WEBVTT - Dr Michael Howell On Debt, US Treasury, Global Liquidity, Bitcoin & More 0:00:00.280 --> 0:00:02.000 If you want to know where asset prices are going, 0:00:02.080 --> 0:00:04.320 if you want to know where bitcoin and crypto goes, gold, 0:00:04.400 --> 0:00:07.280 real estate, and any other stocks or commodities, then you 0:00:07.280 --> 0:00:11.480 have to understand one single thing, and this is global liquidity. 0:00:11.760 --> 0:00:14.760 And so I am having the master of global liquidity on. 0:00:14.800 --> 0:00:18.040 I'm talking about doctor Michael J. Howell. He's worked in 0:00:18.040 --> 0:00:21.040 finance for over thirty years. He was the former research 0:00:21.079 --> 0:00:24.239 director at Solomon Brothers, and during that time he developed 0:00:24.239 --> 0:00:26.840 the concept of global liquidity. This is a lot more 0:00:26.920 --> 0:00:30.440 than just m two. He's focused on analyzing liquidity trends 0:00:30.480 --> 0:00:33.000 and capital flow data, which I believe is the most 0:00:33.080 --> 0:00:36.080 important thing to watch in financial markets. He's also the 0:00:36.080 --> 0:00:39.320 author of multiple books about this, including Investing in Emerging 0:00:39.360 --> 0:00:43.279 Markets and more recently Capital Wars. Again, like I said, 0:00:43.280 --> 0:00:46.240 if you want to know where asset prices are going, bitcoin, crypto, 0:00:46.320 --> 0:00:49.239 real estate, it doesn't matter. You have to understand this 0:00:49.280 --> 0:00:51.600 one thing, global liquity. So let's go ahead and jump 0:00:51.640 --> 0:00:55.640 right in, all right. Michael Howe the author of the 0:00:55.640 --> 0:00:58.960 book The Capital Wars and someone who has been studying 0:00:59.120 --> 0:01:02.720 liquidity global equity for a long time. Something that I've 0:01:02.760 --> 0:01:05.440 been talking about for the last year. I'm super excited 0:01:05.880 --> 0:01:07.759 join have you joined me today? So thank you for 0:01:08.000 --> 0:01:11.880 taking the time. You know, I've been subscribed here to 0:01:11.920 --> 0:01:16.039 your substack, been reading your articles obviously your book as well, 0:01:16.200 --> 0:01:17.720 but just for the audience, just quite and give us 0:01:17.720 --> 0:01:19.720 a little bit of a background. And why have you 0:01:19.760 --> 0:01:22.800 been studying liquidity cycles for so long? And and how 0:01:22.800 --> 0:01:23.959 long has that been? Well? 0:01:24.000 --> 0:01:25.880 Hi, Mark, Yeah, it's a great privilege to be here. 0:01:25.920 --> 0:01:28.880 Thank you for the invertation. It kind of goes back. 0:01:28.920 --> 0:01:32.000 I mean, my studies of liquidity and why it's an 0:01:32.000 --> 0:01:36.160 interesting subject go back to probably well at least twenty 0:01:36.160 --> 0:01:38.640 five years, probably a tad more. Actually, when I worked 0:01:38.680 --> 0:01:42.319 for the US investment bank Salomon Brothers. Salomon Brothers was 0:01:42.400 --> 0:01:46.320 the world's biggest trader in terms of world fixed income 0:01:46.400 --> 0:01:50.320 markets for X markets, et cetera. And to understand trading, 0:01:50.440 --> 0:01:53.200 you had to understand where the money was flowing, and 0:01:53.200 --> 0:01:55.320 that was really the critical thing. If you can understand 0:01:55.320 --> 0:01:57.960 these capital flows and where they were shifting, you had 0:01:57.960 --> 0:02:00.640 a pretty good insight. It was actually insight their information. 0:02:00.680 --> 0:02:04.000 In many ways, you had great insight into understanding the 0:02:04.000 --> 0:02:07.040 direction of macro markets. And so what I did was 0:02:07.240 --> 0:02:09.959 while I was there to basically put in a framework 0:02:10.200 --> 0:02:13.400 that allowed us to monitor flows of money around the world, 0:02:13.680 --> 0:02:16.399 understand what central banks were doing, etc. And the whole 0:02:16.440 --> 0:02:19.240 concept of global liquidity really grew out of that. And 0:02:19.320 --> 0:02:23.680 global liquidity is very simply flows of money through international 0:02:23.720 --> 0:02:26.720 financial markets. It's as straightforward as that. That's what moves 0:02:26.760 --> 0:02:27.120 the world. 