Episode 28: After the US Dollar with Luke Gromen - The Network State Podcast

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Luke, welcome to the Network State Podcast. Great to have you here. It's great to be here. Thanks for having me on, Balaji. Yeah. So you know, we have been carry on a fairly long running conversation, a sidebar on the world stage. You know one of the things just as a Meta comment like the group chats are actually good because they are it's it's like everybody's busy. So you can have like an asynchronous conversation and then you can, you know, hang out in person. Like, you know, sometimes you'll see Kathleen Tyson or some other people from the group. And it's always great because you could pick up right where you left off. And everybody knows all the same references over the last several months. So anyway, so welcome, Great, great to great to have you here. It's great to talk to you. I know we've talked before offline, but it's it's, I've been looking forward to this. Awesome. So OK, so you are, you know,

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you've got Forest for the Trees, LLC. Do you want to just give us a quick bio? You're pretty, you know, big account on Twitter, but just for those people are X. You know, I should say nowadays give give the give the Luke on Luke spiel if you wouldn't mind. Yeah, sure. I'll give you that the elevator pitch. So nearly 30 years in finance, started out investment research, was a partner at two different firms that were pioneers in bottoms up fundamental channel check research. At both of those places I was one of the founding editors of a weekly piece that basically aggregated the bottoms up fundamental research we were doing into sort of a macro thematic piece that became one of the more widely read research pieces on Wall Street heard in the Midwest. And then straight from the source at the at the at the two different shops hung out my own

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shingles. FFTT in 2014, doing the same type of work with publicly available information and what we do is I, I have what I think is the best job in the world. I get to sit around, read, comprehend, think all day and aggregate large amounts of publicly available data into what I'm looking for are developing economic bottlenecks. Because for me, my 30 years in finance have taught me that how a developing economic bottleneck will affect various SECtors in the economy is the biggest attribution for investment outperformance. Perfect example, in the housing downturn, it didn't matter if you owned the best home builder, it was only down 90% while all the others went down 95 to 100%,

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right. And maybe not home builder, but mortgage broker, you get it right. The most important thing was getting them the, the bottleneck correct in that time. And that's something we try to do. So that's the short version of where I've come from, my background and what we do today. So it's funny you say finance in the East Coast way as supposed to finance which is the West Coast issue way of saying it was funny so. It continues our our thing, right? It's like almost instead of flashing gang signs, we'll just it's. How you Yeah, yeah, yeah, exactly. It's funny. So but the it's interesting you say economic bottlenecks because So what, what you mean by that? Do you mean, do you mean macro

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trends or do you mean a bottleneck in like a chemistry sense where there's genuinely a scarcity of some compound or raw material or something in the economy? Explain me how you think about. That with at the risk of being flipped yes, it's a little bit of both right. I am when I when I read and read and read and read, I don't know what I'm looking for right. I'm, I, I've equated myself to be in like a, you know, a giant catfish at the bottom of the Ohio River just waiting for stuff to kind of come downstream to me. And sort of the SECret sauce in it is when I see something that interests me, it's like a splinter in my brain and I kind of go, OK.

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And I don't most of the time, I don't know, it's sometimes like, oh, well, that's important. Other times it's like that feels like it could be important. And I don't know why. I don't know when. And then I put that in what I call my cutting room, which is I set it aside, I save it and, and as things, especially for the things I don't know exactly where they fit, but I just have a feeling, almost an intuition that they're important. Possibly for whatever reason, I, I retain a lot of what I read for long, long periods of time. And so it might be 24 hours later, it might be 24 days later, it might be 24 years later and it'll be like something else triggers. And I go, oh, that reminds me of this. And this related to that.

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And you start sort of putting pieces together in a way that starts to build a mosaic of something that's happening. And I kind of see things in these, these trends of where I get really excited because not only am I reading for what is happening, what interests me, but for what I call the dog that doesn't bark, right? When you're when for what's not happening or for what people are not reacting to that they should be. And so when I get really excited and when I talk about a bottleneck, what I'm most excited about is when I've got and have read for investing consensus, which is over here, right? And everyone thinks this going to happen. And I've got this big body of evidence way over here saying this actually going to happen.

