WEBVTT - Why The Dominant U.S. Dollar Refuses To Go Away 0:00:11.520 --> 0:00:15.520 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:15.600 --> 0:00:20.040 I'm Joe Wisn't Thal And I'm Tracy Halloway. Tracy, We've 0:00:20.079 --> 0:00:24.119 both been covering financial markets and the economy for I 0:00:24.160 --> 0:00:27.960 think roughly the same amount of time. Right, Uh, you 0:00:28.000 --> 0:00:30.560 are four years older than me. I know you forget 0:00:30.800 --> 0:00:33.959 from time to time, but yeah, wait, are you a millennial? 0:00:35.040 --> 0:00:37.040 I'm on the cusp of a millennial. I'm what they 0:00:37.080 --> 0:00:41.440 call an elder millennial Joe, but roughly the same short. So, 0:00:42.120 --> 0:00:43.760 one of the things that I think has been a 0:00:43.840 --> 0:00:46.800 persistent theme for as long as I've been following this 0:00:46.840 --> 0:00:52.520 stuff is people predicting the inevitable demise of the US 0:00:52.600 --> 0:00:58.400 dollar as the global dominant safe asset. Wouldn't you? Would 0:00:58.400 --> 0:01:01.440 you feel the same way? Oh for sure? And there 0:01:01.440 --> 0:01:06.840 are certain, um let's say, conspiratorial leaning websites and commentators 0:01:06.840 --> 0:01:10.160 who love to take up this topic. In fact, I 0:01:10.200 --> 0:01:13.200 still remember my dad emailing me about how the Iraq 0:01:13.280 --> 0:01:17.919 War was caused by Iraq demanding or starting to offer 0:01:18.319 --> 0:01:21.640 crude oil in euros as opposed to the U S dollars. 0:01:21.640 --> 0:01:23.920 So this is something that comes up all the time 0:01:24.280 --> 0:01:26.119 that there's going to be I just had a really 0:01:26.120 --> 0:01:29.399 good idea. Okay, can we have your dad as a 0:01:29.440 --> 0:01:33.039 guest on the show? Sometimes? Oh my god, I'm serious 0:01:33.080 --> 0:01:35.880 because number a number of times now your dad has 0:01:35.920 --> 0:01:38.119 come up in a character as a character, and you're 0:01:38.200 --> 0:01:41.399 thinking whether it's we're talking about precious metals or some 0:01:41.520 --> 0:01:45.560 other conspiracy or something political, and it's like, why don't 0:01:45.560 --> 0:01:47.400 we keep talking about him? Why don't we have him 0:01:47.400 --> 0:01:51.440 as a guest Sometime? I will ask him. You definitely 0:01:51.440 --> 0:01:54.680 ask him about silver if he comes on. Okay, good, 0:01:54.880 --> 0:01:56.960 don't tell him, don't show him any of my writings 0:01:56.960 --> 0:01:59.320 before I talk about how crazy silver people are. Okay, 0:01:59.320 --> 0:02:02.320 I don't want him to dislike me, alright, But anyway, 0:02:02.360 --> 0:02:05.360 you're right. So a lot of like fringe, gold bug, 0:02:05.800 --> 0:02:09.440 zero hedge, silver bug, all that kind of stuff. They've 0:02:09.480 --> 0:02:12.080 been talking about the inevitable demise of the U. S 0:02:12.120 --> 0:02:14.120 Dollar for as long as I think both of us 0:02:14.160 --> 0:02:18.320 can remember. But what's interesting is that, rather than the 0:02:18.400 --> 0:02:22.079 dollar haven't collapsed as many people would have predicted, maybe 0:02:22.120 --> 0:02:26.440 after the financial crisis or beforehand, due to various reasons, 0:02:27.040 --> 0:02:30.440 it's actually gotten stronger and it's uh, it's going nowhere. 0:02:30.440 --> 0:02:33.720 It's still here. Just as strong as ever, and arguably 0:02:33.760 --> 0:02:36.880 it's becoming even more dominant on the global stage over 0:02:36.919 --> 0:02:40.240 the last decade or so. Yeah, and in addition to that, 0:02:40.320 --> 0:02:43.320 you now have quite a bit of academic research that's 0:02:43.400 --> 0:02:47.440 actually pointing out just how dominant the dollar is in 0:02:47.520 --> 0:02:51.079 the financial system and starting to write about how this 0:02:51.160 --> 0:02:54.680 is a problem. So Young Sun Shin from the Bank 0:02:54.760 --> 0:02:57.480 for International Settlements, who was on All Thoughts, is a 0:02:57.520 --> 0:03:00.920 really good example of this. But probably the most recent 0:03:01.000 --> 0:03:05.080 one was Bank of England Governor Mark Carney, who gave 0:03:05.120 --> 0:03:08.960 that speech at Jackson Hole. We mentioned it on last 0:03:08.960 --> 0:03:12.119 week's episode of the podcast and you actually weren't there, 0:03:12.160 --> 0:03:16.040 but he proposed potentially replacing the dollar in the financial 0:03:16.080 --> 0:03:20.280 system with a sort of multipolar digital currency. I think 0:03:20.280 --> 0:03:24.080 he called it a synthetic hegemonic currency. I know, I 0:03:24.120 --> 0:03:27.440 love that expression. It's so sci fi um. But yeah. 0:03:27.520 --> 0:03:30.000 So it's interesting, is like the conversation about the dollar. 