0:02:29.120 --> 0:02:35.320 Yeah, I read I read about Stanley Druckenmiller and how 0:02:35.360 --> 0:02:38.320 he when he first started his career, you know, his 0:02:39.040 --> 0:02:40.920 the person that he was working under, said or he 0:02:40.960 --> 0:02:43.040 brought all his research to him and you know, here's 0:02:43.160 --> 0:02:44.640 here's what's going on in the economy, and here's whats 0:02:44.639 --> 0:02:46.280 going on with the company, and here's their price to 0:02:46.320 --> 0:02:48.600 earnings and all these different things. And they said, no, no, no, no, no, 0:02:49.400 --> 0:02:51.280 take take all that and come back when you know 0:02:51.320 --> 0:02:53.760 what moves markets. And he said, or moves asset prices. 0:02:53.760 --> 0:02:55.040 And he says, what do you mean? This is this 0:02:55.120 --> 0:02:56.680 is what I learned. And he said no, no, no, that's it. 0:02:56.760 --> 0:02:58.600 And so Stanley Drucker Miller came back and said, no, 0:02:58.680 --> 0:03:01.760 what moves markets isquidity, which is exactly what you're saying. 0:03:02.840 --> 0:03:06.800 So you said, simply, it's the flows of money through 0:03:06.840 --> 0:03:09.280 the financial system, But it's a little bit more complex 0:03:09.320 --> 0:03:12.280 than that. I think most people, well at least in 0:03:12.320 --> 0:03:14.480 my sort of sphere, are very US centric, and so 0:03:14.480 --> 0:03:16.760 they think of just like US M two and I 0:03:16.760 --> 0:03:19.920 think that's a little bit oversimplified for liquidity. So is 0:03:19.919 --> 0:03:23.880 it just like excess bank reserves? Is it money on 0:03:23.960 --> 0:03:27.160 the sideline that's ready to trade these assets or how 0:03:27.200 --> 0:03:29.040 would you define global liquidity? 0:03:29.400 --> 0:03:31.600 Well, I think you as you rightly say, one has 0:03:31.639 --> 0:03:34.320 to be more granular, and look at some of the components, 0:03:34.360 --> 0:03:37.800 and some of the things you cite are important someone less. 0:03:37.800 --> 0:03:40.920 So you talk about M two, which is sort of 0:03:40.920 --> 0:03:43.960 a traditional measure of the supply of money. Now we're 0:03:44.000 --> 0:03:47.480 looking at money in a general sensor, generic sense, obviously, 0:03:47.560 --> 0:03:50.440 but we're not looking at an M two aggregate. And 0:03:50.520 --> 0:03:54.000 the reason being is that M two measures effectively retail 0:03:54.240 --> 0:03:57.720 deposits in high street banks. Now, if you believe that 0:03:57.720 --> 0:03:59.640 that's the only important thing in the world, then I'll 0:03:59.640 --> 0:04:03.120 come uly and you drop the global liquidity idea. But 0:04:03.200 --> 0:04:06.280 actually banks, high street banks have been eclipsed a long 0:04:06.320 --> 0:04:09.800 time ago. What you've got now, you've got international markets, 0:04:09.840 --> 0:04:13.560 you've got wholesale markets, you've got repo markets. You've got 0:04:13.560 --> 0:04:16.360 what the Federal Reserve is doing through QE. You've got 0:04:16.680 --> 0:04:19.640 extraneous things like I mean, just think the Swiss National 0:04:19.680 --> 0:04:23.200 Bank is a major investor directly in the US equity market. 0:04:23.200 --> 0:04:25.680 It's a big holder of techtocs. I mean, all these 0:04:25.680 --> 0:04:28.200 things are sort of, you know, unusual factors, but they're 0:04:28.240 --> 0:04:31.239 liquidity driven factors that come in and move asset prices. 0:04:31.240 --> 0:04:34.000 And one's got to have a pretty broader, eclectic view 0:04:34.040 --> 0:04:36.960 of what matters. And what we're looking at is to 0:04:37.200 --> 0:04:39.880 give you a sort of stricter definition, we look at 0:04:39.880 --> 0:04:43.680 the interventions and central banks around the world. We would say, 0:04:43.680 --> 0:04:46.200 as a caveat this is not just about looking at 0:04:46.200 --> 0:04:47.200 the size of balance sheet. 