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Speaker 1: What's up, everybody. Welcome to financial heresy, where we talk

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Speaker 1: about how money works so that you can make more,

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Speaker 1: keep more, and give more. Today we are talking about

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Speaker 1: the euro dollar. This is something that many of you

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Speaker 1: may have heard of before. Many of you have commented

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Speaker 1: and talk to me about the eurodollar before. Usually whenever

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Speaker 1: I'm like on my YouTube channel, when I'm making videos

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Speaker 1: about the money supply or inflation, or interest rates or debt,

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Speaker 1: at least a few people will will make a comment

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Speaker 1: about how what happens in the US is dwarfed by

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Speaker 1: the eurodollar system. And so I want to take this

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Speaker 1: opportunity to spend the next thirty forty five minutes discussing

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Speaker 1: exactly what the eurodollar is, how it works, and why

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Speaker 1: most of those comments are are are fairly correct, because

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Speaker 1: it does present a lot of risk to the global

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Speaker 1: financial system, and it's just kind of a matter of

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Speaker 1: time whether or not it we realize that risk. And

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Speaker 1: as the world tightens, as you'll see this kind of

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Speaker 1: risk them the build up of debt as a result

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Speaker 1: of the euro dollar system. Um it becomes more and

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Speaker 1: more risky as interest rates move up and as dollars

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Speaker 1: in domestic US dollars become more scarce. So the eurodollar,

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Speaker 1: just to start, is just so you know, a really

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Speaker 1: really terrible name for it. They're not it doesn't have

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Speaker 1: anything to do with heroes. Um, it's not even European

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Speaker 1: and they're not real dollars, and so the eurodollar is

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Speaker 1: the name for it. But really just so you have

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Speaker 1: a baseline understanding before we move into the history. When

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Speaker 1: you hear eurodollars, think global or foreign dollar IOUs. So

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Speaker 1: they're dollar IOUs outside of the United States. So we

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Speaker 1: need to go back to the origin, back in nineteen

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Speaker 1: forty four. Nineteen forty four is a year many of

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Speaker 1: you probably recognize. That is the year that Breton Woods

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Speaker 1: Agreement happened. So prior to this, most countries were on

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Speaker 1: their own gold standard. So you had you had individual

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Speaker 1: countries that would trade paper currency inside their own borders,

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Speaker 1: and then that paper currency was either backed up by

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Speaker 1: or redeemable for gold held at its own central bank. Now,

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Speaker 1: World War Two happened, as everybody knows, during World War Two,

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Speaker 1: the countries around Europe, around the world spent all their money,

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Speaker 1: they drained their gold reserves to fight the war, and

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Speaker 1: so at the end of the war, there was no

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Speaker 1: gold left around Europe. One of the huge beneficiaries of

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Speaker 1: this war though, was the United States. That's where a

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Speaker 1: lot of the gold went was to the United States

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Speaker 1: to buy stuff from the United States to continue to

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Speaker 1: fight the war. So the United States had like most

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Speaker 1: of the world's gold at the end of World War Two.

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Speaker 1: So the Brenton Woods Agreement, all the countries got together

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Speaker 1: and they said, look, we don't have any gold left,

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Speaker 1: so we could start over from scratch with a sound,

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Speaker 1: sound money and just try and you work really hard,

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Speaker 1: sacrifice and slowly get back to the point where we

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Speaker 1: have golds serves again. And that would have been the

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Speaker 1: painful but the stronger position moving forward. They did not

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Speaker 1: do that. Brenton Woods Agreement happened. That meant all of

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Speaker 1: the countries came together and they decided, you know what,

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Speaker 1: we're just going to still have a paper currency, and

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Speaker 1: instead of redeeming it for gold or having it backed

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Speaker 1: by gold at our own central bank, we're going to

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Speaker 1: have our paper currencies backed by US dollars. And then

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Speaker 1: the US dollars were still at that point redeemable for gold,

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Speaker 1: not by Americans, like if you were an American citizen.

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Speaker 1: At that time, you couldn't turn in your dollar for gold,

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Speaker 1: but if you were a large institution, if you're a

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Speaker 1: central bank around the world, then you could. And so

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Speaker 1: the gold exchange standard was born, and countries around the

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Speaker 1: world pegged their currencies to the dollar, and so the

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Speaker 1: central banks held US dollars instead of gold, and the

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Speaker 1: understanding was at any point those dollars could be redeemed

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Speaker 1: for gold, and sometimes central banks did choose to redeem

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Speaker 1: those for gold. Most of the time they didn't. They

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Speaker 1: just held on to the dollars because they were as

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Speaker 1: good as gold. So this led to dollars starting to

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Speaker 1: be exported around the world. As the United States started

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Speaker 1: to spend money to import stuff from around the world.

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Speaker 1: The rest of the world wanted dollars because that was

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Speaker 1: the international trade currency, and so when they sold stuff,

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Speaker 1: they would accept payment in dollars because they knew then

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Speaker 1: they could take those dollars and use them as payment

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Speaker 1: to buy stuff from other countries that they wanted to import.

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Speaker 1: And so the dollar became the international trading currency that

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Speaker 1: all countries wanted to use because everybody had back to

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Speaker 1: their own currency by gold, and it was good for

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Speaker 1: payment in other countries for their exports and their imports,

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Speaker 1: so dollars started getting exported. At this point, the you know,

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Speaker 1: the system worked fine, but this is like, this is

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Speaker 1: a game that relies on trust. If you think about

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Speaker 1: like the original gold reserve banks, where people had their

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Speaker 1: own gold, they would give it to a local bank.

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Speaker 1: They would get a paper receipt and then you know,

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Speaker 1: they would spend that paper for money while the bank

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Speaker 1: held onto their gold for them, and if they needed

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Speaker 1: to get their money back, they just go turn that

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Speaker 1: paper in they would get their gold. If too many

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Speaker 1: receipts were printed like that, bank started making loans and

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Speaker 1: people thought, you know what, there's more money circulating around

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Speaker 1: than there is gold to back it up. There would

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Speaker 1: be a bank run. People go get their gold. And

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Speaker 1: so that's exactly what the United States started to do.