0:03:30.080 --> 0:03:33.280 It's not that the dollar's got collapsed as everyone predicted, 0:03:33.440 --> 0:03:35.520 or as a lot of people thought was inevitable. It's 0:03:35.560 --> 0:03:40.320 actually gotten stronger. And now the conversation is, oh my god, 0:03:40.360 --> 0:03:43.720 it's becoming too dominant. And so we do have all 0:03:43.760 --> 0:03:46.920 these sort of elite circles, whether it's Mark Karney or 0:03:46.960 --> 0:03:49.840 the b I s. And they're also talking about the 0:03:50.040 --> 0:03:53.040 post dollar world, but from kind of the opposite perspective 0:03:53.160 --> 0:03:56.760 that we would like to see it recede. And it's 0:03:56.760 --> 0:04:00.320 a stubborn lee refusing too much to the chagrin of 0:04:00.600 --> 0:04:04.520 maybe your dad and other conspiracy theorists. So we're gonna 0:04:04.520 --> 0:04:08.400 be talking about the dollars not so inevitable demise on 0:04:08.440 --> 0:04:12.680 this episode exactly, the dollars refusal to weakend just how 0:04:12.720 --> 0:04:15.800 everyone thinks it should so previous odd lots of guests 0:04:15.800 --> 0:04:18.159 from way back in the day. I think we talked 0:04:18.200 --> 0:04:20.440 to him right in the wake of the Trump election 0:04:21.040 --> 0:04:24.320 about various topics. He's an economist, He's been talking and 0:04:24.320 --> 0:04:28.159 writing about the dollar a lot lately and sort of 0:04:28.440 --> 0:04:31.279 thinking about these issues. Kind of on a similar trajectory. 0:04:31.360 --> 0:04:34.279 Is Mark Kearney. I want to bring in this week's guest, 0:04:34.640 --> 0:04:37.960 David Beckworth. He's a senior research fellow at the Mercadis 0:04:38.000 --> 0:04:44.200 Center at George Mason University, longtime economics researcher and commentator, 0:04:44.880 --> 0:04:48.040 public voice on these issues. David, thank you very much 0:04:48.040 --> 0:04:50.080 for joining us. Well, thank you for having me back 0:04:50.120 --> 0:04:52.719 on the show. Thanks for being back. So you know 0:04:52.800 --> 0:04:57.080 how surprised are you. Let's start by this about how 0:04:57.160 --> 0:05:00.000 prominent the voices are these days. Tracy and I were 0:05:00.080 --> 0:05:04.840 just talking about who are really calling out the sort 0:05:04.880 --> 0:05:08.839 of urgent need or at least semi urgent need to 0:05:09.160 --> 0:05:13.480 get away from the global dollar dominant. It is surprising 0:05:13.520 --> 0:05:16.400 that we are having this conversation and this time in history. 0:05:16.440 --> 0:05:18.720 You're right, you would think by this point that dollar 0:05:18.800 --> 0:05:21.839 would be less consequential, but the rest of the world 0:05:21.880 --> 0:05:24.360 continues to feel its brunt as you mentioned, So it's 0:05:24.400 --> 0:05:27.159 it's not surprising that the rest of the world is 0:05:27.200 --> 0:05:29.520 talking about it. It's just surprising that we're still talking 0:05:29.520 --> 0:05:33.240 at this point in time. John Connolly, Richard Nixon's secretary 0:05:33.240 --> 0:05:36.840 of Treasury, said the dollar is our currency, but it's 0:05:36.880 --> 0:05:39.599 your problem. I think the difference today would be it's 0:05:39.640 --> 0:05:42.560 it's our currency and it's our problem collectively as a world, 0:05:42.600 --> 0:05:44.760 because I think the big difference between now and then 0:05:44.839 --> 0:05:48.280 is it's gotten so far reaching that when it does 0:05:48.480 --> 0:05:50.719 create problems, it affects the world, but it also comes 0:05:50.720 --> 0:05:54.760 back to affect the US economy. So talk to us 0:05:54.880 --> 