0:04:47.200 --> 0:04:49.719 You've got to look at the active components within the 0:04:49.760 --> 0:04:50.359 balance sheet. 0:04:50.560 --> 0:04:53.400 Not all the elements on the balance sheet create liquidity markets, 0:04:53.440 --> 0:04:55.799 for example, and the Federal Reserve is a great example 0:04:55.839 --> 0:04:58.600 of that. We also look at what the banks are 0:04:58.600 --> 0:05:00.919 doing in terms of bank credit. We look at shadow 0:05:00.920 --> 0:05:03.800 bank credit. Shadow banks have been an important element in 0:05:03.839 --> 0:05:06.680 the whole equation about global liquidity, particularly in the last 0:05:06.720 --> 0:05:09.560 twenty years. That's a key factor. And then we look 0:05:09.600 --> 0:05:14.640 at repo markets, wholesale market activity, we also look across 0:05:14.680 --> 0:05:18.320 border flows. They're also a critical element I mentioned in 0:05:18.320 --> 0:05:20.600 the Swiss National Bank in the US. But looking at 0:05:20.600 --> 0:05:23.200 the other side, look at US investors and emerging markets. 0:05:23.360 --> 0:05:25.840 They often control the pace of many of these markets 0:05:25.920 --> 0:05:27.159 with their capital outflows. 0:05:27.760 --> 0:05:29.640 Yeah, so it's pretty complex. There's a lot of things 0:05:29.640 --> 0:05:31.719 that go on. And being in a debt based monetary 0:05:31.760 --> 0:05:34.680 system and money is created through debt issuance, then a 0:05:34.720 --> 0:05:36.400 lot of what you have to look at, I would imagine, 0:05:36.440 --> 0:05:38.880 is sort of the bank's willingness to lend, like how 0:05:38.920 --> 0:05:42.360 tight are there lending markets? Maybe the SLUZE reports things 0:05:42.360 --> 0:05:43.960 like that, Yeah, exactly, I. 0:05:43.960 --> 0:05:46.000 Mean I think the thing is is that I mean, 0:05:46.040 --> 0:05:49.440 the SLUS report, as you mentioned, is a pretty good 0:05:49.480 --> 0:05:51.520 heads up. I mean, unfortunately, it tends to be a 0:05:51.560 --> 0:05:54.240 bit of a lagging indicator. So we're looking earlier in 0:05:54.279 --> 0:05:57.039 the pipeline as to what is actually going on to 0:05:57.080 --> 0:05:59.800 actually see the sources of that liquidity coming into the banks. 0:06:00.080 --> 0:06:02.040 So the banks are operating that banks will sort of 0:06:02.120 --> 0:06:05.320 change their view when they've got more opportunity to actually 0:06:05.400 --> 0:06:08.120 raise capital in markets themselves. So it may be that 0:06:09.200 --> 0:06:11.719 very short term money markets become liquid and the banks 0:06:11.760 --> 0:06:14.599 will respond to through the SLEWS or the Senior Loan Office. 0:06:14.600 --> 0:06:18.160 That's survey for example. In terms of you know, what 0:06:19.600 --> 0:06:22.240 is sort of critical to understand in terms of what 0:06:22.440 --> 0:06:25.160 the things that the main things that we look at. 0:06:25.600 --> 0:06:27.320 We look at what the Federal Reserve is doing. I 0:06:27.320 --> 0:06:29.520 mean that clearly goes without saying it's the most important 0:06:29.600 --> 0:06:32.960 central bank worldwide. We've got to understand the Federal Reserve. 0:06:33.480 --> 0:06:35.400 We also look at the People's Bank of China. The 0:06:35.400 --> 0:06:39.039 People's Bank of China is bigger in some ways than 0:06:39.120 --> 0:06:42.240 the Fair It has more more reach, if you like, 0:06:42.279 --> 0:06:44.760 through the Chinese financial system. It tries to keep the 0:06:44.839 --> 0:06:48.880 Chinese Chinese financial system and relatively tight rain for example, 0:06:49.400 --> 0:06:51.839 It's very important for understanding the temper of the world 0:06:51.920 --> 0:06:55.960 economy because China has such a big economic footprint, particularly 0:06:56.000 --> 0:06:56.840 in the Asian region. 0:06:57.080 --> 0:06:59.200 And then we also look at the pool of collateral. 0:06:59.400 --> 0:07:02.960 And the reason for emphasizing collateral is that ever since 0:07:03.040 --> 0:07:06.679 the global financial crisis in two thousand and eight, most 0:07:06.800 --> 0:07:11.400 lending in the world, particularly wholesale lending, is backed by collateral. 