1 00:00:11,520 --> 00:00:15,520 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:15,600 --> 00:00:20,040 Speaker 1: I'm Joe Wisn't Thal And I'm Tracy Halloway. Tracy, We've 3 00:00:20,079 --> 00:00:24,119 Speaker 1: both been covering financial markets and the economy for I 4 00:00:24,160 --> 00:00:27,960 Speaker 1: think roughly the same amount of time. Right, Uh, you 5 00:00:28,000 --> 00:00:30,560 Speaker 1: are four years older than me. I know you forget 6 00:00:30,800 --> 00:00:33,959 Speaker 1: from time to time, but yeah, wait, are you a millennial? 7 00:00:35,040 --> 00:00:37,040 Speaker 1: I'm on the cusp of a millennial. I'm what they 8 00:00:37,080 --> 00:00:41,440 Speaker 1: call an elder millennial Joe, but roughly the same short. So, 9 00:00:42,120 --> 00:00:43,760 Speaker 1: one of the things that I think has been a 10 00:00:43,840 --> 00:00:46,800 Speaker 1: persistent theme for as long as I've been following this 11 00:00:46,840 --> 00:00:52,520 Speaker 1: stuff is people predicting the inevitable demise of the US 12 00:00:52,600 --> 00:00:58,400 Speaker 1: dollar as the global dominant safe asset. Wouldn't you? Would 13 00:00:58,400 --> 00:01:01,440 Speaker 1: you feel the same way? Oh for sure? And there 14 00:01:01,440 --> 00:01:06,840 Speaker 1: are certain, um let's say, conspiratorial leaning websites and commentators 15 00:01:06,840 --> 00:01:10,160 Speaker 1: who love to take up this topic. In fact, I 16 00:01:10,200 --> 00:01:13,200 Speaker 1: still remember my dad emailing me about how the Iraq 17 00:01:13,280 --> 00:01:17,919 Speaker 1: War was caused by Iraq demanding or starting to offer 18 00:01:18,319 --> 00:01:21,640 Speaker 1: crude oil in euros as opposed to the U S dollars. 19 00:01:21,640 --> 00:01:23,920 Speaker 1: So this is something that comes up all the time 20 00:01:24,280 --> 00:01:26,119 Speaker 1: that there's going to be I just had a really 21 00:01:26,120 --> 00:01:29,399 Speaker 1: good idea. Okay, can we have your dad as a 22 00:01:29,440 --> 00:01:33,039 Speaker 1: guest on the show? Sometimes? Oh my god, I'm serious 23 00:01:33,080 --> 00:01:35,880 Speaker 1: because number a number of times now your dad has 24 00:01:35,920 --> 00:01:38,119 Speaker 1: come up in a character as a character, and you're 25 00:01:38,200 --> 00:01:41,399 Speaker 1: thinking whether it's we're talking about precious metals or some 26 00:01:41,520 --> 00:01:45,560 Speaker 1: other conspiracy or something political, and it's like, why don't 27 00:01:45,560 --> 00:01:47,400 Speaker 1: we keep talking about him? Why don't we have him 28 00:01:47,400 --> 00:01:51,440 Speaker 1: as a guest Sometime? I will ask him. You definitely 29 00:01:51,440 --> 00:01:54,680 Speaker 1: ask him about silver if he comes on. Okay, good, 30 00:01:54,880 --> 00:01:56,960 Speaker 1: don't tell him, don't show him any of my writings 31 00:01:56,960 --> 00:01:59,320 Speaker 1: before I talk about how crazy silver people are. Okay, 32 00:01:59,320 --> 00:02:02,320 Speaker 1: I don't want him to dislike me, alright, But anyway, 33 00:02:02,360 --> 00:02:05,360 Speaker 1: you're right. So a lot of like fringe, gold bug, 34 00:02:05,800 --> 00:02:09,440 Speaker 1: zero hedge, silver bug, all that kind of stuff. They've 35 00:02:09,480 --> 00:02:12,080 Speaker 1: been talking about the inevitable demise of the U. S 36 00:02:12,120 --> 00:02:14,120 Speaker 1: Dollar for as long as I think both of us 37 00:02:14,160 --> 00:02:18,320 Speaker 1: can remember. But what's interesting is that, rather than the 38 00:02:18,400 --> 00:02:22,079 Speaker 1: dollar haven't collapsed as many people would have predicted, maybe 39 00:02:22,120 --> 00:02:26,440 Speaker 1: after the financial crisis or beforehand, due to various reasons, 40 00:02:27,040 --> 00:02:30,440 Speaker 1: it's actually gotten stronger and it's uh, it's going nowhere. 41 00:02:30,440 --> 00:02:33,720 Speaker 1: It's still here. Just as strong as ever, and arguably 42 00:02:33,760 --> 00:02:36,880 Speaker 1: it's becoming even more dominant on the global stage over 43 00:02:36,919 --> 00:02:40,240 Speaker 1: the last decade or so. Yeah, and in addition to that, 44 00:02:40,320 --> 00:02:43,320 Speaker 1: you now have quite a bit of academic research that's 45 00:02:43,400 --> 00:02:47,440 Speaker 1: actually pointing out just how dominant the dollar is in 46 00:02:47,520 --> 00:02:51,079 Speaker 1: the financial system and starting to write about how this 47 00:02:51,160 --> 00:02:54,680 Speaker 1: is a problem. So Young Sun Shin from the Bank 48 00:02:54,760 --> 00:02:57,480 Speaker 1: for International Settlements, who was on All Thoughts, is a 49 00:02:57,520 --> 00:03:00,920 Speaker 1: really good example of this. But probably the most recent 50 00:03:01,000 --> 00:03:05,080 Speaker 1: one was Bank of England Governor Mark Carney, who gave 51 00:03:05,120 --> 00:03:08,960 Speaker 1: that speech at Jackson Hole. We mentioned it on last 52 00:03:08,960 --> 00:03:12,119 Speaker 1: week's episode of the podcast and you actually weren't there, 53 00:03:12,160 --> 00:03:16,040 Speaker 1: but he proposed potentially replacing the dollar in the financial 54 00:03:16,080 --> 00:03:20,280 Speaker 1: system with a sort of multipolar digital currency. I think 55 00:03:20,280 --> 00:03:24,080 Speaker 1: he called it a synthetic hegemonic currency. I know, I 56 00:03:24,120 --> 00:03:27,440 Speaker 1: love that expression. It's so sci fi um. But yeah. 57 00:03:27,520 --> 00:03:30,000 Speaker 1: So it's interesting, is like the conversation about the dollar. 58 00:03:30,080 --> 00:03:33,280 Speaker 1: It's not that the dollar's got collapsed as everyone predicted, 59 00:03:33,440 --> 00:03:35,520 Speaker 1: or as a lot of people thought was inevitable. It's 60 00:03:35,560 --> 00:03:40,320 Speaker 1: actually gotten stronger. And now the conversation is, oh my god, 61 00:03:40,360 --> 00:03:43,720 Speaker 1: it's becoming too dominant. And so we do have all 62 00:03:43,760 --> 00:03:46,920 Speaker 1: these sort of elite circles, whether it's Mark Karney or 63 00:03:46,960 --> 00:03:49,840 Speaker 1: the b I s. And they're also talking about the 64 00:03:50,040 --> 00:03:53,040 Speaker 1: post dollar world, but from kind of the opposite perspective 65 00:03:53,160 --> 00:03:56,760 Speaker 1: that we would like to see it recede. And it's 66 00:03:56,760 --> 00:04:00,320 Speaker 1: a stubborn lee refusing too much to the chagrin of 67 00:04:00,600 --> 00:04:04,520 Speaker 1: maybe your dad and other conspiracy theorists. So we're gonna 68 00:04:04,520 --> 00:04:08,400 Speaker 1: be talking about the dollars not so inevitable demise on 69 00:04:08,440 --> 00:04:12,680 Speaker 1: this episode exactly, the dollars refusal to weakend just how 70 00:04:12,720 --> 00:04:15,800 Speaker 1: everyone thinks it should so previous odd lots of guests 71 00:04:15,800 --> 00:04:18,159 Speaker 1: from way back in the day. I think we talked 72 00:04:18,200 --> 00:04:20,440 Speaker 1: to him right in the wake of the Trump election 73 00:04:21,040 --> 00:04:24,320 Speaker 1: about various topics. He's an economist, He's been talking and 74 00:04:24,320 --> 00:04:28,159 Speaker 1: writing about the dollar a lot lately and sort of 75 00:04:28,440 --> 00:04:31,279 Speaker 1: thinking about these issues. Kind of on a similar trajectory. 