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Speaker 1: Well, hello and welcome to another episode of the All

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Speaker 1: Thoughts Podcast. I'm Tracy Allaway and I'm so we have

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Speaker 1: a very very special episode for two reasons. One, we're

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Speaker 1: recording this in front of a live audience, and secondly,

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Speaker 1: we're going to be featuring two of our favorite people

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Speaker 1: to speak to. Yeah, absolutely right. We're gonna be talking

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Speaker 1: about the future of the dollar, which for our entire careers.

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Speaker 1: I feel like dollars. Something is going to happen to

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Speaker 1: the dollar. It's gonna blow up, people are gonna stop

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Speaker 1: using it whatever. I still don't even know what the

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Speaker 1: question means. And it's like, what is a post dollar future? What?

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Speaker 1: I don't even understand the top of completely. But we

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Speaker 1: have people who actually do well. We have a lot

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Speaker 1: of time to dig into it. So without further ado,

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Speaker 1: I'm going to introduce our guests for this particular debate.

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Speaker 1: We have Sultan Posar, strategist at Credit Swiss, and Perry Maryland,

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Speaker 1: Boston University professor and also the author of the forthcoming

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Speaker 1: book Money and Empire, Charles P. Kindle Burger and the

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Speaker 1: Dollar System that's already out in the UK, it's coming

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Speaker 1: to the US soon and you can probably guess from

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Speaker 1: the title what side of the dollar debate Perry sits on?

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Speaker 1: But why don't we jump into Joe kind of go

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Speaker 1: zumped me on that question. But like, when we talk

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Speaker 1: about the future of the dollar, what exactly are we

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Speaker 1: talking about? Both of you have spent your entire careers

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Speaker 1: talking about money and specifically different types of money. So

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Speaker 1: what is the dollar? What is the dollar? Is the dollar? Well,

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Speaker 1: so that's actually a very interesting first question as a

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Speaker 1: matter of fact, because there's a lot of different kinds

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Speaker 1: of dollars um and the we already know there's the

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Speaker 1: dollars that that are printed by the government, their little

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Speaker 1: green pieces of paper. Is the dollars of the liability

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Speaker 1: of the FAID that over bank reserves. That the dollars

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Speaker 1: that are the liability of the banking system which we

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Speaker 1: use to make payments to each other. But I would

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Speaker 1: particularly put on the table right now there's the whole

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Speaker 1: offshore dollar system, the your dollar system UM, where there

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Speaker 1: are liabilities of banks that that are not American banks,

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Speaker 1: um and the assets of people who are not American

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Speaker 1: systems UM. And and that is now the global dollar system,

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Speaker 1: which is I think very very important to appreciate and

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Speaker 1: that this has grown up basically as the infrastructure of

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Speaker 1: the global trading trading system. It's alt I agree with that. UM,

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Speaker 1: what is the dollar? I think I would let me

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Speaker 1: add some some things to that. There is there's all

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Speaker 1: this offshore dollar which is not only in the balance

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Speaker 1: sheet of non American banks, but then those balances are

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Speaker 1: held by UM countries that are either aligned or not

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Speaker 1: aligned with UM a certain view of the world. And

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Speaker 1: so that's an extra dimension that I think we have

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Speaker 1: learned about when we when we think about the dollar.

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Speaker 1: There's also the dollar in in in the context of

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Speaker 1: price stability, where you basically have a unipol or world

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Speaker 1: where UM there is one Hedgemen and basically the commodity

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Speaker 1: trade is UM in the control of that Hedgemen. But

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Speaker 1: then there's also a dollar in the world where the

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Speaker 1: commodity market is becoming more dura political resource national nationalism

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Speaker 1: is creeping into the picture, and and that has an

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Speaker 1: impact on the price level, that has an impact on

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Speaker 1: on inflation. So so I would say that the dollar

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Speaker 1: is a project. Well, let me ask you this. You've

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Speaker 1: been writing about this, this Brenton Wood's three idea, the

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Speaker 1: shift and course we've been talking about it a lot.

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Speaker 1: Like I guess my question is like, what is the

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Speaker 1: testable hypothesis of whether you're right? What does something look

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Speaker 1: different either now or a few years time. They would say, yes,

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Speaker 1: we entered into some sort of new global regime. Yes.

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Speaker 1: So the first time we talked about Breton Woods three, Um,

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Speaker 1: I think we we said that this is going to

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Speaker 1: be a a long term journey, but it has started. Um.

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Speaker 1: What are some of the markers since we have first

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Speaker 1: talked about Bretonwoods three that that would support the thesis?

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Speaker 1: I think I think a number of things. Um, we

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Speaker 1: know that the commodity market is no longer exclusively priced

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Speaker 1: in U S dollars. We know that certain countries are

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Speaker 1: getting heavily discounted UM Russian commodities UM for example China,

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Speaker 1: for example India. We know that those countries are paying

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Speaker 1: uh remman b and rupees for those commodities. We know that,

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Speaker 1: you know, Europe stopped paying certain countries stopped paying euros

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Speaker 1: for for gas and they paid rubles. Now there is

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Speaker 1: gas flow issues, obviously, but but again I think on

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Speaker 1: the margin, it's no longer the case that commodities equal dollars. Okay,

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Speaker 1: that's that's um. That's um. That's number one. What is

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Speaker 1: also obvious that in the Western world we have inflationary

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Speaker 1: impulses that we are dealing with which we haven't really

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Speaker 1: had to deal with in in several decades. UM. Whether

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Speaker 1: UH this cycle of inflation will be successfully um uh

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Speaker 1: halted or not, is I think going to have an

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Speaker 1: impact on certain currencies status in reserve portfolio. I'm not

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Speaker 1: talking just about the US DADA, but basically G seven currencies,

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Speaker 1: the Sterling euros, dollars, UM. I think, UM, I think

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Speaker 1: there's a lot of work that needs to be done

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Speaker 1: still to basically maintain confidence in UH in these currencies.

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Speaker 1: When Paul Walker again he was the last central banker

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Speaker 1: that had to deal with a similar episode, and he

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Speaker 1: did something very fast and in a very draconian fashion,

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Speaker 1: I think we can also say that what we are

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Speaker 1: doing today in the West is heading in that direction,

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Speaker 1: but not the intensity with which with which we're doing it.

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Speaker 1: So to me again, it's it's a working hypothesis. UM.

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Speaker 1: I have been writing about aspects of this Breton Woods

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Speaker 1: three idea. You know that the war in interest rates PIACE,

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Speaker 1: war industrial policy Um, all of these things I think

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Speaker 1: are just you know, trying to look at the concept

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Speaker 1: from many different angles, stress testing it. So far, I

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Speaker 1: think I'm internally consistent. So I'm building up the narrative

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Speaker 1: around it. It's a way of kind of stress testing

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Speaker 1: whether you makes sense. But again, if if it fits together,

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Speaker 1: it fits together, and they'll see. But let me just

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Speaker 1: say we are six months into this. I mean, Rome

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Speaker 1: wasn't built in one day. God didn't create the world

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Speaker 1: in one day either. Um, probably not in that order.

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Speaker 1: But I think it's a work in progress. But can

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Speaker 1: I just press on? I guess, like, what do you

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Speaker 1: look at to judge the dollar's dominance? Is a pure

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Speaker 1: exchange rate? Because on that basis the dollar has done

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Speaker 1: pretty well over the past six months. Is it? Central

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Speaker 1: bank reserves? Those have been diversifying for some time now,

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Speaker 1: Trade financing, invoice, bond issuance, Like what are you looking at?

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Speaker 1: What am I looking at? Um? So I would say

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Speaker 1: two things. The the the the big picture conclusion I

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Speaker 1: have arrived at and I think I'm articulating this, uh

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Speaker 1: piece by piece in in in my pieces, is that

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Speaker 1: when you think about the dollar, And again, let me

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Speaker 1: let me just use Peri's work workhorse, which is that

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Speaker 1: money has for prices. There's far interest for an exchange

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Speaker 1: and the price level. So my working conclusion about all

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Speaker 1: this is when you think about the dollar and you

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Speaker 1: try to understand the future of the dollar from an

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Speaker 1: exchange rate perspective, I mean, it's it's an exchange rate,

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Speaker 1: it's a nominal thing, right, But versus the Euro and

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Speaker 1: a end, I think the dollar is always going to

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Speaker 1: be strong in the present context, right because at least

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Speaker 1: the US is energy and commodity self sufficient. Other regions

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Speaker 1: of the world are not, and so that has an

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Speaker 1: imprint on their on their exchange rates. Uh. What I

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Speaker 1: what I think about in terms of dollar weakness is

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Speaker 1: basically the dollar getting devalued versus commodities. UM. Because again,

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Speaker 1: if you take a step back and look at everything

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Speaker 1: that's happening in terms of East and West, you know,

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Speaker 1: the G seven versus the Eurasian land mass, resource nationalism,

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Speaker 1: all these things. I think what we are learning is

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Speaker 1: that um, that the West is exposed to the East.

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Speaker 1: In terms of commodities. UM, we have a number of

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Speaker 1: issues in the commodity markets which we can which we

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Speaker 1: can talk about a decade of no investment. As I said,

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Speaker 1: you know, resource nationalism type markets everywhere. So I think

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Speaker 1: commodity prices can go much higher from here, and a

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Speaker 1: dollar can get devalued in terms of commodities in that sense.

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Speaker 1: So the way I would say this isn't there in

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Speaker 1: the nineteen thirties. You know, central banks when we had

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Speaker 1: a we had a commodity based money system, they raised

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Speaker 1: the price of money in terms of commodities because they's

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Speaker 1: just that when you devalue versus the goal, that's what

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Speaker 1: happens UM. Today, I would say we will have a

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Speaker 1: version of this in the sense that the geopolitical realities

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Speaker 1: of commodities shift away from your control and you basically

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Speaker 1: are dealing a bit much higher commodity markets UM and

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Speaker 1: the valuation of the daughter in that sense. But everything

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Speaker 1: is relative. So Perry obviously want to bring you in

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Speaker 1: what do you I mean, like when you think about okay,

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Speaker 1: the last two years or anything you're seeing now and

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Speaker 1: obviously in the sweep of history, like do you see

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Speaker 1: anything fund do you see regime change of sorts, whether

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Speaker 1: you'd call it Breton which three or is it? Yeah,

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Speaker 1: we have inflation that happens sometimes our commodities are scarce.

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Speaker 1: We commodities were expensive in the early two thousand's too,

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Speaker 1: Like have we been here before? Um? Well, many people

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Speaker 1: are trying to draw analogy between the present situation and

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Speaker 1: the immediate poste um when there was inflation in the

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Speaker 1: seventies and so forth, and when Nixon basically tried to say,

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Speaker 1: you know, we we we don't want to be the

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Speaker 1: top dollar anymore because it constrains us too much. UM.

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Speaker 1: And I think those analogies are misplaced. UM. And also

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Speaker 1: don't draw the right lessons in the seventies. UM. I

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Speaker 1: do take a longer historical perspective. UM. And you sort

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Speaker 1: of in your introductory remarks you were saying, we've been

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Speaker 1: here many times. The dollars you know, going away? Yes, okay,

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Speaker 1: And I've just written a book basically about it. So

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Speaker 1: about the construction of the dollar system. Um. After the

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Speaker 1: death of Sterling, basically you could you could you could say, um,

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Speaker 1: And it took a while before we were able to

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Speaker 1: reorganize the global trading system around around the dollar. And

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Speaker 1: that's sort of what the Breton Woods meeting was there

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Speaker 1: to basically acknowledge, like the future is going to be

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Speaker 1: a dollar a dollar world, and it was and gradually

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Speaker 1: the world grew, the system grew. This is important to

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Speaker 1: appreciate and the traumas of the system like seventy one

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Speaker 1: turned out in retrospect to be growing pains. That what

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Speaker 1: happened after seventy one was not the end of the

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Speaker 1: dollar system, but the offshoring of the dollar system UM

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Speaker 1: and and then other crises where we added Asia and

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Speaker 1: actually after the global financial crisis, if you look at

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Speaker 1: what happened in capital markets you mentioned bond markets, this

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Speaker 1: is the extension of the global of the dollar system

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Speaker 1: to the global South. UM. Really for the first time

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Speaker 1: when when UM, the national champions in the Global South

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Speaker 1: are able to borrow in dollar capital markets basically because

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Speaker 1: interest rates are zero in the in the North UM.

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Speaker 1: And so there's a win win here that the pension

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Speaker 1: funds want to want to lend the money UM and

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Speaker 1: they want to borrow money. And so in that longer

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Speaker 1: horizon you see that these financial crises, these periods of trauma,

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Speaker 1: you know, like the Global financial crisis, which which people said,

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Speaker 1: oh the dollars are gonner. You know, obviously it was

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Speaker 1: like it was a crisis of the very core it

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Speaker 1: emerged stronger than ever. Um. And uh So that's what

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Speaker 1: I think, that's the perspective that we need to take.

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Speaker 1: So what is the current crisis? Okay, I maybe take

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Speaker 1: a different, different view because I can take a longer view.

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Speaker 1: I'm not I'm not I'm not working for credit squeeze. Um.

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Speaker 1: And I've a couple of weeks versus a book every

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Speaker 1: ten years. Yes, yes, the book every ten years. I

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Speaker 1: try to I try to. Uh, I try to write

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Speaker 1: them more fast than that, but they do take they

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Speaker 1: do take time. Um. The I think the thing that

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Speaker 1: I would like to throw into the mix here is

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Speaker 1: the pandemic. Okay, not you know, the war in Ukraine

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Speaker 1: or tensions in Taiwan or something. But what came before that,

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Speaker 1: which is two years of of extremely loose monetary policy

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Speaker 1: throughout the entire world, involvement of the state. You know,

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Speaker 1: this was war finance, this was wartime, okay. And we're

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Speaker 1: switching and then the pandemic is over we don't know,

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Speaker 1: maybe okay. And so we're in the process right now

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Speaker 1: of switching from war finance to peace finance. Um. And

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Speaker 1: that is a rocky road Okay. So that I would

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Speaker 1: analogize all of this to like immediately after World War Two,

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Speaker 1: you know, when um, the the reigns of the monetary

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Speaker 1: system in the United States had been in the treasury,

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Speaker 1: the FED. The Fed's job was simply to finance the

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Speaker 1: government whatever it took, you know. And if the if

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Speaker 1: the government is issuing bonds and no one wants to

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Speaker 1: buy them, the FED will buy them. And so that's

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Speaker 1: how war finance works. That's how pandemic finance worked, you know.

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Speaker 1: And that work not just that way in our country,

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Speaker 1: but in every country around around the world. That's how

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Speaker 1: it worked. Okay. You may remember that just before the

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Speaker 1: pandemic um there was an attempt to begin raining in

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Speaker 1: the elasticity from the global financial crisis to the Taper

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Speaker 1: tantrum and all that sort of thing. That's where we were,

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Speaker 1: that's where we are now. Okay, that's what Powell wants

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Speaker 1: to do, and it's the right thing to do. We

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Speaker 1: have we were, We've been in a period of elasticity.