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Speaker 1: They were a central bank for the entire world. They

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Speaker 1: held all the gold for the entire world, and they

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Speaker 1: issued too many claims on those gold. On that goal,

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Speaker 1: they issued too many dollars. So they started overprinting dollars

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Speaker 1: and buying stuff from around the world. And at first

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Speaker 1: the rest of the world is like great, you know,

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Speaker 1: I get more dollars. That means I can use those

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Speaker 1: dollars to spend those dollars on more stuff. And it

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Speaker 1: felt to the rest of the world like they were

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Speaker 1: getting richer. And then slowly country started to realize there's

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Speaker 1: a lot more dollars out here, then there's gold in

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Speaker 1: America to back it up. And so in the late sixties,

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Speaker 1: central banks around the world started redeeming their dollars for gold.

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Speaker 1: They started sending the dollars back to the United States

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Speaker 1: and getting gold for that, and started purchasing purchasing gold

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Speaker 1: with dollars because they're like, look, there's a lot more

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Speaker 1: dollars out here, so that means the value of the

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Speaker 1: dollar is going to go down once this thing breaks.

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Speaker 1: And I want to have gold because that means the

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Speaker 1: value of gold is going to go up once this

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Speaker 1: thing breaks. And so they wanted to be first in line,

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Speaker 1: not last, because then they wouldn't get any gold. And

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Speaker 1: that's exactly what happened. Everybody started redeeming their dollars. There

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Speaker 1: wasn't enough gold. We were two weeks away from running

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Speaker 1: out of gold, and so Nixon thought, you know what,

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Speaker 1: this gold run is gonna This bank run is going

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Speaker 1: to continue until the gold is gone. And so we're

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Speaker 1: either going to end the gold standard in two weeks

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Speaker 1: when we run out of old or we're going to

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Speaker 1: end the gold standard today while we still have some

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Speaker 1: gold left. So he decided, hey, we're gonna end the

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Speaker 1: gold standard. We are going to just tell everybody know,

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Speaker 1: we're not going to give you your gold. And at

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Speaker 1: that point, the dollar was entrenched everybody. The systems were

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Speaker 1: in place, the infrastructure was in place, the dollar was

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Speaker 1: already cemented as the global reserve currency. So yes, the

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Speaker 1: value of the dollar did drop from there. The value

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Speaker 1: of gold did spike from there, but the dollar chugged

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Speaker 1: along and was still being used as as the global

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Speaker 1: international trading currency. And after that, you know, decade of

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Speaker 1: the seventies, after the dollar kind of stabilized and you know,

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Speaker 1: everybody you know kept on using the dollar. Well, the

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Speaker 1: United States kind of was able to go back to

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Speaker 1: what they were doing before. We just printed, you know,

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Speaker 1: a few extra dollars. We expanded our money supply, and

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Speaker 1: if you look at something called a trade deficit or surplus,

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Speaker 1: we've run trade deficits for the most part for decades,

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Speaker 1: and that just means we buy more stuff from other

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Speaker 1: countries than they buy from US. So we are creating

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Speaker 1: more dollars and sending them overseas, and those dollars then

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Speaker 1: are in circulation in other countries. So who has the

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Speaker 1: power to make actual dollars. It is just the Federal Reserve.

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Speaker 1: And so banks in the United States are able to

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Speaker 1: do this underneath the governance of the Federal Reserve. And

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Speaker 1: so we see in the United States all the metrics.

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Speaker 1: We see the money supply M zero, M one, M two,

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Speaker 1: M three, We see bank reserves, we see bank collateral,

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Speaker 1: we see the reserve requirements, we see the federals balance sheet.

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Speaker 1: So everything underneath the Fed there's data on it. And

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Speaker 1: ever since the financial crisis, the Federal Reserve has tools

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Speaker 1: and precedents for being able to say, hey, look if

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Speaker 1: banks make too many loans and they buy too many

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Speaker 1: bad assets, we can come in and we can rescue

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Speaker 1: the system. We can bail them out like happened in

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Speaker 1: the financial crisis. And so everything in the United States

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Speaker 1: has fairly contained since the financial crisis. The main thing

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Speaker 1: that they have to worry about is bailing things out

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Speaker 1: too much to the extent that they cause inflation, which

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Speaker 1: is what we're dealing with right now, but we're getting

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Speaker 1: just a tadbit tadbit ahead of ourselves right now. So

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Speaker 1: the question then is how much money is there in circulation?

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Speaker 1: This is actually a question that is impossible to calculate. Yes,

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Speaker 1: we can calculate how much money there is in circulation

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Speaker 1: in the United States because the FED collects all the

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Speaker 1: data on all of the dollar accounts in the United

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Speaker 1: States and so it has that data. But that's not

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Speaker 1: the taste around the world. So here and everywhere there's

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Speaker 1: this process called rehypothecation. That's very important to understand. How

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Speaker 1: what rehypothecation is. It's a stupid word. Basically just means

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Speaker 1: when one thing gets loaned out over and over and

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Speaker 1: over again. So you go and you have you've got

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Speaker 1: physical cash. Let's say you've got physical cash that you

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Speaker 1: had under your mattress, and you go deposit it at

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Speaker 1: you at your bank and it's you know, a thousand dollars,

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Speaker 1: So you deposit that in your bank. Now that bank

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Speaker 1: has a liability because they owe you that thousand dollars back,

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Speaker 1: and so what they want to do is they want

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Speaker 1: to create an asset to offset that. And for a

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Speaker 1: bank and asset is going to be a loan. So

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Speaker 1: they have a thousand dollars that they owe you. So

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Speaker 1: they issue somebody a credit card, a new college student,

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Speaker 1: let's say, and they give that college student a credit

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Speaker 1: limit of ten thousand dollars. When that college student goes

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Speaker 1: and swipes that credit card and spends you know, two

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Speaker 1: thousand dollars, those dollars are being loaned into existence. And

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Speaker 1: the bank can do that comfortably. They say, okay, we'll

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Speaker 1: give you two thousand dollars, college student. And part of

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Speaker 1: that comes from the you know, the thousand dollars that you,

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Speaker 1: as a depositor gave to the bank. So they're able

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Speaker 1: to loan out more than what they have on deposit.