0:07:11.480 --> 0:07:13.920 It's like, you know, taking the analogy of the whole 0:07:13.960 --> 0:07:16.679 mortgage and saying, well, okay, let's just extend that idea. 0:07:17.400 --> 0:07:20.840 Everyone who borrows now has some collateral, not necessarily a 0:07:20.880 --> 0:07:23.160 real estate residential real estate, but it could be a 0:07:23.160 --> 0:07:26.280 treasury bond, or it could be an equity, something which 0:07:26.320 --> 0:07:29.080 is actually put up against the loan for security and 0:07:29.280 --> 0:07:32.520 collapse with the collateral base of the system is increasingly important. 0:07:32.880 --> 0:07:36.160 So these are the factors that we mainly watch. Federal Reserve, 0:07:36.760 --> 0:07:38.920 People's Bank of China, and the pool of collateral. Those 0:07:38.920 --> 0:07:41.160 are key things. But I would go on to say 0:07:41.240 --> 0:07:44.000 is that one of the things we've got to recognize 0:07:44.000 --> 0:07:47.160 now is the whole nature of the financial system has changed. 0:07:47.560 --> 0:07:50.360 We characterize it really by saying that, you know, if 0:07:50.400 --> 0:07:52.080 you go back and pick up an economics or a 0:07:52.080 --> 0:07:54.600 finance textbook, it will tell you that interest rates are 0:07:54.640 --> 0:07:55.200 all important. 0:07:55.200 --> 0:07:56.400 I mean, of course, you know. 0:07:56.400 --> 0:07:59.000 Every you know, almost every day in the journal or 0:07:59.000 --> 0:08:01.920 in the financial time, you find people dancing on the 0:08:01.920 --> 0:08:03.440 head of a pin about what the Fed is going 0:08:03.480 --> 0:08:06.800 to do in terms of setting FED funds next next 0:08:06.800 --> 0:08:08.400 month or next FOBC meeting. 0:08:09.080 --> 0:08:11.360 Generally, in argue, that doesn't really matter very much. 0:08:11.520 --> 0:08:13.880 We're not in a world now where interest rates are 0:08:13.880 --> 0:08:17.920 really ruining the tempo of the business cycle. We're much 0:08:17.960 --> 0:08:21.560 more rather than being in a new financing world, we're 0:08:21.560 --> 0:08:24.840 in a refinancing world. When your point about debt is 0:08:24.880 --> 0:08:28.720 extremely important because in a world of debt, you've got 0:08:28.760 --> 0:08:31.560 to refinance that debt. With something like three hundred and 0:08:31.600 --> 0:08:35.880 fifty trillion dollars of debt worldwide, with an average maturity 0:08:35.880 --> 0:08:38.840 of that debt of about five years, the system is 0:08:38.840 --> 0:08:43.080 basically refinancing or needs to refinance about seventy trillion dollars 0:08:43.080 --> 0:08:46.719 every year. That's an eyewatering amount and actually quite demanding 0:08:46.960 --> 0:08:48.280 on the financial system. 0:08:48.440 --> 0:08:49.560 This not interest rates. 0:08:49.559 --> 0:08:52.000 The matter in that case is actually the capacity of 0:08:52.080 --> 0:08:54.920 the financial system to roll the debt, and that really 0:08:54.960 --> 0:08:56.120 is a liquidity feature. 0:08:56.440 --> 0:08:59.120 So that's why global aqudity is all important. And I 0:08:59.200 --> 0:08:59.719 go on to. 0:08:59.679 --> 0:09:01.800 Say, as a sort of as an end NOE, all 0:09:01.840 --> 0:09:05.280 this is that if you look back, every financial crisis 0:09:05.280 --> 0:09:07.400 that I can think of in the last twenty or 0:09:07.440 --> 0:09:12.120 thirty years has fundamentally been a refinancing crisis. It's been 0:09:12.160 --> 0:09:15.400 a time when debt gets out of step with liquidity. 0:09:16.200 --> 0:09:19.480 Now you talked about the interventions of the central banks 0:09:19.520 --> 0:09:22.840 around the world has changed, and it looks like it 0:09:22.880 --> 0:09:25.120 really changed around two thousand and eight with the introduction 0:09:25.160 --> 0:09:27.520 of Q at least in the United States, and then 0:09:27.679 --> 0:09:32.920 the sort of ever increasing willingness to intervene in markets, 0:09:32.920 --> 0:09:36.160 as we saw obviously through twenty nineteen, twenty twenty and 0:09:36.200 --> 0:09:39.280 so forth. Even you know the bank collapse bear Stearns 0:09:39.280 --> 0:09:42.920 went bankrupt in two thousand and seven, it took seven 0:09:42.960 --> 0:09:45.120 months to get a fed bell out. In twenty twenty 0:09:45.160 --> 0:09:47.040 three when the bank's collass we got one in six days. 0:09:47.040 --> 0:09:49.760 So we see like the willingness to intervene has changed. 