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Speaker 1: Now we're moving into a period of discipline, and that

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Speaker 1: period of discipline will re establish the dollar. Um I

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Speaker 1: I believe that's that's what I think is happening. Actually,

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Speaker 1: So just on this topic, and I'm kind of hoping

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Speaker 1: that you'll you'll channel Kindle Burger here. But what are

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Speaker 1: the benefits of a dollar system outside of the US?

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Speaker 1: I think everyone is fairly familiar with what the U

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Speaker 1: S gots from it, But what are other countries, especially

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Speaker 1: at a time when the U S is tightening monetary policy,

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Speaker 1: when some economies, notably emerging markets, probably don't necessarily want

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Speaker 1: to see a tightening of financial conditions. So I will

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Speaker 1: give you Charlie's answer, Um, Charlie kimno Burger's answer. Everyone

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Speaker 1: called him Charlie, so I will call him Charlie. I

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Speaker 1: call him Charlie throughout the book. And UM, I actually

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Speaker 1: did know him as a matter of fact, and and

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Speaker 1: and used to visit him. But but everyone called him

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Speaker 1: Charlie even if they didn't know him the his What

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Speaker 1: I discovered in writing this book is that Charlie's view

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Speaker 1: of the world was very much influenced by his teacher

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Speaker 1: at Columbia, Henry Parker Willis, who was one of the

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Speaker 1: creators of the Federal Reserve system. UM in the United States.

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Speaker 1: And what did the Federal Reserve system do united these

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Speaker 1: disparate little regions into a par clearing area inside the

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Speaker 1: United States. Okay, Um, so that you had a unified

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Speaker 1: monetary system in this country that had never had it before,

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Speaker 1: never had a central bank before. Historians will correct me

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Speaker 1: on that. But the and this is a big achievement.

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Speaker 1: What Charlie wants to do starting in graduate school of

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Speaker 1: Columbia is do the same thing for the world. The

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Speaker 1: logic of why it's a good thing to have one

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Speaker 1: currency for for the whole country, okay, and part clearing

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Speaker 1: for the whole country. The logic is just the same

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Speaker 1: for why it might be a good idea to have

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Speaker 1: one currency for the whole world. Um. And that's what

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Speaker 1: people get out of it is that it it makes

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Speaker 1: it makes it easier to do trade, to do calculations,

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Speaker 1: to do to to unite the globe into a unified economy.

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Speaker 1: And that's basically what it is. I'm very influenced by

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Speaker 1: the writings that come out of the bi s appreciating

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Speaker 1: that we really live in a unified world. This notion

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Speaker 1: of separate nation states with separate currencies, this is something

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Speaker 1: that was that was inherited in our minds from World

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Speaker 1: War Two when when that system had all broken down.

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Speaker 1: But that's not the world we live in now. It's

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Speaker 1: a it's a global dollar system and it has a

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Speaker 1: lot of advantages for now. That does mean, which you

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Speaker 1: were just coming to at the end, that basically there's

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Speaker 1: one monetary policy that matters and and that's and that's

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Speaker 1: US dollar monetary policy that that then gets filtered out

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Speaker 1: to the whole rest of the world. And that's what's happening. Now.

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Speaker 1: We're moving into discipline mode um and we're already seeing

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Speaker 1: where the weak points are in the in the global system,

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Speaker 1: and those are going to be managed in the next

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Speaker 1: couple of years. So do you see, like you know,

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Speaker 1: the coordination costs essentially from Okay, it's great, we have

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Speaker 1: like one unit of account and then we're gonna have

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Speaker 1: multiple ones. Like what are the costs in your view

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Speaker 1: from as you said, are already setting some commodities price

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Speaker 1: outside of dollars or an increase in the commodities price

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Speaker 1: outside of dollars, Like, what are going to be the

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Speaker 1: costs to the world economy if your sort of vision

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Speaker 1: or your sort of characterization proves out. Yes, Well, perhaps

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Speaker 1: before before I answered that question, I mean listening to Perry,

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Speaker 1: you know, Charlie Kindleberger grew up in a certain period, right,

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Speaker 1: which is you know, post World War. You know, we

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Speaker 1: have a unified clearing system in the US. Let's kind

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Speaker 1: of replicate that in the world. And you can replicate

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Speaker 1: that in a world where where very basically have one hegement. Right,

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Speaker 1: that's a unipolar world order and it has a currency

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Speaker 1: for it um. But I think everywhere I look today

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Speaker 1: we basically have that unipolar world order being challenged. I mean,

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Speaker 1: I wrote about this, so so we can we can

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Speaker 1: we can talk about some aspects of this. I think,

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Speaker 1: you know, if you take a step back and you

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Speaker 1: want to kind of distill everything that has been happening

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Speaker 1: since February, you basically have several blockades here, right. You

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Speaker 1: have a blockade of Europe from an energy perspective, you

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Speaker 1: have a blockade of a big pile of fex reserves.

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Speaker 1: From a financial perspective, You've had a week long blockade

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Speaker 1: on an island in the South China Sea. And we

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Speaker 1: are designing a blockade of of China from from a

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Speaker 1: chip sufficiency perspective, not even sufficiency, but you know, be

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Speaker 1: able to make chips with a SML machines, be able

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Speaker 1: to upgrade machines that make memory chips. You know, that's

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Speaker 1: the news about UM memory chip manufacturers with facilities in China.

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Speaker 1: The latest iteration is and video which makes AI chips,

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Speaker 1: as as the experts of the media on chip matters.

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Speaker 1: Uh no, So you basically have a very complex kind

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Speaker 1: of chess game. I thought you're going to insinuate that

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Speaker 1: the chips we're going to replace what I mean, it's

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Speaker 1: problem again like but but but but the significance of

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Speaker 1: this is that you know, the the E, C, N,

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Speaker 1: Y and and everything. You know, China is about AI

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Speaker 1: and there's a lot of AI infrastructure being done. It's

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Speaker 1: probably the one sovereign that you associate with AI. And

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Speaker 1: so you know, the the end video, the video news

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Speaker 1: is significant from that perspective. So you have these multiple blockades. Okay,

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Speaker 1: So if the physical world, okay, is becoming fragmented, I

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Speaker 1: don't think it's no longer appropriate to think about, you know,

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Speaker 1: the world as a unified whole, where you basically need

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Speaker 1: to replicate the unified clearing system in the US to

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Speaker 1: the rest of the world. Um, you know you you

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Speaker 1: I didn't mention this before, but but you did ask

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Speaker 1: like what markers am I looking for in terms of look,

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Speaker 1: as I said, the invoicing of flows in different currencies

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Speaker 1: in commodities is one thing. But also when you look

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Speaker 1: at the stocks of f X reserves, um. You know,

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Speaker 1: the fact that you know, uh, China for example, is

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Speaker 1: letting its treasury portfolio run down since the beginning of

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Speaker 1: the war is another important little little bit that you

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Speaker 1: need to keep an eye on because I think just

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Speaker 1: as the real world is getting disentangled, the financial world

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Speaker 1: is getting disentangled um um. And so these are all

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Speaker 1: you know, little bits of pieces that people follow for

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Speaker 1: the next six months, twelve months, five years, and I

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Speaker 1: think the world is going to look very different. You know.

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Speaker 1: The the I think the historical analog here is I remember,

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Speaker 1: I mean I was, you know, trying to get an

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Speaker 1: internship in Washington, d C. In the year two thousand.

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Speaker 1: I was like writing emails from Hungary to Congressman. You know,

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Speaker 1: China just got um admitted to the w t O,

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Speaker 1: and like, what the hell does this mean for the world. Well,

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Speaker 1: you know, give eight years and you have three trillion

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Speaker 1: dollars of treasuries, right, you know what is the next

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Speaker 1: five You're going to look like I have no idea.

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Speaker 1: But you know, if the weight at average maturity of

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Speaker 1: these treasuries in fex reserve portfolios is like five years,

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Speaker 1: I mean, the world could look very different, you know,

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Speaker 1: five five years from now. So so again it's it's

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Speaker 1: it's a it's a glacial progress, but it's it's it's

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Speaker 1: a progress, and I think it's it's time to start

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Speaker 1: thinking about how the financial landscape is going to evolve

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Speaker 1: when we read about the real world getting more and

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Speaker 1: more fractured every day. So Perry, just on that reserves point,

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Speaker 1: I mean, it is true if you look at FX

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Speaker 1: reserves over the past decade or beyond, actually you can

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Speaker 1: see central banks diversifying. So renmand B reserves have gone up,

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Speaker 1: reserves of I think South Korea and Canada and some

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Speaker 1: other places have gone up as well, dollar reserves going down.

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Speaker 1: When you see something like that, what do you think

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Speaker 1: is happening? Like, what is the rationale for doing that? Um, well,

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Speaker 1: diversification but there but this is small potatoes. The numbers

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Speaker 1: you're talking about are are are really quite small. Um

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Speaker 1: the evidence of dollar of dollar dominance is is still

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Speaker 1: pretty overwhelming. I think now Sultan says, wait five years,

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Speaker 1: so maybe, but wait five years, other things could happen

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Speaker 1: to you know that. Um, it's not it's not obvious

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Speaker 1: to me that all of the long that the trend

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Speaker 1: is your friend. UM in this, in in this, in

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Speaker 1: this regard. Um. Well, remember that wars are hot houses

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Speaker 1: in many ways. UM. And I mean now I'm talking

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Speaker 1: about the pandemic, um, not not not Ukraine. UM. A

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Speaker 1: lot of things have changed in the pandemic. UM. A

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Speaker 1: lot of a lot of technology was developed in order

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Speaker 1: to enable us to continue on with our life. This

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Speaker 1: has changed how we work, this has changed where we live.

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Speaker 1: It's changed. There's a lot of dislocation that has happened. Okay,

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Speaker 1: and that's what you're seeing in supply chains as. But

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Speaker 1: it's also even local inside the United States, you know people. Um,

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Speaker 1: And that hasn't yet sort of all settled down by

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Speaker 1: any means. Remember what happened in World War Two. There

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Speaker 1: were separate spheres, right, and the and the effect was

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Speaker 1: that Germany, you know, invented a lot of whole chemical industry,

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Speaker 1: you know, and we developed atomic energy and we know

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Speaker 1: all there was a lot of stuff developed in World

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Speaker 1: War Two that we then rode that wave basically for

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Speaker 1: the next thirty years, the thirty glorious years. You know,

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Speaker 1: we're building on those developments. So it's not obvious to

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Speaker 1: me that we're entering into a gloomy period. Deglobalization. We

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Speaker 1: haven't used that word yet here, but Salton uses it

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Speaker 1: all the time in his writing, and he is a

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Speaker 1: I wouldn't say fan advocate. He sees de globalization. Um,

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Speaker 1: I'm not sure. I'm not sure. Um. I I think

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Speaker 1: China has its own problems, Russia has its own problems. Um.

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Speaker 1: Where he mentions in some of his his I don't

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Speaker 1: know where you get this factor wide, but that's sort

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Speaker 1: of because of our of the us UH anti immigrant

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Speaker 1: two million jobs have left those and the people have left. Okay,

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Speaker 1: well they've gone somewhere, you know, and they gained skills

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Speaker 1: here and now they're somewhere and they're building firms and

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Speaker 1: doing things. But that's going to take a little while. UM.

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Speaker 1: So we the whole supply chain stuff was all disrupted

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Speaker 1: by the pandemic. Um it's being disrupted even more by

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Speaker 1: geostrategic things. But it will get reconstructed. And it's not

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Speaker 1: clear to me that this is a pivot point where

429
00:25:18,880 --> 00:25:22,439
Speaker 1: we shift from a market determined system. This is the

430
00:25:22,480 --> 00:25:25,000
Speaker 1: big point that Charlie always makes. The reason we have

431
00:25:25,080 --> 00:25:28,119
Speaker 1: dollar to gemin a okay, is not because the US,

432
00:25:28,160 --> 00:25:31,160
Speaker 1: because it's a uniportly world. In fact, the US doesn't

433
00:25:31,200 --> 00:25:32,840
Speaker 1: really want to do this. You know, this is a

434
00:25:32,880 --> 00:25:34,960
Speaker 1: public good the US is providing the rest of the world.

435
00:25:35,000 --> 00:25:37,440
Speaker 1: So that I wanted to ask about this because you mentioned,

436
00:25:37,480 --> 00:25:39,879
Speaker 1: okay that if you look at past crisis and you

437
00:25:39,920 --> 00:25:42,080
Speaker 1: see after the Great Financial Crisis, after each one of

438
00:25:42,080 --> 00:25:45,520
Speaker 1: these periods of stress, the dollar has gone from strength

439
00:25:45,640 --> 00:25:49,240
Speaker 1: to strength. Is that a burden? I mean people exorbitant privilege,

440
00:25:49,280 --> 00:25:51,119
Speaker 1: Like it's a good thing, but like there's also a

441
00:25:51,119 --> 00:25:54,200
Speaker 1: talk that especially pre pandemic, when a lot of the

442
00:25:54,240 --> 00:25:57,000
Speaker 1: issues were like in sufficient demand, and there was an

443
00:25:57,040 --> 00:25:59,280
Speaker 1: argument of the dollar is too strong, and that's probably

444
00:25:59,440 --> 00:26:03,040
Speaker 1: like is there good for the US that these series

445
00:26:03,080 --> 00:26:07,879
Speaker 1: of crises where the dollar keeps getting stronger? So maybe not?

446
00:26:08,720 --> 00:26:12,680
Speaker 1: Maybe not. You know that it is monetary policy. This

447
00:26:12,840 --> 00:26:15,240
Speaker 1: image we have in the world that every country is

448
00:26:15,280 --> 00:26:18,600
Speaker 1: separate and they can run their independent monetary policies if

449
00:26:18,600 --> 00:26:21,160
Speaker 1: they have flexible exchange rates. I think it's not true

450
00:26:21,160 --> 00:26:23,920
Speaker 1: of any country. It's not true of countries in the periphery.

451
00:26:23,920 --> 00:26:27,040
Speaker 1: It's not true of the country in the center. Because

452
00:26:27,280 --> 00:26:30,480
Speaker 1: US monetary policy is global monetary policy, and so it

453
00:26:30,600 --> 00:26:34,199
Speaker 1: has consequences really, you know, it rebounds on on the

454
00:26:34,280 --> 00:26:37,960
Speaker 1: United States. The reason I titled my book Money and

455
00:26:38,040 --> 00:26:42,080
Speaker 1: Empire is precisely because of this, to to really highlight

456
00:26:42,520 --> 00:26:46,679
Speaker 1: the kind of contradiction between our political reality, which is

457
00:26:46,760 --> 00:26:51,199
Speaker 1: nation states, okay, and our monetary reality, which is global okay.

