WEBVTT - Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 0:00:14.720 --> 0:00:17.760 Well, hello and welcome to another episode of the All 0:00:17.800 --> 0:00:21.520 Thoughts Podcast. I'm Tracy Allaway and I'm so we have 0:00:21.600 --> 0:00:25.439 a very very special episode for two reasons. One, we're 0:00:25.440 --> 0:00:28.800 recording this in front of a live audience, and secondly, 0:00:28.840 --> 0:00:31.720 we're going to be featuring two of our favorite people 0:00:32.000 --> 0:00:35.080 to speak to. Yeah, absolutely right. We're gonna be talking 0:00:35.080 --> 0:00:38.440 about the future of the dollar, which for our entire careers. 0:00:38.600 --> 0:00:41.239 I feel like dollars. Something is going to happen to 0:00:41.240 --> 0:00:43.360 the dollar. It's gonna blow up, people are gonna stop 0:00:43.440 --> 0:00:46.400 using it whatever. I still don't even know what the 0:00:46.640 --> 0:00:50.320 question means. And it's like, what is a post dollar future? What? 0:00:50.920 --> 0:00:52.960 I don't even understand the top of completely. But we 0:00:53.000 --> 0:00:54.800 have people who actually do well. We have a lot 0:00:54.800 --> 0:00:57.320 of time to dig into it. So without further ado, 0:00:57.760 --> 0:01:01.080 I'm going to introduce our guests for this particular debate. 0:01:01.240 --> 0:01:05.640 We have Sultan Posar, strategist at Credit Swiss, and Perry Maryland, 0:01:05.840 --> 0:01:09.920 Boston University professor and also the author of the forthcoming 0:01:09.959 --> 0:01:13.200 book Money and Empire, Charles P. Kindle Burger and the 0:01:13.240 --> 0:01:15.959 Dollar System that's already out in the UK, it's coming 0:01:15.959 --> 0:01:18.360 to the US soon and you can probably guess from 0:01:18.360 --> 0:01:22.600 the title what side of the dollar debate Perry sits on? 0:01:23.280 --> 0:01:25.480 But why don't we jump into Joe kind of go 0:01:25.600 --> 0:01:28.640 zumped me on that question. But like, when we talk 0:01:28.680 --> 0:01:31.200 about the future of the dollar, what exactly are we 0:01:31.240 --> 0:01:34.200 talking about? Both of you have spent your entire careers 0:01:34.560 --> 0:01:38.119 talking about money and specifically different types of money. So 0:01:38.400 --> 0:01:44.639 what is the dollar? What is the dollar? Is the dollar? Well, 0:01:44.720 --> 0:01:47.720 so that's actually a very interesting first question as a 0:01:47.760 --> 0:01:51.000 matter of fact, because there's a lot of different kinds 0:01:51.000 --> 0:01:55.320 of dollars um and the we already know there's the 0:01:55.480 --> 0:01:58.640 dollars that that are printed by the government, their little 0:01:58.680 --> 0:02:01.280 green pieces of paper. Is the dollars of the liability 0:02:01.280 --> 0:02:03.480 of the FAID that over bank reserves. That the dollars 0:02:03.480 --> 0:02:05.360 that are the liability of the banking system which we 0:02:05.480 --> 0:02:07.800 use to make payments to each other. But I would 0:02:07.800 --> 0:02:10.800 particularly put on the table right now there's the whole 0:02:10.880 --> 0:02:14.200 offshore dollar system, the your dollar system UM, where there 0:02:14.240 --> 0:02:17.640 are liabilities of banks that that are not American banks, 0:02:17.760 --> 0:02:20.360 um and the assets of people who are not American 0:02:20.400 --> 0:02:24.440 systems UM. And and that is now the global dollar system, 0:02:24.480 --> 0:02:27.760 which is I think very very important to appreciate and 0:02:27.760 --> 0:02:31.000 that this has grown up basically as the infrastructure of 0:02:31.040 --> 0:02:39.440 the global trading trading system. It's alt I agree with that. UM, 0:02:39.520 --> 0:02:43.919 what is the dollar? I think I would let me 0:02:43.960 --> 0:02:46.720 add some some things to that. There is there's all 0:02:46.760 --> 0:02:49.400 this offshore dollar which is not only in the balance 0:02:49.480 --> 0:02:53.359 sheet of non American banks, but then those balances are 0:02:53.440 --> 0:02:58.640 held by UM countries that are either aligned or not 0:02:58.800 --> 0:03:04.680 aligned with UM a certain view of the world. And 0:03:04.760 --> 0:03:07.200 so that's an extra dimension that I think we have 0:03:07.320 --> 0:03:10.320 learned about when we when we think about the dollar. 