0:09:49.760 --> 0:09:52.640 But if we go back to these refinancing cycles that 0:09:52.679 --> 0:09:57.320 you talk about, it's almost like I've seen like a 0:09:57.320 --> 0:09:59.600 YouTube video where you put all these metronomes for keeping 0:09:59.640 --> 0:10:02.600 time and they're all on different beats, but after a 0:10:02.640 --> 0:10:05.080 period of time, they all get on the same beat. 0:10:05.080 --> 0:10:06.880 I don't know if you've ever seen that before, And 0:10:06.960 --> 0:10:10.720 it's almost like this refinancing cycle has been syncd up 0:10:10.760 --> 0:10:12.720 maybe since two thousand and eight when the whole world 0:10:12.800 --> 0:10:17.040 went to zero, interest rates got refinanced, and now we're 0:10:17.040 --> 0:10:19.920 sort of in this like four year refinancing cycle, which 0:10:19.960 --> 0:10:23.439 also seems to align with the presidential cycle. And also 0:10:23.760 --> 0:10:26.520 you talk about bitcoin as well, and it also coincides 0:10:26.559 --> 0:10:29.400 with the bitcoin having cycle. And so I guess my 0:10:29.520 --> 0:10:32.560 question to you is, does it seem like we're now 0:10:32.679 --> 0:10:35.920 in this rhythm of refinancing that seems to be about 0:10:35.920 --> 0:10:39.040 every four years? First? And then do you think it's 0:10:39.080 --> 0:10:41.680 because of those interventions that happened in two thousand and eight. 0:10:42.000 --> 0:10:43.960 Yeah, I think you've absolutely nailed it. I mean, I 0:10:43.960 --> 0:10:46.120 think the key point here is that if you go 0:10:46.240 --> 0:10:49.679 back historically, the business cycle was typically eight to nine 0:10:49.760 --> 0:10:52.439 years in length, and that was really driven. 0:10:52.160 --> 0:10:54.840 By the Kapex cycle, and all was how. 0:10:54.880 --> 0:10:57.640 Businesses will actually invest in new capital, plant, on equipment, 0:10:57.640 --> 0:10:59.559 et cetera. And that tends to be an eighteen nine 0:10:59.600 --> 0:11:03.480 years sign what's happened in the intervening in the intervening 0:11:03.559 --> 0:11:05.800 years in the last maybe the last twenty years, is 0:11:05.800 --> 0:11:10.400 that business cycle length the sort of concerting and smaller. 0:11:10.640 --> 0:11:13.000 So it's sort of shrunk into a period of nearer 0:11:13.080 --> 0:11:16.679 sort of four to five years, and that basically reflects 0:11:16.880 --> 0:11:20.600 this debt refinancing cycle. And as you correctly spot, what 0:11:20.640 --> 0:11:23.080 you're getting is everything is moving in that harmony. Now 0:11:23.640 --> 0:11:26.760 you've got bitcoin, you've got central bank interventions, you've got 0:11:26.760 --> 0:11:29.320 the presidential cycle, all these things seem to be in 0:11:29.360 --> 0:11:33.120 a sort of four year window. Interestingly enough, now it's 0:11:33.280 --> 0:11:35.600 kind of difficult to cause and effect over that. But 0:11:35.640 --> 0:11:37.720 I think debt is a critical factor, and I think 0:11:37.760 --> 0:11:40.040 that if you look at the interventions of the central banks, 0:11:40.240 --> 0:11:43.720 they're increasingly coming in with alacrity, of course, to try 0:11:43.720 --> 0:11:46.160 and smooth the system if there are any hiccups in 0:11:46.240 --> 0:11:50.640 depth refinancing, and they move much faster as we've identified. 