0:05:58.120 exactly why a strong dollar is a problem for the 0:05:58.200 --> 0:06:00.960 US economy, and could you make sort of put it 0:06:01.000 --> 0:06:03.320 through the lens of Donald Trump. And the reason I 0:06:03.360 --> 0:06:06.800 asked that is because there used to be some confusion 0:06:06.880 --> 0:06:09.480 or it seemed like there is confusion about whether Trump 0:06:09.520 --> 0:06:13.440 wanted a stronger or a weaker dollar. Um. You know, 0:06:13.480 --> 0:06:16.760 a strong dollar intuitively sounds good for someone who likes 0:06:16.760 --> 0:06:18.960 to make things great again, but a week dollar would 0:06:19.000 --> 0:06:22.960 be good for US exports and the manufacturing sector. And 0:06:23.000 --> 0:06:27.080 now it seems like Trump has definitively settled on what 0:06:27.160 --> 0:06:30.159 he wants. He wants a weaker dollar. So why is 0:06:30.240 --> 0:06:34.159 that and why is a strong dollar painful for America? Yeah? 0:06:34.160 --> 0:06:36.200 I think there's there's two reasons, are two ways that 0:06:36.240 --> 0:06:38.479 it affects the US and and the first one is 0:06:38.480 --> 0:06:40.719 the one you're talking about, the Trump's really worried about, 0:06:40.760 --> 0:06:43.880 even if he hasn't correctly figured it out entirely. And 0:06:43.960 --> 0:06:47.880 that's the domestic effects. So the world demands dollars to 0:06:47.960 --> 0:06:50.560 buy our safe assets for like the biggest producer of 0:06:50.640 --> 0:06:54.039 safe assets treasuries, but also some other assets GSCs, even 0:06:54.080 --> 0:06:57.000 some privately produced safe assets. But as a consequence, the 0:06:57.040 --> 0:07:01.279 dollar tends to be overvalued more often than not, which 0:07:01.320 --> 0:07:04.680 in turn means we're gonna run more trade deficits. We're 0:07:04.760 --> 0:07:08.280 also gonna tend to run more budget deficits, and all 0:07:08.320 --> 0:07:11.240 this has distributional consequences that it tends. It tends to, 0:07:11.320 --> 0:07:15.040 you know, support the finance industry. We are great at 0:07:15.040 --> 0:07:18.120 exporting debt and financial securities to the rest of the world. 0:07:18.120 --> 0:07:20.880 It's one of our comparative advantages. But you know, Trump 0:07:20.880 --> 0:07:23.120 sees the flip side of that, he sees the costs, 0:07:23.160 --> 0:07:27.440 and that's certain other industries like manufacturing do get harmed. 0:07:28.080 --> 0:07:31.320 And so there's there's this distributional question and it does 0:07:31.440 --> 0:07:36.119 have a bearing domestically also. In addition, because the world 0:07:36.160 --> 0:07:40.560 once our assets so badly, in general, financing costs are 0:07:40.560 --> 0:07:43.040 lower in the US, which means the US tends to 0:07:43.080 --> 0:07:46.520 be more leverage than it would otherwise be the case. 0:07:46.600 --> 0:07:50.120 So between kind of distributional questions more over leverage, there 0:07:50.200 --> 0:07:53.360 is this domestic angle, and I think that's what Trump 0:07:53.440 --> 0:07:56.560 really is trying to figure out. He blames China, he 0:07:56.600 --> 0:08:00.000 blames others, but it's really the strong dollar that arises 0:08:00.080 --> 0:08:02.960 is from this demand for our assets. But the second 0:08:03.000 --> 0:08:05.760 thing that's I think Carney is getting at as well. 0:08:05.800 --> 0:08:08.920 As there is this global financial cycle, you see the 0:08:08.960 --> 0:08:11.800 FED being more cognizant of it. Now. J Pal can't 0:08:11.800 --> 0:08:14.360 come out and say, hey, we have an international mandate now, 0:08:14.400 --> 0:08:17.400 but he is more mindful of the reverberations that you know, 0:08:17.440 --> 0:08:20.120 their policies can have to go through the global economy 0:08:20.160 --> 0:08:22.760 come back to the US. But in short, there's this 0:08:22.840 --> 0:08:26.680 domestic concern and then there's an international concern. So there 0:08:26.800 --> 0:08:30.960 is a lot to unpack here. Let's start with you 0:08:31.040 --> 0:08:34.679 talked about the insatiable demand or the very high demand 0:08:34.800 --> 0:08:40.119 at a minimum for US produced financial assets and treasuries 0:08:40.120 --> 0:08:43.200 are one of them, but g S E debt is another. 