458
00:26:51,280 --> 00:26:54,960
Speaker 1: And how do you manage that? Um? It's it is

459
00:26:55,080 --> 00:26:59,720
Speaker 1: managed right now by central bank cooperation mainly UM. And

460
00:27:00,240 --> 00:27:03,880
Speaker 1: the backstop of the global system is this intricate system

461
00:27:04,000 --> 00:27:07,600
Speaker 1: of central bank backstops, liquidity swaps and so forth, and

462
00:27:07,640 --> 00:27:10,879
Speaker 1: these new female repo facilities and things that extend it

463
00:27:11,240 --> 00:27:15,680
Speaker 1: further to the global south. UM. But it's but US

464
00:27:15,720 --> 00:27:18,480
Speaker 1: monetary policy is a global monetary policy, and so that's

465
00:27:18,480 --> 00:27:22,399
Speaker 1: what's happening. The US has decided now is the time.

466
00:27:22,680 --> 00:27:25,600
Speaker 1: I'm sure this was in in collaboration and discussion with

467
00:27:25,720 --> 00:27:27,879
Speaker 1: other major central banks. They knew that this was not

468
00:27:27,920 --> 00:27:31,000
Speaker 1: a surprise, and so they're coming along, you know, they're

469
00:27:31,040 --> 00:27:35,240
Speaker 1: they're ratcheting up in their own time. UM. And that's

470
00:27:35,280 --> 00:27:38,840
Speaker 1: that's what is that's how the politics are working. That

471
00:27:38,920 --> 00:27:42,480
Speaker 1: it's cooperation between the central banks in the different countries.

472
00:27:42,640 --> 00:27:49,000
Speaker 1: Will that hold We don't know geo strategic stuff says

473
00:27:49,040 --> 00:27:52,119
Speaker 1: maybe not. Yes, I mean I would say that you

474
00:27:52,160 --> 00:27:55,439
Speaker 1: know that the data being the the issuer custodian of

475
00:27:55,440 --> 00:27:58,560
Speaker 1: the reserve currency, I guess it comes with responsibilities and

476
00:27:58,880 --> 00:28:02,399
Speaker 1: you know, backagenes to if you will, But let me

477
00:28:02,520 --> 00:28:05,520
Speaker 1: let me just have a comment about you know, the

478
00:28:05,600 --> 00:28:09,760
Speaker 1: dollar bouncing back every stronger again like my formative years were,

479
00:28:09,920 --> 00:28:13,000
Speaker 1: I don't know, and onward right, that's when I took

480
00:28:13,000 --> 00:28:16,400
Speaker 1: my first macro class and so yes, the Asian financial

481
00:28:16,440 --> 00:28:20,360
Speaker 1: crisis was was a formative period um for me at least.

482
00:28:20,400 --> 00:28:22,280
Speaker 1: And then that was the first financial crisis that I

483
00:28:22,480 --> 00:28:24,920
Speaker 1: followed as a as a as a student, first year

484
00:28:25,000 --> 00:28:29,080
Speaker 1: macro student. And so yes, that was a crisis where

485
00:28:29,640 --> 00:28:32,760
Speaker 1: it was an offshore dollar crisis, uh, and a certain

486
00:28:32,800 --> 00:28:35,720
Speaker 1: part of the world got weaker, um and then the

487
00:28:35,800 --> 00:28:38,440
Speaker 1: Washington Consensus came in and kind of cleaned things up.

488
00:28:38,440 --> 00:28:40,880
Speaker 1: And so that was one episode. You know, oh eight

489
00:28:41,080 --> 00:28:44,920
Speaker 1: was a domestic crisis. That's when we get into the

490
00:28:45,000 --> 00:28:49,960
Speaker 1: QE habits. Uh. Then you know we've been having um,

491
00:28:50,000 --> 00:28:52,760
Speaker 1: you know, smaller crisis since then. I mean, we we

492
00:28:52,760 --> 00:28:57,040
Speaker 1: we'll be discussed. You know, the treasury cash futures crisis,

493
00:28:57,040 --> 00:29:00,240
Speaker 1: the report crisis, what do we do about that? Um?

494
00:29:00,280 --> 00:29:02,960
Speaker 1: You know, the pandemic itself. It happened, but again, the

495
00:29:03,640 --> 00:29:06,280
Speaker 1: position that the financial system was in at that point

496
00:29:06,320 --> 00:29:08,880
Speaker 1: in time was that you were woefully a liquid to

497
00:29:08,920 --> 00:29:10,840
Speaker 1: be able to provide all those credit lines to all

498
00:29:10,840 --> 00:29:13,800
Speaker 1: this corporation. If something like that would happen, today would

499
00:29:13,800 --> 00:29:15,640
Speaker 1: be a lot more liquid to deal with that. But

500
00:29:15,680 --> 00:29:19,360
Speaker 1: you know, that was another crisis. And then again today,

501
00:29:19,480 --> 00:29:23,360
Speaker 1: this crisis of the price level that we have, um

502
00:29:23,600 --> 00:29:26,719
Speaker 1: is a crisis that we haven't had since the nineteen seventies.

503
00:29:27,080 --> 00:29:30,200
Speaker 1: So I think there are UM, I don't know. It

504
00:29:30,240 --> 00:29:32,920
Speaker 1: feels to me like that the dollar crisis are coming

505
00:29:32,960 --> 00:29:36,600
Speaker 1: closer and closer to home. UM. And basically I think

506
00:29:37,120 --> 00:29:39,440
Speaker 1: the period that we are living through at the moment

507
00:29:39,640 --> 00:29:42,840
Speaker 1: is we have trust in an institution, the Federal Reserve,

508
00:29:42,960 --> 00:29:47,920
Speaker 1: which is tasked with delivering price stability. And and I

509
00:29:47,960 --> 00:29:52,360
Speaker 1: think and I think that we are learning that you know,

510
00:29:52,480 --> 00:29:56,560
Speaker 1: can the Fed uh deliver price stability just by hiking

511
00:29:56,600 --> 00:29:59,200
Speaker 1: interest rates? Or are there kind of forces in the

512
00:29:59,240 --> 00:30:02,560
Speaker 1: real world, whether it's uh, you know, a shortage of

513
00:30:03,400 --> 00:30:06,280
Speaker 1: cheap goods, cheap energy, labor, all these things, you know,

514
00:30:06,360 --> 00:30:08,800
Speaker 1: is it is it? Is it as easy as raising

515
00:30:08,840 --> 00:30:11,880
Speaker 1: interest rates from zero to five percent to slow inflation down?

516
00:30:12,040 --> 00:30:16,160
Speaker 1: Is it as easy as as drinking um the balance

517
00:30:16,200 --> 00:30:18,920
Speaker 1: ship to display intation? Let me let me just offer

518
00:30:19,040 --> 00:30:22,480
Speaker 1: one one observation, which is that, you know, everybody likes

519
00:30:22,480 --> 00:30:24,120
Speaker 1: to talk about the fact that, well, maybe we are

520
00:30:24,120 --> 00:30:25,760
Speaker 1: in the bond bear market and we have you know,

521
00:30:25,880 --> 00:30:28,560
Speaker 1: lall Street is so young. Nobody has seen rising interest rates,

522
00:30:28,560 --> 00:30:31,160
Speaker 1: so we don't know how to trade it. A version

523
00:30:31,200 --> 00:30:35,400
Speaker 1: of that, a version of that is that we haven't

524
00:30:35,440 --> 00:30:38,360
Speaker 1: seen an inflation episode, so we don't know how to

525
00:30:38,480 --> 00:30:42,720
Speaker 1: think about inflation. Um, we have seen something like what

526
00:30:42,800 --> 00:30:46,040
Speaker 1: happened in the seventies, but we haven't seen anything that

527
00:30:46,080 --> 00:30:48,680
Speaker 1: you know, happened a hundred years ago, nineteen fourteen, nineteen

528
00:30:48,680 --> 00:30:51,440
Speaker 1: forty and all these things. So my impression talking to

529
00:30:52,320 --> 00:30:56,160
Speaker 1: clients is everybody thinks about the spike in inflation charts

530
00:30:56,520 --> 00:31:00,920
Speaker 1: as if it's another basis. Okay, you know, we are

531
00:31:01,000 --> 00:31:03,880
Speaker 1: used to be thinking about crisis because we had crisis

532
00:31:03,880 --> 00:31:06,000
Speaker 1: of basis, you know, a pack de x rate and

533
00:31:06,040 --> 00:31:10,360
Speaker 1: a market rate across currency basis a library OI as

534
00:31:10,400 --> 00:31:14,520
Speaker 1: a cash treasury future basis um triple a c d

535
00:31:14,600 --> 00:31:17,400
Speaker 1: os versus triple A treasuries. There's a basis that creeps

536
00:31:17,400 --> 00:31:20,640
Speaker 1: in always, and it's always as simple as somebody throws

537
00:31:20,720 --> 00:31:25,640
Speaker 1: balance sheet at it and the basis closes. This, this

538
00:31:25,840 --> 00:31:29,640
Speaker 1: crisis of the price level, this inflation crisis, is a

539
00:31:29,760 --> 00:31:32,120
Speaker 1: very different ball game. It's not as simple as raising

540
00:31:32,160 --> 00:31:34,400
Speaker 1: grades because the world doesn't work like that. It's not

541
00:31:34,440 --> 00:31:36,920
Speaker 1: as simple as doing QT because the world doesn't work

542
00:31:36,960 --> 00:31:40,000
Speaker 1: like that. UM, so I think this is a real test,

543
00:31:40,520 --> 00:31:42,479
Speaker 1: and so and so I think this is a this

544
00:31:42,520 --> 00:31:46,000
Speaker 1: is a very particular moment in time. You know this,

545
00:31:46,200 --> 00:31:49,080
Speaker 1: This notion that you know the fat can deliver two

546
00:31:49,080 --> 00:31:53,040
Speaker 1: percent price stability is probably the reason why FX reserve managers,

547
00:31:53,120 --> 00:31:56,560
Speaker 1: over long periods of time started to diversify away from

548
00:31:56,640 --> 00:31:59,680
Speaker 1: bills to two year treasuries, five year treasuries. Ten. Your

549
00:31:59,680 --> 00:32:02,760
Speaker 1: treasure is because it's a good store of value and

550
00:32:02,800 --> 00:32:05,000
Speaker 1: it's an idea. And we will see if that's indeed

551
00:32:05,000 --> 00:32:07,040
Speaker 1: the case, or whether we are going to settle in

552
00:32:07,080 --> 00:32:11,440
Speaker 1: a period where two is not attainable. Um and maybe

553
00:32:11,680 --> 00:32:14,440
Speaker 1: four at some point is the new target, or maybe

554
00:32:14,480 --> 00:32:16,320
Speaker 1: if you're just going to be bouncing around between five

555
00:32:16,320 --> 00:32:20,680
Speaker 1: and ten, I don't know. I have a point of clarification,

556
00:32:20,800 --> 00:32:24,200
Speaker 1: so when we're talking about that, breton Wood's three. So

557
00:32:24,600 --> 00:32:28,160
Speaker 1: part of the dollar decline idea is geopolitical people are

558
00:32:28,160 --> 00:32:30,560
Speaker 1: worried that their reserves are going to be seized by

559
00:32:30,560 --> 00:32:33,440
Speaker 1: the US. We've seen that happen with Russia and Afghanistan.

560
00:32:33,520 --> 00:32:36,520
Speaker 1: And then part of it has to do with commodities.

561
00:32:36,760 --> 00:32:38,360
Speaker 1: But if you look at the US from a pure

562
00:32:38,480 --> 00:32:42,360
Speaker 1: commodities perspective, it's not in a bad place right where

563
00:32:42,560 --> 00:32:45,400
Speaker 1: exporting oil and gas. I mean, I have coal in

564
00:32:45,440 --> 00:32:48,720
Speaker 1: my basement. It came with the house, like it's a

565
00:32:48,800 --> 00:32:51,760
Speaker 1: resource rich nation. So how how does that aspect of

566
00:32:51,800 --> 00:32:55,080
Speaker 1: it fit in with the dollar demise idea? Let's think

567
00:32:55,080 --> 00:32:59,200
Speaker 1: about this step by step. Okay, so peakuro dollar yes

568
00:32:59,320 --> 00:33:01,840
Speaker 1: or no? Inflection point? Yes or no? I mean that's

569
00:33:01,880 --> 00:33:06,680
Speaker 1: how it starts. My sense would be yes, speak your dollar,

570
00:33:07,760 --> 00:33:16,320
Speaker 1: because if if um on the margin, the commodity market

571
00:33:16,520 --> 00:33:19,400
Speaker 1: is starting to invoice things in currencies other than the

572
00:33:19,520 --> 00:33:22,320
Speaker 1: US dollar, I think that's something. And again, you know

573
00:33:22,360 --> 00:33:26,520
Speaker 1: the perspective from which I'm trying to understand this is Okay, Um,

574
00:33:26,560 --> 00:33:29,000
Speaker 1: I work as a strategist, you know, I have I

575
00:33:29,040 --> 00:33:30,960
Speaker 1: have a job which is to talk to investors and

576
00:33:30,960 --> 00:33:33,480
Speaker 1: try to figure out the future. This is going to

577
00:33:33,520 --> 00:33:37,080
Speaker 1: have an implication on commodity prices. This will have an

578
00:33:37,120 --> 00:33:40,960
Speaker 1: implication on inflation, This will have an implication for the

579
00:33:41,040 --> 00:33:43,440
Speaker 1: level of interest rates, And this is going to have

580
00:33:43,480 --> 00:33:46,720
Speaker 1: an implication on swap spreads. You know, cash treasuries versus

581
00:33:46,720 --> 00:33:49,640
Speaker 1: OI s. What's the demand And as I said on

582
00:33:49,680 --> 00:33:53,760
Speaker 1: this on on on on the podcast before, um and

583
00:33:53,840 --> 00:33:57,160
Speaker 1: let's just take two countries. Okay, let's take let's take

584
00:33:57,240 --> 00:34:01,040
Speaker 1: Russia and let's take China. Okay, what is the incentive

585
00:34:01,240 --> 00:34:06,360
Speaker 1: of Russia, for example, to recycle revenues from commodity sales

586
00:34:06,440 --> 00:34:11,600
Speaker 1: in G seven uh into G seven assets zero? Right,

587
00:34:12,000 --> 00:34:15,960
Speaker 1: I mean you're invoicing things in different currencies. Take note,

588
00:34:16,080 --> 00:34:19,480
Speaker 1: because that was a five hundred billion dollars stash of

589
00:34:20,600 --> 00:34:24,359
Speaker 1: liquidity that went into the FIC swap market, that went

590
00:34:24,680 --> 00:34:28,040
Speaker 1: at some point into US treasuries. Uh. And again you know,

591
00:34:28,080 --> 00:34:30,319
Speaker 1: look at look at China. I mean, you know, they

592
00:34:30,320 --> 00:34:33,560
Speaker 1: accumulated treasuries and then it's flatlined and now it's falling.