0:03:10.880 --> 0:03:13.840 There's also the dollar in in in the context of 0:03:14.360 --> 0:03:17.320 price stability, where you basically have a unipol or world 0:03:17.440 --> 0:03:22.160 where UM there is one Hedgemen and basically the commodity 0:03:22.200 --> 0:03:27.920 trade is UM in the control of that Hedgemen. But 0:03:28.040 --> 0:03:30.440 then there's also a dollar in the world where the 0:03:30.480 --> 0:03:35.360 commodity market is becoming more dura political resource national nationalism 0:03:35.360 --> 0:03:40.440 is creeping into the picture, and and that has an 0:03:40.440 --> 0:03:44.320 impact on the price level, that has an impact on 0:03:44.320 --> 0:03:49.760 on inflation. So so I would say that the dollar 0:03:50.040 --> 0:03:55.320 is a project. Well, let me ask you this. You've 0:03:55.360 --> 0:03:58.880 been writing about this, this Brenton Wood's three idea, the 0:03:59.200 --> 0:04:01.600 shift and course we've been talking about it a lot. 0:04:01.680 --> 0:04:05.000 Like I guess my question is like, what is the 0:04:05.120 --> 0:04:08.800 testable hypothesis of whether you're right? What does something look 0:04:08.920 --> 0:04:12.680 different either now or a few years time. They would say, yes, 0:04:13.000 --> 0:04:16.800 we entered into some sort of new global regime. Yes. 0:04:17.080 --> 0:04:19.800 So the first time we talked about Breton Woods three, Um, 0:04:20.240 --> 0:04:22.560 I think we we said that this is going to 0:04:22.640 --> 0:04:29.600 be a a long term journey, but it has started. Um. 0:04:29.640 --> 0:04:32.600 What are some of the markers since we have first 0:04:32.960 --> 0:04:36.760 talked about Bretonwoods three that that would support the thesis? 0:04:37.400 --> 0:04:40.400 I think I think a number of things. Um, we 0:04:40.520 --> 0:04:44.560 know that the commodity market is no longer exclusively priced 0:04:44.560 --> 0:04:49.480 in U S dollars. We know that certain countries are 0:04:49.960 --> 0:04:57.440 getting heavily discounted UM Russian commodities UM for example China, 0:04:57.560 --> 0:05:01.240 for example India. We know that those countries are paying 0:05:02.080 --> 0:05:06.719 uh remman b and rupees for those commodities. We know that, 0:05:06.920 --> 0:05:10.880 you know, Europe stopped paying certain countries stopped paying euros 0:05:10.960 --> 0:05:14.919 for for gas and they paid rubles. Now there is 0:05:14.960 --> 0:05:17.719 gas flow issues, obviously, but but again I think on 0:05:17.760 --> 0:05:23.039 the margin, it's no longer the case that commodities equal dollars. Okay, 0:05:23.080 --> 0:05:29.880 that's that's um. That's um. That's number one. What is 0:05:29.920 --> 0:05:35.080 also obvious that in the Western world we have inflationary 0:05:35.160 --> 0:05:37.760 impulses that we are dealing with which we haven't really 0:05:37.800 --> 0:05:43.360 had to deal with in in several decades. UM. Whether 0:05:43.920 --> 0:05:51.720 UH this cycle of inflation will be successfully um uh 0:05:52.000 --> 0:05:55.200 halted or not, is I think going to have an 0:05:55.200 --> 0:06:00.760 impact on certain currencies status in reserve portfolio. I'm not 0:06:00.800 --> 0:06:03.840 talking just about the US DADA, but basically G seven currencies, 0:06:03.880 --> 0:06:07.960 the Sterling euros, dollars, UM. I think, UM, I think 0:06:07.960 --> 0:06:09.720 there's a lot of work that needs to be done 0:06:10.000 --> 0:06:15.120 still to basically maintain confidence in UH in these currencies. 