0:11:50.679 --> 0:11:52.720 So in two thousand and seven, it took a long 0:11:52.800 --> 0:11:55.520 time before the FED really showed its hand. But if 0:11:55.600 --> 0:11:58.240 you look at what happened in the COVID crisis, or 0:11:58.240 --> 0:12:02.440 look at what happened in the REPO crisis in twenty nineteen, 0:12:02.679 --> 0:12:04.840 the FED was moving very quickly. And I think that 0:12:04.920 --> 0:12:08.200 you can even see in the shorter term instances where 0:12:08.240 --> 0:12:11.640 you get wobbles in markets such as SVB that crisis, 0:12:11.679 --> 0:12:15.000 the FED is there almost immediately. And I think what 0:12:15.040 --> 0:12:17.840 this is really telling us is that the primary goal 0:12:18.280 --> 0:12:20.720 of the monetary authority in the US and maybe in 0:12:20.760 --> 0:12:23.560 every country now is to preserve the integrity of the 0:12:23.559 --> 0:12:26.840 sovereign debt markets. This is absolutely critical with so much 0:12:26.880 --> 0:12:29.280 debt and so much public DEBTA run they need functioning 0:12:29.320 --> 0:12:31.200 markets and a very good heads up. 0:12:31.120 --> 0:12:32.560 To that, if people can remember. 0:12:32.600 --> 0:12:36.120 The instance is to go back to Britain and the 0:12:36.120 --> 0:12:39.640 so called lizt Trust moment, when an incoming British Prime 0:12:39.640 --> 0:12:43.679 minister sort of screwed the markets badly by outrage of statements. 0:12:44.000 --> 0:12:47.760 It ruffled the market's feathers significantly, and what you got 0:12:47.880 --> 0:12:50.200 was a huge seller in the British sovereign debt market. 0:12:50.920 --> 0:12:53.240 And that was a wake up call to central banks 0:12:53.280 --> 0:12:56.480 and finance ministers everywhere to say, look, we simply cannot 0:12:56.520 --> 0:12:58.600 allow us to happen. Had this happened in the US 0:12:58.640 --> 0:13:02.360 treasury market, the core, you know, it will be in 0:13:02.440 --> 0:13:06.120 penury now, the system would have collapsed, threatened to collapse. 0:13:06.679 --> 0:13:09.520 So I want to talk about their capacity to intervene. 0:13:09.520 --> 0:13:11.960 But just sticking with this four year cycle, so you 0:13:12.000 --> 0:13:14.360 do see it sort of on this four year cycle. 0:13:14.400 --> 0:13:16.040 As you said, the business cycle has sort of gone 0:13:16.040 --> 0:13:17.599 from about an eight year cycle down to about a 0:13:17.600 --> 0:13:20.080 four year cycle. And it seems like the metronomes on 0:13:20.120 --> 0:13:22.319 time and it does seem to coincide with these things. 0:13:22.360 --> 0:13:25.920 And so then if we're in as you said, we're 0:13:25.960 --> 0:13:31.559 sort of in this basically what would you say, a refinancing cycle. 0:13:31.600 --> 0:13:33.880 So now all this debt gets kicked down the road, 0:13:34.280 --> 0:13:37.200 and in order to refinance the debt, we need more 0:13:37.280 --> 0:13:40.480 debt to refinance it. And it's almost like every four 0:13:40.559 --> 0:13:43.800 years we sort of see maybe this I think maybe 0:13:43.800 --> 0:13:46.439 you framed it up as liquidity air pocket where maybe 0:13:46.960 --> 0:13:48.880 there's not quite enough debt to like roll it over 0:13:48.960 --> 0:13:51.840 until then the central banks sort of intervene and inject 0:13:51.840 --> 0:13:54.319 this new liquidity to kick that can back over, which 0:13:54.400 --> 0:13:56.199 sort of resets it like another four years. 0:13:57.200 --> 0:13:59.120 I think that's absolutely right. I mean, what you're getting 0:13:59.520 --> 0:14:01.640 is exactly that kicking the can down the road. I mean, 0:14:01.640 --> 0:14:06.199 it's it's almost impossible for any administration, whatever the stripe, 0:14:06.440 --> 0:14:11.840 to actually change the outlays that the Treasury is undertaking 0:14:12.040 --> 0:14:14.640 because most of those outlays are sort of their non 0:14:14.679 --> 0:14:19.560 discretionary spending. They're things which are mandatory like Social Security, medicare, 0:14:20.280 --> 0:14:23.640 ultimately defense, these bills have to be paid, come whatever, 0:14:24.120 --> 0:14:27.120 and it's very difficult to actually offer any cutbacks in spending. 0:14:27.400 --> 0:14:30.040 And they can tweak around with discretionary spending, but it's 0:14:30.080 --> 0:14:32.400 such a small item of the budget now it's pretty 0:14:32.440 --> 0:14:35.280 much irrelevant. And then you've got on the other side, taxes. 