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Speaker 1: This is called their reserve requirement. Well, what that college

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Speaker 1: student did with that two thousand dollars was they were

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Speaker 1: let's say they were gambling, and they did a little

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Speaker 1: cash advance at the casino. And because they don't understand

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Speaker 1: compounding interests, so they did a little cash advance at

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Speaker 1: the casino, pulled out some cash, played some blackjack, and

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Speaker 1: they turned that you know, two thousand dollars into let's

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Speaker 1: say one thousand dollars. They're not very good at gambling.

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Speaker 1: And then they take that thousand dollars and they throw

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Speaker 1: that in their bank account because they don't want to

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Speaker 1: lose anymore because they know at the end of the

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Speaker 1: month they're going to have to pay this bill off. Well,

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Speaker 1: that thousand dollars just got deposited in somebody's bank account,

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Speaker 1: in their bank account at a bank. Well, that new

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Speaker 1: bank then takes that and reloans that out to somebody

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Speaker 1: else in the form of a car loan. And then

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Speaker 1: that car loan, that car that's purchased, is money that

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Speaker 1: went into the bank account of the auto dealership, and

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Speaker 1: then that money goes into the bank account of the salesman,

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Speaker 1: and then the salesman deposits that money in his bank account,

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Speaker 1: and then the bank uses that money to loan it

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Speaker 1: out again to somebody else for a mortgage. So what

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Speaker 1: you see here is an on demand deposit. First, you

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Speaker 1: give them a thousand dollars that you can go and

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Speaker 1: get back at any time. It gets rehypothecated. That same

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Speaker 1: thousand dollars gets loaned out from one person to the next,

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Speaker 1: to next to next, and every time it's loaned out,

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Speaker 1: it goes into somebody else's bank account, and then it's

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Speaker 1: relaned out again from there. This is called rehypothication. This

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Speaker 1: is the process of money creation. This is how money

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Speaker 1: is create. It gets loaned into existence by one dollar

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Speaker 1: moving from place to place to place, and every single

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Speaker 1: person along the way has an account that says they've

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Speaker 1: got that money, but really it all came from that

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Speaker 1: one original dollar. So if all debt was repaid, you'd

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Speaker 1: be left with just the physical cash in existence, that's

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Speaker 1: in vaults and under mattresses and in safes. That's the

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Speaker 1: only you know, that's the only if all debt was repaid,

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Speaker 1: because all the digital dollars are just dollar IOUs. It's

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Speaker 1: important to remember that inside the United States, this is

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Speaker 1: a contained system, and this is fairly well regulated and

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Speaker 1: the banks are fairly well capitalized. Ever since the financial crisis,

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Speaker 1: new rules were set in place, and new oversight and

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Speaker 1: new monitoring of data was set in place so that

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Speaker 1: they monitor and they say, okay, yeah, we understand that

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Speaker 1: this has been loaned out over and over and over again.

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Speaker 1: But if something breaks in the chain and one of

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Speaker 1: those guys can't repay, and that starts a domino effect,

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Speaker 1: which means that he can't repay the last guy, which

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Speaker 1: means that guy can't repay the guy he owes two,

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Speaker 1: and so on and so forth, and we start to

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Speaker 1: see this whole thing unwind. The FED just steps in

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Speaker 1: and they fill the gap. So they go to the

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Speaker 1: bank and they say, Okay, we don't want you to

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Speaker 1: fail just because you let your barwers failed, so we'll

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Speaker 1: make sure that you have the money that you need.

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Speaker 1: They just print the money for the bank that the

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Speaker 1: bank needs. So in the United States, we don't really

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Speaker 1: have a problem with you know, for lack of a

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Speaker 1: better term, over rehypothecation, with this process going on to

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Speaker 1: too large of an extent. The problem comes in when

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Speaker 1: we look overseas. So remember I said, since nineteen forty

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Speaker 1: four the United States has been printing dollars and sending

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Speaker 1: them overseas to my stuff from other countries. And that's

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Speaker 1: almost eighty years now. So one of those dollars gets

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Speaker 1: shipped overseas. Well. Banks overseas do the exact same process

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Speaker 1: that banks in the United States do. They get a

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Speaker 1: dollar on deposit and then they loan it out to somebody,

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Speaker 1: and then that loan goes as a deposit to somebody

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Speaker 1: else's bank account, and then that bank account gets that

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Speaker 1: and loans some of that out to somebody else, and

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Speaker 1: over and over and over and over again. The issue

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Speaker 1: is that since this happens all around the world, in Africa,

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Speaker 1: in Asia, in Europe, like it's everywhere, it's you know,

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Speaker 1: South America, it's outside of the United States, there is

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Speaker 1: no federal reserve over this entire global monetary system. So

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Speaker 1: number one, there's there's really no data on how much

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Speaker 1: this has happened everywhere else around the world, because it's

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Speaker 1: not like in the United States, where it's like in

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Speaker 1: order to be a bank, you've got to be under

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Speaker 1: the Fed, and you know, they just you know, you

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Speaker 1: have to give them that data, and you know, it's

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Speaker 1: it's it's there's nobody overseeing that has the governmental authority

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Speaker 1: to oversee every bank around the world. And every country

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Speaker 1: does have some sort of oversight of its own banking

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Speaker 1: system with its central bank, but those rules are always

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Speaker 1: going to be different, and maybe the effectiveness of its

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Speaker 1: regulation is going to be different, and depending on the

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Speaker 1: country that you're looking at, and the leniency on being

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Speaker 1: able to make bad investments or higher risk loans, and

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Speaker 1: so you have all around the world, varying levels of

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Speaker 1: rehypothecation taking place where one dollar is leant out over

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Speaker 1: and over and over and over again to multiple parties.