0:06:15.400 --> 0:06:19.440 When Paul Walker again he was the last central banker 0:06:19.520 --> 0:06:22.480 that had to deal with a similar episode, and he 0:06:22.520 --> 0:06:25.799 did something very fast and in a very draconian fashion, 0:06:26.480 --> 0:06:28.320 I think we can also say that what we are 0:06:28.360 --> 0:06:31.000 doing today in the West is heading in that direction, 0:06:31.200 --> 0:06:34.760 but not the intensity with which with which we're doing it. 0:06:35.279 --> 0:06:38.800 So to me again, it's it's a working hypothesis. UM. 0:06:38.839 --> 0:06:41.920 I have been writing about aspects of this Breton Woods 0:06:42.240 --> 0:06:44.680 three idea. You know that the war in interest rates PIACE, 0:06:44.760 --> 0:06:49.000 war industrial policy Um, all of these things I think 0:06:49.040 --> 0:06:51.280 are just you know, trying to look at the concept 0:06:51.400 --> 0:06:55.000 from many different angles, stress testing it. So far, I 0:06:55.080 --> 0:06:58.520 think I'm internally consistent. So I'm building up the narrative 0:06:58.920 --> 0:07:01.560 around it. It's a way of kind of stress testing 0:07:01.560 --> 0:07:04.760 whether you makes sense. But again, if if it fits together, 0:07:04.960 --> 0:07:08.080 it fits together, and they'll see. But let me just 0:07:08.120 --> 0:07:12.720 say we are six months into this. I mean, Rome 0:07:12.920 --> 0:07:17.960 wasn't built in one day. God didn't create the world 0:07:18.000 --> 0:07:20.960 in one day either. Um, probably not in that order. 0:07:21.400 --> 0:07:24.280 But I think it's a work in progress. But can 0:07:24.320 --> 0:07:26.600 I just press on? I guess, like, what do you 0:07:26.640 --> 0:07:31.520 look at to judge the dollar's dominance? Is a pure 0:07:31.560 --> 0:07:33.880 exchange rate? Because on that basis the dollar has done 0:07:33.920 --> 0:07:36.960 pretty well over the past six months. Is it? Central 0:07:36.960 --> 0:07:40.760 bank reserves? Those have been diversifying for some time now, 0:07:40.920 --> 0:07:46.080 Trade financing, invoice, bond issuance, Like what are you looking at? 0:07:46.760 --> 0:07:50.800 What am I looking at? Um? So I would say 0:07:50.800 --> 0:07:55.880 two things. The the the the big picture conclusion I 0:07:55.960 --> 0:08:00.680 have arrived at and I think I'm articulating this, uh 0:08:00.880 --> 0:08:03.480 piece by piece in in in my pieces, is that 0:08:04.080 --> 0:08:07.600 when you think about the dollar, And again, let me 0:08:07.680 --> 0:08:10.320 let me just use Peri's work workhorse, which is that 0:08:10.520 --> 0:08:13.600 money has for prices. There's far interest for an exchange 0:08:13.880 --> 0:08:18.680 and the price level. So my working conclusion about all 0:08:18.760 --> 0:08:22.200 this is when you think about the dollar and you 0:08:22.280 --> 0:08:24.560 try to understand the future of the dollar from an 0:08:24.560 --> 0:08:26.840 exchange rate perspective, I mean, it's it's an exchange rate, 0:08:26.880 --> 0:08:29.520 it's a nominal thing, right, But versus the Euro and 0:08:29.600 --> 0:08:31.720 a end, I think the dollar is always going to 0:08:31.760 --> 0:08:34.840 be strong in the present context, right because at least 0:08:34.840 --> 0:08:38.480 the US is energy and commodity self sufficient. Other regions 0:08:38.480 --> 0:08:40.600 of the world are not, and so that has an 0:08:40.600 --> 0:08:44.800 imprint on their on their exchange rates. Uh. What I 0:08:46.080 --> 0:08:49.680 what I think about in terms of dollar weakness is 0:08:49.720 --> 0:08:56.199 basically the dollar getting devalued versus commodities. UM. Because again, 0:08:56.320 --> 0:08:58.440 if you take a step back and look at everything 0:08:58.440 --> 0:09:00.840 that's happening in terms of East and West, you know, 0:09:00.920 --> 0:09:05.480 the G seven versus the Eurasian land mass, resource nationalism, 0:09:05.559 --> 0:09:08.520 all these things. I think what we are learning is 0:09:08.600 --> 0:09:12.120 that um, that the West is exposed to the East. 0:09:12.160 --> 0:09:15.480 In terms of commodities. UM, we have a number of 0:09:15.520 --> 0:09:17.840 issues in the commodity markets which we can which we 0:09:17.840 --> 0:09:20.679 can talk about a decade of no investment. As I said, 0:09:20.800 --> 0:09:24.480 you know, resource nationalism type markets everywhere. So I think 0:09:24.480 --> 0:09:29.120 commodity prices can go much higher from here, and a 0:09:29.240 --> 0:09:33.360 dollar can get devalued in terms of commodities in that sense. 