593
00:34:34,239 --> 00:34:37,880
Speaker 1: So on the margin, these things matter, um. And I

594
00:34:37,880 --> 00:34:40,200
Speaker 1: think this is this is how it starts, how it's

595
00:34:40,200 --> 00:34:43,239
Speaker 1: going to you know, don't think about this as you know,

596
00:34:43,400 --> 00:34:45,960
Speaker 1: next summer it's going to be like this, and it's

597
00:34:46,000 --> 00:34:47,640
Speaker 1: going to be like that. It doesn't work like that.

598
00:34:47,719 --> 00:34:50,160
Speaker 1: But I think on the margin, things have changed, and

599
00:34:50,200 --> 00:34:53,279
Speaker 1: this is going to change things. Um uh. This is

600
00:34:53,280 --> 00:34:55,279
Speaker 1: going to change flows on the margin, and we are

601
00:34:55,320 --> 00:34:57,600
Speaker 1: going to be treading and kind of living with those

602
00:34:57,840 --> 00:35:02,520
Speaker 1: um um uh every day as you guys write about it,

603
00:35:02,560 --> 00:35:04,719
Speaker 1: as I write about it, as as as others in

604
00:35:04,760 --> 00:35:10,320
Speaker 1: the audience. Um traded. So yes, the US is commodity

605
00:35:10,400 --> 00:35:17,919
Speaker 1: is self sufficient. Other parts of the world are not. Um.

606
00:35:17,960 --> 00:35:20,799
Speaker 1: But again, as I said, I think the thing that

607
00:35:20,840 --> 00:35:23,200
Speaker 1: we need to factor in is basically what this means

608
00:35:23,239 --> 00:35:26,400
Speaker 1: for for the price of commodities, which are priced in

609
00:35:26,520 --> 00:35:29,799
Speaker 1: US dollars. So you can have a devaluation of the

610
00:35:30,280 --> 00:35:33,040
Speaker 1: of the of the global euro dollar in terms of commodities,

611
00:35:33,080 --> 00:35:35,239
Speaker 1: and then you know what that means in terms of

612
00:35:36,440 --> 00:35:41,720
Speaker 1: euro yen uh euro dollar dollar yen exchange rates um

613
00:35:41,960 --> 00:35:47,759
Speaker 1: weaker verry um. You know, obviously Russia and China continuing

614
00:35:47,840 --> 00:35:52,680
Speaker 1: to trade more for obvious reasons, perhaps some invoicing of

615
00:35:52,800 --> 00:35:57,000
Speaker 1: commodities not in dollars. Maybe that's picking up. Like intuitively,

616
00:35:57,160 --> 00:36:00,239
Speaker 1: it seems like the Redman b should become a bigger deal.

617
00:36:00,640 --> 00:36:03,120
Speaker 1: And China is a big trading partner, and apparently it

618
00:36:03,160 --> 00:36:05,160
Speaker 1: seems likely that there are going to be some countries

619
00:36:05,200 --> 00:36:09,640
Speaker 1: for whom it's a partnership gets even stronger. Like it's

620
00:36:10,080 --> 00:36:12,680
Speaker 1: that makes sense to me, Like, what the why wouldn't

621
00:36:13,080 --> 00:36:17,400
Speaker 1: the Redman be become a much more significant global currency

622
00:36:17,480 --> 00:36:19,480
Speaker 1: just because China is a big country and a big

623
00:36:19,520 --> 00:36:23,359
Speaker 1: trading partner. Um, well, they're a big country and they

624
00:36:23,360 --> 00:36:26,000
Speaker 1: produce a lot of stuff and that's right. Um, And

625
00:36:26,040 --> 00:36:28,200
Speaker 1: I think, and and they buy a lot of stuff.

626
00:36:28,560 --> 00:36:32,400
Speaker 1: But that's not what makes for a global currency. Um.

627
00:36:32,920 --> 00:36:37,520
Speaker 1: I think what we're the notion that inflation is some

628
00:36:37,680 --> 00:36:41,920
Speaker 1: sign that people are are are revulsed by the dollar.

629
00:36:42,120 --> 00:36:45,160
Speaker 1: You know that this is about depreciation of the dollar there,

630
00:36:45,200 --> 00:36:48,000
Speaker 1: that that's sort of in the air here. Um, I

631
00:36:48,040 --> 00:36:50,840
Speaker 1: think that's just not right. That's not what's driving inflation.

632
00:36:50,880 --> 00:36:55,359
Speaker 1: What's driving inflation are these wartime dislocations. Um, we had

633
00:36:55,400 --> 00:36:58,760
Speaker 1: a pandemic in which we all shifted to two goods,

634
00:36:58,920 --> 00:37:00,960
Speaker 1: and then the pandemic is over, we shifted back to

635
00:37:01,040 --> 00:37:04,799
Speaker 1: services and the people to produce those services that all

636
00:37:04,840 --> 00:37:07,640
Speaker 1: moved out of New York, and so wages are pressured.

637
00:37:07,719 --> 00:37:10,560
Speaker 1: So there's a lot of dislocation that in a market

638
00:37:10,600 --> 00:37:13,680
Speaker 1: economy shows up as price movements. So we were talking

639
00:37:13,680 --> 00:37:15,320
Speaker 1: about this in the green room a little bit before.

640
00:37:15,560 --> 00:37:17,799
Speaker 1: I think what we might be seeing here is a

641
00:37:17,800 --> 00:37:21,000
Speaker 1: shift to a higher price level. Okay, but whether this

642
00:37:21,080 --> 00:37:23,759
Speaker 1: is the beginning of a kind of inflationary period, I

643
00:37:23,920 --> 00:37:29,200
Speaker 1: still remain in team transitory, okay. Um, And I as

644
00:37:29,400 --> 00:37:32,200
Speaker 1: was let me let me, let me, let me say

645
00:37:32,200 --> 00:37:36,520
Speaker 1: a more inflammatory thing than that, Okay, which is that Powell?

646
00:37:37,280 --> 00:37:41,560
Speaker 1: Remember he wanted to tighten before the pandemic, Okay, when

647
00:37:41,560 --> 00:37:44,880
Speaker 1: there was no inflation, right, it was just time to

648
00:37:44,880 --> 00:37:47,919
Speaker 1: to put some discipline into the system. He wanted to

649
00:37:47,920 --> 00:37:50,920
Speaker 1: to to tighten as soon as he could after the pandemic.

650
00:37:51,520 --> 00:37:53,520
Speaker 1: He didn't think there was going to be inflation. He

651
00:37:53,600 --> 00:37:57,160
Speaker 1: wanted to tighten anyway. Inflation has made it much easier

652
00:37:57,880 --> 00:38:00,320
Speaker 1: for Powell to do what he wants to do because

653
00:38:00,320 --> 00:38:03,799
Speaker 1: now everyone is scared about inflation. So it's this and

654
00:38:03,920 --> 00:38:07,000
Speaker 1: what does that mean. That means that's positive for the dollar.

655
00:38:07,440 --> 00:38:10,960
Speaker 1: That's strengthening the dollar. So I think that the politics

656
00:38:11,040 --> 00:38:14,640
Speaker 1: are working in favor of of a stronger dollar in

657
00:38:14,680 --> 00:38:18,400
Speaker 1: the future, not not the other way around. Um. And

658
00:38:18,560 --> 00:38:21,880
Speaker 1: as long as the the anchoring of the of the

659
00:38:22,000 --> 00:38:25,279
Speaker 1: of the of the new price level, UM happens and

660
00:38:25,400 --> 00:38:28,759
Speaker 1: it doesn't get uh, it doesn't get un anchored. But

661
00:38:28,800 --> 00:38:32,560
Speaker 1: I don't see any particular particular sign that that's happened yet.

662
00:38:32,840 --> 00:38:34,920
Speaker 1: So so this is very interesting because I send some

663
00:38:35,120 --> 00:38:38,759
Speaker 1: talking past each other. So the dollar can be weak

664
00:38:38,840 --> 00:38:40,920
Speaker 1: and strong at the same time. This is like cubits,

665
00:38:40,960 --> 00:38:43,560
Speaker 1: you know, like zero and one. You know, the dollar

666
00:38:43,680 --> 00:38:46,719
Speaker 1: can be very very strong versus other g seven currencies

667
00:38:46,960 --> 00:38:50,040
Speaker 1: which we see right. But again I think I think

668
00:38:50,080 --> 00:38:52,200
Speaker 1: the next five years is a story of whether the

669
00:38:52,239 --> 00:38:56,440
Speaker 1: dollar is going to stay strong versus commodities or commodity

670
00:38:56,440 --> 00:38:58,520
Speaker 1: prices go through the roof and then we are going

671
00:38:58,560 --> 00:39:01,440
Speaker 1: to be dealing with, you know, ring rounds of inflation.

672
00:39:01,840 --> 00:39:05,960
Speaker 1: So let me let me again just just emphasize. I mean,

673
00:39:06,120 --> 00:39:08,040
Speaker 1: there's two views in the market that this is a

674
00:39:08,080 --> 00:39:11,799
Speaker 1: massive reopening and that we over the fiscal and monetary stimulus,

675
00:39:12,600 --> 00:39:16,319
Speaker 1: and that's a view. I'm sure that is part of

676
00:39:16,360 --> 00:39:19,640
Speaker 1: the picture. But I guess I have been trying to

677
00:39:20,000 --> 00:39:24,319
Speaker 1: articulate and highlight and put on the table is that

678
00:39:24,960 --> 00:39:31,799
Speaker 1: I think the economic war aspect of all this is underappreciated.

679
00:39:32,280 --> 00:39:34,960
Speaker 1: And if the economic war is indeed the theme that

680
00:39:35,160 --> 00:39:40,279
Speaker 1: is going to be with us for the next five years. Um,

681
00:39:40,400 --> 00:39:43,000
Speaker 1: the way we should think about inflation is not that,

682
00:39:43,080 --> 00:39:45,080
Speaker 1: you know, there's all this bad stuff that happened over

683
00:39:45,120 --> 00:39:48,080
Speaker 1: the past twelve months. It pushed the price level higher,

684
00:39:48,480 --> 00:39:50,440
Speaker 1: and the base effects are going to take care of,

685
00:39:50,760 --> 00:39:53,200
Speaker 1: you know, the rate of inflation over time. I think

686
00:39:53,280 --> 00:39:55,640
Speaker 1: we also need to be mindful of all the potential

687
00:39:55,719 --> 00:39:58,600
Speaker 1: bad things that can happen over the next twelve months

688
00:39:58,680 --> 00:40:01,480
Speaker 1: to five years. And again when you read the news,

689
00:40:01,520 --> 00:40:03,440
Speaker 1: and I started to read the news, where like I

690
00:40:03,520 --> 00:40:05,560
Speaker 1: just pick up the paper and I look at commodities,

691
00:40:05,560 --> 00:40:07,600
Speaker 1: I look at the war, I look at text stuff,

692
00:40:08,480 --> 00:40:12,600
Speaker 1: you know, Chris Miller, Chip War, that type of stuff,

693
00:40:12,640 --> 00:40:16,720
Speaker 1: and and I just try to understand the way Russia

694
00:40:16,760 --> 00:40:19,560
Speaker 1: and Europe is evolving as a relationship, and the way

695
00:40:19,680 --> 00:40:22,520
Speaker 1: China and the US are evolving as a relationship, and

696
00:40:22,560 --> 00:40:25,480
Speaker 1: things are not getting better, you know, So do I

697
00:40:25,640 --> 00:40:29,480
Speaker 1: think that Do I think that bad stuff can happen

698
00:40:29,480 --> 00:40:31,200
Speaker 1: in in the in the future that are going to

699
00:40:31,280 --> 00:40:35,600
Speaker 1: mess up supply chains even more? Yes? Do I see

700
00:40:35,719 --> 00:40:39,239
Speaker 1: risks in all the demand construction policies that Europe is

701
00:40:39,280 --> 00:40:43,200
Speaker 1: doing in the phase of rising gas and electricity prices, Yes,

702
00:40:43,400 --> 00:40:48,960
Speaker 1: it's fanning shortages. Um. Do I see risks in in

703
00:40:49,000 --> 00:40:52,880
Speaker 1: the fact that you know, I mean OPEC is effectively

704
00:40:52,920 --> 00:40:54,879
Speaker 1: telling us that they want to see a hundred dollar

705
00:40:55,200 --> 00:40:59,520
Speaker 1: floor under oil. That's about where it's right. We know

706
00:40:59,640 --> 00:41:02,600
Speaker 1: that the drift down in oil prices game partly because

707
00:41:02,640 --> 00:41:04,840
Speaker 1: we have released a lot of oil from the spr

708
00:41:04,880 --> 00:41:08,360
Speaker 1: and we know that as every infantry that's finite. And

709
00:41:08,360 --> 00:41:10,439
Speaker 1: then we also know that the physical market where oil

710
00:41:10,480 --> 00:41:13,600
Speaker 1: gets produced is super tight. You know, you can't tramp

711
00:41:13,640 --> 00:41:16,480
Speaker 1: stuff up. There is still a view in the market

712
00:41:17,080 --> 00:41:20,920
Speaker 1: which I believe that that commodity prices, especially for you know,

713
00:41:20,960 --> 00:41:23,680
Speaker 1: oil gas. I mean it can go vertical. Gas prices

714
00:41:23,680 --> 00:41:26,239
Speaker 1: and electricity prices in Europe are going vertical. Can it

715
00:41:26,320 --> 00:41:29,759
Speaker 1: happen in the oil market too, Yes, I mean we

716
00:41:29,840 --> 00:41:34,480
Speaker 1: basically had you know, I think you're upset about that,

717
00:41:34,560 --> 00:41:36,440
Speaker 1: but but you know, so I think I think this

718
00:41:36,520 --> 00:41:39,400
Speaker 1: is basically the world that you live in, UM. And

719
00:41:39,440 --> 00:41:41,640
Speaker 1: so this level shifts up in the price level I

720
00:41:41,680 --> 00:41:44,480
Speaker 1: think can happen, you know, every six months. There's reasons

721
00:41:44,520 --> 00:41:47,759
Speaker 1: to believe that that there's there's risks like that, and

722
00:41:47,800 --> 00:41:51,400
Speaker 1: so from that perspective, I don't think that inflation is

723
00:41:51,000 --> 00:41:54,319
Speaker 1: is transitor is. Certainly the reopening bit might be like

724
00:41:54,360 --> 00:41:57,000
Speaker 1: a one time thing, but but I think the geopolitical

725
00:41:57,080 --> 00:42:00,279
Speaker 1: aspects are just getting more complicated and more ski area.