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Speaker 1: So that's the first issue. There's no transparency, there's no

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Speaker 1: data on how large this problem has become. The second

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Speaker 1: problem is that if you were to have somebody default

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Speaker 1: and that sparks a domino effect where that means the

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Speaker 1: next guy defaults, that means the next guy defaults, and

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Speaker 1: then suddenly a bank is in trouble. If one bank

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Speaker 1: becomes in trouble, what does that bank do, Well, They're

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Speaker 1: they're gonna scramble for dollars because suddenly everybody who owes

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Speaker 1: them money can't pay, which means they can't pay who

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Speaker 1: they owe money too. So they're going to need to

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Speaker 1: go get dollars wherever they can get dollars from. In

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Speaker 1: the United States, that bank goes to the Fed, and

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Speaker 1: the Fed bails them out. Around the world, the banks

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Speaker 1: will have to go to their own central bank. But

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Speaker 1: other central banks do not have the ability to create

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Speaker 1: dollars out of thin air like the Federal Reserve does.

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Speaker 1: So the Bank of Japan can only make yen. That

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Speaker 1: can't make dollars only the FED can. So if a

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Speaker 1: bank gets in trouble, they go to their central bank

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Speaker 1: and they say I need dollars, and the central bank says,

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Speaker 1: well I can't, I can't make those. So a couple

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Speaker 1: of things could happen. A the bank liquidates all of

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Speaker 1: its assets and uses the proceeds to purchase dollars so

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Speaker 1: that it doesn't go under. If it goes under, then

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Speaker 1: that just spreads the problem. It's like a virus, it's

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Speaker 1: like a contagent, because if that bank goes under, then

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Speaker 1: now they default to everybody they owed money too. And

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Speaker 1: remember this is a large chain that just circles around

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Speaker 1: the world over and over and over again. And so

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Speaker 1: maybe there's five other banks now that are in trouble

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Speaker 1: because they were relying on that one bank to make

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Speaker 1: good on their obligations. And now because that bank went under,

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Speaker 1: now these banks are exposed. So these banks suddenly say

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Speaker 1: now I need dollars, So they go out and try

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Speaker 1: and get dollars. So they're going to sell assets, sell reserves,

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Speaker 1: sell their currency to buy dollars immediately. What you can

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Speaker 1: see here is this giant build up of dollar io us.

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Speaker 1: If it starts to unwind. It causes a massive spike

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Speaker 1: in the value of the dollar relative to everything else.

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Speaker 1: This is not a collapse of the dollars in terms

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Speaker 1: of the value just going down through inflation. This is

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Speaker 1: a hyper deflationary collapse of the dollar where nobody can

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00:20:10,760 --> 00:20:13,600
Speaker 1: locate dollars regardless of how much they're willing to pay.

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Speaker 1: The value of the dollar could go like infinite overnight

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Speaker 1: because everybody goes to who they can to try and

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00:20:20,680 --> 00:20:25,240
Speaker 1: get dollars from them and suddenly realizes you don't have dollars.

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Speaker 1: You only have dollar IOUs. So I try and get

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Speaker 1: dollars from you because you owe me dollars, but you

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Speaker 1: don't have those dollars. You have a dollar iou from

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Speaker 1: somebody else. So you go to somebody else to go

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Speaker 1: get the dollars that they owe you, and they don't

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00:20:39,560 --> 00:20:42,000
Speaker 1: have those dollars because they lend them out to somebody else,

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Speaker 1: So they have to go scramble. And in this scenario,

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Speaker 1: since it's all dollar IOUs, very very very few an

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Speaker 1: unknown few actual dollars that are the bottom of this

349
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Speaker 1: upside on pyramid, then there's not enough dollars out there

350
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Speaker 1: to meet all of these dollar IOUs and so you

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00:21:01,080 --> 00:21:07,440
Speaker 1: get a domino effect of defaults along the way. So eventually,

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Speaker 1: very quickly, this gets to the point where the central

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Speaker 1: bank tries to step in and help out the banks

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Speaker 1: in its country that are failing to be able to

355
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Speaker 1: find dollars. So the central bank then at that point

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00:21:19,520 --> 00:21:22,719
Speaker 1: might start printing its own currency to buy dollars to

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Speaker 1: hand out those dollars to its banks. It might start

358
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Speaker 1: selling the assets that are on its balance sheet again

359
00:21:29,480 --> 00:21:32,719
Speaker 1: to raise dollars to give to the banks underneath it

360
00:21:32,760 --> 00:21:37,000
Speaker 1: so that it doesn't spark a global financial crisis. So

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Speaker 1: you have central banks potentially all around the world, all

362
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Speaker 1: at once, selling their currencies, selling their reserves, selling their assets,

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Speaker 1: many of which are US treasuries, in order to get

364
00:21:47,119 --> 00:21:51,840
Speaker 1: their hands on dollars. What this does to treasuries if

365
00:21:51,960 --> 00:21:54,960
Speaker 1: the treasury is a bond, and so with debt, the

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Speaker 1: price of the debt and the interest rate on the

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Speaker 1: debt are inversely correlated. Real quick explanation of how that works.

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Speaker 1: I borrow one hundred dollars from you at one percent,

369
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Speaker 1: I owe you one hundred one dollars. There is an

370
00:22:09,080 --> 00:22:11,879
Speaker 1: asset now that you own that is worth one hundred

371
00:22:11,880 --> 00:22:14,480
Speaker 1: one dollars because at the end of the year, you

372
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Speaker 1: know you're gonna get one hundred one dollars from me,

373
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Speaker 1: So if you need to get out of that debt

374
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Speaker 1: real quick. So you go to your buddy and you say, hey,

375
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Speaker 1: I need to get out of this. Will you buy

376
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Speaker 1: this asset from me? He might say yeah, but not

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Speaker 1: at full price. I'll give you ninety nine dollars for it,

378
00:22:30,960 --> 00:22:33,840
Speaker 1: and you say fine, So he gives you ninety nine bucks,

379
00:22:34,119 --> 00:22:36,080
Speaker 1: so you take a loss on it, so the price

380
00:22:36,119 --> 00:22:38,800
Speaker 1: went down, you lent out one hundred, and now you're

381
00:22:38,840 --> 00:22:42,080
Speaker 1: walking away with ninety nine. He now owns that debt,

382
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Speaker 1: so now I owe him money instead of you. He

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Speaker 1: got it for ninety nine dollars. But how much do

384
00:22:47,320 --> 00:22:50,399
Speaker 1: I owe him? Not one hundred I homo one hundred one.