0:08:43.679 --> 0:08:47.040 Maybe uh, certain parts of US real estate are considered 0:08:47.160 --> 0:08:49.760 safe dollar denominated assets by the rest of the world. 0:08:50.240 --> 0:08:54.520 Explain this phenomenon. What is it about US dollar denominated 0:08:54.600 --> 0:08:58.440 assets that people crave all around the world and why 0:08:58.480 --> 0:09:01.800 can't they find the equivalent elsewhere, whether it's in Japan 0:09:02.000 --> 0:09:06.200 or Germany or UK or some other country like that. Well, 0:09:06.280 --> 0:09:09.240 it's a path dependency story, I think you can tell. 0:09:09.280 --> 0:09:11.880 I mean, it starts off with the US being the 0:09:11.920 --> 0:09:14.680 biggest economy in the world. Now we're not so much 0:09:14.679 --> 0:09:17.240 we're you know, we're running neconnect with China. But that's 0:09:17.280 --> 0:09:19.480 the original story here is the U S starts out 0:09:19.520 --> 0:09:22.960 big um, it's it's got a huge tax based lots 0:09:23.000 --> 0:09:26.480 of resources to back it up. But over time what 0:09:26.640 --> 0:09:29.839 happens is the dollar spreads throughout the world and so 0:09:29.920 --> 0:09:33.079 there's these huge network effects like and this path dependency 0:09:33.120 --> 0:09:36.600 story is the more widely used this this currency is, 0:09:36.720 --> 0:09:39.320 the more valuable it is, and it's got it's gotten 0:09:39.320 --> 0:09:43.199 to such an extent there's an incentive to look to 0:09:43.400 --> 0:09:46.400 any kind of dollar denominated asset as the safest asset 0:09:46.400 --> 0:09:49.319 of the world. So even as the US size that 0:09:49.480 --> 0:09:52.400 the U S economy as a percent of world GDP shrinks, 0:09:52.920 --> 0:09:55.160 the reach of the dollar continues to grow. And that's 0:09:55.200 --> 0:09:58.040 one of the discussions that was had at this Jackson 0:09:58.080 --> 0:10:02.440 Whole conferences that it's it's ironic that the dollars reaches 0:10:02.480 --> 0:10:05.720 actually growing when the US economy is shrinking. And again 0:10:05.720 --> 0:10:07.839 the reason is it's just it's more convenient, there's a 0:10:07.840 --> 0:10:11.400 convenience heel to to price things in dollars. Now it's 0:10:11.440 --> 0:10:13.720 it's better to get them from the US. But foreigners 0:10:13.760 --> 0:10:16.280 are also producing these dollar denominated assets. So the b 0:10:16.400 --> 0:10:18.960 i S keeps track of this and they report just 0:10:19.040 --> 0:10:23.120 over eleven trillion and dollar denominated securities have been issued 0:10:23.120 --> 0:10:25.720 outside the United States, so there's an incentive for them 0:10:25.720 --> 0:10:28.080 to issue it as well, just because of the convenience yield. 0:10:28.760 --> 0:10:32.080 So just to press on this point, you're saying that 0:10:32.280 --> 0:10:36.720 everyone wants dollar denominated assets, but because the rest of 0:10:36.760 --> 0:10:39.960 the world economy is growing while the US is sort 0:10:40.000 --> 0:10:44.000 of sluggish or not growing as fast, that at some point, 0:10:44.240 --> 0:10:49.800 maybe now the US becomes unable to basically absorb all 0:10:49.920 --> 0:10:53.840 that demand for dollars denominated assets. Is that it it 0:10:53.920 --> 0:10:56.360 was all. It's been coined the Triffan diluma. The world 0:10:56.440 --> 0:11:00.440 once the reserve currencies assets more than the country that 0:11:00.600 --> 0:11:04.280 produces is willing to either make it or can make it. So, yeah, 0:11:04.280 --> 0:11:06.959 the world wants us to produce more treasuries, more g 0:11:07.200 --> 0:11:09.920 sc s, more financial assets, but that in turn would 0:11:09.920 --> 0:11:14.360 make us the incredibly overleveraged economy, and so somewhere else 0:11:14.400 --> 0:11:16.240 in the world they're trying to meet that demand. I mean, 0:11:16.280 --> 0:11:18.439 we saw this during you know, the early to mid 0:11:18.440 --> 0:11:21.440 two thousand's. There weren't enough treasuries to go around, so 0:11:21.440 --> 0:11:23.880 we turned to wall streets to create synthetic safe assets 0:11:23.880 --> 0:11:26.560 