726
00:42:00,280 --> 00:42:03,200
Speaker 1: I would say so result just on the price level

727
00:42:03,440 --> 00:42:06,040
Speaker 1: crisis idea, And this is something that came out from

728
00:42:06,040 --> 00:42:08,520
Speaker 1: our last conversation with you, and I think we wrote

729
00:42:08,560 --> 00:42:11,200
Speaker 1: it up in a post, this idea of problems that

730
00:42:11,280 --> 00:42:15,640
Speaker 1: money can't solve, so physical commodities, supply chains, that sort

731
00:42:15,680 --> 00:42:19,239
Speaker 1: of thing. In that world, What is the role of

732
00:42:19,280 --> 00:42:21,839
Speaker 1: a central bank Because on the one hand, yes, raise

733
00:42:21,920 --> 00:42:24,440
Speaker 1: interest rates to fight inflation because you don't have enough

734
00:42:24,440 --> 00:42:26,680
Speaker 1: of the real stuff to go around. But on the

735
00:42:26,760 --> 00:42:29,960
Speaker 1: other hand, if what's required to solve that problem is

736
00:42:30,000 --> 00:42:33,920
Speaker 1: more investment, maybe you don't necessarily want rates going up

737
00:42:33,960 --> 00:42:38,840
Speaker 1: that much. Yes, Um, I think I think a central

738
00:42:38,880 --> 00:42:41,200
Speaker 1: banks job at the moment and I think that job

739
00:42:41,280 --> 00:42:44,759
Speaker 1: is going to evolve over time. At the moment, the

740
00:42:44,800 --> 00:42:48,040
Speaker 1: way I think about the fed's role, for example, is,

741
00:42:48,719 --> 00:42:51,840
Speaker 1: you know, you've gone from being a central bank that

742
00:42:52,000 --> 00:42:57,920
Speaker 1: is generating wealth via QUEI portfolio balanced gennel um to

743
00:42:58,320 --> 00:43:01,439
Speaker 1: push the demand kurd outward because there's all this cheap

744
00:43:01,440 --> 00:43:05,440
Speaker 1: stuff that's coming and what we are afraid of is deflation. Okay,

745
00:43:05,520 --> 00:43:09,239
Speaker 1: so we've had fifteen years of that and then all

746
00:43:09,239 --> 00:43:12,160
Speaker 1: of a sudden the supply curves have recotiate back in

747
00:43:12,840 --> 00:43:18,200
Speaker 1: you know, commodities, labor, cheap goods. Inflation is coming in

748
00:43:18,320 --> 00:43:21,160
Speaker 1: large part from that. So to deal with that inflationary

749
00:43:21,239 --> 00:43:23,680
Speaker 1: impulse and to kind of take it off a bit,

750
00:43:23,760 --> 00:43:26,520
Speaker 1: I think you need to generate a massive level shift

751
00:43:26,600 --> 00:43:29,320
Speaker 1: down in demand such that things are more in linuage supply,

752
00:43:29,560 --> 00:43:32,480
Speaker 1: And I think J. Powell kind of articulated something similar

753
00:43:32,480 --> 00:43:35,200
Speaker 1: to that that we've been um. You know, we are

754
00:43:35,239 --> 00:43:37,960
Speaker 1: going to need a period of below trend growth. So

755
00:43:38,080 --> 00:43:42,040
Speaker 1: think about this as nominal GDP targeting and reverse. Whereas

756
00:43:42,120 --> 00:43:43,719
Speaker 1: you know, we wanted to catch up with the pre

757
00:43:43,880 --> 00:43:46,359
Speaker 1: pre pre GFC trend, now we need to kind of

758
00:43:46,760 --> 00:43:50,520
Speaker 1: catch down to where where the realities of supplied. Its

759
00:43:51,560 --> 00:43:55,200
Speaker 1: second um again like the underlying environment in which we

760
00:43:55,320 --> 00:43:58,520
Speaker 1: will be I think will be inflationary. So the job

761
00:43:58,560 --> 00:44:00,359
Speaker 1: of a central bank is to make sure that at

762
00:44:00,440 --> 00:44:03,880
Speaker 1: least real interest rates are not falling, not going more negative,

763
00:44:04,080 --> 00:44:06,200
Speaker 1: but they are kind of heading heading in a in

764
00:44:06,200 --> 00:44:10,520
Speaker 1: a positive territory. Then two things come from this um,

765
00:44:10,560 --> 00:44:12,880
Speaker 1: you know, as I said in my most recent piece,

766
00:44:13,760 --> 00:44:15,520
Speaker 1: where I think, you know, we will have to spend

767
00:44:15,520 --> 00:44:18,600
Speaker 1: a lot of money. It's kind of like war finance. Again,

768
00:44:18,920 --> 00:44:22,080
Speaker 1: it's just to kind of rebuild the world order or something. Um.

769
00:44:22,160 --> 00:44:24,560
Speaker 1: You know, So before the virus, now we're going to

770
00:44:25,120 --> 00:44:27,759
Speaker 1: you know, find you know, supply chains falling apart or

771
00:44:27,800 --> 00:44:31,600
Speaker 1: something like that. You know, so the whole rearmed, reshore, restock,

772
00:44:32,200 --> 00:44:35,080
Speaker 1: continue on with energy transition. That's going to require a

773
00:44:35,120 --> 00:44:39,080
Speaker 1: lot of capital. Uh, that's going to require some reasonable

774
00:44:39,200 --> 00:44:41,960
Speaker 1: rates at which we can fund them. And so I

775
00:44:42,000 --> 00:44:44,000
Speaker 1: think yield curve control is in the picture in the

776
00:44:44,040 --> 00:44:47,359
Speaker 1: context of that um. But it's a very different yield

777
00:44:47,400 --> 00:44:50,360
Speaker 1: curve control. It's it's it's it's not yield curve control

778
00:44:50,400 --> 00:44:52,359
Speaker 1: to keep rates at one percent so that you use

779
00:44:52,440 --> 00:44:56,800
Speaker 1: asset prices up. It's basically to make sure that yields

780
00:44:56,800 --> 00:44:59,040
Speaker 1: don't go through the roof. But there is a backstop

781
00:44:59,080 --> 00:45:01,760
Speaker 1: to that's so like what we did in the Second

782
00:45:01,760 --> 00:45:04,719
Speaker 1: World War, where you had a price for short term money,

783
00:45:04,719 --> 00:45:06,520
Speaker 1: you had a price for long term money, and you

784
00:45:06,600 --> 00:45:09,439
Speaker 1: basically had a yield curve and then go and win

785
00:45:09,480 --> 00:45:12,880
Speaker 1: the war. Um. You know, if this is you know,

786
00:45:12,920 --> 00:45:14,879
Speaker 1: if you have World War three, that's what people do.

787
00:45:15,200 --> 00:45:17,480
Speaker 1: Hopefully this is just going to be an economic war

788
00:45:18,080 --> 00:45:20,640
Speaker 1: where we have to retool and and and finance that

789
00:45:20,680 --> 00:45:24,759
Speaker 1: whole process. But I definitely see the central bank kind

790
00:45:24,760 --> 00:45:27,279
Speaker 1: of be engaged in the bond market and provide a

791
00:45:27,320 --> 00:45:30,719
Speaker 1: yield curve cap but with much higher interest rates. And

792
00:45:30,719 --> 00:45:34,920
Speaker 1: then in the case of you know, Japan, Europe, the UK, um,

793
00:45:35,160 --> 00:45:38,359
Speaker 1: I mean you have a currency crisis in those places. Um.

794
00:45:38,800 --> 00:45:41,920
Speaker 1: And and again this is back back to Perry's earlier

795
00:45:42,280 --> 00:45:45,680
Speaker 1: uh point about the dollar. And there's one monetary policy,

796
00:45:45,680 --> 00:45:48,279
Speaker 1: which is the Fed's monetary policy, and everybody has to

797
00:45:48,840 --> 00:45:51,440
Speaker 1: kind of go in that direction otherwise recurrency is going

798
00:45:51,440 --> 00:45:54,319
Speaker 1: to suffer. I think in Europe and all the commodity

799
00:45:54,640 --> 00:45:58,400
Speaker 1: not self sufficient parts of the world, monetary policy is

800
00:45:58,440 --> 00:46:01,520
Speaker 1: going to be relegated to making sure that the level

801
00:46:01,520 --> 00:46:04,799
Speaker 1: of exchange rate is within the bounds of normalcy, and

802
00:46:04,920 --> 00:46:07,239
Speaker 1: you know where you can basically afford to import your

803
00:46:07,320 --> 00:46:26,160
Speaker 1: your basic commodities. So I think we can go to

804
00:46:26,200 --> 00:46:28,280
Speaker 1: the questions in part because we just got a question

805
00:46:28,320 --> 00:46:30,160
Speaker 1: that was going to be kind of my last question.

806
00:46:30,239 --> 00:46:33,080
Speaker 1: So it seems like a good seg but well one

807
00:46:33,200 --> 00:46:36,279
Speaker 1: we had both of you on in March, so like

808
00:46:36,400 --> 00:46:38,399
Speaker 1: right at the beginning of the pandemic, but a few

809
00:46:38,400 --> 00:46:41,359
Speaker 1: months before that we had spoken to you because that's

810
00:46:41,400 --> 00:46:43,440
Speaker 1: when there was all the questions about like running out

811
00:46:43,480 --> 00:46:46,040
Speaker 1: of reserves or insufficient. So we just got a question

812
00:46:46,080 --> 00:46:48,920
Speaker 1: about this, which is like, you know, obviously you just

813
00:46:48,960 --> 00:46:52,919
Speaker 1: mentioned quantitative tightening. This is kind of a simple question.

814
00:46:53,000 --> 00:46:55,880
Speaker 1: Almost seems like it almost seems old fashioned. But how

815
00:46:55,920 --> 00:46:57,880
Speaker 1: much space do you think they have? And is it

816
00:46:57,920 --> 00:46:59,600
Speaker 1: gonna be another thing where they have to cut it

817
00:46:59,640 --> 00:47:02,800
Speaker 1: short early because of the amount of reserves demanded in

818
00:47:02,840 --> 00:47:05,759
Speaker 1: the system. Is a question from me about you, But

819
00:47:05,960 --> 00:47:09,320
Speaker 1: I'll start with you. Are we saying who the questions

820
00:47:09,320 --> 00:47:13,120
Speaker 1: are from? I don't know. Yeah, this is ok. You

821
00:47:13,120 --> 00:47:15,000
Speaker 1: can if you send it, If you send a message

822
00:47:15,320 --> 00:47:17,880
Speaker 1: and you don't want your name from Cameron dire I

823
00:47:17,920 --> 00:47:21,640
Speaker 1: sort of stole okay questions. Qut. I don't think that

824
00:47:21,680 --> 00:47:24,160
Speaker 1: there's a lot of room I don't think that there's

825
00:47:24,200 --> 00:47:29,680
Speaker 1: a lot of room to do QUT. First, I think

826
00:47:29,719 --> 00:47:33,720
Speaker 1: this is going to be ultimately a question about demand

827
00:47:33,760 --> 00:47:36,440
Speaker 1: for treasuries, not not the systems a bit into the

828
00:47:36,520 --> 00:47:38,920
Speaker 1: fund those treasuries, right, because there's a lot of money

829
00:47:38,960 --> 00:47:42,799
Speaker 1: in the RRP facility. But it feels like everybody just

830
00:47:42,840 --> 00:47:44,600
Speaker 1: wants to be in the front end, right because the

831
00:47:44,640 --> 00:47:47,040
Speaker 1: front end you get the benefit of rates are going up,

832
00:47:47,080 --> 00:47:51,200
Speaker 1: you get higher rates every two every three months. Um.

833
00:47:51,239 --> 00:47:53,800
Speaker 1: I think we are also going from a period where

834
00:47:53,880 --> 00:47:56,319
Speaker 1: the market was a big believer in this idea that

835
00:47:56,360 --> 00:47:59,800
Speaker 1: we are at peak inflation, peak hawkishness, and so whatever

836
00:48:00,320 --> 00:48:03,040
Speaker 1: three months of QTV we had so far, First of all,

837
00:48:03,080 --> 00:48:05,040
Speaker 1: that the amounts were not that big on the sixty

838
00:48:05,080 --> 00:48:09,000
Speaker 1: billion dollars per month, um. You know, the market just

839
00:48:09,080 --> 00:48:11,879
Speaker 1: absorbed assuming that we are at peak hawkishness. So all

840
00:48:11,920 --> 00:48:13,839
Speaker 1: you're gonna do is raelly from here. I mean, that's

841
00:48:13,880 --> 00:48:16,120
Speaker 1: the whole let's go along bonds and let's go along

842
00:48:16,200 --> 00:48:18,920
Speaker 1: duration view. If we are going to go into a

843
00:48:18,960 --> 00:48:25,480
Speaker 1: world where inflation hasn't peaked if you have further um,

844
00:48:25,560 --> 00:48:28,720
Speaker 1: you know, I mean Europe is in a very different

845
00:48:29,080 --> 00:48:32,320
Speaker 1: uh position. Again, I think this energy crisis that Europe

846
00:48:32,400 --> 00:48:36,040
Speaker 1: is having now is not only going to have a

847
00:48:36,080 --> 00:48:38,840
Speaker 1: liquidity event around it, but also it's going to impact

848
00:48:38,960 --> 00:48:41,600
Speaker 1: industry supply chains. You know, what does it mean for

849
00:48:41,600 --> 00:48:44,839
Speaker 1: for inflation elsewhere? So again, if if you don't think

850
00:48:44,840 --> 00:48:46,920
Speaker 1: that the FED is at peak hawkishness and that there

851
00:48:47,000 --> 00:48:49,360
Speaker 1: is a risk of you know, the peak of the

852
00:48:49,440 --> 00:48:51,440
Speaker 1: hiking cycle not being three and a half but rather

853
00:48:51,480 --> 00:48:55,600
Speaker 1: say five percent, Again, Powell didn't say anything that should

854
00:48:55,640 --> 00:48:58,560
Speaker 1: make us think that that's not possible. You know, inflation

855
00:48:58,719 --> 00:49:01,560
Speaker 1: is the target. He'd did not mentioned stocks and as

856
00:49:01,600 --> 00:49:04,800
Speaker 1: surprises once in that speech, and that omission is very important.