0:09:33.400 --> 0:09:35.200 So the way I would say this isn't there in 0:09:35.200 --> 0:09:37.360 the nineteen thirties. You know, central banks when we had 0:09:37.360 --> 0:09:39.960 a we had a commodity based money system, they raised 0:09:40.000 --> 0:09:42.400 the price of money in terms of commodities because they's 0:09:42.400 --> 0:09:44.480 just that when you devalue versus the goal, that's what 0:09:44.559 --> 0:09:47.760 happens UM. Today, I would say we will have a 0:09:47.880 --> 0:09:51.359 version of this in the sense that the geopolitical realities 0:09:51.400 --> 0:09:57.160 of commodities shift away from your control and you basically 0:09:57.200 --> 0:09:59.840 are dealing a bit much higher commodity markets UM and 0:10:00.040 --> 0:10:02.280 the valuation of the daughter in that sense. But everything 0:10:02.320 --> 0:10:06.920 is relative. So Perry obviously want to bring you in 0:10:07.360 --> 0:10:09.520 what do you I mean, like when you think about okay, 0:10:09.520 --> 0:10:12.120 the last two years or anything you're seeing now and 0:10:12.280 --> 0:10:15.679 obviously in the sweep of history, like do you see 0:10:15.720 --> 0:10:19.600 anything fund do you see regime change of sorts, whether 0:10:19.640 --> 0:10:21.680 you'd call it Breton which three or is it? Yeah, 0:10:21.679 --> 0:10:24.199 we have inflation that happens sometimes our commodities are scarce. 0:10:24.320 --> 0:10:27.719 We commodities were expensive in the early two thousand's too, 0:10:27.840 --> 0:10:32.920 Like have we been here before? Um? Well, many people 0:10:32.920 --> 0:10:37.040 are trying to draw analogy between the present situation and 0:10:37.240 --> 0:10:41.840 the immediate poste um when there was inflation in the 0:10:41.880 --> 0:10:45.640 seventies and so forth, and when Nixon basically tried to say, 0:10:45.880 --> 0:10:48.240 you know, we we we don't want to be the 0:10:48.280 --> 0:10:52.400 top dollar anymore because it constrains us too much. UM. 0:10:52.960 --> 0:10:57.560 And I think those analogies are misplaced. UM. And also 0:10:57.800 --> 0:11:01.800 don't draw the right lessons in the seventies. UM. I 0:11:01.840 --> 0:11:05.920 do take a longer historical perspective. UM. And you sort 0:11:05.960 --> 0:11:07.920 of in your introductory remarks you were saying, we've been 0:11:07.960 --> 0:11:11.520 here many times. The dollars you know, going away? Yes, okay, 0:11:11.520 --> 0:11:13.760 And I've just written a book basically about it. So 0:11:14.120 --> 0:11:17.080 about the construction of the dollar system. Um. After the 0:11:17.120 --> 0:11:21.560 death of Sterling, basically you could you could you could say, um, 0:11:21.600 --> 0:11:24.160 And it took a while before we were able to 0:11:24.400 --> 0:11:27.800 reorganize the global trading system around around the dollar. And 0:11:27.800 --> 0:11:30.880 that's sort of what the Breton Woods meeting was there 0:11:30.920 --> 0:11:33.760 to basically acknowledge, like the future is going to be 0:11:34.000 --> 0:11:38.240 a dollar a dollar world, and it was and gradually 0:11:38.280 --> 0:11:41.839 the world grew, the system grew. This is important to 0:11:41.880 --> 0:11:45.440 appreciate and the traumas of the system like seventy one 0:11:45.840 --> 0:11:49.360 turned out in retrospect to be growing pains. That what 0:11:49.520 --> 0:11:51.480 happened after seventy one was not the end of the 0:11:51.520 --> 0:11:54.840 dollar system, but the offshoring of the dollar system UM 0:11:54.960 --> 0:11:58.880 and and then other crises where we added Asia and 0:11:58.920 --> 0:12:01.600 actually after the global financial crisis, if you look at 0:12:01.720 --> 0:12:04.559 what happened in capital markets you mentioned bond markets, this 0:12:04.600 --> 0:12:07.400 is the extension of the global of the dollar system 0:12:07.440 --> 0:12:10.040 to the global South. UM. Really for the first time 0:12:10.240 --> 0:12:13.680 when when UM, the national champions in the Global South 0:12:13.720 --> 0:12:17.000 are able to borrow in dollar capital markets basically because 0:12:17.080 --> 0:12:19.520 interest rates are