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Not that I mean another. Yeah. So and that's the it's the conflict of those two. And that's why I say, yes, it's both is it's, it's, it's more sort of sort of fundamental macro driven, but it is almost like a, you know, a chemical reaction of sorts. When you've got in, you know, when you've actually got the people, you know, when you, we have positioning in assets and flows, physical flows on the wrong side of things and they need to move somewhere else to adjust to what's happening. There's actually, you know, a kinetic movement of positioning of money. And that's what I mean by bottleneck. Yes, this interesting. So you know, one of the things I want to do is I want to go through some of you know you and I have come from I mean I think

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we're somewhat similar in that I also just like digest giant quantities of information. I come at it from maybe a more tech in Asia standpoint, and you have a lot of experience on the ground in the Midwest and you've actually seen, you know, the other side of that, like the deindustrialization and so and so forth. And you see what, you know, what's happened with the factories and whatnot. But we've come to, I think, pretty similar conclusions on a lot of things, right. And do you want to give the unified Luke theory of the world? I mean, you know, the money printer subsidizing things gold is going to get repriced. You know, financial repression is really already ongoing, but it's going to become more like harder to deny. I don't know.

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Give me give me the Luke macro. the Luke macro is really, I think the fundamental case is that post 2008 it became apparent to what we will call the bricks or the Global South. I'll just say bricks for ease that the status quo monetary system could no longer work after the US basically got out of it by printing money for a simple reason, which is the Global South in 2008 was only 10 years past the Asian the Asian financial crisis, which was essentially they ran out of dollar reserves. And once they did, they had to devalue and go through a lot of pain and austerity and they

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never wanted to do that again. And what 2? 1000 the way US got out of 2008 showed them. Was that ultimately as long as commodities are only priced in dollars and the Americans are always going to print rather than take pain then as. A. $100 trillion plus of US entitlement promises go cash flow negative and go from on off balance sheet to on balance sheet. The Americans are going to print the money for that and that is going to export dollar inflation that shows up in commodities that basically runs down global S FX reserves and puts them right back to the problem they had in the late 1990s and including China. And that was simply a political

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and economic red line. They weren't going to allow that to happen. And so the reaction to 2008, which was seen in Beijing, Moscow and other places around the global. South as as basically. A financial attack on Beijing, Moscow, etcetera. They began not necessarily doing because they wanted to hurt America or hate America per SE, but simply out of enlightened self-interest, which is if we don't do this, we are going to have another Southeast Asia financial crisis and right then we need to start de dollarizing our global commodity markets. And the real you know, that's what we've been seeing happen as a shift to gold and a pricing in outside the dollar, primarily in yuan China setting up different offshore you want

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clearing banks and gold hubs around the world, etcetera. And the other side of that same coin that's part of this unified theory is the actions, the enlightened self-interest actions. Of the bricks. To basically avoid what is a guaranteed repeat of Southeast Asia crisis the late 90s the other side of that is it means the price insensitive buyer of treasuries global central banks, these tend to be all the creditor countries, the bricks and global S stop buying treasuries on net while US deficits didn't stop growing right and So what you end up with is a treasury supply situation that starts to look like the famous Lucy and I can't think of her name I Love Lucy episode, right where the chocolates just keep coming

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faster and faster right so the US deficits keep coming down the line faster and faster and you know you stuff the banks with them you stuff the US pensions with them you stuff US retail with them and the ultimate problem is these bricks creditor nations their central banks are no longer buying treasuries as the reserves they're buying gold or in the. Case of China, actually, I want to pause you there for a SECond. So some premises that maybe we both agree on, I'll go kind of one by one, get your thoughts first. The currency of bricks is gold bricks. Or it's going to be, if it isn't already. Like that's the one that's traded between them, right? 100% Yep. OK. And then #2 is gold physical gold, like not, not GLD, not all the virtualizations of gold, but like physical gold bricks that you can put in an armored car is going to, that's just going to