that weren't so safe once you know, everything came clear, 0:11:27.040 --> 0:11:28.959 and I think we're seeing that again and the rest 0:11:28.960 --> 0:11:31.680 of the world. The world's producing some of this wall streets, 0:11:31.720 --> 0:11:34.880 still producing the ears. There are privately labeled assets still 0:11:34.880 --> 0:11:38.000 going out there. But for us to truly meet the 0:11:38.000 --> 0:11:40.480 world's demand for another word, for us to get those 0:11:40.480 --> 0:11:42.680 interest rates around the world back up to what would 0:11:42.720 --> 0:11:46.320 be more normal historical levels, would require a lot more 0:11:46.880 --> 0:11:49.720 debt creation, and I think, you know, we're uncomfortable doing 0:11:49.720 --> 0:12:10.480 that at some level. I want to get to the 0:12:10.520 --> 0:12:13.320 other side of the equation about the downsides of the 0:12:13.360 --> 0:12:16.120 global dollar, but just to walk us there. So we 0:12:16.240 --> 0:12:20.160 have all this demand for dollar denominated assets because of 0:12:20.240 --> 0:12:25.679 these network effects that you describe. That has distributional consequences 0:12:25.720 --> 0:12:29.760 for the US because it perpetually, uh maybe strengthens the 0:12:29.800 --> 0:12:36.080 dollar too much, hurting domestic manufacturers while benefiting the financial industry, 0:12:36.080 --> 0:12:40.520 which essentially is the manufacturer of dollar denominated assets, so 0:12:40.679 --> 0:12:45.080 helping finance, hurting workers. You could see why Trump is 0:12:45.080 --> 0:12:49.600 not crazy about that situation. Let's talk about the global picture. 0:12:49.800 --> 0:12:53.959 So something that obviously Mark Arney talked about Jackson holl 0:12:54.160 --> 0:12:56.679 was It's not just that it hurts us workers the 0:12:56.679 --> 0:13:00.480 strong dollar. There are consequences for the entire world of 0:13:00.559 --> 0:13:03.720 everyone essentially being on the dollar cycle. And I think 0:13:03.800 --> 0:13:07.040 we saw that in eighteen a bit when the Federal 0:13:07.080 --> 0:13:11.439 Reserve hip grades multiple times. Perhaps that was appropriate given 0:13:11.480 --> 0:13:13.880 the growth of the U S economy that year, but 0:13:14.000 --> 0:13:16.520 it hurt other parts of the world that maybe didn't 0:13:16.600 --> 0:13:19.520 want to see rate hikes. Talk to us about the 0:13:19.600 --> 0:13:24.800 effect the dollar dominant has on other countries. Yeah, because 0:13:24.840 --> 0:13:28.240 of all the dollars and nominated assets held abroad, as 0:13:28.280 --> 0:13:30.920 well as the number of countries that either implicitly or 0:13:30.960 --> 0:13:33.400 explicitly linked to the dollar. And there's this number I 0:13:33.440 --> 0:13:37.720 throw and it seems almost too high, but seventy the 0:13:37.720 --> 0:13:40.160 world economy has their currency linked in some from to 0:13:40.200 --> 0:13:42.320 the dollar. And this comes from a rock offf Fine 0:13:42.320 --> 0:13:45.880 Heart and Elezski paper. But because of that, seventy percent 0:13:45.920 --> 0:13:47.640 of the world economy is linked in some form to 0:13:47.679 --> 0:13:50.600 the dollar. That means when the Fed sets monetary policy 0:13:50.720 --> 0:13:52.959 or when it causes the dollar change in value, it's 0:13:53.040 --> 0:13:55.480 really setting monetary policy to some extent for the rest 0:13:55.520 --> 0:13:58.520 of the world. And that's just you know, a bad idea. 0:13:58.559 --> 0:14:01.199 We're not all the same economy, just like the year 0:14:01.280 --> 0:14:03.680 zone has learned one size does not fit all. For 0:14:03.679 --> 0:14:05.920 the ECB, doesn't make sense for the FED to be 0:14:05.960 --> 0:14:09.000 setting Monterrey policy for the world effectively. You know, it 0:14:09.440 --> 0:14:12.000 goes through this the linkage of currencies that link to 0:14:12.040 --> 0:14:13.800 the dollar. But also all this dollars are nominated at 0:14:13.840 --> 0:14:17.480 the eleven trillion dollars. Those are liabilities that foreigners own, 0:14:17.679 --> 0:14:20.160 yet their revenues are earned in their domestic currency. So 0:14:20.200 --> 0:14:23.240 you have currency mismatching balance sheets. You've got the wrong 0:14:23.320 --> 0:14:25.840 monterrey policy coming in. So it does. It creates this 0:14:25.920 --> 0:14:29.320 kind of global financial cycle, and it's really a global 0:14:29.360 --> 0:14:33.440 dollar cycle. I think central bankers policymakers around the world 0:14:33.440 --> 0:14:37.400 are acutely aware of it, more so probably than US policymakers. 