385
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Speaker 1: That was the original deal. So he now is going

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Speaker 1: to make two percent on that. So the interest rate

387
00:22:56,359 --> 00:22:59,479
Speaker 1: on that debt now is two percent for him, And

388
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Speaker 1: it's one sent for me because I borrowed a hundred

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00:23:01,720 --> 00:23:03,480
Speaker 1: and I'm paying back one oh one. But for him,

390
00:23:03,600 --> 00:23:05,760
Speaker 1: he bought it for ninety nine, so he's getting one

391
00:23:05,840 --> 00:23:10,080
Speaker 1: hundred one dollars for ninety nine dollars, So roughly two percent,

392
00:23:10,640 --> 00:23:12,720
Speaker 1: so the price went down of that debt, which meant

393
00:23:12,760 --> 00:23:16,879
Speaker 1: the yield the interest rate went up. So that's why

394
00:23:17,280 --> 00:23:20,359
Speaker 1: the price and the interest rates of bonds are inversely correlated.

395
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Speaker 1: So treasuries are debt to the United States from the

396
00:23:24,560 --> 00:23:27,159
Speaker 1: United States government. So the United States government borrows money

397
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Speaker 1: from around the world and then and then repays that

398
00:23:32,560 --> 00:23:36,119
Speaker 1: overtime with interest. And so suddenly if everyone around the world,

399
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Speaker 1: like the Bank of Japan and China and I have

400
00:23:38,520 --> 00:23:40,800
Speaker 1: all these central banks that have tons of reserves, most

401
00:23:40,840 --> 00:23:43,320
Speaker 1: of them being US treasuries, has to go sell those

402
00:23:43,359 --> 00:23:47,320
Speaker 1: treasuries to get dollars. Well, what does that due to treasuries.

403
00:23:47,800 --> 00:23:51,280
Speaker 1: It tanks the price of those treasuries because everybody's selling

404
00:23:51,320 --> 00:23:54,480
Speaker 1: them all at once, and it spikes the value of

405
00:23:54,480 --> 00:23:57,520
Speaker 1: the dollar because everybody's trying to go get those dollars,

406
00:23:58,119 --> 00:24:01,200
Speaker 1: and it spikes interest rates. So suddenly borrowing costs for

407
00:24:01,240 --> 00:24:03,960
Speaker 1: the government overnight could go from five percent to ten percent,

408
00:24:04,000 --> 00:24:11,040
Speaker 1: to twenty percent to fifty percent. It's not impossible, and

409
00:24:11,119 --> 00:24:17,400
Speaker 1: so that's a problem. If we start to see one

410
00:24:17,480 --> 00:24:21,840
Speaker 1: link in the chain that fails, it's very possible that

411
00:24:21,920 --> 00:24:26,760
Speaker 1: this whole global foreign dollar IOU system could start to tumble,

412
00:24:26,800 --> 00:24:30,720
Speaker 1: and it could happen fast because none of these banks

413
00:24:30,840 --> 00:24:34,560
Speaker 1: or central banks have the ability to conjure up real dollars.

414
00:24:34,680 --> 00:24:38,040
Speaker 1: They only can conjure up dollar IOUs and once a

415
00:24:38,160 --> 00:24:44,280
Speaker 1: default happens, then everybody starts requesting those dollar IOUs to

416
00:24:44,359 --> 00:24:47,840
Speaker 1: be made full, which requires real dollars, but you can't.

417
00:24:48,119 --> 00:24:50,960
Speaker 1: They can't just manufacture them. Only the FED can. And

418
00:24:51,080 --> 00:24:57,560
Speaker 1: the FED doesn't have the rails, the infrastructure, or the

419
00:24:57,920 --> 00:25:01,600
Speaker 1: data or the authorization in place to bail out banks

420
00:25:02,680 --> 00:25:08,560
Speaker 1: in other countries. So what is the endgame? If this

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00:25:08,680 --> 00:25:12,640
Speaker 1: goes the worst way it could go possible and the

422
00:25:12,680 --> 00:25:15,920
Speaker 1: best way it could go possible worst way it could

423
00:25:15,960 --> 00:25:19,520
Speaker 1: go would be within a very short amount of time,

424
00:25:20,280 --> 00:25:23,560
Speaker 1: we start to see bank failure because they can't get dollars.

425
00:25:23,920 --> 00:25:29,600
Speaker 1: Dollars spikes. That makes more people request dollars. As a

426
00:25:29,760 --> 00:25:33,160
Speaker 1: contagion spreads, one default moves to the next. As more

427
00:25:33,200 --> 00:25:36,120
Speaker 1: people's try and scramble for dollars, there are less dollars available,

428
00:25:36,160 --> 00:25:39,280
Speaker 1: which pushes the price the value of the dollar up

429
00:25:39,320 --> 00:25:44,640
Speaker 1: even higher, taking the prices of everything else like treasuries skyrocketing.