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become more important because it's there when all kinds of abstractions go away. That's like physical that you can touch and feel and it's at record highs, but it's nowhere near where it's going to be. I think we both agree on that. Agree. OK. And you know, an interesting thing, I'm not sure it was you and I have both done this calculation. If you actually revalued all of the you know, they it's funny this being talked about. I don't know if you have a theory on this. I don't I don't have a strong opinion. Is the Golden Fort Knox really there? I think at least some of it, maybe all of it, maybe more than all of it. I, I don't have a strong view on it. I think a bunch of guys who have haircuts like mine with big guns say it's there and, you know, and. You know this Ron Paul types who say it's not and so on. I I am rationally ignorant. I think it might be there, but

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I've also wouldn't be surprised if it was misaccounted for like you saw this jobs report. It's it's really genuinely Potemkin American where for years remember how mad they got at David Sacks and a few other people who pointed out that these jobs numbers seem really wishy washy and weird during the Biden administration. It was like 17 like months straight of like up into the right job numbers. Remember that like of job growth and then every absolutely. Yeah, yeah, I was going to say too, as you look back to summer 2022, like I remember saying early in 22, I'm like, they can't tighten because the debt situation will put us into a recession really quick. And they tightened. I was wrong. I was, I, I immediately pivoted

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like, OK, well, they're tightening. Well, this would be really bad for risk. So that was correct. And then you saw all of these sort of data series that had always. Foreshadowed recession and employment loss, you know ISM and industrial production and. All of these things and it was chapter and verse through SECond quarter, third quarter dollars rising like you'd get into a recession. The only thing that didn't move was employment. And so people were saying, aha, see, there wasn't a receipt, tax receipts. How how do you have tax receipts fall as dramatically as they did in 2022-2023? And I call it a recession. You thought of that graph that. 'D be a great graph to show. Can you share that graph? This this going back to 1947 and so right anytime you get receipts down year over year about 5% like the only time you didn't have a recession down more than 3% on receipts was sorry, 64 was 2, but that was

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down only down 2% right recession, recession. Wow, what a great charge. And, and look at this, we've got receipts in the, you know, down 8% and we're not in a recession. And the only reason we weren't in a recession, if you go back and read at the time, was all the economists were like, well, it's not technically a recession even though GDP fell. If you remember, they revised GDP decline in two Q and three Q 22 away, but initially it was reported as a decline. So they why, why was it because the jobs numbers had gotten, you know, whether you call it faked, whether you call it massaged, whatever, what have you is that. I don't I don't know like I looked at that like you get receipts down 8 now a big chunk

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of that was withheld, right. So the as reported, the reason why, why receipts fell and employment didn't was because about $500 billion of that decline, 450 billion was what they call non withheld, right. So non withheld is just stock based comp. And so as stocks fell in 2022, it's a huge, you know, stop the stock market is the key marginal driver to consumer spending and therefore U.S. tax receipts. So it's, it's for me, I don't think the job revision is, you know, it, it's not necessarily that we didn't have a that we,

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that we had a recession there, a job recession. But I think it supports the view that it was much softer in 2022. Everything else was recessionary except jobs, including this, the decline in receipts, which was like I said, heavily non withheld. It was stock based, comp driven. Very interesting. I mean, the, the, the thing that's really fascinating about this there's almost a reflexivity to it of if you can sort of fake enough people into thinking it's not a recession, then they might act if it's not a recession and then they come out of recession. Or at least that was the, I think that was probably what the

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Biden and men people were thinking. They can just skate by it and so on. But I think what actually happens is they just are hiding the stick of dynamite under more and more pillows and then it blows up in a you know, I don't know if kicking the can, but then it can't be kicked. It the duration of can kicking or the distance you kick it, it reduces each time, you know, So OK, that was a great graph. So, OK, now your conclusion from that is what? That essentially, the economy is in much worse shape than it actually looks. My conclusion from that graph was at the time and continues to be that stocks are the US economy on the margin and you know if we if we go back to sharing that right and screen.