zero in the in the North UM. 0:12:19.600 --> 0:12:22.760 And so there's a win win here that the pension 0:12:22.760 --> 0:12:24.880 funds want to want to lend the money UM and 0:12:24.880 --> 0:12:27.920 they want to borrow money. And so in that longer 0:12:28.200 --> 0:12:31.920 horizon you see that these financial crises, these periods of trauma, 0:12:32.160 --> 0:12:35.200 you know, like the Global financial crisis, which which people said, 0:12:35.200 --> 0:12:37.440 oh the dollars are gonner. You know, obviously it was 0:12:37.440 --> 0:12:39.440 like it was a crisis of the very core it 0:12:39.520 --> 0:12:44.040 emerged stronger than ever. Um. And uh So that's what 0:12:44.120 --> 0:12:47.679 I think, that's the perspective that we need to take. 0:12:48.440 --> 0:12:51.480 So what is the current crisis? Okay, I maybe take 0:12:51.520 --> 0:12:56.320 a different, different view because I can take a longer view. 0:12:56.360 --> 0:12:59.240 I'm not I'm not I'm not working for credit squeeze. Um. 0:12:59.559 --> 0:13:01.800 And I've a couple of weeks versus a book every 0:13:01.840 --> 0:13:04.600 ten years. Yes, yes, the book every ten years. I 0:13:04.640 --> 0:13:07.040 try to I try to. Uh, I try to write 0:13:07.080 --> 0:13:09.360 them more fast than that, but they do take they 0:13:09.360 --> 0:13:14.240 do take time. Um. The I think the thing that 0:13:14.240 --> 0:13:15.840 I would like to throw into the mix here is 0:13:15.880 --> 0:13:19.920 the pandemic. Okay, not you know, the war in Ukraine 0:13:20.000 --> 0:13:22.640 or tensions in Taiwan or something. But what came before that, 0:13:22.760 --> 0:13:27.520 which is two years of of extremely loose monetary policy 0:13:27.760 --> 0:13:31.400 throughout the entire world, involvement of the state. You know, 0:13:31.520 --> 0:13:34.920 this was war finance, this was wartime, okay. And we're 0:13:34.960 --> 0:13:37.920 switching and then the pandemic is over we don't know, 0:13:38.080 --> 0:13:41.040 maybe okay. And so we're in the process right now 0:13:41.520 --> 0:13:44.800 of switching from war finance to peace finance. Um. And 0:13:44.920 --> 0:13:47.200 that is a rocky road Okay. So that I would 0:13:47.240 --> 0:13:51.240 analogize all of this to like immediately after World War Two, 0:13:51.440 --> 0:13:55.319 you know, when um, the the reigns of the monetary 0:13:55.320 --> 0:13:57.920 system in the United States had been in the treasury, 0:13:57.960 --> 0:14:00.800 the FED. The Fed's job was simply to finance the 0:14:00.840 --> 0:14:03.560 government whatever it took, you know. And if the if 0:14:03.559 --> 0:14:05.360 the government is issuing bonds and no one wants to 0:14:05.360 --> 0:14:07.280 buy them, the FED will buy them. And so that's 0:14:07.280 --> 0:14:11.000 how war finance works. That's how pandemic finance worked, you know. 0:14:11.240 --> 0:14:12.880 And that work not just that way in our country, 0:14:12.960 --> 0:14:15.079 but in every country around around the world. That's how 0:14:15.120 --> 0:14:18.280 it worked. Okay. You may remember that just before the 0:14:18.280 --> 0:14:21.880 pandemic um there was an attempt to begin raining in 0:14:22.520 --> 0:14:25.400 the elasticity from the global financial crisis to the Taper 0:14:25.440 --> 0:14:28.040 tantrum and all that sort of thing. That's where we were, 0:14:28.560 --> 0:14:31.160 that's where we are now. Okay, that's what Powell wants 0:14:31.200 --> 0:14:32.960 to do, and it's the right thing to do. We 0:14:33.000 --> 0:14:35.320 have we were, We've been in a period of elasticity. 