76 00:04:31,360 --> 00:04:34,279 Speaker 1: Is Mark Kearney. I want to bring in this week's guest, 77 00:04:34,640 --> 00:04:37,960 Speaker 1: David Beckworth. He's a senior research fellow at the Mercadis 78 00:04:38,000 --> 00:04:44,200 Speaker 1: Center at George Mason University, longtime economics researcher and commentator, 79 00:04:44,880 --> 00:04:48,040 Speaker 1: public voice on these issues. David, thank you very much 80 00:04:48,040 --> 00:04:50,080 Speaker 1: for joining us. Well, thank you for having me back 81 00:04:50,120 --> 00:04:52,719 Speaker 1: on the show. Thanks for being back. So you know 82 00:04:52,800 --> 00:04:57,080 Speaker 1: how surprised are you. Let's start by this about how 83 00:04:57,160 --> 00:05:00,000 Speaker 1: prominent the voices are these days. Tracy and I were 84 00:05:00,080 --> 00:05:04,840 Speaker 1: just talking about who are really calling out the sort 85 00:05:04,880 --> 00:05:08,839 Speaker 1: of urgent need or at least semi urgent need to 86 00:05:09,160 --> 00:05:13,480 Speaker 1: get away from the global dollar dominant. It is surprising 87 00:05:13,520 --> 00:05:16,400 Speaker 1: that we are having this conversation and this time in history. 88 00:05:16,440 --> 00:05:18,720 Speaker 1: You're right, you would think by this point that dollar 89 00:05:18,800 --> 00:05:21,839 Speaker 1: would be less consequential, but the rest of the world 90 00:05:21,880 --> 00:05:24,360 Speaker 1: continues to feel its brunt as you mentioned, So it's 91 00:05:24,400 --> 00:05:27,159 Speaker 1: it's not surprising that the rest of the world is 92 00:05:27,200 --> 00:05:29,520 Speaker 1: talking about it. It's just surprising that we're still talking 93 00:05:29,520 --> 00:05:33,240 Speaker 1: at this point in time. John Connolly, Richard Nixon's secretary 94 00:05:33,240 --> 00:05:36,840 Speaker 1: of Treasury, said the dollar is our currency, but it's 95 00:05:36,880 --> 00:05:39,599 Speaker 1: your problem. I think the difference today would be it's 96 00:05:39,640 --> 00:05:42,560 Speaker 1: it's our currency and it's our problem collectively as a world, 97 00:05:42,600 --> 00:05:44,760 Speaker 1: because I think the big difference between now and then 98 00:05:44,839 --> 00:05:48,280 Speaker 1: is it's gotten so far reaching that when it does 99 00:05:48,480 --> 00:05:50,719 Speaker 1: create problems, it affects the world, but it also comes 100 00:05:50,720 --> 00:05:54,760 Speaker 1: back to affect the US economy. So talk to us 101 00:05:54,880 --> 00:05:58,120 Speaker 1: exactly why a strong dollar is a problem for the 102 00:05:58,200 --> 00:06:00,960 Speaker 1: US economy, and could you make sort of put it 103 00:06:01,000 --> 00:06:03,320 Speaker 1: through the lens of Donald Trump. And the reason I 104 00:06:03,360 --> 00:06:06,800 Speaker 1: asked that is because there used to be some confusion 105 00:06:06,880 --> 00:06:09,480 Speaker 1: or it seemed like there is confusion about whether Trump 106 00:06:09,520 --> 00:06:13,440 Speaker 1: wanted a stronger or a weaker dollar. Um. You know, 107 00:06:13,480 --> 00:06:16,760 Speaker 1: a strong dollar intuitively sounds good for someone who likes 108 00:06:16,760 --> 00:06:18,960 Speaker 1: to make things great again, but a week dollar would 109 00:06:19,000 --> 00:06:22,960 Speaker 1: be good for US exports and the manufacturing sector. And 110 00:06:23,000 --> 00:06:27,080 Speaker 1: now it seems like Trump has definitively settled on what 111 00:06:27,160 --> 00:06:30,159 Speaker 1: he wants. He wants a weaker dollar. So why is 112 00:06:30,240 --> 00:06:34,159 Speaker 1: that and why is a strong dollar painful for America? Yeah? 113 00:06:34,160 --> 00:06:36,200 Speaker 1: I think there's there's two reasons, are two ways that 114 00:06:36,240 --> 00:06:38,479 Speaker 1: it affects the US and and the first one is 115 00:06:38,480 --> 00:06:40,719 Speaker 1: the one you're talking about, the Trump's really worried about, 116 00:06:40,760 --> 00:06:43,880 Speaker 1: even if he hasn't correctly figured it out entirely. And 117 00:06:43,960 --> 00:06:47,880 Speaker 1: that's the domestic effects. So the world demands dollars to 118 00:06:47,960 --> 00:06:50,560 Speaker 1: buy our safe assets for like the biggest producer of 119 00:06:50,640 --> 00:06:54,039 Speaker 1: safe assets treasuries, but also some other assets GSCs, even 120 00:06:54,080 --> 00:06:57,000 Speaker 1: some privately produced safe assets. But as a consequence, the 121 00:06:57,040 --> 00:07:01,279 Speaker 1: dollar tends to be overvalued more often than not, which 122 00:07:01,320 --> 00:07:04,680 Speaker 1: in turn means we're gonna run more trade deficits. We're 123 00:07:04,760 --> 00:07:08,280 Speaker 1: also gonna tend to run more budget deficits, and all 124 00:07:08,320 --> 00:07:11,240 Speaker 1: this has distributional consequences that it tends. It tends to, 125 00:07:11,320 --> 00:07:15,040 Speaker 1: you know, support the finance industry. We are great at 126 00:07:15,040 --> 00:07:18,120 Speaker 1: exporting debt and financial securities to the rest of the world. 127 00:07:18,120 --> 00:07:20,880 Speaker 1: It's one of our comparative advantages. But you know, Trump 128 00:07:20,880 --> 00:07:23,120 Speaker 1: sees the flip side of that, he sees the costs, 129 00:07:23,160 --> 00:07:27,440 Speaker 1: and that's certain other industries like manufacturing do get harmed. 130 00:07:28,080 --> 00:07:31,320 Speaker 1: And so there's there's this distributional question and it does 131 00:07:31,440 --> 00:07:36,119 Speaker 1: have a bearing domestically also. In addition, because the world 132 00:07:36,160 --> 00:07:40,560 Speaker 1: once our assets so badly, in general, financing costs are 133 00:07:40,560 --> 00:07:43,040 Speaker 1: lower in the US, which means the US tends to 134 00:07:43,080 --> 00:07:46,520 Speaker 1: be more leverage than it would otherwise be the case. 135 00:07:46,600 --> 00:07:50,120 Speaker 1: So between kind of distributional questions more over leverage, there 136 00:07:50,200 --> 00:07:53,360 Speaker 1: is this domestic angle, and I think that's what Trump 137 00:07:53,440 --> 00:07:56,560 Speaker 1: really is trying to figure out. He blames China, he 138 00:07:56,600 --> 00:08:00,000 Speaker 1: blames others, but it's really the strong dollar that arises 139 00:08:00,080 --> 00:08:02,960 Speaker 1: is from this demand for our assets. But the second 140 00:08:03,000 --> 00:08:05,760 Speaker 1: thing that's I think Carney is getting at as well. 141 00:08:05,800 --> 00:08:08,920 Speaker 1: As there is this global financial cycle, you see the 142 00:08:08,960 --> 00:08:11,800 Speaker 1: FED being more cognizant of it. Now. J Pal can't 143 00:08:11,800 --> 00:08:14,360 Speaker 1: come out and say, hey, we have an international mandate now, 144 00:08:14,400 --> 00:08:17,400 Speaker 1: but he is more mindful of the reverberations that you know, 145 00:08:17,440 --> 00:08:20,120 Speaker 1: their policies can have to go through the global economy 146 00:08:20,160 --> 00:08:22,760 Speaker 1: come back to the US. But in short, there's this 147 00:08:22,840 --> 00:08:26,680 Speaker 1: domestic concern and then there's an international concern. So there 148 00:08:26,800 --> 00:08:30,960 Speaker 1: is a lot to unpack here. Let's start with you 149 00:08:31,040 --> 00:08:34,679 Speaker 1: talked about the insatiable demand or the very high demand 150 00:08:34,800 --> 00:08:40,119 Speaker 1: at a minimum for US produced financial assets and treasuries 151 00:08:40,120 --> 00:08:43,200 Speaker 1: are one of them, but g S E debt is another. 