0:14:37.680 --> 0:14:40.920 You mentioned two thousand and eighteen, gent remember something similar 0:14:41.000 --> 0:14:43.960 happening when the FED started talking up rate hikes. The 0:14:44.000 --> 0:14:46.880 dollar began to go up while the other central banks 0:14:46.880 --> 0:14:50.520 were easy, and that also created some some you know, pressures, 0:14:50.920 --> 0:14:53.560 kind of a mini recession in the US during that time, 0:14:54.000 --> 0:14:57.120 and that that was a global story. All oil prices collapse, 0:14:57.280 --> 0:15:00.000 the emerging markets slowed, down, there's some panic and giant 0:15:00.120 --> 0:15:02.680 a Yeah, when the U s sneezes or the rest 0:15:02.680 --> 0:15:04.720 of the world gets a cold, the saying. And it's 0:15:04.760 --> 0:15:08.040 even more true with the reach of the dollar today. 0:15:08.920 --> 0:15:12.200 So how does the international aspect of all of this 0:15:12.360 --> 0:15:16.160 actually impact the dollar because you sort of alluded to 0:15:16.200 --> 0:15:20.000 this already, but after two thousand eight, um, we had 0:15:20.040 --> 0:15:23.880 this shortage of safe assets, right, So I'm just curious 0:15:24.080 --> 0:15:28.840 if dollar dominance grows with each financial crisis or with 0:15:29.000 --> 0:15:31.920 even with each about of risk off in the market, 0:15:32.720 --> 0:15:36.360 and that would mean dollar financing costs also decline, which 0:15:36.360 --> 0:15:39.520 would incentivize people to use more dollars. I guess, um, 0:15:40.080 --> 0:15:43.280 how do you break that feedback loop because it feels 0:15:43.320 --> 0:15:46.160 like we're in this sort of endless cycle of ever 0:15:46.280 --> 0:15:49.800 increasing dollar reliance. To be honest, I don't know that 0:15:49.880 --> 0:15:53.560 we can or that it's possible anytime soon. That was 0:15:53.600 --> 0:15:55.960 the hard Mark Karney's proposal, right, is he wants to 0:15:56.520 --> 0:15:59.800 find a rival or a substitute to the dollar. And 0:15:59.800 --> 0:16:01.640 and just to put things in perspective, but you know, 0:16:01.920 --> 0:16:04.040 I threw some numbers together in some of my research 0:16:04.040 --> 0:16:06.480 looking at this, but there's about twenty eight trillion dollars 0:16:07.360 --> 0:16:11.000 of assets out that that foreigner's hole twenty trillion dollars 0:16:11.000 --> 0:16:13.320 anominal assets that either they've issued that love and trilling 0:16:13.360 --> 0:16:16.040 they've issued, and some that they've gotten from us. And 0:16:16.040 --> 0:16:18.440 in order to compete with the dollar, you'd have to 0:16:18.480 --> 0:16:21.960 have some other, you know, rival that can offer assets 0:16:21.960 --> 0:16:24.920 on that level. And I just can't imagine this SHC, 0:16:25.160 --> 0:16:29.240 this wonderfully term synthetic hedgemonic currency suddenly issuing that much 0:16:29.320 --> 0:16:31.920 or close to that much in terms of assets. So 0:16:31.960 --> 0:16:34.240 I don't see an easy way to break that. I mean, 0:16:34.840 --> 0:16:37.040 last time this happened was when we went from the 0:16:37.240 --> 0:16:40.480 pound to the dollar, and that required a World war, 0:16:40.600 --> 0:16:43.240 a major shift. I mean, it also required the US 0:16:43.280 --> 0:16:47.600 becoming a leading industrial powers are passing the UK, so 0:16:48.080 --> 0:16:50.720 network effects are strong. So Tracy, I don't have a 0:16:50.840 --> 0:16:55.320 very optimistic lognosis on that front. It's one thing in 0:16:55.480 --> 0:17:00.280 fury to have a dollar substitute. So let's say the 0:17:00.320 --> 0:17:03.200 I m F for some global entity had some sort 0:17:03.200 --> 0:17:07.960 of synthetic basket, maybe as digital that represented some nice 0:17:08.040 --> 0:17:12.399 GDP weighted