0:14:35.520 --> 0:14:38.160 Now we're moving into a period of discipline, and that 0:14:38.200 --> 0:14:41.960 period of discipline will re establish the dollar. Um I 0:14:42.240 --> 0:14:45.120 I believe that's that's what I think is happening. Actually, 0:14:45.320 --> 0:14:47.520 So just on this topic, and I'm kind of hoping 0:14:47.520 --> 0:14:50.520 that you'll you'll channel Kindle Burger here. But what are 0:14:50.560 --> 0:14:54.600 the benefits of a dollar system outside of the US? 0:14:54.640 --> 0:14:56.600 I think everyone is fairly familiar with what the U 0:14:56.680 --> 0:14:59.760 S gots from it, But what are other countries, especially 0:14:59.840 --> 0:15:02.400 at a time when the U S is tightening monetary policy, 0:15:02.640 --> 0:15:07.680 when some economies, notably emerging markets, probably don't necessarily want 0:15:07.720 --> 0:15:11.600 to see a tightening of financial conditions. So I will 0:15:11.600 --> 0:15:15.200 give you Charlie's answer, Um, Charlie kimno Burger's answer. Everyone 0:15:15.240 --> 0:15:17.040 called him Charlie, so I will call him Charlie. I 0:15:17.040 --> 0:15:19.400 call him Charlie throughout the book. And UM, I actually 0:15:19.400 --> 0:15:21.320 did know him as a matter of fact, and and 0:15:21.320 --> 0:15:24.200 and used to visit him. But but everyone called him 0:15:24.240 --> 0:15:27.280 Charlie even if they didn't know him the his What 0:15:27.360 --> 0:15:30.600 I discovered in writing this book is that Charlie's view 0:15:30.640 --> 0:15:33.160 of the world was very much influenced by his teacher 0:15:33.200 --> 0:15:37.720 at Columbia, Henry Parker Willis, who was one of the 0:15:37.760 --> 0:15:41.240 creators of the Federal Reserve system. UM in the United States. 0:15:41.400 --> 0:15:44.960 And what did the Federal Reserve system do united these 0:15:45.040 --> 0:15:48.720 disparate little regions into a par clearing area inside the 0:15:48.760 --> 0:15:52.200 United States. Okay, Um, so that you had a unified 0:15:52.800 --> 0:15:55.400 monetary system in this country that had never had it before, 0:15:55.520 --> 0:15:59.560 never had a central bank before. Historians will correct me 0:15:59.600 --> 0:16:03.400 on that. But the and this is a big achievement. 0:16:03.600 --> 0:16:07.160 What Charlie wants to do starting in graduate school of 0:16:07.200 --> 0:16:09.760 Columbia is do the same thing for the world. The 0:16:09.840 --> 0:16:12.880 logic of why it's a good thing to have one 0:16:12.920 --> 0:16:16.440 currency for for the whole country, okay, and part clearing 0:16:16.480 --> 0:16:18.840 for the whole country. The logic is just the same 0:16:19.080 --> 0:16:21.120 for why it might be a good idea to have 0:16:21.160 --> 0:16:24.440 one currency for the whole world. Um. And that's what 0:16:24.520 --> 0:16:26.720 people get out of it is that it it makes 0:16:26.880 --> 0:16:29.680 it makes it easier to do trade, to do calculations, 0:16:29.680 --> 0:16:33.600 to do to to unite the globe into a unified economy. 0:16:33.640 --> 0:16:36.960 And that's basically what it is. I'm very influenced by 0:16:37.240 --> 0:16:40.400 the writings that come out of the bi s appreciating 0:16:40.480 --> 0:16:43.800 that we really live in a unified world. This notion 0:16:43.960 --> 0:16:47.080 of separate nation states with separate currencies, this is something 0:16:47.160 --> 0:16:50.360 that was that was inherited in our minds from World 0:16:50.360 --> 0:16:52.640 War Two when when that system had all broken down. 0:16:52.880 --> 0:16:54.800 But that's not the world we live in now. It's 0:16:54.840 --> 0:16:56.880 a it's a global dollar system and it has a 0:16:56.920 --> 0:17:00.400 lot of advantages for now. That does mean, which you 0:17:00.440 --> 0:17:03.040 were just coming to at the end, that basically there's 0:17:03.120 --> 0:17:06.040 one monetary policy that matters and and that's and that's 0:17:06.440 --> 0:17:09.720 US dollar monetary policy that that then gets filtered out 0:17:10.040 --> 0:17:12.240 to the whole rest of the world. And that's what's happening. Now. 0:17:12.400 --> 0:17:16.400 We're moving into discipline mode um and we're already seeing 0:17:16.560 --> 0:17:19.879 where the weak points are in the in the global system, 0:17:19.920 --> 0:17:22.720 and those are going to be managed in the next 0:17:22.760 --> 0:17:42.800 couple of years. So do you see, like you know, 0:17:42.880 --> 0:17:45.919 the coordination costs essentially from Okay, it's great, we have 0:17:46.000 --> 0:17:48.600 like one unit of account and then we're gonna have 0:17:48.760 --> 0:17:51.760 multiple ones. Like what are the costs in your view 0:17:51.920 --> 0:17:55.520 from as you said, are already setting some commodities price 0:17:55.600 --> 0:17:58.360 outside of dollars or an increase in the commodities price 0:17:58.400 --> 0:18:00.040 outside of dollars, Like, what are going to be the 0:18:00.119 --> 0:18:04.479 costs to the world economy if your sort of vision 0:18:05.080 --> 0:18:09.480 or your sort of characterization proves out. Yes, Well, perhaps 0:18:10.119 --> 0:18:13.639 before before I answered that question, I mean listening to Perry, 0:18:13.760 --> 0:18:18.120 you know, Charlie Kindleberger grew up in a certain period, right, 0:18:18.240 --> 0:18:20.679 which is you know, post World War. You know, we 0:18:20.720 --> 0:18:23.399 have a unified clearing system in the US. Let's kind 0:18:23.400 --> 0:18:26.120 of replicate that in the world. And you can replicate 0:18:26.160 --> 0:18:30.000 that in a world where where very basically have one hegement. Right, 0:18:30.040 --> 0:18:32.640 that's a unipolar world order and it has a currency 0:18:32.680 --> 0:18:35.919 for it um. But I think everywhere I look today 0:18:36.800 --> 0:18:41.520 we basically have that unipolar world order being challenged. I mean, 0:18:41.560 --> 0:18:43.680 I wrote about this, so so we can we can 0:18:43.880 --> 0:18:46.320 we can talk about some aspects of this. I think, 0:18:46.880 --> 0:18:48.520 you know, if you take a step back and you 0:18:48.600 --> 0:18:51.240 want to kind of distill everything that has been happening 0:18:51.280 --> 0:18:55.679 since February, you basically have several blockades here, right. You 0:18:55.720 --> 0:18:59.560 have a blockade of Europe from an energy perspective, you 0:18:59.680 --> 0:19:03.400 have a blockade of a big pile of fex reserves. 0:19:03.440 --> 0:19:07.160 From a financial perspective, You've had a week long blockade 0:19:07.200 --> 0:19:09.760 on an island in the South China Sea. And we 0:19:09.800 --> 0:19:14.080 are designing a blockade of of China from from a 0:19:14.160 --> 0:19:18.199 chip sufficiency perspective, not even sufficiency, but you know, be 0:19:18.280 --> 0:19:21.320 able to make chips with a SML machines, be able 0:19:21.359 --> 0:19:24.600 to upgrade machines that make memory chips. You know, that's 0:19:24.640 --> 0:19:31.119 the news about UM memory chip manufacturers with facilities in China. 0:19:32.600 --> 0:19:36.800 The latest iteration is and video which makes AI chips, 0:19:37.040 --> 0:19:40.800 as as the experts of the media on chip matters. 0:19:41.040 --> 0:19:44.360 Uh no, So you basically have a very complex kind 0:19:44.400 --> 0:19:46.639 of chess game. I thought you're going to insinuate that 0:19:46.680 --> 0:19:49.240 the chips we're going to replace what I mean, it's 0:19:49.400 --> 0:19:52.159 problem again like but but but but the significance of 0:19:52.240 --> 0:19:54.680 this is that you know, the the E, C, N, 0:19:54.960 --> 0:19:58.560 Y and and everything. You know, China is about AI 0:19:58.680 --> 0:20:01.080 and there's a lot of AI infrastructure being done. It's 0:20:01.119 --> 0:20:04.960 probably the one sovereign that you associate with AI. And 0:20:05.040 --> 0:20:09.080 so you know, the the end video, the video news 0:20:09.320 --> 0:20:13.719 is significant from that perspective. So you have these multiple blockades. Okay, 0:20:13.800 --> 0:20:20.080 So if the physical world, okay, is becoming fragmented, I 0:20:20.119 --> 0:20:23.199 don't think it's no longer appropriate to think about, you know, 0:20:23.840 --> 0:20:26.960 the world as a unified whole, where you basically need 0:20:27.000 --> 0:20:29.600 to replicate the unified clearing system in the US to 0:20:29.640 --> 0:20:33.520 the rest of the world. Um, you know you you 0:20:34.280 --> 0:20:36.720 I didn't mention this before, but but you did ask 0:20:36.760 --> 0:20:40.600 like what markers am I looking for in terms of look, 0:20:41.760 --> 0:20:45.160 as I said, the invoicing of flows in different currencies 0:20:45.160 --> 0:20:47.080 in commodities is one thing. But also when you look 0:20:47.160 --> 0:20:49.639 at the stocks of f X reserves, um. You know, 