152 00:08:43,679 --> 00:08:47,040 Speaker 1: Maybe uh, certain parts of US real estate are considered 153 00:08:47,160 --> 00:08:49,760 Speaker 1: safe dollar denominated assets by the rest of the world. 154 00:08:50,240 --> 00:08:54,520 Speaker 1: Explain this phenomenon. What is it about US dollar denominated 155 00:08:54,600 --> 00:08:58,440 Speaker 1: assets that people crave all around the world and why 156 00:08:58,480 --> 00:09:01,800 Speaker 1: can't they find the equivalent elsewhere, whether it's in Japan 157 00:09:02,000 --> 00:09:06,200 Speaker 1: or Germany or UK or some other country like that. Well, 158 00:09:06,280 --> 00:09:09,240 Speaker 1: it's a path dependency story, I think you can tell. 159 00:09:09,280 --> 00:09:11,880 Speaker 1: I mean, it starts off with the US being the 160 00:09:11,920 --> 00:09:14,680 Speaker 1: biggest economy in the world. Now we're not so much 161 00:09:14,679 --> 00:09:17,240 Speaker 1: we're you know, we're running neconnect with China. But that's 162 00:09:17,280 --> 00:09:19,480 Speaker 1: the original story here is the U S starts out 163 00:09:19,520 --> 00:09:22,960 Speaker 1: big um, it's it's got a huge tax based lots 164 00:09:23,000 --> 00:09:26,480 Speaker 1: of resources to back it up. But over time what 165 00:09:26,640 --> 00:09:29,839 Speaker 1: happens is the dollar spreads throughout the world and so 166 00:09:29,920 --> 00:09:33,079 Speaker 1: there's these huge network effects like and this path dependency 167 00:09:33,120 --> 00:09:36,600 Speaker 1: story is the more widely used this this currency is, 168 00:09:36,720 --> 00:09:39,320 Speaker 1: the more valuable it is, and it's got it's gotten 169 00:09:39,320 --> 00:09:43,199 Speaker 1: to such an extent there's an incentive to look to 170 00:09:43,400 --> 00:09:46,400 Speaker 1: any kind of dollar denominated asset as the safest asset 171 00:09:46,400 --> 00:09:49,319 Speaker 1: of the world. So even as the US size that 172 00:09:49,480 --> 00:09:52,400 Speaker 1: the U S economy as a percent of world GDP shrinks, 173 00:09:52,920 --> 00:09:55,160 Speaker 1: the reach of the dollar continues to grow. And that's 174 00:09:55,200 --> 00:09:58,040 Speaker 1: one of the discussions that was had at this Jackson 175 00:09:58,080 --> 00:10:02,440 Speaker 1: Whole conferences that it's it's ironic that the dollars reaches 176 00:10:02,480 --> 00:10:05,720 Speaker 1: actually growing when the US economy is shrinking. And again 177 00:10:05,720 --> 00:10:07,839 Speaker 1: the reason is it's just it's more convenient, there's a 178 00:10:07,840 --> 00:10:11,400 Speaker 1: convenience heel to to price things in dollars. Now it's 179 00:10:11,440 --> 00:10:13,720 Speaker 1: it's better to get them from the US. But foreigners 180 00:10:13,760 --> 00:10:16,280 Speaker 1: are also producing these dollar denominated assets. So the b 181 00:10:16,400 --> 00:10:18,960 Speaker 1: i S keeps track of this and they report just 182 00:10:19,040 --> 00:10:23,120 Speaker 1: over eleven trillion and dollar denominated securities have been issued 183 00:10:23,120 --> 00:10:25,720 Speaker 1: outside the United States, so there's an incentive for them 184 00:10:25,720 --> 00:10:28,080 Speaker 1: to issue it as well, just because of the convenience yield. 185 00:10:28,760 --> 00:10:32,080 Speaker 1: So just to press on this point, you're saying that 186 00:10:32,280 --> 00:10:36,720 Speaker 1: everyone wants dollar denominated assets, but because the rest of 187 00:10:36,760 --> 00:10:39,960 Speaker 1: the world economy is growing while the US is sort 188 00:10:40,000 --> 00:10:44,000 Speaker 1: of sluggish or not growing as fast, that at some point, 189 00:10:44,240 --> 00:10:49,800 Speaker 1: maybe now the US becomes unable to basically absorb all 190 00:10:49,920 --> 00:10:53,840 Speaker 1: that demand for dollars denominated assets. Is that it it 191 00:10:53,920 --> 00:10:56,360 Speaker 1: was all. It's been coined the Triffan diluma. The world 192 00:10:56,440 --> 00:11:00,440 Speaker 1: once the reserve currencies assets more than the country that 193 00:11:00,600 --> 00:11:04,280 Speaker 1: produces is willing to either make it or can make it. So, yeah, 194 00:11:04,280 --> 00:11:06,959 Speaker 1: the world wants us to produce more treasuries, more g 195 00:11:07,200 --> 00:11:09,920 Speaker 1: sc s, more financial assets, but that in turn would 196 00:11:09,920 --> 00:11:14,360 Speaker 1: make us the incredibly overleveraged economy, and so somewhere else 197 00:11:14,400 --> 00:11:16,240 Speaker 1: in the world they're trying to meet that demand. I mean, 198 00:11:16,280 --> 00:11:18,439 Speaker 1: we saw this during you know, the early to mid 199 00:11:18,440 --> 00:11:21,440 Speaker 1: two thousand's. There weren't enough treasuries to go around, so 200 00:11:21,440 --> 00:11:23,880 Speaker 1: we turned to wall streets to create synthetic safe assets 201 00:11:23,880 --> 00:11:26,560 Speaker 1: that weren't so safe once you know, everything came clear, 202 00:11:27,040 --> 00:11:28,959 Speaker 1: and I think we're seeing that again and the rest 203 00:11:28,960 --> 00:11:31,680 Speaker 1: of the world. The world's producing some of this wall streets, 204 00:11:31,720 --> 00:11:34,880 Speaker 1: still producing the ears. There are privately labeled assets still 205 00:11:34,880 --> 00:11:38,000 Speaker 1: going out there. But for us to truly meet the 206 00:11:38,000 --> 00:11:40,480 Speaker 1: world's demand for another word, for us to get those 207 00:11:40,480 --> 00:11:42,680 Speaker 1: interest rates around the world back up to what would 208 00:11:42,720 --> 00:11:46,320 Speaker 1: be more normal historical levels, would require a lot more 209 00:11:46,880 --> 00:11:49,720 Speaker 1: debt creation, and I think, you know, we're uncomfortable doing 210 00:11:49,720 --> 00:12:10,480 Speaker 1: that at some level. I want to get to the 211 00:12:10,520 --> 00:12:13,320 Speaker 1: other side of the equation about the downsides of the 212 00:12:13,360 --> 00:12:16,120 Speaker 1: global dollar, but just to walk us there. So we 213 00:12:16,240 --> 00:12:20,160 Speaker 1: have all this demand for dollar denominated assets because of 214 00:12:20,240 --> 00:12:25,679 Speaker 1: these network effects that you describe. That has distributional consequences 215 00:12:25,720 --> 00:12:29,760 Speaker 1: for the US because it perpetually, uh maybe strengthens the 216 00:12:29,800 --> 00:12:36,080 Speaker 1: dollar too much, hurting domestic manufacturers while benefiting the financial industry, 217 00:12:36,080 --> 00:12:40,520 Speaker 1: which essentially is the manufacturer of dollar denominated assets, so 218 00:12:40,679 --> 00:12:45,080 Speaker 1: helping finance, hurting workers. You could see why Trump is 219 00:12:45,080 --> 00:12:49,600 Speaker 1: not crazy about that situation. Let's talk about the global picture. 