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So I've got a graph for you, also from 2023. Let me show you one which maybe you've seen. Oh, actually, actually go, go, go show your screen. Then I'll show you something. We go to the same chart here and it's this now I've overlaid total equity market cap year over year over that same tax receipt number, right? And so I'm going to go 1966. Through. 1995, right? And there's, there is in the inflationary 70s, there is some rhyming, right? But then when we get into the financialized 80s, let's go 82 to 95, you know, stocks go up, stocks go down. But receipts are just, you know,

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there's, there's, yeah, they're, they, they continue to chug along no matter what it, you know, call it zero, you know, 5 to 10% year over year. Now in 1995, President Bill Clinton signs tax legislation. And in that tax legislation he says we are going to, we're going to make non deductible to the corporation cash compensation over $1 million per year. We basically we're going to try to fight wealth inequality, right. We executive comp, CEO comps getting too far away from workers. So we're going to we're going to make non deductible to the corporation cash comp and the

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lobbyists were able to change that to say. to exclude. Stock based comp And so guess how corporate America started getting paid post 1995? CEO, C-Suite, middle managed. They all went to equity and now this the same chart 1995 to present. This in blue U.S. Federal tax receipts year over year all in and red is U.S. stock market equity market cap year over year. You tell me where the stock market? The three big crashes correspond to the downturns in the.com crash, the 2008 financial crisis, and then the 2022-2023 correction. There's a decline in the corporate equities liability

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level and a corresponding decline in current receipts. And the first two of them correspond to a recession, but the third one doesn't. And the third one doesn't. And this super, super powerful chart because this tells us you look at this chart and I, you know, we were hearing Scott Besson saying January and February and Elon Musk and Trump, we're going to take some pain. It's OK if the stock market falls, we're going to get the deficit down. And you. Look at this chart and you go. No, you're not. Anything that drives stocks down is going to blow out the deficit, which given our fiscal position is a huge problem. It's why we have repeatedly seen and since 2018 these periods that are very confusing to most market participants still, which

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is stocks go down 1020% and the 10 year treasury yield comes down like it always has a little bit and then all of a sudden it starts. Taking off like a scalded cat. And this one of the reasons that has happened, The reason 10 year yields have gone up in equity downturns after a brief decline since 2018-2019. Certainly 2020 is exactly this. The US economy is the stock market. The stock market is the US economy because so much of the marginal shift in marginal amount of consumer spending. Consumer spending in 2/3 of GDP is driven by stocks. You know, we have a charge shows, you know, we've looked at the IRS data. The annual net capital gains plus taxable IRA distributions

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alone are 200% of the annual growth in personal consumption expenditures, which is a 17 or $18 trillion line item in the US economy. Like literally the US economy mathematically cannot grow if stocks fall. And so it's enormously powerful because what it tells you is unless they are willing to stand aside and let the Treasury market blow up, to let rates rise in a recession, in a inequity downturn and let let the US go into a debt death spiral, they can't let equities fall for, you know, this chart tells you they'll never let them fall and stay down at 20% for more than a week or two, maybe 3 weeks.

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Very powerful. Well, it's interesting. There's, there's a very, there's a guy [email protected] and I, I'm not sure I can find the post, but essentially he makes a very similar point to you. It might be a year or two years ago and so and sober, maybe AI coulDeFind it if you look for it. But essentially his point was something like the economy is a stock market because so many upper middle class people have their money index funds that, that it has become an expectation of the kinds of people that take government jobs, especially senior

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government jobs, that the market will be going up and that if it's going down too much, then it needs to be propped up. And as you're aware, you, you know, the Plunge Protection team, you've probably written about it quite a bit. Right. And not in those words, but certainly, yeah. Yeah. So that's actually, you know, that's actually Greenspan's name for it in the 90s. So if you if you that's it's a term. The Plunge Protection Team is the informal name of taking printed paper from the Fed, printed money from the Fed and directly or indirectly, sometimes they literally directly buy assets, like they directly bought mortgage-backed SECurities.

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But often other times they will indirectly do it through some shell game or they have some bank go and buy the assets so it doesn't look like the direct hand of the Fed or they'll spot a bunch of people to go and do it. And to them, these kinds of shell games are extremely meaningful. And if you phrase it even slightly wrong, like if you say, oh, you know, the Fed issuing debt, No, no, no, it's a Treasury that's issuing debt and not the Fed directly. As if Fed and Treasury aren't really joined at the hip for many purposes, right? I'm saying, right, they're really 100. Percent. I am. Oh, yeah, I get absolutely browbeaten by some people on Twitter because like, oh, he's a clown. Because technically and like, I think you and I, one of the reason we get along so well is we're functionalists, right?