0:14:35.680 --> 0:14:39.640 Taxes are clearly an unpopular area. But will any administration, 0:14:39.720 --> 0:14:43.440 particularly marginal administration where you've got, you know, you're scrambling 0:14:43.440 --> 0:14:45.480 for votes, put their hand up and say, look we're 0:14:45.480 --> 0:14:46.280 going to raise taxes. 0:14:46.320 --> 0:14:47.400 I mean, nobody's going to do that. 0:14:47.800 --> 0:14:50.680 So what you've got is this funding dilemma, which really 0:14:50.680 --> 0:14:53.520 comes back to the fact that the real strength of 0:14:53.800 --> 0:14:57.200 economies comes back to whether they've got, you know, a 0:14:57.280 --> 0:15:00.400 reserve asset. So the US dollar is in a prime 0:15:00.520 --> 0:15:04.320 situation because the US is a pristine borower internationally at 0:15:04.400 --> 0:15:07.920 least until it's normal, and that makes funding the US 0:15:07.960 --> 0:15:10.080 deficit a lot easier than if you had to fund 0:15:10.560 --> 0:15:14.560 maybe the British deficit, or a deficity in an African 0:15:14.600 --> 0:15:16.680 country or a smaller Asian country. 0:15:16.680 --> 0:15:17.960 These are a lot more problematic. 0:15:18.240 --> 0:15:21.040 And so what you need is that integrity of the markets, 0:15:21.240 --> 0:15:23.680 and that's why the Treasury and the Federal Reserve, in 0:15:23.720 --> 0:15:27.960 my view, are so putting such a high priority and 0:15:28.040 --> 0:15:30.840 maintaining the stability of US debp markets. 0:15:31.360 --> 0:15:33.560 You mentioned like the PBOC, if you watch other central 0:15:33.560 --> 0:15:38.640 banks like the PBOC, but if sort of in two 0:15:38.640 --> 0:15:40.760 thousand and eight, all these interest rates got it reset down. 0:15:40.840 --> 0:15:43.400 Then even though we have different countries, different central banks 0:15:43.400 --> 0:15:46.120 with different priorities, they all sort of got SYNCD onto 0:15:46.120 --> 0:15:50.520 that cycle. And then furthermore, with PBOC, for example, they're 0:15:50.560 --> 0:15:54.360 currently printing or injecting hundreds of billions of dollars into 0:15:54.400 --> 0:15:57.000 the real estate markets to prop that up currently right now. 0:15:57.400 --> 0:15:59.840 And so that's just global liquidity. And then a lot 0:15:59.840 --> 0:16:02.800 of global equity can go into global assets like commodities 0:16:02.840 --> 0:16:05.440 or bitcoin, or even potentially back into the United States. 0:16:06.400 --> 0:16:08.240 Is that sort of the way that you look at 0:16:08.240 --> 0:16:09.960 this global equity exactly? 0:16:10.040 --> 0:16:11.479 I mean a lot of this is fungible. 0:16:11.720 --> 0:16:14.520 I mean, it would already depend I mean in China, 0:16:14.560 --> 0:16:17.640 they've made announcements that they're going to basically issue debt 0:16:17.760 --> 0:16:21.640 for refer real estate, I mean the real estate support. 0:16:21.680 --> 0:16:23.440 I mean, the question is who buys the debt. That's 0:16:23.480 --> 0:16:26.920 really the critical thing with every financial system, you know, 0:16:27.000 --> 0:16:30.960 whatever the nationality, what really matters is whether the debt 0:16:31.040 --> 0:16:33.240 is brought by a credit provider or whether it's. 0:16:33.160 --> 0:16:34.200 Brought by private saver. 0:16:34.720 --> 0:16:36.760 If it is brought by a private saver, it's just 0:16:36.840 --> 0:16:39.960 basically switching money from one pot to another. 0:16:40.000 --> 0:16:41.280 So there's no net effect. 0:16:41.960 --> 0:16:45.080 If you're giving or if it's the credit provider like 0:16:45.120 --> 0:16:47.840 a bank, who is buying the debt, then what you're 0:16:47.880 --> 0:16:51.840 doing is monetizing the debt. In other words, that's what 0:16:52.080 --> 0:16:54.080 textbooks will tell you was a bad thing, because you're 0:16:54.120 --> 0:16:56.920 creating a lot of excess liquidity. And my view is 0:16:56.920 --> 0:16:59.000 that that's what the gold market and that's what bitcoin 0:16:59.080 --> 0:17:03.320 and currently telling right now is there is concern about monetization. 