um you know, share of different currencies, some 0:17:12.440 --> 0:17:15.600 sort of basket. But as you say, the path dependency 0:17:15.640 --> 0:17:17.760 as such, even if it were to be a nice 0:17:17.760 --> 0:17:20.640 dollar substitute. From a sort of pure economic point of view, 0:17:20.880 --> 0:17:24.320 the path dependency is such as you would still need 0:17:24.400 --> 0:17:26.760 people to switch over to it. You would still need 0:17:26.840 --> 0:17:31.880 to have people get comfortable issuing bills denominated in this unit. 0:17:31.920 --> 0:17:35.080 You would still have to have get people comfortable issuing debt. 0:17:35.119 --> 0:17:37.199 I mean, we see how hard it is just to 0:17:37.320 --> 0:17:41.000 move off of say lie or to some new dead standard. 0:17:41.520 --> 0:17:45.080 It's really hard to move standards, uh, let alone a 0:17:45.160 --> 0:17:48.720 whole currency. And that's a great analogy. It is very 0:17:48.720 --> 0:17:52.040 hard when something is widely used, it's convenient. Why do 0:17:52.080 --> 0:17:54.679 I want to go to the trouble, you know, exchange 0:17:54.840 --> 0:17:59.439 the international currency contracts or priced in dollars, depending how 0:17:59.480 --> 0:18:03.400 you measure to The international trade is invoiced in dollars. 0:18:03.600 --> 0:18:06.439 Why would I want to inconvenience myself by using some 0:18:06.520 --> 0:18:09.800 other currency. There has to be some kind of external push, 0:18:09.920 --> 0:18:13.520 a shock, something that really really makes it worth my while, war, 0:18:14.480 --> 0:18:17.600 you know, something serious happening in the United States. One 0:18:17.640 --> 0:18:21.399 scenario would be eventually China emerges as this country with 0:18:21.480 --> 0:18:24.760 great institutions with great safe stores of values. But that's 0:18:24.760 --> 0:18:27.960 a long long ways off. Maybe the Eurozone comes up 0:18:28.000 --> 0:18:30.720 with their own safe assets that seems to be a 0:18:30.760 --> 0:18:34.440 ways off as well, and so it's best case scenario 0:18:34.520 --> 0:18:37.040 would be a gradual and the absence of some kind 0:18:37.040 --> 0:18:40.800 of major shock, some kind of gradual adjustment that will 0:18:40.840 --> 0:18:45.399 take many years to go through. So let me ask 0:18:45.520 --> 0:18:48.760 the obvious question, which would be why doesn't the US 0:18:48.880 --> 0:18:54.880 just issue more debt to satisfy all this extra demand? 0:18:54.960 --> 0:18:57.760 So you alluded to the fact that in many respects, 0:18:57.960 --> 0:19:00.680 the U s economy is quite overlevered, and we feel 0:19:01.040 --> 0:19:04.879 uncomfortable doing it in many ways. But as we talk 0:19:05.000 --> 0:19:08.680 more and more about the potential for fiscal stimulus to 0:19:08.920 --> 0:19:12.200 lift growth, why don't we see the US just take 0:19:12.240 --> 0:19:15.639 advantage of really low interest rates, lots of appetite for 0:19:15.680 --> 0:19:19.280 dollar denominated debt, and just issue a bunch of bonds. 0:19:21.400 --> 0:19:24.480 That's a great question, I would say, to some degree, 0:19:24.560 --> 0:19:28.000 we already do that, not enough. But thinking like President 0:19:28.040 --> 0:19:31.399 Trump's budget deficits, the only way he got away with 0:19:31.440 --> 0:19:34.280 that is because there's such a strong appetite for our securities. 0:19:34.320 --> 0:19:37.360 I mean this, This appetite lowers the financing costs, makes 0:19:37.359 --> 0:19:39.720 it easier for US to run budget deficits. So Trump 0:19:39.760 --> 0:19:43.359 can run a huge peacetime budget deficits. But I just 0:19:43.400 --> 0:19:46.480 think in general there's a lack of understanding maybe about 0:19:46.480 --> 0:19:48.600 this issue, that the role important role we do play. 0:19:48.640 --> 0:19:51.640 It would take a huge, I don't know, public education 0:19:51.680 --> 0:19:53.800 campaign to say, look, the world needs our securities, we've 0:19:53.800 --> 0:19:55.920 gotta issue more of them, maybe if it was done 0:19:55.920 --> 0:19:57.920 in a thoughtful way as well. It's it's one thing 0:19:58.000 --> 0:20:01.080 to you know, issue a lot more measuries to