430
00:25:44,760 --> 00:25:48,120
Speaker 1: Interest rates on treasuries and other forms of debt As

431
00:25:48,240 --> 00:25:51,720
Speaker 1: defaults start to roll across the globe, bank failure after

432
00:25:51,760 --> 00:25:55,320
Speaker 1: bank failure, central banks can't locate enough dollars, their own

433
00:25:55,400 --> 00:26:00,959
Speaker 1: currencies collapse in value, the dollar skyrockets value, and you

434
00:26:01,000 --> 00:26:05,720
Speaker 1: have an overnight, maybe not overnight, but very quickly collapse

435
00:26:05,760 --> 00:26:12,440
Speaker 1: of the entire fiat monetary system, with the dollar failing

436
00:26:12,520 --> 00:26:18,000
Speaker 1: upwards and other currencies failing downwards. Both of these would

437
00:26:18,040 --> 00:26:24,320
Speaker 1: be catastrophic for every economy. This would not be something

438
00:26:24,359 --> 00:26:28,760
Speaker 1: that would work out in the United States favor. This

439
00:26:28,840 --> 00:26:31,840
Speaker 1: is something that would stop. The economy would grind to

440
00:26:31,880 --> 00:26:34,800
Speaker 1: a halt. And because dollars would be unable to be

441
00:26:34,840 --> 00:26:40,920
Speaker 1: located for any price, they would no longer be able

442
00:26:40,960 --> 00:26:44,040
Speaker 1: to be used as the global reserve currency. So this

443
00:26:44,040 --> 00:26:48,840
Speaker 1: would be a failure of all fiat monetary systems. And

444
00:26:49,119 --> 00:26:52,200
Speaker 1: because this is the worst case scenario that I'm outlining,

445
00:26:52,600 --> 00:26:57,200
Speaker 1: you can bet that the politicians, people in power, bureaucrats,

446
00:26:58,040 --> 00:27:01,639
Speaker 1: unelected officials like at the FED, they would not let

447
00:27:01,640 --> 00:27:03,880
Speaker 1: this kind of a crisis go to waste. This would

448
00:27:03,920 --> 00:27:08,640
Speaker 1: be used as implementation for a CMDC. It would be Hey,

449
00:27:08,960 --> 00:27:11,960
Speaker 1: the crisis is not because of us. The crisis is

450
00:27:11,960 --> 00:27:16,520
Speaker 1: because we didn't have enough power, enough control, enough transparency

451
00:27:16,560 --> 00:27:20,040
Speaker 1: to see the system, and so they would roll out

452
00:27:20,600 --> 00:27:24,280
Speaker 1: central bank digital currencies in the wake of the old

453
00:27:25,560 --> 00:27:32,840
Speaker 1: Fiat system collapse. Now the explanation of like best case scenario.

454
00:27:33,160 --> 00:27:35,000
Speaker 1: Over the last couple of years, we've seen the FED

455
00:27:35,160 --> 00:27:42,040
Speaker 1: roll out a couple of different facilities, a few different

456
00:27:45,800 --> 00:27:48,320
Speaker 1: lines that would give them the ability to deal with

457
00:27:48,400 --> 00:27:52,879
Speaker 1: something like this swaps, rebos, reverse rebows, things like that

458
00:27:52,880 --> 00:27:57,080
Speaker 1: that give the FED the ability to trade off market

459
00:27:57,520 --> 00:28:01,919
Speaker 1: with other central banks. The reason this is important is

460
00:28:01,920 --> 00:28:04,919
Speaker 1: because let's say a central bank like you know, the

461
00:28:05,160 --> 00:28:09,600
Speaker 1: Swiss Central Bank, or China's Central Bank or japan Central

462
00:28:09,600 --> 00:28:12,560
Speaker 1: Bank or wherever it is, if they suddenly need to access,

463
00:28:12,600 --> 00:28:16,280
Speaker 1: you know, a trillion US dollars, they're not going to

464
00:28:16,320 --> 00:28:18,119
Speaker 1: be able to do that on the open market, and

465
00:28:18,160 --> 00:28:20,040
Speaker 1: if they try, they're going to take the value of

466
00:28:20,040 --> 00:28:22,639
Speaker 1: anything they're trying to get those dollars for, so like

467
00:28:22,720 --> 00:28:26,480
Speaker 1: treasuries or their own currency. And so what the FED

468
00:28:26,560 --> 00:28:30,400
Speaker 1: will do is open up off market transactions through these

469
00:28:30,400 --> 00:28:34,120
Speaker 1: swap lines and through these repo facilities directly with these

470
00:28:34,119 --> 00:28:36,679
Speaker 1: central banks. These are facilities that the FED is already

471
00:28:36,720 --> 00:28:38,960
Speaker 1: set up actually and they're just not being used, and

472
00:28:39,000 --> 00:28:43,040
Speaker 1: it looks like this was a preemptive you know, getting ready,

473
00:28:43,120 --> 00:28:45,920
Speaker 1: like just in case they need to use something like this.

474
00:28:46,640 --> 00:28:50,200
Speaker 1: They're not being used right now. They are a little bit,

475
00:28:50,240 --> 00:28:54,640
Speaker 1: but for the most part they're not. And so in

476
00:28:54,760 --> 00:28:58,600
Speaker 1: the case of central bank needing to locate a bunch

477
00:28:58,600 --> 00:29:00,680
Speaker 1: of dollars, Let's say the Bank of pan needs to

478
00:29:00,720 --> 00:29:04,080
Speaker 1: access a ton of dollars to bail out its banking system,

479
00:29:04,160 --> 00:29:06,560
Speaker 1: it would go to the FED and it would say, hey, look,

480
00:29:06,560 --> 00:29:10,120
Speaker 1: we've got you know, nine hundred billion dollars worth of

481
00:29:10,480 --> 00:29:15,240
Speaker 1: US treasuries. We're just gonna give those to you at

482
00:29:15,400 --> 00:29:18,520
Speaker 1: full market price. So instead of just dumping them on

483
00:29:18,560 --> 00:29:21,160
Speaker 1: the market and watching value those treasuries tank and watching

484
00:29:21,160 --> 00:29:25,320
Speaker 1: the prices, the yields, the interest rates skyrocket for US debt,

485
00:29:25,760 --> 00:29:27,800
Speaker 1: they would just go direct to the FED and they'd say, hey,

486
00:29:28,000 --> 00:29:30,520
Speaker 1: we'll sell you all nine hundred billions of these, and

487
00:29:30,840 --> 00:29:34,120
Speaker 1: we want dollars in exchange for them, and we want

488
00:29:34,120 --> 00:29:36,240
Speaker 1: full price for them. And the FED would say, absolutely,

489
00:29:36,320 --> 00:29:40,520
Speaker 1: We're very happy to do that because otherwise the entire

490
00:29:40,560 --> 00:29:43,720
Speaker 1: global financial system fails. And so the FED does that.