220 00:12:49,800 --> 00:12:53,959 Speaker 1: So something that obviously Mark Arney talked about Jackson holl 221 00:12:54,160 --> 00:12:56,679 Speaker 1: was It's not just that it hurts us workers the 222 00:12:56,679 --> 00:13:00,480 Speaker 1: strong dollar. There are consequences for the entire world of 223 00:13:00,559 --> 00:13:03,720 Speaker 1: everyone essentially being on the dollar cycle. And I think 224 00:13:03,800 --> 00:13:07,040 Speaker 1: we saw that in eighteen a bit when the Federal 225 00:13:07,080 --> 00:13:11,439 Speaker 1: Reserve hip grades multiple times. Perhaps that was appropriate given 226 00:13:11,480 --> 00:13:13,880 Speaker 1: the growth of the U S economy that year, but 227 00:13:14,000 --> 00:13:16,520 Speaker 1: it hurt other parts of the world that maybe didn't 228 00:13:16,600 --> 00:13:19,520 Speaker 1: want to see rate hikes. Talk to us about the 229 00:13:19,600 --> 00:13:24,800 Speaker 1: effect the dollar dominant has on other countries. Yeah, because 230 00:13:24,840 --> 00:13:28,240 Speaker 1: of all the dollars and nominated assets held abroad, as 231 00:13:28,280 --> 00:13:30,920 Speaker 1: well as the number of countries that either implicitly or 232 00:13:30,960 --> 00:13:33,400 Speaker 1: explicitly linked to the dollar. And there's this number I 233 00:13:33,440 --> 00:13:37,720 Speaker 1: throw and it seems almost too high, but seventy the 234 00:13:37,720 --> 00:13:40,160 Speaker 1: world economy has their currency linked in some from to 235 00:13:40,200 --> 00:13:42,320 Speaker 1: the dollar. And this comes from a rock offf Fine 236 00:13:42,320 --> 00:13:45,880 Speaker 1: Heart and Elezski paper. But because of that, seventy percent 237 00:13:45,920 --> 00:13:47,640 Speaker 1: of the world economy is linked in some form to 238 00:13:47,679 --> 00:13:50,600 Speaker 1: the dollar. That means when the Fed sets monetary policy 239 00:13:50,720 --> 00:13:52,959 Speaker 1: or when it causes the dollar change in value, it's 240 00:13:53,040 --> 00:13:55,480 Speaker 1: really setting monetary policy to some extent for the rest 241 00:13:55,520 --> 00:13:58,520 Speaker 1: of the world. And that's just you know, a bad idea. 242 00:13:58,559 --> 00:14:01,199 Speaker 1: We're not all the same economy, just like the year 243 00:14:01,280 --> 00:14:03,680 Speaker 1: zone has learned one size does not fit all. For 244 00:14:03,679 --> 00:14:05,920 Speaker 1: the ECB, doesn't make sense for the FED to be 245 00:14:05,960 --> 00:14:09,000 Speaker 1: setting Monterrey policy for the world effectively. You know, it 246 00:14:09,440 --> 00:14:12,000 Speaker 1: goes through this the linkage of currencies that link to 247 00:14:12,040 --> 00:14:13,800 Speaker 1: the dollar. But also all this dollars are nominated at 248 00:14:13,840 --> 00:14:17,480 Speaker 1: the eleven trillion dollars. Those are liabilities that foreigners own, 249 00:14:17,679 --> 00:14:20,160 Speaker 1: yet their revenues are earned in their domestic currency. So 250 00:14:20,200 --> 00:14:23,240 Speaker 1: you have currency mismatching balance sheets. You've got the wrong 251 00:14:23,320 --> 00:14:25,840 Speaker 1: monterrey policy coming in. So it does. It creates this 252 00:14:25,920 --> 00:14:29,320 Speaker 1: kind of global financial cycle, and it's really a global 253 00:14:29,360 --> 00:14:33,440 Speaker 1: dollar cycle. I think central bankers policymakers around the world 254 00:14:33,440 --> 00:14:37,400 Speaker 1: are acutely aware of it, more so probably than US policymakers. 255 00:14:37,680 --> 00:14:40,920 Speaker 1: You mentioned two thousand and eighteen, gent remember something similar 256 00:14:41,000 --> 00:14:43,960 Speaker 1: happening when the FED started talking up rate hikes. The 257 00:14:44,000 --> 00:14:46,880 Speaker 1: dollar began to go up while the other central banks 258 00:14:46,880 --> 00:14:50,520 Speaker 1: were easy, and that also created some some you know, pressures, 259 00:14:50,920 --> 00:14:53,560 Speaker 1: kind of a mini recession in the US during that time, 260 00:14:54,000 --> 00:14:57,120 Speaker 1: and that that was a global story. All oil prices collapse, 261 00:14:57,280 --> 00:15:00,000 Speaker 1: the emerging markets slowed, down, there's some panic and giant 262 00:15:00,120 --> 00:15:02,680 Speaker 1: a Yeah, when the U s sneezes or the rest 263 00:15:02,680 --> 00:15:04,720 Speaker 1: of the world gets a cold, the saying. And it's 264 00:15:04,760 --> 00:15:08,040 Speaker 1: even more true with the reach of the dollar today. 265 00:15:08,920 --> 00:15:12,200 Speaker 1: So how does the international aspect of all of this 266 00:15:12,360 --> 00:15:16,160 Speaker 1: actually impact the dollar because you sort of alluded to 267 00:15:16,200 --> 00:15:20,000 Speaker 1: this already, but after two thousand eight, um, we had 268 00:15:20,040 --> 00:15:23,880 Speaker 1: this shortage of safe assets, right, So I'm just curious 269 00:15:24,080 --> 00:15:28,840 Speaker 1: if dollar dominance grows with each financial crisis or with 270 00:15:29,000 --> 00:15:31,920 Speaker 1: even with each about of risk off in the market, 271 00:15:32,720 --> 00:15:36,360 Speaker 1: and that would mean dollar financing costs also decline, which 272 00:15:36,360 --> 00:15:39,520 Speaker 1: would incentivize people to use more dollars. I guess, um, 273 00:15:40,080 --> 00:15:43,280 Speaker 1: how do you break that feedback loop because it feels 274 00:15:43,320 --> 00:15:46,160 Speaker 1: like we're in this sort of endless cycle of ever 275 00:15:46,280 --> 00:15:49,800 Speaker 1: increasing dollar reliance. To be honest, I don't know that 276 00:15:49,880 --> 00:15:53,560 Speaker 1: we can or that it's possible anytime soon. That was 277 00:15:53,600 --> 00:15:55,960 Speaker 1: the hard Mark Karney's proposal, right, is he wants to 278 00:15:56,520 --> 00:15:59,800 Speaker 1: find a rival or a substitute to the dollar. And 279 00:15:59,800 --> 00:16:01,640 Speaker 1: and just to put things in perspective, but you know, 280 00:16:01,920 --> 00:16:04,040 Speaker 1: I threw some numbers together in some of my research 281 00:16:04,040 --> 00:16:06,480 Speaker 1: looking at this, but there's about twenty eight trillion dollars 282 00:16:07,360 --> 00:16:11,000 Speaker 1: of assets out that that foreigner's hole twenty trillion dollars 283 00:16:11,000 --> 00:16:13,320 Speaker 1: anominal assets that either they've issued that love and trilling 284 00:16:13,360 --> 00:16:16,040 Speaker 1: they've issued, and some that they've gotten from us. And 285 00:16:16,040 --> 00:16:18,440 Speaker 1: in order to compete with the dollar, you'd have to 286 00:16:18,480 --> 00:16:21,960 Speaker 1: have some other, you know, rival that can offer assets 287 00:16:21,960 --> 00:16:24,920 Speaker 1: on that level. And I just can't imagine this SHC, 288 00:16:25,160 --> 00:16:29,240 Speaker 1: this wonderfully term synthetic hedgemonic currency suddenly issuing that much 289 00:16:29,320 --> 00:16:31,920 Speaker 1: or