857
00:49:04,800 --> 00:49:06,680
Speaker 1: I mean, when you write these speeches at that venue,

858
00:49:06,920 --> 00:49:08,600
Speaker 1: I mean, you think about what you're gonna say, So

859
00:49:08,640 --> 00:49:11,120
Speaker 1: what you don't say has just as much meaning as

860
00:49:11,160 --> 00:49:13,400
Speaker 1: what you say. But you know, it doesn't seem to

861
00:49:13,440 --> 00:49:16,920
Speaker 1: care too much about the growth impact of hikes. He

862
00:49:16,960 --> 00:49:22,360
Speaker 1: does not mention as surprises one bit. It's inflation singular mission,

863
00:49:22,560 --> 00:49:25,279
Speaker 1: that's what we're going to do. So if we are

864
00:49:25,280 --> 00:49:26,719
Speaker 1: going to go in a in a in a in

865
00:49:26,760 --> 00:49:30,000
Speaker 1: a market period where um, we're going to hike the

866
00:49:30,040 --> 00:49:32,600
Speaker 1: five or six percent, you know, demand for treasuries is

867
00:49:32,640 --> 00:49:34,680
Speaker 1: not going to be as good over the next three

868
00:49:34,680 --> 00:49:36,600
Speaker 1: to six months as it was during the first three

869
00:49:36,680 --> 00:49:40,480
Speaker 1: months of QT. My new QT at the moment is accelerating.

870
00:49:40,920 --> 00:49:44,440
Speaker 1: So that's another that that's that's another issue. And and

871
00:49:44,520 --> 00:49:49,280
Speaker 1: again UM, I think, um, just as we were talking

872
00:49:49,320 --> 00:49:53,840
Speaker 1: about this, you know, financial blockades of of FX reserves,

873
00:49:53,840 --> 00:49:58,279
Speaker 1: financial energy blockade of Europe, a blockade of Taiwan, a

874
00:49:58,320 --> 00:50:03,920
Speaker 1: blockade of chips, um China, can you know, make things

875
00:50:04,080 --> 00:50:07,080
Speaker 1: more dynamic as we do QT. Because the only the

876
00:50:08,400 --> 00:50:11,200
Speaker 1: weird thing to me about QTS that everybody thinks about it, Well,

877
00:50:11,239 --> 00:50:13,360
Speaker 1: this is what the FED is going to do. Well, okay, fine,

878
00:50:13,440 --> 00:50:15,680
Speaker 1: but that's the parable and minimum because others are also

879
00:50:15,719 --> 00:50:17,960
Speaker 1: in a position where you can also start selling treasures

880
00:50:17,960 --> 00:50:19,840
Speaker 1: and not show up at auctions. At a hundred billion

881
00:50:19,880 --> 00:50:22,960
Speaker 1: a month that the private sector will have to absorb

882
00:50:23,040 --> 00:50:26,759
Speaker 1: instead of the FED is just a minimum, right because

883
00:50:26,760 --> 00:50:29,839
Speaker 1: other central banks can can step away from the market.

884
00:50:29,880 --> 00:50:32,719
Speaker 1: So basically this means that you know, cash treasuries can

885
00:50:32,760 --> 00:50:35,200
Speaker 1: cheapen quite a bit relative to our I has swap

886
00:50:35,200 --> 00:50:41,840
Speaker 1: spreads can tighten. There's a certain appetites um uh that

887
00:50:41,840 --> 00:50:43,799
Speaker 1: that the FET is going to have to tolerate that.

888
00:50:43,880 --> 00:50:46,360
Speaker 1: But if if that becomes an issue, I think I

889
00:50:46,400 --> 00:50:51,719
Speaker 1: think the days of QT are numbered. So what is QT? Okay?

890
00:50:52,000 --> 00:50:54,880
Speaker 1: Let us understand what the balance of the FED looks like. Okay,

891
00:50:54,920 --> 00:50:58,120
Speaker 1: the balance of the FED is money market funding of

892
00:50:58,160 --> 00:51:01,200
Speaker 1: capital market limiting. The FIT is a show a bank.

893
00:51:01,880 --> 00:51:06,359
Speaker 1: So QT involves taking those positions and moving them into

894
00:51:06,400 --> 00:51:09,080
Speaker 1: the private sector. Basically, that's what it is. You're shrinking

895
00:51:09,080 --> 00:51:11,200
Speaker 1: the balance sheet of the FED and you're expanding a

896
00:51:11,200 --> 00:51:14,319
Speaker 1: balance sheet somewhere else. So it has to become profitable

897
00:51:14,440 --> 00:51:18,239
Speaker 1: to do money market funding of capital market lending. Okay, Um,

898
00:51:18,280 --> 00:51:21,640
Speaker 1: otherwise no one will do it. That's what That's what

899
00:51:21,719 --> 00:51:28,680
Speaker 1: would make quantitative tapering QT um uh possible. Um. Remember

900
00:51:28,680 --> 00:51:31,360
Speaker 1: why how quantity of easing was just the opposite, you know,

901
00:51:31,400 --> 00:51:34,440
Speaker 1: where these collapsing positions on private balance sheets were just

902
00:51:34,520 --> 00:51:36,480
Speaker 1: dropped onto the public balance sheet, and so we're just

903
00:51:36,600 --> 00:51:41,280
Speaker 1: moving in the opposite direction. Um. And I think that So,

904
00:51:41,280 --> 00:51:44,920
Speaker 1: so mostly that's about prices, right, That's that's about is

905
00:51:44,960 --> 00:51:48,200
Speaker 1: it is it profitable to to do this? Zoltan was

906
00:51:48,239 --> 00:51:50,400
Speaker 1: sort of saying that with these business spreads, and he

907
00:51:50,440 --> 00:51:53,160
Speaker 1: has all these fancy words, but in the in the

908
00:51:53,200 --> 00:51:56,040
Speaker 1: big picture, you're shifting the shadow bank from the public

909
00:51:56,080 --> 00:51:59,839
Speaker 1: sector to the to the private sector. Is what you're

910
00:52:00,080 --> 00:52:03,520
Speaker 1: is what you're trying to do, um and I do

911
00:52:03,680 --> 00:52:08,040
Speaker 1: think it's possible for interest rates to go um considerably higher.

912
00:52:08,280 --> 00:52:10,480
Speaker 1: What I would add to this, and maybe we have

913
00:52:10,520 --> 00:52:13,480
Speaker 1: a little dispute about this, What matters a lot in

914
00:52:13,520 --> 00:52:16,799
Speaker 1: the world is nominal rates. There's a lot of a

915
00:52:16,840 --> 00:52:19,439
Speaker 1: lot of push saying, oh, we still have negative real

916
00:52:19,520 --> 00:52:22,080
Speaker 1: rates and you're never going to get control of inflation. Well,

917
00:52:22,520 --> 00:52:26,040
Speaker 1: I already raise some questions about whether your measure of inflation,

918
00:52:26,040 --> 00:52:29,439
Speaker 1: whether this really is inflation or something. Higher nomin rates

919
00:52:29,480 --> 00:52:32,560
Speaker 1: mean that buyers have to pay more money, okay, and

920
00:52:32,800 --> 00:52:35,920
Speaker 1: that that is a clearing that's a settlement constraint, you know.

921
00:52:36,040 --> 00:52:39,000
Speaker 1: So it will put if you raise interest rates by

922
00:52:39,320 --> 00:52:41,880
Speaker 1: by a couple of percentage points, the outstanding debt is

923
00:52:41,920 --> 00:52:45,480
Speaker 1: going to get re repriced and and the borrowers are

924
00:52:45,480 --> 00:52:46,879
Speaker 1: going to be under a lot more pressure and they're

925
00:52:46,920 --> 00:52:48,759
Speaker 1: gonna have to do something about that. They're going to

926
00:52:48,880 --> 00:52:51,359
Speaker 1: have to pay their their debt instead of doing something else.

927
00:52:51,520 --> 00:52:54,440
Speaker 1: So there will be a there will and that's not

928
00:52:54,520 --> 00:52:57,000
Speaker 1: just in the United States. That's that's globally, and the

929
00:52:57,080 --> 00:52:59,600
Speaker 1: vulnerable borrowers are going to go to the wall. And

930
00:53:00,000 --> 00:53:02,480
Speaker 1: this is this is the period that we're in, Okay,

931
00:53:02,560 --> 00:53:05,719
Speaker 1: so that the quantities will shrink there too because there

932
00:53:05,760 --> 00:53:10,000
Speaker 1: will be defaults. Um. What happened to crypto is just

933
00:53:10,160 --> 00:53:14,080
Speaker 1: the first. I'm actually really surprised we haven't had a

934
00:53:14,080 --> 00:53:17,360
Speaker 1: crypto question. I was just throwing that red meat for you.

935
00:53:17,480 --> 00:53:19,200
Speaker 1: Let me let me add something to cute I think.

936
00:53:19,200 --> 00:53:21,880
Speaker 1: I think it's very important, UM. And it just remind

937
00:53:21,920 --> 00:53:26,680
Speaker 1: everyone since the year two thousand, UM, there has always

938
00:53:26,719 --> 00:53:29,080
Speaker 1: been a big central bank on the margin buying a

939
00:53:29,080 --> 00:53:32,600
Speaker 1: lot of treasuries. Okay. From two thousand to two thousand

940
00:53:32,600 --> 00:53:35,760
Speaker 1: and eight it was the PBOC and then they flatlined. Okay,

941
00:53:35,800 --> 00:53:39,640
Speaker 1: from O eight onwards it was the FED. When the

942
00:53:39,640 --> 00:53:42,840
Speaker 1: Fed stopped, UM, the e c B and the b

943
00:53:42,960 --> 00:53:46,040
Speaker 1: O J started to do QUI. But then all the

944
00:53:46,120 --> 00:53:49,400
Speaker 1: yen and euros they produced on an effex the you know,

945
00:53:49,440 --> 00:53:55,440
Speaker 1: the pension funds in those jurisdictions. UM swapped those euros

946
00:53:55,440 --> 00:54:00,200
Speaker 1: and yen for dollars to buy UH treasury securities. UM.

947
00:54:00,440 --> 00:54:02,839
Speaker 1: So what is the moral of this is that it's

948
00:54:02,840 --> 00:54:06,160
Speaker 1: either the PBOC doing a lot of liquidity injection buy

949
00:54:06,280 --> 00:54:09,120
Speaker 1: treasuries or the FED is doing liquidity injection by buying

950
00:54:09,160 --> 00:54:12,000
Speaker 1: treasuries or other central banks for buying their own bonds.

951
00:54:12,040 --> 00:54:14,040
Speaker 1: That creates a lot of liquidity in euro and yen

952
00:54:14,120 --> 00:54:16,480
Speaker 1: which gets swapped for dollars and then you buy treasuries

953
00:54:16,560 --> 00:54:20,640
Speaker 1: with it. A big central bank liquidity impulse is always

954
00:54:20,719 --> 00:54:24,680
Speaker 1: there to be a marginal buyer. So now okay we

955
00:54:24,760 --> 00:54:27,080
Speaker 1: talk about this. You know, China is not buying anymore,

956
00:54:28,080 --> 00:54:29,680
Speaker 1: had you cause your way to byme and the curve

957
00:54:29,760 --> 00:54:32,600
Speaker 1: is flat, so it doesn't pay anymore to to to

958
00:54:32,680 --> 00:54:35,640
Speaker 1: buy anything on an f FX heach basis anymore. The

959
00:54:35,840 --> 00:54:38,120
Speaker 1: end is close to one fifty. I mean, we are

960
00:54:38,200 --> 00:54:41,240
Speaker 1: now at levels at which you can expect either FEX

961
00:54:41,320 --> 00:54:44,880
Speaker 1: interventions out of Japan, which is going to involve you know,

962
00:54:44,960 --> 00:54:47,719
Speaker 1: selling treasury securities on the margin, or you are going

963
00:54:47,760 --> 00:54:51,160
Speaker 1: to adjust the guilty curve pact to basically adjust UM.

964
00:54:51,200 --> 00:54:54,600
Speaker 1: If that happens, that doesn't mean anything good for UH

965
00:54:55,160 --> 00:54:58,480
Speaker 1: for for duration. And then basically when we think about

966
00:54:58,480 --> 00:55:01,920
Speaker 1: the FED doing QT are basically saying that against this

967
00:55:02,560 --> 00:55:06,000
Speaker 1: twenty year history of who buys treasuries on the margin,

968
00:55:06,640 --> 00:55:10,600
Speaker 1: the FX help buyer can step away. Uh, you know,

969
00:55:11,160 --> 00:55:14,400
Speaker 1: China can step away, and the fat can step away

970
00:55:14,880 --> 00:55:17,920
Speaker 1: and it's all going to be okay. We're basically expecting

971
00:55:17,920 --> 00:55:20,520
Speaker 1: the private sector to step in instead of the public

972
00:55:20,560 --> 00:55:24,239
Speaker 1: sector in a period where inflation is as uncertain as

973
00:55:24,280 --> 00:55:26,239
Speaker 1: it has ever been. We have no idea if it's

974
00:55:26,239 --> 00:55:29,000
Speaker 1: going to go from ten to five, ten to five,

975
00:55:29,080 --> 00:55:30,920
Speaker 1: ten to fifteen, or if it's going to cost at

976
00:55:30,920 --> 00:55:33,719
Speaker 1: ten what. I'm quite certain obviously it's not going to

977
00:55:33,760 --> 00:55:36,040
Speaker 1: crash back down to two pc. But basically we are

978
00:55:36,080 --> 00:55:40,759
Speaker 1: asking the private sector to take down all these treasuries

979
00:55:40,800 --> 00:55:43,760
Speaker 1: that we are going to push back into the system

980
00:55:43,760 --> 00:55:48,560
Speaker 1: without a glitch and without a massive premier. M Um,

981
00:55:48,600 --> 00:55:52,000
Speaker 1: I have a good question from Alex Howett. He asks

982
00:55:52,239 --> 00:55:55,759
Speaker 1: this is for Perry specifically. Um, you know, we all

983
00:55:55,840 --> 00:55:59,520
Speaker 1: understand that it is possible for an international monetary system

984
00:55:59,560 --> 00:56:03,800
Speaker 1: to be served. We saw that before things like sterling.

985
00:56:04,880 --> 00:56:07,800
Speaker 1: What would it take to convince you that the dollar

986
00:56:08,200 --> 00:56:10,120
Speaker 1: was on its way out? What would have to change

987
00:56:10,120 --> 00:56:15,840
Speaker 1: in the world? Um, Well, the that's a good question,

988
00:56:16,120 --> 00:56:18,480
Speaker 1: maybe when I haven't put a lot of energy into

989
00:56:18,600 --> 00:56:22,239
Speaker 1: because that's it seems pretty far from that. But so

990
00:56:22,320 --> 00:56:26,360
Speaker 1: let me go back to what what was it that

991
00:56:26,880 --> 00:56:32,800
Speaker 1: undermined sterling? Okay? Um? And it was there was two things. Okay,

992
00:56:33,040 --> 00:56:37,080
Speaker 1: There was that the Bank of England UM could did

993
00:56:37,120 --> 00:56:41,160
Speaker 1: not have the capacity to run the global system on

994
00:56:41,239 --> 00:56:44,920
Speaker 1: its own, and it couldn't get the US to help.