491
00:29:43,840 --> 00:29:48,240
Speaker 1: The Fed print dollars and hands them directly to the

492
00:29:48,280 --> 00:29:51,480
Speaker 1: Bank of Japan in exchange for those nine hundred billion

493
00:29:51,520 --> 00:29:54,880
Speaker 1: dollars or the treasuries. The FED then its bounce sheet

494
00:29:55,000 --> 00:29:57,880
Speaker 1: is increased by you know, almost a trillion bucks in

495
00:29:58,400 --> 00:30:01,200
Speaker 1: US treasuries and Japan, and the Bank of Japan now

496
00:30:01,240 --> 00:30:03,840
Speaker 1: has one trillion US dollars that it can hand out

497
00:30:03,880 --> 00:30:06,680
Speaker 1: to its banks so that banks don't fail and spread

498
00:30:06,680 --> 00:30:10,240
Speaker 1: that contagent even further. So that is the best case

499
00:30:10,280 --> 00:30:13,880
Speaker 1: scenario because in that situation, then basically you have a

500
00:30:13,960 --> 00:30:17,880
Speaker 1: global situation that is a repeat of how the United

501
00:30:17,880 --> 00:30:22,600
Speaker 1: States handled the financial crisis in two thousand and nine, basically,

502
00:30:22,640 --> 00:30:25,320
Speaker 1: where the FED just recapitalize the banks, and so certainly

503
00:30:25,320 --> 00:30:29,560
Speaker 1: you have higher prices as a result, not net higher

504
00:30:29,600 --> 00:30:33,400
Speaker 1: prices or absolute higher prices, but much higher than they

505
00:30:33,440 --> 00:30:37,760
Speaker 1: would be otherwise. Remember the alternative here is a hyper

506
00:30:38,080 --> 00:30:45,000
Speaker 1: deflationary overnight collapse, and so that means prices of everything

507
00:30:45,160 --> 00:30:50,680
Speaker 1: essentially go to zero price in dollars because dollars are unobtainable.

508
00:30:51,760 --> 00:30:55,680
Speaker 1: There's an untold trillions of dollars worth of dollar IOUs

509
00:30:55,720 --> 00:30:58,240
Speaker 1: out there, and so the value of the dollars just

510
00:30:58,320 --> 00:31:02,040
Speaker 1: skyrockets into infinity as everybody's scrambling to try and get

511
00:31:02,040 --> 00:31:07,520
Speaker 1: those dollars, making them unusable, and so that's something the

512
00:31:07,560 --> 00:31:12,400
Speaker 1: FED wants to definitely wants to avoid. And so when

513
00:31:12,400 --> 00:31:14,760
Speaker 1: you look at the best key scenario here of them

514
00:31:15,200 --> 00:31:18,040
Speaker 1: printing trillions of dollars to give to other central banks

515
00:31:18,080 --> 00:31:20,600
Speaker 1: so those central banks can recapitalize their own banks so

516
00:31:20,640 --> 00:31:25,560
Speaker 1: their own banks don't fail, certainly there is not the

517
00:31:25,600 --> 00:31:28,680
Speaker 1: deflation that would happen otherwise, meaning that the net result

518
00:31:28,760 --> 00:31:33,120
Speaker 1: is inflationary compared to what it would have been. But

519
00:31:34,240 --> 00:31:38,000
Speaker 1: most of the time, when you recapitalize the banks to

520
00:31:39,080 --> 00:31:43,600
Speaker 1: basically offset the collapse of their bad assets, that doesn't

521
00:31:43,880 --> 00:31:49,160
Speaker 1: at least immediately result in a large spike of broad

522
00:31:49,280 --> 00:31:51,760
Speaker 1: money in circulation. So when you look at what happened

523
00:31:51,760 --> 00:31:54,880
Speaker 1: in the United States after the financial crisis, there is

524
00:31:54,960 --> 00:31:58,600
Speaker 1: no big spike in the broad money supply in M two,

525
00:31:58,800 --> 00:32:04,000
Speaker 1: in checking accounts, savings accounts, because they gave the banks money,

526
00:32:04,000 --> 00:32:07,880
Speaker 1: but they didn't give the people money. And so most

527
00:32:07,920 --> 00:32:10,320
Speaker 1: likely what would happen as a result of this is

528
00:32:10,360 --> 00:32:13,280
Speaker 1: the same thing. Giving the banks money would just stop

529
00:32:13,320 --> 00:32:19,240
Speaker 1: the banks from collapsing. And I'm not advocating for this

530
00:32:19,480 --> 00:32:21,320
Speaker 1: or saying that they would deserve that, or even that

531
00:32:21,400 --> 00:32:23,760
Speaker 1: it would be the better outcome. But I'm just saying

532
00:32:23,760 --> 00:32:28,000
Speaker 1: that we wouldn't see like a hyper inflationary effect of that,

533
00:32:28,200 --> 00:32:33,120
Speaker 1: or even a moderately high inflationary effect of that, because

534
00:32:33,160 --> 00:32:34,840
Speaker 1: most of the time those banks aren't then going to

535
00:32:34,840 --> 00:32:39,960
Speaker 1: turn around and do things that would massively increase the

536
00:32:40,040 --> 00:32:44,640
Speaker 1: quantity of money in people's hands. And so this is

537
00:32:44,680 --> 00:32:48,200
Speaker 1: different than like what happened during COVID when they printed

538
00:32:48,240 --> 00:32:51,400
Speaker 1: trillions of dollars and actually got that into people's hands.

539
00:32:51,680 --> 00:32:54,720
Speaker 1: That causes inflation because people can go spend the money.