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It's like, I don't care. Like I want. If this happens, then this happens. I don't care how you shell it in between. That's right. So, so much of the system has evolved to be a shell game to defeat, for example, the whole concept that, oh, you can just hold treasuries until maturity and it doesn't matter that they've been devalued so much by these rate hikes. But the whole point was that they're supposed to be the most liquid acid in the world. And if you have to hold them maturity and you can't sell them, then they've obviously been devalued. So you've given up the liquidity and you get a one very valuable property of it. And you and you're saying that, oh, it's, it's just fine. It's the same thing as it is, and they have to monkey with it and they have to say, Oh no, actually we're going to value it on the books for what you bought

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it for, not what you can sell it for. OK, just as one example, you know. Anyway. Yeah, just for the banks, right? Yeah, that was BTFP in one Q 23. It was like, well, you banks, you know, I know you're these are at $0.70 on the dollar in the market, but we're going to, we'll buy them from you and swap them out at $100, you know, at par exactly so that you are not insolvent or and more importantly, you don't have to sell these into a falling market. That's right. So, so essentially all of these shell games, these people have persuaded themselves that they're real and that they just want to avoid the accounting markdown. And it gets more and more complicated because to even understand that they're actually insolvent requires you to just tear through several layers of self and other obfuscation, you know, but you know, the

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here, the point being that if you take this intrafluity article and I'll find the exact title of it, but you can probably find it with AI. It's something along the lines of because so many upper middle class people have their portfolios index funds, they expect the government to keep propping that up. They think of the stock market as economy, just as you said. And the way they control that directly or indirectly is when it goes down too much, the Fed prints and props assets back up. And what that means when the Fed prints, it's not something that people, it's not cost less. It is diluting down. If you have let's say there's a trillion dollars in assets or in just if it was like Bitcoin,

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you can actually count how many dollars there are. I know there's M naughty and M1 and M2. Again, the obfuscation is there on purpose, in part so that people don't even know what the denominator is. And they stopped reporting M3 and O6 by. The way, yeah, exactly. So this all this, all these shimmy games where they make. It I would commend slightly just to say it probably in the short run tactical sense is probably more Treasury and some of that like the Treasury markets room exchange stabilization fund, but the Fed absolutely is in my. Opinion. So there's multiple pockets they can do it out. Of right, of course. OK, fine. That's right. The, the Plunge Protection team is a cross agency team. And what do they do with this pocket? So, but the, the net of it, it is that the population and really the world is taxed via, let's say to simplify dollar

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inflation. Is global taxation the issue? These dollars, they dilute everybody down who is a dollar holder or a treasury holder or indirectly a holder of other instruments. And then they use that to prop up the US stock market. And one way I think about it, and maybe you'd like this analogy, I'm not sure, actually, we discussed this. Have you seen those deep sea vents, like which have like sulfur coming out the deep seand there's like bacteria, right? So I think of that as like the Fed and it's like belching the printed paper out. And then there's various financiers that are clustered around it. And that's Wall Street, right? And the, the reason that I think is a good analogy is I don't think that the Wall Street guys like, why would they be able to make money on net?

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Trading should be a 0 sum activity, right? Building is positive sum. So why are they able to make money on net answer Because the Fed is taxing the world via dollar inflation. And then that in a sense, stolen money is coming up through this sulfurous event and then they're feeding off of it over here. But that's not actually due to, I mean, I'm not saying that these guys are dumb and so on and so forth. They're not necessarily all bad guys. And so, so Jim Simon's the smarter, you know, whatever, I'm not attacking them for that sake. You know, they're playing the game that's on the field. However, that game just goes like when people talk about a financialized economy. If you have this mental model, dollar inflation, global taxation, the Fed is propping up asset prices, this plume of