close to that much in terms of assets. So 290 00:16:31,960 --> 00:16:34,240 Speaker 1: I don't see an easy way to break that. I mean, 291 00:16:34,840 --> 00:16:37,040 Speaker 1: last time this happened was when we went from the 292 00:16:37,240 --> 00:16:40,480 Speaker 1: pound to the dollar, and that required a World war, 293 00:16:40,600 --> 00:16:43,240 Speaker 1: a major shift. I mean, it also required the US 294 00:16:43,280 --> 00:16:47,600 Speaker 1: becoming a leading industrial powers are passing the UK, so 295 00:16:48,080 --> 00:16:50,720 Speaker 1: network effects are strong. So Tracy, I don't have a 296 00:16:50,840 --> 00:16:55,320 Speaker 1: very optimistic lognosis on that front. It's one thing in 297 00:16:55,480 --> 00:17:00,280 Speaker 1: fury to have a dollar substitute. So let's say the 298 00:17:00,320 --> 00:17:03,200 Speaker 1: I m F for some global entity had some sort 299 00:17:03,200 --> 00:17:07,960 Speaker 1: of synthetic basket, maybe as digital that represented some nice 300 00:17:08,040 --> 00:17:12,399 Speaker 1: GDP weighted um you know, share of different currencies, some 301 00:17:12,440 --> 00:17:15,600 Speaker 1: sort of basket. But as you say, the path dependency 302 00:17:15,640 --> 00:17:17,760 Speaker 1: as such, even if it were to be a nice 303 00:17:17,760 --> 00:17:20,640 Speaker 1: dollar substitute. From a sort of pure economic point of view, 304 00:17:20,880 --> 00:17:24,320 Speaker 1: the path dependency is such as you would still need 305 00:17:24,400 --> 00:17:26,760 Speaker 1: people to switch over to it. You would still need 306 00:17:26,840 --> 00:17:31,880 Speaker 1: to have people get comfortable issuing bills denominated in this unit. 307 00:17:31,920 --> 00:17:35,080 Speaker 1: You would still have to have get people comfortable issuing debt. 308 00:17:35,119 --> 00:17:37,199 Speaker 1: I mean, we see how hard it is just to 309 00:17:37,320 --> 00:17:41,000 Speaker 1: move off of say lie or to some new dead standard. 310 00:17:41,520 --> 00:17:45,080 Speaker 1: It's really hard to move standards, uh, let alone a 311 00:17:45,160 --> 00:17:48,720 Speaker 1: whole currency. And that's a great analogy. It is very 312 00:17:48,720 --> 00:17:52,040 Speaker 1: hard when something is widely used, it's convenient. Why do 313 00:17:52,080 --> 00:17:54,679 Speaker 1: I want to go to the trouble, you know, exchange 314 00:17:54,840 --> 00:17:59,439 Speaker 1: the international currency contracts or priced in dollars, depending how 315 00:17:59,480 --> 00:18:03,400 Speaker 1: you measure to The international trade is invoiced in dollars. 316 00:18:03,600 --> 00:18:06,439 Speaker 1: Why would I want to inconvenience myself by using some 317 00:18:06,520 --> 00:18:09,800 Speaker 1: other currency. There has to be some kind of external push, 318 00:18:09,920 --> 00:18:13,520 Speaker 1: a shock, something that really really makes it worth my while, war, 319 00:18:14,480 --> 00:18:17,600 Speaker 1: you know, something serious happening in the United States. One 320 00:18:17,640 --> 00:18:21,399 Speaker 1: scenario would be eventually China emerges as this country with 321 00:18:21,480 --> 00:18:24,760 Speaker 1: great institutions with great safe stores of values. But that's 322 00:18:24,760 --> 00:18:27,960 Speaker 1: a long long ways off. Maybe the Eurozone comes up 323 00:18:28,000 --> 00:18:30,720 Speaker 1: with their own safe assets that seems to be a 324 00:18:30,760 --> 00:18:34,440 Speaker 1: ways off as well, and so it's best case scenario 325 00:18:34,520 --> 00:18:37,040 Speaker 1: would be a gradual and the absence of some kind 326 00:18:37,040 --> 00:18:40,800 Speaker 1: of major shock, some kind of gradual adjustment that will 327 00:18:40,840 --> 00:18:45,399 Speaker 1: take many years to go through. So let me ask 328 00:18:45,520 --> 00:18:48,760 Speaker 1: the obvious question, which would be why doesn't the US 329 00:18:48,880 --> 00:18:54,880 Speaker 1: just issue more debt to satisfy all this extra demand? 330 00:18:54,960 --> 00:18:57,760 Speaker 1: So you alluded to the fact that in many respects, 331 00:18:57,960 --> 00:19:00,680 Speaker 1: the U s economy is quite overlevered, and we feel 332 00:19:01,040 --> 00:19:04,879 Speaker 1: uncomfortable doing it in many ways. But as we talk 333 00:19:05,000 --> 00:19:08,680 Speaker 1: more and more about the potential for fiscal stimulus to 334 00:19:08,920 --> 00:19:12,200 Speaker 1: lift growth, why don't we see the US just take 335 00:19:12,240 --> 00:19:15,639 Speaker 1: advantage of really low interest rates, lots of appetite for 336 00:19:15,680 --> 00:19:19,280 Speaker 1: dollar denominated debt, and just issue a bunch of bonds. 337 00:19:21,400 --> 00:19:24,480 Speaker 1: That's a great question, I would say, to some degree, 338 00:19:24,560 --> 00:19:28,000 Speaker 1: we already do that, not enough. But thinking like President 339 00:19:28,040 --> 00:19:31,399 Speaker 1: Trump's budget deficits, the only way he got away with 340 00:19:31,440 --> 00:19:34,280 Speaker 1: that is because there's such a strong appetite for our securities. 341 00:19:34,320 --> 00:19:37,360 Speaker 1: I mean this, This appetite lowers the financing costs, makes 342 00:19:37,359 --> 00:19:39,720 Speaker 1: it easier for US to run budget deficits. So Trump 343 00:19:39,760 --> 00:19:43,359 Speaker 1: can run a huge peacetime budget deficits. But I just 344 00:19:43,400 --> 00:19:46,480 Speaker 1: think in general there's a lack of understanding maybe about 345 00:19:46,480 --> 00:19:48,600 Speaker 1: this issue, that the role important role we do play. 346 00:19:48,640 --> 00:19:51,640 Speaker 1: It would take a huge, I don't know, public education 347 00:19:51,680 --> 00:19:53,800 Speaker 1: campaign to say, look, the world needs our securities, we've 348 00:19:53,800 --> 00:19:55,920 Speaker 1: gotta issue more of them, maybe if it was done 349 00:19:55,920 --> 00:19:57,920 Speaker 1: in a thoughtful way as well. It's it's one thing 350 00:19:58,000 --> 00:20:01,080 Speaker 1: to you know, issue a lot more measuries to fund 351 00:20:01,080 --> 00:20:03,679 Speaker 1: maybe infrastructure, something with a good high return in the U. 352 00:20:03,720 --> 00:20:07,840 Speaker 1: S economy, as opposed to funding you know, tax cuts 353 00:20:07,920 --> 00:20:10,760 Speaker 1: or wasteful spending. So it would be a complicated thing 354 00:20:10,800 --> 00:20:12,720 Speaker 1: to do. But that's why people have talked about sovereign 355 00:20:12,720 --> 00:20:15,280 Speaker 1: wealth funds. You know, we're you'ld issue treasuries or some 356 00:20:15,359 --> 00:20:18,280 Speaker 1: kind of mechanism or facility where you would do something 357 00:20:18,320 --> 00:20:21,040 Speaker 1: like that. But that's a long conversation in itself with 358 00:20:21,080 --> 00:20:24,520 Speaker 1: the public and with Congress. Well what about the exact 359 00:20:24,600 --> 00:20:27,520 Speaker 1: opposite proposal? And I think you're not a fan of 360 00:20:27,560 --> 00:20:31,520 Speaker 1: this idea based on your writing, but we have seen 361 00:20:31,760 --> 00:20:35,920 Speaker 1: a couple of senators in the USA, rather than issuing 362 00:20:36,080 --> 