540
00:32:54,760 --> 00:32:59,000
Speaker 1: That's an increase in the actual money supply, and so

541
00:32:59,600 --> 00:33:03,600
Speaker 1: this is this would be different different than that, But

542
00:33:03,720 --> 00:33:08,280
Speaker 1: in terms of like short term the lowest amount of carnage,

543
00:33:09,080 --> 00:33:11,960
Speaker 1: that's probably what we would be looking at. In terms

544
00:33:12,040 --> 00:33:16,480
Speaker 1: of a likely outcome, The likelihood of scenario one worst

545
00:33:16,480 --> 00:33:20,440
Speaker 1: case versus scenario two best case would be you know, like, hey,

546
00:33:20,480 --> 00:33:23,840
Speaker 1: it depends on how quickly different governments act, how quickly

547
00:33:23,840 --> 00:33:28,760
Speaker 1: they recognize the contagion, of how much the Federal Reserve

548
00:33:29,560 --> 00:33:35,160
Speaker 1: decides to cooperate and use those facilities that it has

549
00:33:35,320 --> 00:33:39,520
Speaker 1: set up, and the amount of data coming in being

550
00:33:39,560 --> 00:33:42,760
Speaker 1: accurate in terms of what is needed to kind of

551
00:33:42,840 --> 00:33:47,040
Speaker 1: stop the damage. And so that's yet to be seen

552
00:33:47,120 --> 00:33:49,600
Speaker 1: because there is no data on this, and so it's

553
00:33:49,720 --> 00:33:53,600
Speaker 1: very possible that these bureaucrats are just too slow to

554
00:33:54,320 --> 00:33:57,920
Speaker 1: work fast enough to stop something like this from unfolding

555
00:33:57,960 --> 00:34:02,840
Speaker 1: once it starts. Ultimately, it's a question of of you know,

556
00:34:02,920 --> 00:34:05,880
Speaker 1: we'll just have to wait and see how this thing unfolds.

557
00:34:06,720 --> 00:34:08,920
Speaker 1: But there is no question that there is a massive

558
00:34:09,080 --> 00:34:13,719
Speaker 1: unsustainable pile up of dollar IOUs out there that is

559
00:34:13,760 --> 00:34:19,680
Speaker 1: called the eurodollars system. As a final note, any time

560
00:34:19,760 --> 00:34:24,239
Speaker 1: that these dollars do make their way back to like

561
00:34:24,360 --> 00:34:29,160
Speaker 1: the United States, that does show up in in M two,

562
00:34:29,239 --> 00:34:32,799
Speaker 1: that shows up in our own money supply metrics. And

563
00:34:32,840 --> 00:34:34,960
Speaker 1: so if we see this house of cards kind of

564
00:34:35,000 --> 00:34:39,360
Speaker 1: like fade slowly and quietly, what we would slowly see

565
00:34:39,640 --> 00:34:42,080
Speaker 1: is a lot a lot of the dollars that we

566
00:34:42,200 --> 00:34:45,200
Speaker 1: printed over and sent overseas for the last eighty years

567
00:34:45,239 --> 00:34:47,760
Speaker 1: slowly starting to come back as the dollar just loses

568
00:34:47,800 --> 00:34:51,560
Speaker 1: its place as the reserve currency. So we would generally

569
00:34:51,600 --> 00:34:54,440
Speaker 1: see an increase in our money supply as that happens,

570
00:34:56,160 --> 00:34:59,320
Speaker 1: as long as it's not being offset by tightening efforts

571
00:34:59,320 --> 00:35:03,799
Speaker 1: by our central bank, which could happen. So to the

572
00:35:03,880 --> 00:35:08,800
Speaker 1: extent that we do see those things have an inflationary

573
00:35:08,840 --> 00:35:14,800
Speaker 1: effect on domestic prices, we would see an influx of dollars.

574
00:35:15,120 --> 00:35:18,600
Speaker 1: So largely what this euro dollar system is is not

575
00:35:19,520 --> 00:35:24,279
Speaker 1: fuel for inflation. But this is like a house of

576
00:35:24,320 --> 00:35:28,960
Speaker 1: cards built with on a pile of dynamite, on a

577
00:35:29,000 --> 00:35:32,279
Speaker 1: pile of like hyper deflationary dynamite. And so if the

578
00:35:32,320 --> 00:35:35,560
Speaker 1: euro dollar system is to present problems, it will not

579
00:35:35,640 --> 00:35:39,000
Speaker 1: be one of causing prices to go higher back home.

580
00:35:39,200 --> 00:35:43,360
Speaker 1: It'll be one of the dollar evaporating overnight, as nobody

581
00:35:43,360 --> 00:35:49,320
Speaker 1: has real dollars, they all have dollar IOUs all right, Well,

582
00:35:49,600 --> 00:35:53,960
Speaker 1: hopefully that makes sense. I did make a YouTube video

583
00:35:54,000 --> 00:35:58,080
Speaker 1: about this that was shorter, more brief as well, and

584
00:35:58,160 --> 00:36:02,480
Speaker 1: so feel free to check that out if you are interested.

585
00:36:02,560 --> 00:36:05,759
Speaker 1: I still make YouTube videos every single day, so you

586
00:36:05,760 --> 00:36:10,760
Speaker 1: can check that out there at Haresy Financial on YouTube.

587
00:36:11,160 --> 00:36:18,880
Speaker 1: I'm also on social media like Instagram, TikTok, YouTube, shorts, Twitter,

588
00:36:19,320 --> 00:36:22,680
Speaker 1: So if you are on any of those platforms and

589
00:36:22,760 --> 00:36:25,239
Speaker 1: you'd like to see the unique content that I put

590
00:36:25,280 --> 00:36:27,920
Speaker 1: out there, unique meaning it's not just you know, my

591
00:36:28,040 --> 00:36:33,640
Speaker 1: podcast or YouTube videos diced and sliced up. You can

592
00:36:33,719 --> 00:36:37,319
Speaker 1: check those out there at Harressy Financial, everywhere everywhere else.

593
00:36:38,360 --> 00:36:41,040
Speaker 1: Thanks so much for listening. We will see you guys

594
00:36:41,040 --> 00:36:41,879
Speaker 1: again next week