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sulfur, this printed papers coming up, the bacteriare feeding on it. This explains a lot about why the world is the way it is, where everybody who's not in finance or in tech is seeing their real purchasing power erode, at least in the West, and they're getting diluted down every day by this printed money. And they don't understand exactly why because they're like, I'm making more money than I ever could, than I ever had before. But everything is so expensive. And it's like, you know that saying, like water, water everywhere, but not a drop to drink. The, the, you know, right. The poem. Yeah. So printer, printer everywhere but no money for anything. And that's exactly it. And it's where that's that Cantalon effect, right? that kind of described

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where that ultimately when when you said that they start to believe the shell game is, I think, very, very powerful observation because they've believed the shell game in this unIPOlar world that has existed since the fall of the Soviet Union. Like, so the Soviet Union and sort of this opposing block kept them honest for years and years. And so as soon as that the USSR collapsed, there was no one left to keep them honest on sort of the amount being belched out for almost 40. Well, sorry, 3035 years now, right? So, yeah, so I guess almost 40 years. So the point being is that. What they forgot in this ensuing 35 years is you need to ensure to reinvest into your own infrastructure, physical

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infrastructure, your own physical manufacturing, defense, industrial base to be able to maintain that level of dominance because if. For some reason, you lose your ability to basically go pound people in the head, and nuclear weapons are ultimately that sort of trump card. Then all of a sudden you get what we have on that chart that you're showing right there, right? Which is exactly Saddam tried this, it didn't workout well. Gaddafi tried a version of this, it didn't workout well. Why? Neither had nukes. Putin started doing in No 8 and China, and she followed shortly thereafter. And you know, like you said in your conversation with Peter McCormick, like key parts of the US military are now made in China. It's you. You can't go to war with China to stop them from doing this because they won't sell you the

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rare earth magnets that you need to make the weapons to point at them. And the lead time on redeveloping those capabilities is decades best, a decade best case. and yeah. One thing you're saying that I wanted to point out on this chart is the entire concept of the entire world being run on dollars is really a kind of like a 80s to post 1990. It's like as the Soviet Union fell, that's why USD just massively expanded like this and gold shrank to such an extent over here. And here is like, you can argue like peak America is like right before the 2008 financial crisis. Then it was kind of skittering along like this and then it's become receding. And, you know, we don't know the rate at which it's going to do

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so, but it'll probably hit 50% in the next few years. And but this the graph that you're basically referring to when you said it's been essentially a last 30 years phenomenon. Yep, yeah. and this goes back to my sort of initial overriding view, which is post 2008, the world started going back to gold because they simply had to. It wasn't an attack on America. And quite honestly, what they're doing with gold will be very good for the parts of America that have been hurt. But that implies a lot of inflation, right? The winners. Yeah. So go ahead. This the thing where, so we agree on a lot. I think the thing which I, I wanted to discuss with you, so you've mentioned, for example, I think it was 1982 or thereabouts, Israel had about of very serious inflation that essentially like wiped out their

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debts and they were able to reboot and, and get going, right? Was it, was it 82? Did I get the date? Wrong. It was like 84, 485, something like. That OK in that ballpark, right, so. Yeah, it was like, yeah, early to mid 80s, Yeah, something like. That fine. So shekel just got really inflated and so on. And my view is that'll be much, much, much worse in the US for the following reasons. A, the shekel wasn't the global reserve currency. B Israel at the time was not a central hub of the world economy and even today is only 150th or would have you the size of the USA, right? C Lots of other countries weren't holding like shekels as treasuries. And so like it was just very

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much a spoke rather than a hub, you know. So a spoke, you know, in the sense of like a hub and spoke topology like for a wheel, right. So a spoke can just go and kind of do it at once and it fails doesn't matter. But a hub to fail in that way, basically all kinds of spokes just blow up and so on and so forth. And moreover, and I wanted your SO first, tell me if you agree with that or not that it's much worse for that to happen. I, I agree with that and I would, I would say I think that gold chart exploit is sort of the, the preparation for that, right? So I think, I think your view of that is correct. And I think ultimately, right. If you are a dollar asset holder and you see the direction this is going, what do you start doing, right? It's like what you do as a human