fund 0:20:01.080 --> 0:20:03.679 maybe infrastructure, something with a good high return in the U. 0:20:03.720 --> 0:20:07.840 S economy, as opposed to funding you know, tax cuts 0:20:07.920 --> 0:20:10.760 or wasteful spending. So it would be a complicated thing 0:20:10.800 --> 0:20:12.720 to do. But that's why people have talked about sovereign 0:20:12.720 --> 0:20:15.280 wealth funds. You know, we're you'ld issue treasuries or some 0:20:15.359 --> 0:20:18.280 kind of mechanism or facility where you would do something 0:20:18.320 --> 0:20:21.040 like that. But that's a long conversation in itself with 0:20:21.080 --> 0:20:24.520 the public and with Congress. Well what about the exact 0:20:24.600 --> 0:20:27.520 opposite proposal? And I think you're not a fan of 0:20:27.560 --> 0:20:31.520 this idea based on your writing, but we have seen 0:20:31.760 --> 0:20:35.920 a couple of senators in the USA, rather than issuing 0:20:36.080 --> 0:20:39.000 extraordinary amounts of debt to satisfy the world's desire to 0:20:39.080 --> 0:20:41.720 hold safe assets. Why don't we just do a clean 0:20:41.800 --> 0:20:44.200 break and forced the world to essentially go elsewhere to 0:20:44.240 --> 0:20:47.520 look for their safe assets or and by that, the 0:20:47.600 --> 0:20:50.919 plan is tax foreign investments. And so you a couple 0:20:50.920 --> 0:20:53.560 of U. S. Senators Josh Holly from Missouri is one 0:20:53.600 --> 0:20:57.280 of them. They're just like, you know what, the strong dollar, Hey, 0:20:57.320 --> 0:21:00.679 it's hurting the world, it's hurting US workers. Let's tax 0:21:00.800 --> 0:21:04.679 foreign purchases of dollar assets. That should weaken the US dollar, 0:21:04.840 --> 0:21:08.040 help workers, and maybe it would be an accelerant for 0:21:08.640 --> 0:21:11.120 the creation of a new safe asset around the world. 0:21:11.440 --> 0:21:15.800 What about that plan? Just uh, tax foreign buyers. It 0:21:15.960 --> 0:21:19.920 is well intentioned, and it's it's thinking creatively and it's 0:21:19.920 --> 0:21:21.800 going in the right direction in terms of, you know 0:21:21.840 --> 0:21:23.960 what we want to do, but I just don't think 0:21:23.960 --> 0:21:28.480 it will work. So intentions aside, what it effectively does 0:21:28.640 --> 0:21:31.920 is it reduces the supply of safe assets, at least 0:21:31.960 --> 0:21:34.719 futures safe assets. It's you know, you tax something, you're 0:21:34.720 --> 0:21:37.399 effectively putting gears in the sand. You're you're making it 0:21:37.440 --> 0:21:41.760 harder to produce. And so we're not gonna be changed. 0:21:41.880 --> 0:21:44.240 We're not gonna be fixing the demand side. Of that equation, 0:21:44.280 --> 0:21:47.440 all we would be doing is squeezing the supply side, 0:21:47.440 --> 0:21:50.080 And so you would even make the problem more pronounced. 0:21:50.560 --> 0:21:52.720 And and the analogy or the comparison I like to 0:21:52.760 --> 0:21:54.400 draw off, what I think it would look like, would 0:21:54.440 --> 0:21:56.400 be two thousand and eight. Because two thousand and eight, 0:21:56.400 --> 0:21:58.560 as I mentioned earlier, we had all these we thought 0:21:58.600 --> 0:22:01.159 what we thought were safe assets. It suddenly disappeared. So 0:22:01.200 --> 0:22:03.600 that there's a case where I think the supply of 0:22:03.640 --> 0:22:07.159 safe assets suddenly shrinking. And what happened. The dollar actually 0:22:07.160 --> 0:22:11.000 got stronger, yields actually fell farther down. And I think 0:22:11.040 --> 0:22:12.640 we would see the same thing if if you thought 0:22:12.640 --> 0:22:15.600 this bill would see the light of day, I think 0:22:15.800 --> 0:22:18.520 you would see the markets begin to realize, oh my goodness, 0:22:18.560 --> 0:22:20.680 the supply of safe assets is going to be less. 0:22:20.800 --> 0:22:23.840 Let's race to the existing ones. And we would see 0:22:23.840 --> 0:22:26.000 the dollar gets stronger and yields go down. You know, 0:22:26.040 --> 0:22:29.200 we see negative rates around the world. I jokingly called 0:22:29.200 --> 0:22:32.480 this bill the the bill to give negative yield curves 0:22:32.480 --> 0:22:35.280