00:20:39,000 Speaker 1: extraordinary amounts of debt to satisfy the world's desire to 363 00:20:39,080 --> 00:20:41,720 Speaker 1: hold safe assets. Why don't we just do a clean 364 00:20:41,800 --> 00:20:44,200 Speaker 1: break and forced the world to essentially go elsewhere to 365 00:20:44,240 --> 00:20:47,520 Speaker 1: look for their safe assets or and by that, the 366 00:20:47,600 --> 00:20:50,919 Speaker 1: plan is tax foreign investments. And so you a couple 367 00:20:50,920 --> 00:20:53,560 Speaker 1: of U. S. Senators Josh Holly from Missouri is one 368 00:20:53,600 --> 00:20:57,280 Speaker 1: of them. They're just like, you know what, the strong dollar, Hey, 369 00:20:57,320 --> 00:21:00,679 Speaker 1: it's hurting the world, it's hurting US workers. Let's tax 370 00:21:00,800 --> 00:21:04,679 Speaker 1: foreign purchases of dollar assets. That should weaken the US dollar, 371 00:21:04,840 --> 00:21:08,040 Speaker 1: help workers, and maybe it would be an accelerant for 372 00:21:08,640 --> 00:21:11,120 Speaker 1: the creation of a new safe asset around the world. 373 00:21:11,440 --> 00:21:15,800 Speaker 1: What about that plan? Just uh, tax foreign buyers. It 374 00:21:15,960 --> 00:21:19,920 Speaker 1: is well intentioned, and it's it's thinking creatively and it's 375 00:21:19,920 --> 00:21:21,800 Speaker 1: going in the right direction in terms of, you know 376 00:21:21,840 --> 00:21:23,960 Speaker 1: what we want to do, but I just don't think 377 00:21:23,960 --> 00:21:28,480 Speaker 1: it will work. So intentions aside, what it effectively does 378 00:21:28,640 --> 00:21:31,920 Speaker 1: is it reduces the supply of safe assets, at least 379 00:21:31,960 --> 00:21:34,719 Speaker 1: futures safe assets. It's you know, you tax something, you're 380 00:21:34,720 --> 00:21:37,399 Speaker 1: effectively putting gears in the sand. You're you're making it 381 00:21:37,440 --> 00:21:41,760 Speaker 1: harder to produce. And so we're not gonna be changed. 382 00:21:41,880 --> 00:21:44,240 Speaker 1: We're not gonna be fixing the demand side. Of that equation, 383 00:21:44,280 --> 00:21:47,440 Speaker 1: all we would be doing is squeezing the supply side, 384 00:21:47,440 --> 00:21:50,080 Speaker 1: And so you would even make the problem more pronounced. 385 00:21:50,560 --> 00:21:52,720 Speaker 1: And and the analogy or the comparison I like to 386 00:21:52,760 --> 00:21:54,400 Speaker 1: draw off, what I think it would look like, would 387 00:21:54,440 --> 00:21:56,400 Speaker 1: be two thousand and eight. Because two thousand and eight, 388 00:21:56,400 --> 00:21:58,560 Speaker 1: as I mentioned earlier, we had all these we thought 389 00:21:58,600 --> 00:22:01,159 Speaker 1: what we thought were safe assets. It suddenly disappeared. So 390 00:22:01,200 --> 00:22:03,600 Speaker 1: that there's a case where I think the supply of 391 00:22:03,640 --> 00:22:07,159 Speaker 1: safe assets suddenly shrinking. And what happened. The dollar actually 392 00:22:07,160 --> 00:22:11,000 Speaker 1: got stronger, yields actually fell farther down. And I think 393 00:22:11,040 --> 00:22:12,640 Speaker 1: we would see the same thing if if you thought 394 00:22:12,640 --> 00:22:15,600 Speaker 1: this bill would see the light of day, I think 395 00:22:15,800 --> 00:22:18,520 Speaker 1: you would see the markets begin to realize, oh my goodness, 396 00:22:18,560 --> 00:22:20,680 Speaker 1: the supply of safe assets is going to be less. 397 00:22:20,800 --> 00:22:23,840 Speaker 1: Let's race to the existing ones. And we would see 398 00:22:23,840 --> 00:22:26,000 Speaker 1: the dollar gets stronger and yields go down. You know, 399 00:22:26,040 --> 00:22:29,200 Speaker 1: we see negative rates around the world. I jokingly called 400 00:22:29,200 --> 00:22:32,480 Speaker 1: this bill the the bill to give negative yield curves 401 00:22:32,480 --> 00:22:35,280 Speaker 1: to everyone who has same assets. Um, I think it 402 00:22:35,280 --> 00:22:38,879 Speaker 1: would make the problem worse. In short, this might be 403 00:22:38,880 --> 00:22:42,920 Speaker 1: an odd question, but um, to what extent is Trump's 404 00:22:43,000 --> 00:22:49,200 Speaker 1: trade war with China an attempt to solve this monetary problem. 405 00:22:49,320 --> 00:22:54,760 Speaker 1: So if the US can't target foreign capital surpluses directly 406 00:22:54,960 --> 00:22:58,040 Speaker 1: and stop the flood of money coming into its market, 407 00:22:58,480 --> 00:23:01,240 Speaker 1: then I guess maybe you could sort of target the 408 00:23:01,280 --> 00:23:05,439 Speaker 1: current account and try to shrink the trade deficits so 409 00:23:05,480 --> 00:23:08,679 Speaker 1: that there's less money to then flood into the U 410 00:23:08,800 --> 00:23:11,160 Speaker 1: S system. Do you think the trade war is sort 411 00:23:11,200 --> 00:23:16,920 Speaker 1: of an unconscious or conscious attempt to rectify this problem. Absolutely, 412 00:23:17,000 --> 00:23:19,959 Speaker 1: that's a great question. I do think. I think Trump, 413 00:23:20,000 --> 00:23:22,679 Speaker 1: and I think populism in general across the globe is 414 00:23:22,760 --> 00:23:25,680 Speaker 1: a response to this imbalance. This is part of the 415 00:23:25,720 --> 00:23:29,360 Speaker 1: problem with international monetary system, and we see the distortions 416 00:23:29,440 --> 00:23:32,320 Speaker 1: created by it. And so yeah, I do think President 417 00:23:32,359 --> 00:23:35,920 Speaker 1: Trump he knows something's wrong. Maybe he doesn't have a 418 00:23:36,040 --> 00:23:39,800 Speaker 1: quite figured out correctly, but he's pushing in the right direction. 419 00:23:39,840 --> 00:23:42,879 Speaker 1: He senses something's up and he's pushing back. Is it 420 00:23:42,920 --> 00:23:44,800 Speaker 1: gonna work. I don't think his approach is gonna work. 421 00:23:44,840 --> 00:23:48,639 Speaker 1: I mean, my suggestion maybe partial fixes the one for 422 00:23:48,680 --> 00:23:52,160 Speaker 1: the federal reserved to do level targeting of some kind. 423 00:23:52,240 --> 00:23:53,680 Speaker 1: Now that you guys know, I'm a big fan of 424 00:23:53,720 --> 00:23:55,639 Speaker 1: nomenal GDP level targeting, but it doesn't have to be 425 00:23:55,680 --> 00:23:58,400 Speaker 1: That could be price level targeting, but anything that would 426 00:23:58,480 --> 00:24:00,439 Speaker 1: make up for past mrs. So we know that the 427 00:24:00,440 --> 00:24:02,919 Speaker 1: fed's under shop for the past decade. Imagine if it hadn't, 428 00:24:03,480 --> 00:24:06,840 Speaker 1: that probably would imply a weaker dollar um. Also, there 429 00:24:06,840 --> 00:24:09,560 Speaker 1: has been proposed by some for the FED to extend 430 00:24:09,640 --> 00:24:14,040 Speaker 1: currency swap lines throughout the world to other major trading partners, 431 00:24:14,119 --> 00:24:16,680 Speaker 1: and that would might you know, reassure some of those 432 00:24:16,680 --> 00:24:19,119 Speaker 1: countries and may not need to hold onto dollar assets 433 00:24:19,200 --> 00:24:22,760 Speaker 1: as much, reduced the precautionary demand for dollar assets. Both 434 00:24:22,800 --> 00:24:25,399 Speaker 1: of those moves, of course, would not be easy either. 