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is like, hey, there's somebody over there with a bunch of nitroglycerin and they're playing with matches and you kind of slowly back away, right? And that it tells you two things. Number one, that gold chart turning back higher is the world slowly backing away, number one. And then I think #2 I think it's, I do think it supports the view that whenever it happens, because it is a hub, not a spoke, that gold going to 50%, sixty percent, 80%, you know, back to where it was when this whole thing started in late 60s. People think that's going to happen linearly. And I think the fact that it's a hub and not a spoke issue means it's going to happen non linearly. In other words, we're going to have a six month period and it's going to be gold 36138 hundred 4100 something 4500, I don't

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know, something happens 14,000 in six months, something like that. And then all of a sudden you can go, OK, well, all of those dollar holders balance sheets are indifferent, right? They don't care if they owe $10 trillion or $8 trillion in dollar FX reserves and 1 trillion in gold, or $10 trillion in gold and 0 in. You know what's funny about this? What's really funny about this is one of the counter arguments I saw when I posted that chart that we just looked at. People are like, that's just due to the price of gold going up and the price of treasury is going down as if they were like, oh, you know, rookie mistake. And I'm like but the whole.

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Day. That's the whole shooting match, That's the whole thing. That's the whole thing. Why is the price going up so much? Well, oh, it's only because, you know, it's actually did you see that article the Fed tried to put out last year where they said a small group of countries he's buying gold instead of treasuries. Did you see this thing? I think I did, but remind me and like the small group of countries is like 45% of global population or something. Right. Yeah, yeah, yeah, yeah, yeah, exactly. Other than that, how was the play Mrs. Lincoln? Exactly, exactly what I was thinking. Hold on. Let me show you this one. This a this a banger. All right, here we go. So the Fed, by the way, this my tweet. There was like 1.1 million views of their like because you know how the QT of the post actually

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gets most of the views or what have you, right? So in Tate's post, authors note the narratives about declining dollar share and increasing rolls for gold holdings by central banks inappropriately generalized actions of a small group of countries, right? And a small group China, India, Russiand Turkey. Exactly. So it was like very close. Your is 37.5% of the world population. Right. And the world's factory and the world's manufacturing powerhouse and the world's like IT outsourcing hub and the most important part port in the world and it's. Crazy. The world's biggest energy and commodity producer. It's like, yeah. And what they're what they're doing is they're taking all these small euro states. This, by the way, is a common thing that I observe is lots of see a lot of Americans think, OK, there's US and then maybe Europe and they just completely

36:29
discount Asiand also like, you know, the Middle East and you know, Latin America. Like they, they just part of the reason for that, I think is as I mentioned on the McCormack episode, you I think have a more global view than most, right? But I think most people, many Americans have simply not seen enough media or being physically overseas enough to see like it's real, right? a lot of there's a lot of amazing stuff that's happening overseas. And so because of that, when they hear, oh, you know, for example, Trump got all of Europe to go and sit in front of the desk, they're like, well, we're dominating the world. Everything else is a, you know, third world country and so and so forth. Do you know what I'm saying? Right. There's some, some of that maybe maybe you go ahead. I. I saw, Oh yeah, I saw it with Russia.

37:14
Right. Where at? Where in 2022 it would be right? Well, Russia's GDP is less than Italy's or Maine. Yeah, it's a gas station with nukes kind of thing, right? And it's like there's a fundamental first principle miscalculation around leverage. And by that I mean Russia is, you know, if you take Russia's oil production, they are roughly 1115% of global oil net exports. If you took 11 to 14% of global oil net exports off the market, oil would be, I don't know, 4, five, $600 a barrel. The next day, every bond market in the West would have crashed. What is the price sensitivity there? I actually don't know what it is. You know what? Someone ran it for me once it's it's very inelastic. Demand destruction also and so on. So it's complicated, but go

