one of the best conversations ever to think. 0:51:46.800 --> 0:51:48.960 You know, people always talk about turning points, right, Oh, 0:51:49.040 --> 0:51:51.880 it's a deflection points, the turning point post dollar. It's 0:51:51.960 --> 0:51:53.600 you know, we've been talking about for years. I thought 0:51:53.640 --> 0:51:55.520 that was one of the best conversations I've ever heard 0:51:55.600 --> 0:51:57.759 that actually put some like meat on the bone, so 0:51:57.880 --> 0:52:01.440 to speak of what that looks like. Thinking about what 0:52:01.680 --> 0:52:07.080 are the price equivalents when it comes to commodities, storage protection, uh, 0:52:07.200 --> 0:52:10.400 the equivalent of maintaining par and then what are the 0:52:10.560 --> 0:52:13.719 institutions that have to build up around that to sort 0:52:13.760 --> 0:52:17.040 of recreate a more commodity centric world economy is like 0:52:17.360 --> 0:52:21.120 extremely extremely interesting, right, and then just underscoring in what 0:52:21.239 --> 0:52:23.839 a poor position a lot of the central banks are 0:52:24.160 --> 0:52:27.520 in order to do this, because under Sultan's framework, you know, 0:52:27.640 --> 0:52:32.400 this idea of you have the sort of nominal monetary stuff, 0:52:32.600 --> 0:52:35.960 things like price levels, and par and interests or the 0:52:36.040 --> 0:52:39.360 future value of money, stuff like that. But the problem 0:52:39.480 --> 0:52:42.319 is emanating from the real which, of course central banks 0:52:42.480 --> 0:52:46.439 don't really have any control over. Right. We can hope, okay, 0:52:46.480 --> 0:52:49.200 if we slow things down a little bit, tap the brakes, 0:52:49.280 --> 0:52:51.520 maybe things are okay and we get some easing in 0:52:51.600 --> 0:52:53.560 the price of world. But everybody knows it. I mean, 0:52:53.640 --> 0:52:56.000 everybody knows that the issues that are arising right now, 0:52:56.040 --> 0:52:57.959 at least some of them, like particularly on the food 0:52:58.000 --> 0:53:02.160 and energy side, are pretty far from like something that 0:53:02.680 --> 0:53:05.759 the FED, any central bank, let alone even the FED 0:53:06.120 --> 0:53:09.680 can handle. Yeah, and all. The other point he made 0:53:09.880 --> 0:53:12.239 is that the last time the FED really had to 0:53:12.360 --> 0:53:16.080 fight inflation um, which would have been with vulcer in 0:53:16.160 --> 0:53:18.480 the sort of late seven days early nineteen eighties, that 0:53:18.600 --> 0:53:21.279 it was such a different world than and a lot 0:53:21.360 --> 0:53:23.760 of the problems were sort of emanating from a space 0:53:23.840 --> 0:53:26.120 where the central bank could have an impact, and it 0:53:26.280 --> 0:53:29.160 was doing it in a sort of maybe not totally 0:53:29.280 --> 0:53:33.919 unilateral world, but a more cohesive West certainly, and people 0:53:33.960 --> 0:53:36.680 could sort of follow on follow suit, And now that 0:53:37.040 --> 0:53:40.600 might not be as possible. And I'm just trying. I 0:53:40.719 --> 0:53:44.000 love this the analogy. So it's like what is the 0:53:44.120 --> 0:53:47.680 commodity equivalent of balance sheet space? And you talked about 0:53:47.719 --> 0:53:51.359 like space on ship shipping. It's so interesting, like try 0:53:51.520 --> 0:53:53.680 It's like, I find it to be a very useful 0:53:53.800 --> 0:53:57.600 exercise to think about these different things like interest rates 0:53:57.640 --> 0:54:00.200 and obviously curves or that's the equivalent of the old 0:54:00.239 --> 0:54:03.400 curve and obviously like a commodities futures curve. Things like that. 0:54:04.040 --> 0:54:06.400 It's a very useful thought exercise to think about how 0:54:06.520 --> 0:54:09.320 strange might emerge and how government policies might have to 0:54:09.400 --> 0:54:12.080 be different in this in this new world. And poker 0:54:12.200 --> 0:54:16.799 chips as poker chip tokens synthetic dollars still peg one 0:54:16.840 --> 0:54:20.200 to one against the dollar at this point. Excellent, All right, 0:54:20.200 --> 0:54:22.719 shall we leave it there? Let's leave it there. This 0:54:22.840 --> 0:54:25.520 has been another episode of the All Thoughts podcast. I'm 0:54:25.560 --> 0:54:28.240 Tracy Alloway. You can follow me on Twitter at Tracy 0:54:28.320 --> 0:54:31.120 Alloway and I'm Joe Why Isn't Though? You can follow 0:54:31.200 --> 0:54:34.200 me on Twitter at the Stalwart Big Thanks to our 0:54:34.400 --> 0:54:38.680 producers Magnus Hendrickson and Colin Tipton. Followed the Bloomberg head 0:54:38.680 --> 0:54:42.239 of podcast Francesca. Leave at Francesca Today and check out 0:54:42.280 --> 0:54:45.919 all of our podcasts under the handle at podcasts. Thanks 0:54:45.960 --> 0:54:50.000 for listening. Hey, there are all thoughts listeners. We are 0:54:50.400 --> 0:54:52.960 very happy to let you know that we've been nominated 0:54:53.120 --> 0:54:57.000 for a Webby Award. Yeah I'm not you know, Tracy, 0:54:57.280 --> 0:54:59.759 I'm not normally like a big awards person, but now 0:55:00.000 --> 0:55:02.440 it were nominated for one. I'm really excited. You really 0:55:02.480 --> 0:55:04.799 wanted Yeah, I kind of really want to win. Okay, Well, 0:55:04.920 --> 0:55:07.480 on that note, we would very much appreciate if you 0:55:07.560 --> 0:55:09.759 can take two minutes of your time and head over 0:55:09.920 --> 0:55:15.000 to vote dot Webby Awards dot com and vote for us. 0:55:15.120 --> 0:55:19.239 You'll find us nominated in the business podcast category. Yeah, 0:55:19.480 --> 0:55:23.880 very competitive business podcast category. Were one of five nominees, 0:55:23.960 --> 0:55:26.399 So if you so choose, if you like, if you're 0:55:26.400 --> 0:55:28.359 a fan of onlocks, if you want to help us 0:55:28.560 --> 0:55:31.440 raise our profile a little bit, please go check out 0:55:31.520 --> 0:55:33.879 the Webby nominees in book. Thanks very much,