435 00:24:25,480 --> 00:24:28,359 Speaker 1: They both have costs um But there are things I 436 00:24:28,359 --> 00:24:30,280 Speaker 1: think the FED could do, and I think that their 437 00:24:30,720 --> 00:24:33,960 Speaker 1: decisions that Trump could endorse as well. But back to 438 00:24:33,960 --> 00:24:36,960 Speaker 1: the original question, Yeah, I do think Trump he senses 439 00:24:37,000 --> 00:24:39,840 Speaker 1: something's wrong and this is probably at the core of it. 440 00:24:41,080 --> 00:24:44,080 Speaker 1: I think that's interesting, this idea of the FED uh 441 00:24:44,160 --> 00:24:47,920 Speaker 1: setting up swap lines with central banks around the world. 442 00:24:47,960 --> 00:24:51,439 Speaker 1: Of Course, the book Crashed by Adam Two's, which is 443 00:24:51,480 --> 00:24:55,879 Speaker 1: a big history of the Eurozone crisis, it really spotlighted 444 00:24:56,240 --> 00:24:59,240 Speaker 1: the role of those swap lines in easing the stress, 445 00:24:59,280 --> 00:25:04,640 Speaker 1: allowing the European banks to have access to dollar liquidity. 446 00:25:04,680 --> 00:25:06,359 Speaker 1: And then thinking back to what you said at the 447 00:25:06,400 --> 00:25:11,080 Speaker 1: beginning of our discussion here, that that essentially with seventy 448 00:25:11,600 --> 00:25:15,360 Speaker 1: of the global economy either under the dollar or some 449 00:25:15,440 --> 00:25:18,000 Speaker 1: peg or a soft peg to the U. S Dollar, 450 00:25:18,119 --> 00:25:21,680 Speaker 1: that the world is kind of like one big euro Zone. 451 00:25:21,680 --> 00:25:23,760 Speaker 1: And we see the problem with that in the Euro Area, 452 00:25:23,800 --> 00:25:27,360 Speaker 1: where you have a singular monetary policy that doesn't work 453 00:25:27,359 --> 00:25:30,119 Speaker 1: for all its members. And I see it's like we 454 00:25:30,240 --> 00:25:35,399 Speaker 1: keep coming back to this situation in which the world 455 00:25:35,560 --> 00:25:41,520 Speaker 1: is a single de facto currency union without the currency 456 00:25:41,600 --> 00:25:45,679 Speaker 1: flexibility enjoyed by most of the countries. Yeah, that's a 457 00:25:45,720 --> 00:25:47,800 Speaker 1: great point. I mean, it's it's the irony, right. We 458 00:25:47,840 --> 00:25:49,879 Speaker 1: went off to Britain Woods system, where it was this 459 00:25:50,000 --> 00:25:53,000 Speaker 1: global fixed exchange rate regime linked to the dollar. We 460 00:25:53,040 --> 00:25:55,320 Speaker 1: went off of it in in textbooks say when you 461 00:25:55,359 --> 00:25:57,600 Speaker 1: go to a world of floated exchange rates, exchange it 462 00:25:57,680 --> 00:26:00,320 Speaker 1: should adjust. But what we see in Prack this is 463 00:26:00,359 --> 00:26:02,800 Speaker 1: something much more rigid, something much more akin to Britain 464 00:26:02,800 --> 00:26:06,160 Speaker 1: Wood's too, and the dollar is again at the core 465 00:26:06,200 --> 00:26:09,080 Speaker 1: of that. It's it's the main currency, and you know 466 00:26:09,119 --> 00:26:10,800 Speaker 1: it to kind of flash that analogy. I like you're 467 00:26:10,800 --> 00:26:14,120 Speaker 1: suggesting it would make sense then to have currency swap 468 00:26:14,200 --> 00:26:18,080 Speaker 1: lines in all the major trading partners. One reason this 469 00:26:18,119 --> 00:26:20,840 Speaker 1: would be a hard sell is because it would implicitly 470 00:26:20,920 --> 00:26:24,080 Speaker 1: expand the Fed's balanced also kind of the unspoken liabilities 471 00:26:24,119 --> 00:26:28,199 Speaker 1: that would imply now on paper, it wouldn't necessarily mean that, 472 00:26:28,280 --> 00:26:31,280 Speaker 1: it would just mean the commitment, So that would you know, 473 00:26:31,280 --> 00:26:36,959 Speaker 1: I imagine being pretty controversial for Congress. Yeah, sometimes I 474 00:26:37,000 --> 00:26:41,680 Speaker 1: wonder if there had been more awareness of the uh, 475 00:26:41,720 --> 00:26:44,119 Speaker 1: the swap lines that were put in place around the 476 00:26:44,119 --> 00:26:46,840 Speaker 1: Euro crisis. I mean, we're paying attention to a bunch 477 00:26:46,840 --> 00:26:49,439 Speaker 1: of other stuff, but it feels like the potential for 478 00:26:49,960 --> 00:26:52,800 Speaker 1: very intense political scrutiny about the FED doing deals with 479 00:26:52,840 --> 00:26:56,919 Speaker 1: foreign central banks UH could theoretically be uh problematic if 480 00:26:56,920 --> 00:26:59,120 Speaker 1: the wrong people are the right people start paying attention 481 00:26:59,160 --> 00:27:01,560 Speaker 1: to that. Yeah, I would love to see this next 482 00:27:01,600 --> 00:27:04,359 Speaker 1: presidential campaign, which I'm not holding my breath, to have 483 00:27:04,440 --> 00:27:07,240 Speaker 1: them talk about these issues. Be great if someone got 484 00:27:07,280 --> 00:27:09,560 Speaker 1: up and said, hey, we are the main safe asset 485 00:27:09,600 --> 00:27:11,560 Speaker 1: supplier to the world. These are the implication there's this 486 00:27:11,600 --> 00:27:14,919 Speaker 1: Triffan dilemma. Hey, maybe we should have currency swaplines. We 487 00:27:14,960 --> 00:27:17,639 Speaker 1: have a role to play globally. We want to balance 488 00:27:17,680 --> 00:27:21,720 Speaker 1: that against our domestic concerns. Let's think through the policy options. 489 00:27:22,520 --> 00:27:25,439 Speaker 1: So we've been talking a lot about the downsides of 490 00:27:25,480 --> 00:27:29,240 Speaker 1: a strong dollar, and really the downsides of having the 491 00:27:29,320 --> 00:27:32,200 Speaker 1: dollar as a sort of central figure in the entire 492 00:27:32,359 --> 00:27:36,520 Speaker 1: global financial system. So maybe to finish it off, talk 493 00:27:36,600 --> 00:27:40,000 Speaker 1: to us about why having a strong dollar, having the 494 00:27:40,080 --> 00:27:43,440 Speaker 1: dollar as the world's reserve currency is actually a good 495 00:27:43,480 --> 00:27:46,640 Speaker 1: thing for America. Yeah, I'm glad you've said that, because 496 00:27:46,640 --> 00:27:49,439 Speaker 1: I want on a positive note as well, the dollar 497 00:27:49,600 --> 00:27:52,560 Speaker 1: is a global medium of exchange, and you know, one 498 00:27:52,600 --> 00:27:55,280 Speaker 1: could argue in its absence, or in the absence of 499 00:27:55,320 --> 00:27:58,280 Speaker 1: a global medium of exchange, globalization itself could not have 500 00:27:58,320 --> 00:28:00,840 Speaker 1: taken off as it has or the ask few decades. 