0:20:49.680 --> 0:20:53.480 the fact that you know, uh, China for example, is 0:20:53.560 --> 0:20:56.600 letting its treasury portfolio run down since the beginning of 0:20:56.600 --> 0:21:00.320 the war is another important little little bit that you 0:21:00.359 --> 0:21:02.239 need to keep an eye on because I think just 0:21:02.359 --> 0:21:06.359 as the real world is getting disentangled, the financial world 0:21:06.400 --> 0:21:10.040 is getting disentangled um um. And so these are all 0:21:10.320 --> 0:21:12.840 you know, little bits of pieces that people follow for 0:21:12.880 --> 0:21:16.480 the next six months, twelve months, five years, and I 0:21:16.480 --> 0:21:18.679 think the world is going to look very different. You know. 0:21:18.720 --> 0:21:22.240 The the I think the historical analog here is I remember, 0:21:22.560 --> 0:21:24.719 I mean I was, you know, trying to get an 0:21:24.720 --> 0:21:27.000 internship in Washington, d C. In the year two thousand. 0:21:27.080 --> 0:21:29.359 I was like writing emails from Hungary to Congressman. You know, 0:21:29.440 --> 0:21:33.560 China just got um admitted to the w t O, 0:21:33.840 --> 0:21:36.040 and like, what the hell does this mean for the world. Well, 0:21:36.200 --> 0:21:38.919 you know, give eight years and you have three trillion 0:21:38.960 --> 0:21:42.760 dollars of treasuries, right, you know what is the next 0:21:42.760 --> 0:21:44.720 five You're going to look like I have no idea. 0:21:44.800 --> 0:21:46.560 But you know, if the weight at average maturity of 0:21:46.600 --> 0:21:49.879 these treasuries in fex reserve portfolios is like five years, 0:21:50.800 --> 0:21:52.800 I mean, the world could look very different, you know, 0:21:52.880 --> 0:21:55.800 five five years from now. So so again it's it's 0:21:55.840 --> 0:21:58.480 it's a it's a glacial progress, but it's it's it's 0:21:58.480 --> 0:22:00.560 a progress, and I think it's it's time to start 0:22:00.640 --> 0:22:03.440 thinking about how the financial landscape is going to evolve 0:22:04.119 --> 0:22:07.280 when we read about the real world getting more and 0:22:07.280 --> 0:22:11.240 more fractured every day. So Perry, just on that reserves point, 0:22:11.359 --> 0:22:13.639 I mean, it is true if you look at FX 0:22:13.640 --> 0:22:18.280 reserves over the past decade or beyond, actually you can 0:22:18.280 --> 0:22:23.040 see central banks diversifying. So renmand B reserves have gone up, 0:22:23.320 --> 0:22:26.040 reserves of I think South Korea and Canada and some 0:22:26.080 --> 0:22:29.119 other places have gone up as well, dollar reserves going down. 0:22:29.440 --> 0:22:32.240 When you see something like that, what do you think 0:22:32.320 --> 0:22:37.920 is happening? Like, what is the rationale for doing that? Um, well, 0:22:38.040 --> 0:22:42.679 diversification but there but this is small potatoes. The numbers 0:22:42.680 --> 0:22:46.360 you're talking about are are are really quite small. Um 0:22:46.480 --> 0:22:50.960 the evidence of dollar of dollar dominance is is still 0:22:50.960 --> 0:22:55.040 pretty overwhelming. I think now Sultan says, wait five years, 0:22:55.160 --> 0:22:59.119 so maybe, but wait five years, other things could happen 0:22:59.440 --> 0:23:03.600 to you know that. Um, it's not it's not obvious 0:23:03.600 --> 0:23:05.840 to me that all of the long that the trend 0:23:06.080 --> 0:23:09.520 is your friend. UM in this, in in this, in 0:23:09.520 --> 0:23:14.760 this regard. Um. Well, remember that wars are hot houses 0:23:15.240 --> 0:23:17.800 in many ways. UM. And I mean now I'm talking 0:23:17.840 --> 0:23:22.040 about the pandemic, um, not not not Ukraine. UM. A 0:23:22.040 --> 0:23:24.840 lot of things have changed in the pandemic. UM. A 0:23:24.840 --> 0:23:27.960 lot of a lot of technology was developed in order 0:23:28.000 --> 0:23:31.040 to enable us to continue on with our life. This 0:23:31.080 --> 0:23:33.480 has changed how we work, this has changed where we live. 0:23:33.560 --> 0:23:36.920 It's changed. There's a lot of dislocation that has happened. Okay, 0:23:37.119 --> 0:23:39.919