995
00:56:46,280 --> 00:56:50,719
Speaker 1: Both of those things happened, Um it can happen that

996
00:56:50,760 --> 00:56:53,680
Speaker 1: there would be a crisis and the FED is is

997
00:56:53,719 --> 00:56:59,560
Speaker 1: a little overwhelmed. If everyone refused to help the FED, Okay,

998
00:56:59,600 --> 00:57:02,239
Speaker 1: this would be a problem, but it would be a

999
00:57:02,239 --> 00:57:05,320
Speaker 1: problem for everybody. It was a problem for the United

1000
00:57:05,320 --> 00:57:08,200
Speaker 1: States that the United States did not help the Bank

1001
00:57:08,239 --> 00:57:09,920
Speaker 1: of England UM. As a matter of fact, we had

1002
00:57:09,920 --> 00:57:12,399
Speaker 1: a global depression if you if you notice, and and

1003
00:57:12,480 --> 00:57:14,719
Speaker 1: some people thought that was mainly a U S thing,

1004
00:57:15,000 --> 00:57:17,560
Speaker 1: you know, but it was. It was actually very very

1005
00:57:17,640 --> 00:57:22,280
Speaker 1: damaging to the United States. So I think that the

1006
00:57:22,360 --> 00:57:26,640
Speaker 1: cooperation of policy, co operation of the major central banks

1007
00:57:26,640 --> 00:57:30,080
Speaker 1: in the global north um is is vital and if

1008
00:57:30,160 --> 00:57:35,360
Speaker 1: that breaks down, all bets are off. Can I question?

1009
00:57:36,560 --> 00:57:38,280
Speaker 1: So I don't know the answer to this. But but

1010
00:57:38,320 --> 00:57:41,400
Speaker 1: I wonder, um, but your take is on this? I

1011
00:57:41,440 --> 00:57:42,920
Speaker 1: get this question a lot. I don't know what to

1012
00:57:42,960 --> 00:57:47,640
Speaker 1: answer to it. So first, fiat money as a project

1013
00:57:47,800 --> 00:57:53,680
Speaker 1: is fairly young. It's let post Nixon, from what I understand.

1014
00:57:53,720 --> 00:57:59,440
Speaker 1: So what do you think about that? Number one? And

1015
00:57:59,440 --> 00:58:06,520
Speaker 1: I think that's not right, okay, And and and number two. Um,

1016
00:58:06,560 --> 00:58:10,920
Speaker 1: if the fundamental building block of fiat money is an

1017
00:58:10,920 --> 00:58:16,800
Speaker 1: ability to deliver price stability, and if for for that

1018
00:58:16,840 --> 00:58:19,880
Speaker 1: reason there's some risk to that notion, what happens to

1019
00:58:19,920 --> 00:58:24,080
Speaker 1: fiat money? Well, I you may have noticed I never

1020
00:58:24,160 --> 00:58:27,880
Speaker 1: used the word fiat money, Okay. Um. When I think

1021
00:58:27,920 --> 00:58:31,600
Speaker 1: about the Sterling standard, I call it the Sterling standard,

1022
00:58:31,960 --> 00:58:36,120
Speaker 1: not the international gold standard. Everyone was using sterling as

1023
00:58:36,120 --> 00:58:41,440
Speaker 1: the international money. And yes, sterling was notionally redeemable in gold,

1024
00:58:41,440 --> 00:58:44,040
Speaker 1: but nobody ever did it, and all of the all

1025
00:58:44,080 --> 00:58:47,280
Speaker 1: of the actual transactions were in sterling. Same with the

1026
00:58:47,280 --> 00:58:50,360
Speaker 1: dollar system. You know, so that when you go off gold,

1027
00:58:50,880 --> 00:58:52,680
Speaker 1: it I don't know, freak people out. But in a

1028
00:58:52,720 --> 00:58:54,680
Speaker 1: certain sense, we never were on gold. We were on

1029
00:58:54,720 --> 00:58:58,600
Speaker 1: a dollar standard, and that was there for historical reasons

1030
00:58:58,800 --> 00:59:01,520
Speaker 1: or or what ever. Um. And when we got rid

1031
00:59:01,560 --> 00:59:04,120
Speaker 1: of it didn't have that. It didn't have that much

1032
00:59:04,160 --> 00:59:07,400
Speaker 1: when we when we got rid of that sort of rule. Um,

1033
00:59:07,520 --> 00:59:11,080
Speaker 1: we're now fine. So when you say fiat, okay, what

1034
00:59:11,280 --> 00:59:14,880
Speaker 1: you're what And I would say this to anybody, you know,

1035
00:59:15,200 --> 00:59:17,960
Speaker 1: you're thinking that these are green pieces of paper that

1036
00:59:18,000 --> 00:59:20,640
Speaker 1: are printed on a printing press, and that's not correct.

1037
00:59:21,080 --> 00:59:23,920
Speaker 1: These are liabilities of of a of a bank somewhere, okay,

1038
00:59:24,080 --> 00:59:25,880
Speaker 1: And there's assets that are on the other side of

1039
00:59:25,920 --> 00:59:29,280
Speaker 1: the balance sheet. To UM, credit is not a bug.

1040
00:59:29,360 --> 00:59:32,120
Speaker 1: It's a feature. Credit is not a bug. It's a

1041
00:59:32,120 --> 00:59:36,400
Speaker 1: feature outside money, which is like inventories of gold or

1042
00:59:36,400 --> 00:59:38,600
Speaker 1: something like that. Um is never going to be a

1043
00:59:38,640 --> 00:59:41,880
Speaker 1: good money. Inside money is the money that you that

1044
00:59:41,880 --> 00:59:45,320
Speaker 1: that makes the world go around. It's credit money, okay,

1045
00:59:45,400 --> 00:59:48,440
Speaker 1: And so you need credit, okay in order to make

1046
00:59:48,520 --> 00:59:53,400
Speaker 1: that go Um credit worthiness and the best credit is money.

1047
00:59:54,920 --> 00:59:57,480
Speaker 1: So I have a question. It's sort of a push

1048
00:59:57,560 --> 01:00:01,560
Speaker 1: back to Sultan's push back on that topic just now.

1049
01:00:01,600 --> 01:00:05,880
Speaker 1: But um, it's from John Farley. If bretton Wood's three

1050
01:00:06,000 --> 01:00:10,760
Speaker 1: comes to pass, how does pegging of currencies to commodities

1051
01:00:10,800 --> 01:00:16,320
Speaker 1: other than gold actually tame commodity volatility? If the underlying

1052
01:00:16,400 --> 01:00:20,120
Speaker 1: issue of resource shortages and things like that remain. Okay,

1053
01:00:20,160 --> 01:00:23,160
Speaker 1: which is which is very important question. I don't think

1054
01:00:23,200 --> 01:00:25,640
Speaker 1: I ever said in any of my pieces that we

1055
01:00:25,680 --> 01:00:29,080
Speaker 1: are going to go to a world where things are

1056
01:00:29,200 --> 01:00:33,160
Speaker 1: packed to commodities or they are pegged to gold. What

1057
01:00:33,280 --> 01:00:40,200
Speaker 1: I said was this what you think of as reserves

1058
01:00:40,800 --> 01:00:44,720
Speaker 1: at the level of a nation state is evolving, right

1059
01:00:44,760 --> 01:00:47,000
Speaker 1: as as used as as we talked about this before.

1060
01:00:47,040 --> 01:00:50,040
Speaker 1: You know, you can't print oil to heat or meat

1061
01:00:50,080 --> 01:00:52,880
Speaker 1: to eat, right, you know there are problems that central

1062
01:00:52,920 --> 01:00:56,800
Speaker 1: banks cannot solve. We have grown up. I have grown

1063
01:00:56,880 --> 01:00:59,760
Speaker 1: up in a world right where Southeast Asia got into

1064
01:00:59,800 --> 01:01:03,120
Speaker 1: try ball because they didn't have dollar liquidity. The binding

1065
01:01:03,160 --> 01:01:06,240
Speaker 1: constraint was that as a country, you didn't have the

1066
01:01:06,320 --> 01:01:09,680
Speaker 1: dollars to import the stuff you needed. What came out

1067
01:01:09,680 --> 01:01:16,280
Speaker 1: of that was was a particular kind of solution medicine,

1068
01:01:16,280 --> 01:01:18,120
Speaker 1: which is that we need to have a lot of

1069
01:01:18,160 --> 01:01:20,480
Speaker 1: fex reserves and as a prudent country, we need to

1070
01:01:20,480 --> 01:01:23,640
Speaker 1: cover two years worth of chronic and deficits with the results.

1071
01:01:23,800 --> 01:01:27,640
Speaker 1: This is all pre dollars spotline stuff. Okay. So the

1072
01:01:27,680 --> 01:01:30,040
Speaker 1: emphasis was on, you know, we need to build a

1073
01:01:30,040 --> 01:01:33,520
Speaker 1: big pile of reserves because that's you know, like as individuals,

1074
01:01:33,560 --> 01:01:35,320
Speaker 1: we have a pile of savings, and that's how it's

1075
01:01:35,320 --> 01:01:39,040
Speaker 1: prudent to live. We are now basically, as as I

1076
01:01:39,040 --> 01:01:40,919
Speaker 1: said in my pieces, if you go back you read

1077
01:01:40,960 --> 01:01:45,160
Speaker 1: it carefully. What I said, not what you know was interpreted,

1078
01:01:45,840 --> 01:01:49,160
Speaker 1: was that at a nation's level, Okay, I'm sitting on

1079
01:01:49,200 --> 01:01:53,520
Speaker 1: all these reserves. It's dollar liquidity, great, but I need gas,

1080
01:01:53,920 --> 01:01:57,560
Speaker 1: I need electricity, I need read I need whatever stuff

1081
01:01:57,600 --> 01:01:59,840
Speaker 1: for my you know, I need to build chip foundries

1082
01:01:59,840 --> 01:02:03,960
Speaker 1: and all these things. Right, So, so basically, what is

1083
01:02:03,960 --> 01:02:08,440
Speaker 1: a reserve? The notion of it is changing. Okay, maybe

1084
01:02:08,520 --> 01:02:12,560
Speaker 1: some countries have way too many dollar liquidity and not enough,

1085
01:02:13,240 --> 01:02:15,640
Speaker 1: not enough commodity reserves. So I think over the next

1086
01:02:15,680 --> 01:02:18,320
Speaker 1: five years, as these countries are sitting there looking at

1087
01:02:18,360 --> 01:02:22,160
Speaker 1: their at their pile of of of of treasuries. You know,

1088
01:02:22,200 --> 01:02:25,360
Speaker 1: in a context of rising commodity prices, maybe you are

1089
01:02:25,400 --> 01:02:30,480
Speaker 1: going to reevaluate what it means to have a comfortable

1090
01:02:30,520 --> 01:02:33,840
Speaker 1: and prudent amount of reserves. What should that consist of?

1091
01:02:34,160 --> 01:02:37,040
Speaker 1: Should it only be treasury securities which you can repot

1092
01:02:37,120 --> 01:02:41,040
Speaker 1: and liquid it and sell to raise dollars to buy what? Okay,

1093
01:02:41,160 --> 01:02:44,240
Speaker 1: Should it be treasury securities when you know inflation is

1094
01:02:44,320 --> 01:02:47,480
Speaker 1: running structurally at eight percent and treasury coupons pay I

1095
01:02:47,480 --> 01:02:50,760
Speaker 1: don't know, four or five percent if in real terms

1096
01:02:50,880 --> 01:02:54,760
Speaker 1: those treasuries five year tenure treasuries are buying less. Should

1097
01:02:54,800 --> 01:02:58,240
Speaker 1: I be only in treasuries? Should I have a structurally

1098
01:02:58,320 --> 01:03:02,959
Speaker 1: bigger allocation to gold? Should I, as a sovereign sell

1099
01:03:03,080 --> 01:03:05,520
Speaker 1: some of my treasuries get dollar liquidity and cut the

1100
01:03:05,560 --> 01:03:09,120
Speaker 1: two hundred billion dollar check and establish a commodity resource

1101
01:03:09,160 --> 01:03:12,240
Speaker 1: company at the sovereign level, Go out and buy commodities

1102
01:03:12,240 --> 01:03:15,360
Speaker 1: when it's cheap before we end up into an even

1103
01:03:15,440 --> 01:03:19,440
Speaker 1: deeper economic war where where need resource national nationalism is

1104
01:03:19,680 --> 01:03:24,520
Speaker 1: a bigger issue. Can it happen that reserve management practices

1105
01:03:24,560 --> 01:03:29,360
Speaker 1: and countries thinking about what is reserves changes in that direction? Yes?

1106
01:03:29,760 --> 01:03:32,400
Speaker 1: For me, that is what Breton wood Street is about.

1107
01:03:32,480 --> 01:03:38,080
Speaker 1: It's not establishing a link to gold, It's not establishing

1108
01:03:38,200 --> 01:03:41,680
Speaker 1: a link to a basket of commodities. It's not too

1109
01:03:41,760 --> 01:03:45,680
Speaker 1: unseats the dollar and kind of elevate you know, something

1110
01:03:45,800 --> 01:03:49,040
Speaker 1: else on a pedestal. These things, I think over the

1111
01:03:49,080 --> 01:03:52,520
Speaker 1: next five years are going to happen on the margin again,

1112
01:03:52,560 --> 01:03:54,560
Speaker 1: as I said like to understand this and too and

1113
01:03:54,640 --> 01:03:57,320
Speaker 1: to kind of again like nursing a baby. You know

1114
01:03:57,360 --> 01:03:59,520
Speaker 1: that baby is changing all the time, but you know

1115
01:03:59,560 --> 01:04:02,360
Speaker 1: it's going to become something else over time. And I

1116
01:04:02,400 --> 01:04:04,960
Speaker 1: think and I think that the best approach to look

1117
01:04:05,000 --> 01:04:07,240
Speaker 1: at Breton Wood Street is to just kind of look

1118
01:04:07,280 --> 01:04:10,680
Speaker 1: at these things and whether they are happening. Again, Like

1119
01:04:10,840 --> 01:04:14,240
Speaker 1: I can, I can list you a number of headlines.