0:17:03.760 --> 0:17:05.639 Now if you look at what Janet's been doing in 0:17:06.080 --> 0:17:09.520 a treasure executor, Janet Yellen's been doing basically, I think 0:17:09.720 --> 0:17:13.200 she's been very astute in managing the. 0:17:13.119 --> 0:17:15.160 Supply of coupon debt in the US. 0:17:16.160 --> 0:17:18.919 And what she's done is created given the fact that 0:17:18.960 --> 0:17:20.840 we know that there's got to be a lot of 0:17:20.840 --> 0:17:23.720 demands on the coupon market, given the fact the deficit 0:17:23.960 --> 0:17:26.080 is two trillion a year or running at that sort 0:17:26.080 --> 0:17:28.960 of clip, there's got to be a lot of coupon issuance. 0:17:28.960 --> 0:17:31.600 And otherwise, anything which is of a maturity of more 0:17:31.600 --> 0:17:34.960 than about a year, So anything any Treasury security that 0:17:34.960 --> 0:17:37.240 plays a coupon is deemed to be coupon debt, and 0:17:37.320 --> 0:17:40.480 the Treasury normally has a preference for sort of issuing 0:17:40.520 --> 0:17:43.520 debt around about seven years or there or thereabouts. But 0:17:43.600 --> 0:17:46.800 what she's done is very carefully avoided the longer end 0:17:46.840 --> 0:17:49.560 of the market for issuance, focused on the shorter end, 0:17:49.760 --> 0:17:52.679 and in particular use bill finance as a plug for 0:17:52.760 --> 0:17:55.840 any swings in the deficit. Now, that's actually pretty astute management, 0:17:56.040 --> 0:17:58.480 at least in the short term. I mean, she'll be 0:17:58.560 --> 0:18:01.199 caught out in the long term almost unquestionably, But in 0:18:01.240 --> 0:18:03.760 the short term it's helped the treasury market, and it's 0:18:03.760 --> 0:18:06.560 probably meant that yields are actually lower at the longer 0:18:06.640 --> 0:18:09.280 end now than they should really be by rights, so 0:18:09.320 --> 0:18:11.480 the yield curve is flatter than it would be it 0:18:11.520 --> 0:18:15.000 should be steeper right now. But generally speaking, there's been 0:18:15.080 --> 0:18:17.040 quite quite a you know, quite a clever move by 0:18:17.080 --> 0:18:19.439 the Treasury and actually how they've how they run things. 0:18:19.320 --> 0:18:19.840 In the US. 0:18:20.119 --> 0:18:23.720 But the problem's sorry ahead, go ahead, tell me what 0:18:23.760 --> 0:18:24.159 the problem. 0:18:25.040 --> 0:18:28.240 The problem is, quite simply is that what's happening is 0:18:28.280 --> 0:18:31.280 that if you're assuing so much short dating coupon debt, 0:18:31.760 --> 0:18:33.240 you know words at the front end of the market 0:18:33.280 --> 0:18:35.960 one two year dead and you're assuming a lot of bills, 0:18:36.200 --> 0:18:38.960 it's the banks who tend to light that error of 0:18:39.000 --> 0:18:42.520 the market. They buy those treasury securities and that is 0:18:42.600 --> 0:18:46.679 pure monetization. So you're actually feeding, you know, the wolf 0:18:46.720 --> 0:18:52.119 who is creating the monetization or if that anamitude works, 0:18:52.280 --> 0:18:53.520 but effectively, that's. 0:18:53.359 --> 0:18:56.800 What's going on. So America now is is, you know. 0:18:56.720 --> 0:19:00.560 Doing what Milton Friedman has been counseling against for decades 0:19:00.560 --> 0:19:01.600 and decades and decades. 0:19:01.640 --> 0:19:02.960 It's effectively printing. 0:19:02.720 --> 0:19:05.479 Money right by issuing the short term bills. I mean 0:19:05.520 --> 0:19:08.080 it's basically injecting money directly into the economy. I mean 0:19:08.080 --> 0:19:10.919 we consider in the US, if I had one hundred 0:19:10.960 --> 0:19:13.920 dollars note, it's one hundred dollars bill. I mean she's 0:19:13.960 --> 0:19:16.600 basically issuing so that's a that's a that's a bill, 0:19:16.680 --> 0:19:19.080 that's a note with the zero day you know, coupon 0:19:19.200 --> 0:19:21.480 if you will, right, and she's basically issuing the same 0:19:21.520 --> 0:19:24.960 thing into the market, which is just short term cash. Now, 0:19:25.080 --> 0:19:27.880