501 00:28:00,880 --> 00:28:05,680 Speaker 1: And we know globalization has brought with it the freeing 502 00:28:05,720 --> 00:28:08,000 Speaker 1: of many people stuck in poverty. So that you know, 503 00:28:08,000 --> 00:28:10,720 Speaker 1: the billion or so people who are in poverty who 504 00:28:10,720 --> 00:28:13,440 Speaker 1: are now not in poverty because of international trade, because 505 00:28:13,440 --> 00:28:17,520 Speaker 1: of globalization, you could make the argument that they're there 506 00:28:17,600 --> 00:28:20,920 Speaker 1: because there was the dollar. So I think one could 507 00:28:20,920 --> 00:28:23,840 Speaker 1: make a reasonable case that while there are all these 508 00:28:23,920 --> 00:28:26,320 Speaker 1: costs to the dollar. The net benefit to the world 509 00:28:26,359 --> 00:28:30,480 Speaker 1: has been positive in terms of liberating the poor from 510 00:28:30,680 --> 00:28:35,040 Speaker 1: the shackles of of a closed system. This is an 511 00:28:35,080 --> 00:28:38,560 Speaker 1: absolutely fascinating topic, and you provided a really sort of 512 00:28:39,000 --> 00:28:43,560 Speaker 1: clear explanation of this phenomenon and why people are talking 513 00:28:43,640 --> 00:28:47,400 Speaker 1: so much about the problems of the persistently strong dollar. 514 00:28:47,960 --> 00:28:50,160 Speaker 1: Really appreciate you joining us. Thank you for having me 515 00:28:50,200 --> 00:29:06,440 Speaker 1: on the show. Thanks so much, David. That was great. Yeah, Tracy, 516 00:29:06,520 --> 00:29:09,280 Speaker 1: I love that conversation. I think this is just such 517 00:29:09,400 --> 00:29:13,640 Speaker 1: a rich load to mind, such a fascinating topic because 518 00:29:14,120 --> 00:29:17,520 Speaker 1: the problem is fairly clear, I think, and yet the 519 00:29:17,600 --> 00:29:23,120 Speaker 1: solution seems almost intractable. It's almost impossible to imagine what 520 00:29:23,440 --> 00:29:26,560 Speaker 1: is anywhere close to being in position to take the 521 00:29:26,600 --> 00:29:29,800 Speaker 1: dollars place on the world stage. Yeah, you can't fight 522 00:29:29,880 --> 00:29:33,520 Speaker 1: those network effects, I guess. I find it really interesting 523 00:29:33,560 --> 00:29:36,440 Speaker 1: as well, because it touches on a number of topics 524 00:29:36,480 --> 00:29:38,800 Speaker 1: that we've talked about at one point or another on 525 00:29:38,800 --> 00:29:42,680 Speaker 1: the show, things like safe assets, things like the trade war, 526 00:29:43,240 --> 00:29:46,720 Speaker 1: like big capital surpluses in other parts of the world 527 00:29:46,760 --> 00:29:50,200 Speaker 1: that then kind of move into the US market and 528 00:29:50,320 --> 00:29:52,960 Speaker 1: end up impacting it. But it does seem to be 529 00:29:53,120 --> 00:29:57,720 Speaker 1: an intractable problem, and you kind of wonder, you know, 530 00:29:57,800 --> 00:29:59,760 Speaker 1: David touched on this towards the end where he was 531 00:30:00,040 --> 00:30:03,440 Speaker 1: came about how the dollar as reserve currency has basically 532 00:30:03,640 --> 00:30:07,520 Speaker 1: enabled and also grown in tandem with globalization, and you 533 00:30:07,600 --> 00:30:11,239 Speaker 1: do wonder if you're going to get a solution that 534 00:30:11,400 --> 00:30:16,280 Speaker 1: basically looks like deglobalization, right, you could basically get ring 535 00:30:16,400 --> 00:30:21,000 Speaker 1: fenced financial systems where China relies on the u N 536 00:30:21,200 --> 00:30:24,000 Speaker 1: for all its currency dealings, in the US relies on 537 00:30:24,040 --> 00:30:26,320 Speaker 1: the dollar, and the Euro relies on the Euro, and 538 00:30:26,400 --> 00:30:30,360 Speaker 1: that whole sort of network of financial inter dependence starts 539 00:30:30,360 --> 00:30:34,440 Speaker 1: to get unpicked. You know what's really interesting is um 540 00:30:34,600 --> 00:30:38,080 Speaker 1: David's term and Mark Arney used it to and you 541 00:30:38,120 --> 00:30:40,640 Speaker 1: just mentioned it network effects and the network effects of 542 00:30:40,640 --> 00:30:44,240 Speaker 1: the dollar being so strong. And it's funny that Facebook 543 00:30:44,920 --> 00:30:48,640 Speaker 1: is launching its own or you know, its own currency, Libra, 544 00:30:48,840 --> 00:30:52,320 Speaker 1: because there are probably a lot of analogies between the 545 00:30:52,360 --> 00:30:56,600 Speaker 1: dollar and Facebook itself, namely that everyone seems to hate 546 00:30:56,600 --> 00:31:00,280 Speaker 1: Facebook and complains about it all the time. It thinks 547 00:31:00,320 --> 00:31:02,080 Speaker 1: there's all kinds of issues with it, and it drives 548 00:31:02,080 --> 00:31:05,880 Speaker 1: people crazy. And yet the prospect of actually leaving Facebook 549 00:31:06,520 --> 00:31:09,560 Speaker 1: is really difficult. And so even if you hate Facebook 550 00:31:10,040 --> 00:31:14,560 Speaker 1: and you don't like their surveillance practices, and you don't 551 00:31:14,600 --> 00:31:17,600 Speaker 1: like all kinds of manipulations that they do, it's pretty 552 00:31:17,640 --> 00:31:21,160 Speaker 1: difficult to leave. Just like the dollar. You can identify 553 00:31:21,400 --> 00:31:24,920 Speaker 1: problems with being in the dollar social trading network, but 554 00:31:25,360 --> 00:31:27,920 Speaker 1: where else are you gonna go. It's a really difficult problem. 555 00:31:28,000 --> 00:31:31,680 Speaker 1: So kind of the way, Uh, they're more than Libra itself. 556 00:31:31,720 --> 00:31:35,160 Speaker 1: They are already a lot of analogies between our Facebook 557 00:31:35,160 --> 00:31:40,520 Speaker 1: and the dollar, right, not to mention slightly monopolistic tendencies 558 00:31:40,880 --> 00:31:44,719 Speaker 1: as some commentators say, Yeah, I like that analogy. Uh. 559 00:31:44,760 --> 00:31:47,080 Speaker 1: In any case, it'll be really interesting to see how 560 00:31:47,120 --> 00:31:50,080 Speaker 1: this debate evolves in the future. Like you said at 561 00:31:50,080 --> 00:31:52,520 Speaker 1: the beginning of the discussion, we've already come a long 562 00:31:52,560 --> 00:31:55,760 Speaker 1: way from pre two thousand eight. You know, the dollar 563 00:31:55,880 --> 00:31:58,440 Speaker 1: is going to be replaced by the euro or the 564 00:31:58,680 --> 00:32:01,480 Speaker 1: renman b or something like that. It's going to be 565 00:32:01,520 --> 00:32:04,120 Speaker 1: really interesting to see how it changes in the next 566 00:32:04,120 --> 00:32:08,320 Speaker 1: few years, whether we do get that synthetic hegemonic currency 567 00:32:08,520 --> 00:32:10,680 Speaker 1: you know who might actually have some good ideas for 568 00:32:10,680 --> 00:32:16,160 Speaker 1: what could replace the dollar. Go on your dad, So no, 569 00:32:16,200 --> 00:32:19,280 Speaker 1: I'm serious, I'm really looking forward to that episode. Now, 570 00:32:20,240 --> 00:32:24,960 Speaker 1: all right, I'll try to make it happen. Okay, good, okay. 571 00:32:24,960 --> 00:32:28,200 Speaker 1: This has been another episode of the All Thoughts Podcast. 572 00:32:28,280 --> 00:32:31,120 Speaker 1: I'm Tracy Allaway. You can follow me on Twitter at 573 00:32:31,160 --> 00:32:34,360 Speaker 1: Tracy Alloway, and I'm Joe wisn'tal. You can follow me 574 00:32:34,640 --> 00:32:38,240 Speaker 1: on Twitter at the Stalwart. And you should follow David 575 00:32:38,440 --> 00:32:42,240 Speaker 1: on Twitter. He's great. He's at David Beckworth. And be 576 00:32:42,320 --> 00:32:47,000 Speaker 1: sure to follow our producer Laura Carlson. She's at Laura M. Carlson. 577 00:32:47,400 --> 00:32:52,400 Speaker 1: And check out the new home of Bloomberg Podcasts at Podcasts. 578 00:32:52,760 --> 00:33:06,800 Speaker 1: Thanks for listening Tear to