1120
01:04:14,280 --> 01:04:17,479
Speaker 1: You know, India instructing its states to cover three years

1121
01:04:17,480 --> 01:04:21,600
Speaker 1: worth of residential and industrial Uh call needs to basically

1122
01:04:21,760 --> 01:04:25,040
Speaker 1: head itself for the winter whatever. Uh you know, Uh,

1123
01:04:25,320 --> 01:04:27,520
Speaker 1: I mean, you know the news like this are are

1124
01:04:27,600 --> 01:04:29,440
Speaker 1: are all over the place. But I think that this

1125
01:04:29,520 --> 01:04:33,000
Speaker 1: team is happening and and and it's going to grow

1126
01:04:33,040 --> 01:04:34,880
Speaker 1: in size and over the next five years. When we

1127
01:04:34,920 --> 01:04:37,560
Speaker 1: look at fex reserves and central bank balance sheets and

1128
01:04:38,000 --> 01:04:42,160
Speaker 1: what states balance sheets look like, commodities and gold are

1129
01:04:42,200 --> 01:04:45,440
Speaker 1: going to play a bigger role. I think treasuries are

1130
01:04:45,480 --> 01:04:49,000
Speaker 1: going to play a smaller role. And the commodity market

1131
01:04:49,080 --> 01:04:51,160
Speaker 1: is going to be a market where it's not just

1132
01:04:51,280 --> 01:04:55,080
Speaker 1: exclusively dollars that we evoice things in, but also other currencies.

1133
01:04:55,520 --> 01:04:58,120
Speaker 1: And if that happens to half a trillion and or

1134
01:04:58,160 --> 01:05:01,240
Speaker 1: a trillion dollar scale. I think that's going to be

1135
01:05:01,480 --> 01:05:05,760
Speaker 1: meaningful enough that they are going to have implications in

1136
01:05:05,840 --> 01:05:09,200
Speaker 1: rates markets, at the level of the price level of commodities,

1137
01:05:09,200 --> 01:05:11,840
Speaker 1: and faction and all these things. And to me, that's

1138
01:05:11,840 --> 01:05:14,720
Speaker 1: what Breton Bostree is. Maybe it's a bad term and

1139
01:05:14,800 --> 01:05:17,240
Speaker 1: it kind of sends you off. I mean, Adam two

1140
01:05:17,320 --> 01:05:19,240
Speaker 1: said that it's a bad term. So maybe it's a

1141
01:05:19,240 --> 01:05:21,400
Speaker 1: bad term, but because it pushes you down to think

1142
01:05:21,440 --> 01:05:23,800
Speaker 1: about things a certain way. But I think these are

1143
01:05:23,800 --> 01:05:27,960
Speaker 1: the practical implications of everything that you're talking about. So

1144
01:05:28,040 --> 01:05:32,840
Speaker 1: I I think it's probably right that we have learned

1145
01:05:32,920 --> 01:05:35,200
Speaker 1: that our supply chains are way too fragile and that

1146
01:05:35,280 --> 01:05:37,760
Speaker 1: they need to have more redundancy in them, more inventories

1147
01:05:37,800 --> 01:05:41,800
Speaker 1: along the way. UM that, for geopolitical reasons, maybe be

1148
01:05:41,800 --> 01:05:44,160
Speaker 1: a good idea to be a little more independent, you know,

1149
01:05:44,240 --> 01:05:47,160
Speaker 1: have your energy, energy security and so forth. All of

1150
01:05:47,160 --> 01:05:50,560
Speaker 1: those things seemed to me right. I just don't think

1151
01:05:50,600 --> 01:05:52,560
Speaker 1: they have any implications for the future of the dollar.

1152
01:05:53,640 --> 01:05:57,520
Speaker 1: Um that there. I think that people will be accumulating,

1153
01:05:57,720 --> 01:06:00,880
Speaker 1: you know, more more reserves of commodity reason and and

1154
01:06:00,920 --> 01:06:03,560
Speaker 1: worrying about safe food safety and all that sort of thing.

1155
01:06:03,880 --> 01:06:06,720
Speaker 1: I don't see that that's about converting your treasury bills

1156
01:06:06,800 --> 01:06:09,960
Speaker 1: into grain stores or something. Um. I think you're still

1157
01:06:10,000 --> 01:06:13,520
Speaker 1: gonna have treasure. So there it's it's not either, it's

1158
01:06:13,560 --> 01:06:17,160
Speaker 1: not it's not as substitute, okay, um, And I don't

1159
01:06:17,200 --> 01:06:20,520
Speaker 1: I don't see any of that as any threat to

1160
01:06:21,400 --> 01:06:25,440
Speaker 1: the dollar. Well, here's a question, and it's very closely

1161
01:06:26,160 --> 01:06:31,280
Speaker 1: fits with this from Janic's Blue Line futures uh one store.

1162
01:06:31,400 --> 01:06:34,600
Speaker 1: One project that's been in the work since even before

1163
01:06:34,800 --> 01:06:37,560
Speaker 1: the pandemic, but which has become much more acute is

1164
01:06:38,000 --> 01:06:40,840
Speaker 1: the attempt by the US to become a natural gas

1165
01:06:40,840 --> 01:06:43,760
Speaker 1: export powerhouse. And we see the creation of these terminals,

1166
01:06:43,760 --> 01:06:45,680
Speaker 1: and we know that you know, Europe would take all

1167
01:06:45,760 --> 01:06:49,720
Speaker 1: the gas it could possibly get right now, is Henry

1168
01:06:49,800 --> 01:06:51,959
Speaker 1: Hub that price? And you know, we know that there's

1169
01:06:52,000 --> 01:06:54,720
Speaker 1: no global price for gas right now, But is there

1170
01:06:54,760 --> 01:06:57,760
Speaker 1: a possibility that Henry Hub at some point in this

1171
01:06:57,840 --> 01:07:03,120
Speaker 1: evolution becomes the MOBAL benchmark if everyone wants US gas,

1172
01:07:03,200 --> 01:07:06,640
Speaker 1: and does that then have a cementing role in terms

1173
01:07:06,640 --> 01:07:11,560
Speaker 1: of the dollars status as once again back to invoicing

1174
01:07:11,560 --> 01:07:15,760
Speaker 1: the dollar US, that's the price etcetera. Yeah, I mean

1175
01:07:15,840 --> 01:07:18,960
Speaker 1: I would say, sure, why not. I mean, we're heading

1176
01:07:18,960 --> 01:07:23,760
Speaker 1: in that direction, right, um um, guests from here, guests

1177
01:07:23,920 --> 01:07:27,760
Speaker 1: guests from there. Um. I guess I don't know what

1178
01:07:27,800 --> 01:07:30,320
Speaker 1: the answer there is. Maybe I asked Perry up, I

1179
01:07:30,360 --> 01:07:32,560
Speaker 1: passed the hot potato onto you. But I mean, in

1180
01:07:32,600 --> 01:07:36,640
Speaker 1: my mind, like the US became the daughter became the

1181
01:07:36,720 --> 01:07:39,560
Speaker 1: reserve currency in large part because of the petrol Dotter trade.

1182
01:07:39,600 --> 01:07:41,880
Speaker 1: But that was basically a situation where the US had

1183
01:07:41,920 --> 01:07:45,760
Speaker 1: to important pay others with US dollars with yeah, yeah,

1184
01:07:45,920 --> 01:07:48,080
Speaker 1: but but but I guess if you start to export

1185
01:07:48,320 --> 01:07:54,160
Speaker 1: commodities yourself and then so so you're no longer you're

1186
01:07:54,440 --> 01:07:56,680
Speaker 1: you're running at it from a from a cronic and

1187
01:07:56,760 --> 01:08:01,200
Speaker 1: surplus perspective, not a cronic and deficit perspective. What does

1188
01:08:01,240 --> 01:08:04,880
Speaker 1: that mean for the amount of dollars out there? You're

1189
01:08:04,880 --> 01:08:07,000
Speaker 1: not broadcasting those dollars to the rest of the world.

1190
01:08:07,000 --> 01:08:10,840
Speaker 1: You're basically absorbing those dollars because someone is paying from

1191
01:08:10,840 --> 01:08:12,720
Speaker 1: the rest of the world to you for your command.

1192
01:08:12,800 --> 01:08:16,360
Speaker 1: I don't know what Henry Hubby is Henry Hubby is.

1193
01:08:16,160 --> 01:08:20,799
Speaker 1: It is a natural guess I should answer this benchmark

1194
01:08:20,840 --> 01:08:23,000
Speaker 1: in Louisiana. No, no, but but but but I guess

1195
01:08:23,000 --> 01:08:25,440
Speaker 1: the question is if the US is a net commodity

1196
01:08:25,479 --> 01:08:29,200
Speaker 1: exporter oiling as instead of a net commodity importer. Right,

1197
01:08:29,240 --> 01:08:32,600
Speaker 1: So the whole petrol dollar idea was they don't have

1198
01:08:32,680 --> 01:08:35,400
Speaker 1: the they don't have the oil, but we have the dollars,

1199
01:08:35,400 --> 01:08:37,960
Speaker 1: so we pay for the oil the dollars, and then

1200
01:08:38,000 --> 01:08:40,439
Speaker 1: others recycled those dollars in treasury. No, I don't think

1201
01:08:40,439 --> 01:08:43,719
Speaker 1: if it's a curne on surplus question. Now, the petrol

1202
01:08:43,760 --> 01:08:49,280
Speaker 1: dollar was was really about the US banking system recycling

1203
01:08:49,439 --> 01:08:53,360
Speaker 1: the surpluses that were being accumulated by the oil exporters

1204
01:08:53,680 --> 01:08:57,160
Speaker 1: um into lending to the to the oil importers, not

1205
01:08:57,280 --> 01:08:59,519
Speaker 1: just the United States, but everyone else in the world too.

1206
01:08:59,800 --> 01:09:02,200
Speaker 1: And that is part of the offshoring of the U.

1207
01:09:02,240 --> 01:09:05,000
Speaker 1: S dollar. That that was the that that was that

1208
01:09:05,080 --> 01:09:06,720
Speaker 1: part that I talked about the off shoing of the

1209
01:09:06,760 --> 01:09:10,040
Speaker 1: US dollar as a after after the collapse of Breton

1210
01:09:10,040 --> 01:09:13,640
Speaker 1: Woods in seventy one. That mechanism was quite important for

1211
01:09:13,640 --> 01:09:16,960
Speaker 1: getting those balances really up, really fast, um. And it

1212
01:09:17,000 --> 01:09:20,040
Speaker 1: was definitely pushed by the US government. They were trying

1213
01:09:20,080 --> 01:09:24,439
Speaker 1: to solve a problem big imbalances, you know, global This

1214
01:09:24,479 --> 01:09:26,360
Speaker 1: isn't the first time we're having today, w we have

1215
01:09:26,360 --> 01:09:30,320
Speaker 1: global imbalances. There were those big imbalances there, um, and

1216
01:09:30,600 --> 01:09:33,280
Speaker 1: if there had been better cooperation, you know, but in

1217
01:09:33,320 --> 01:09:36,280
Speaker 1: the global North, probably it wouldn't have happened. If if,

1218
01:09:36,320 --> 01:09:38,960
Speaker 1: if the European countries had helped each other use their

1219
01:09:39,120 --> 01:09:42,599
Speaker 1: use their gas reserves. You know, they could have fought off, okay,

1220
01:09:42,680 --> 01:09:45,160
Speaker 1: but they did not. They were each each one was

1221
01:09:45,160 --> 01:09:48,160
Speaker 1: was running for themselves. And so this is what this

1222
01:09:48,280 --> 01:09:50,760
Speaker 1: is what happened, Um that it was solved by the

1223
01:09:50,800 --> 01:09:54,400
Speaker 1: private market. I think through this is there's a more

1224
01:09:54,439 --> 01:09:57,200
Speaker 1: general lesson here, um, which is when the central bank

1225
01:09:57,320 --> 01:10:02,240
Speaker 1: is doing a lot okay, it's bad sign you you

1226
01:10:02,320 --> 01:10:05,240
Speaker 1: really you know, the industrial policy, which is what you're

1227
01:10:05,280 --> 01:10:12,439
Speaker 1: pushing with your rearm restock, rewire, re sure okay, industrial policy, Um,

1228
01:10:12,479 --> 01:10:15,240
Speaker 1: that doesn't necessarily involve the simple bank and doing much

1229
01:10:15,240 --> 01:10:17,320
Speaker 1: of anything. You know. This is this, this is a

1230
01:10:17,720 --> 01:10:20,599
Speaker 1: this is a job for the for for the treasuring,

1231
01:10:20,840 --> 01:10:24,600
Speaker 1: for for the fiscal side of of the government and

1232
01:10:24,640 --> 01:10:26,519
Speaker 1: all the all the Fed has to do is you know,

1233
01:10:26,560 --> 01:10:28,400
Speaker 1: make sure that there's a market for their bonds or

1234
01:10:28,439 --> 01:10:30,840
Speaker 1: something like that, but it's not quee. You know, they're

1235
01:10:30,840 --> 01:10:34,000
Speaker 1: not They're not having they're not trying to stimulate the economy.

1236
01:10:34,120 --> 01:10:36,559
Speaker 1: I think one thing we learned is that, you know,

1237
01:10:36,640 --> 01:10:38,559
Speaker 1: Killey as a as a way of stimulate the economy

1238
01:10:38,600 --> 01:10:41,120
Speaker 1: doesn't really work very well. As a way of catching

1239
01:10:41,120 --> 01:10:45,719
Speaker 1: the falling NiFe. It works great well, Joe. I really

1240
01:10:45,760 --> 01:10:48,320
Speaker 1: hate to ask this question, um, but we've gone on

1241
01:10:48,360 --> 01:10:50,560
Speaker 1: for you know, an hour and twenty minutes. Shall we

1242
01:10:50,640 --> 01:10:52,840
Speaker 1: leave it there? Let's leave it there. We could go

1243
01:10:52,840 --> 01:10:54,720
Speaker 1: on for another hour and a half, but I think

1244
01:10:55,000 --> 01:10:58,880
Speaker 1: we gotta wrap. So big thank you to our guests.

1245
01:10:58,920 --> 01:11:09,719
Speaker 1: We really could have got. Follow Peri Merrily on Twitter

1246
01:11:09,880 --> 01:11:12,840
Speaker 1: at pre Meryling and check out his book if you're

1247
01:11:12,880 --> 01:11:14,960
Speaker 1: in the UK. It's not for sale here. Charles Pekin

1248
01:11:15,120 --> 01:11:18,240
Speaker 1: Burger in the dollar system, Salton, I don't know if

1249
01:11:18,240 --> 01:11:20,360
Speaker 1: you lurk secretly on Twitter, but I guess if you

1250
01:11:20,360 --> 01:11:22,599
Speaker 1: want to follow him, maybe become a become a credit

1251
01:11:22,640 --> 01:11:27,360
Speaker 1: sweet client. That's probably a big thanks to our producer

1252
01:11:27,439 --> 01:11:32,200
Speaker 1: Kerman Rodriguez and Dash Bennett helping you uys put it together.

1253
01:11:32,200 --> 01:11:35,000
Speaker 1: And I guess that's it. We'll leave it there. Thanks

1254
01:11:35,040 --> 01:12:00,280
Speaker 1: for listening. Thanks for coming to Heret