38:00
ahead. It's complicated, but it's especially early on, it's extremely inelastic #1 but then #2 it's that SECond derivative of the bond market, right? Like everyone's like, oh, we survived the 70s. Well, we survived the 70s oil spike because we had already devalued the debt from 110% of GDP in 1946 to 30% by 1970. So like blowing up, you know, having oil quadruple overnight basically, or in six months didn't blow up the bond mark because they could raise rates to basically, you know, we still have the inflation, but it prevented that you couldn't have a debt death spiral in the Treasury market, in the fundamental asset of the world at 7%, eight percent, 10 percent, 15% fed funds rate. We haven't devalued the debt. So like if you tried to take Russian oil off the market, completely off the market, you would spike oil up several $100

38:48
a barrel and you would literally blow up the treasury market within hours, if not minutes, which is the fundamental collateral underpinning the entire banking system, the entire Western financial system, the entire Western financialized economy. And so it's that SECond and 3rd derivative when you're starting from the wrong first principle where you say, well, Russia's not that important. Russia, Russia's like critically important because people, you know, these are the arguments you get from people like, well, where's electricity come from, from a wall? And where's food come? Well, it comes from a grocery store. You know, how big is Russia's GDP? Oh, it's smaller than Maine. Like it's the same like level of understanding. But, but if you, if you look at it, have you seen the PPP chart, the World Bank PPP chart? They had to grudgingly admit

39:34
last year that if you look at them purchasing power parity terms, China #1, USA #2, India #3, Russia #4. It's it's astounding. Like literally the, the four bricks are the bit for the brick, right? Yeah, the. 3 The Ric of bricks are #1 #3 and #4 and now the administration has managed to put them all. At least partially adverse to the US for whatever, you know what it is. I think Democrats just were just like, in my view, irrational about Russia. And I think there could have been a way to avoid a war. And now unfortunately, a lot of Republicans are, in my view, irrational India and the domestic sentiment is pushing a it's definitely provoked by the like, India was fine.

40:20
India was actually one of the few countries in the world that was still very pro American, you know, and now they just managed to push them against the US, unfortunately, which is very unfortunate because I, you know, I know I have a lot of friends over there. You should get the noble piece to the under pushing and go together. Yeah, exactly. That's right. So. But, and the problem is here, the problem is that the current admin many ways treats its enemies better than its friends. So, yeah, it, it, it's sort of and you know, it's fascinating. I read, I've seen that pursing power parity chart. I would, I would add on two things. First, there was a new Asia Times article this week highlighting, I think it's called the skull chart or something. and what the Trump, you know why Trump keeps the. Unfazy one. Yeah. Yeah, exactly. And it was incredible to me.

41:05
He lays out that I don't know if it's the IM FS calculation of PPPGDP but they look at it per cAPItand even as much as they begrudgingly admitted it, apparently the PPP per cAPIta GDP of China is still basically on par with Mexico. And he's like are you crazy? Go to the top 100 cities in China and look at it relative to Mexico City and tell me. It's obviously the numbers like whatever it is that I, I don't know exactly how the numbers are being manipulated because China, as I said, has an interest in sandbagging and America has interests also in. Sandbagging finest numbers for him, right? Like, yeah. Exactly. So America's just something China's sandbagging. And the combination is China wants to appear weak and America wants to appear strong. And so exactly how China is coming in at like this very low

41:51
GDP per cAPIta number. If you've been to China, it's obviously a very wealthy society. Like it's obviously ahead in many ways. Go ahead. Yeah, I was going to say, you know, the other thing I'd highlight within that is, and this speaks to the fundamental, A fundamental problem with the strategy Visa V Russiand China and now, now India. But Russiand China particularly, which is if you go to your average Western, particularly neoliberal economist and talk about PPPGDP, they'll tell you it's bullshit, right? It's a bullshit number, blah blah blah. Yeah, they always say that. Yeah, exactly. They always say always, but there's a there is you. When it stops being bullshit is when the bullets start flying because in the end, whether

42:39
you've got $100 really nifty missile or you can make 100 just slightly less nifty missiles for that same $100, the guy with the bigger PPP GDP wins going away exactly just in Russia. And so like, you know, in this negotiation, if you're Russiand China, we literally can't go to work. Like, you know, if, if war is the, if politics by other means or the continuation of, of politics by other means, PPGDP metrics means this has to stop at either short of conventional war or nuclear war. And Russiand China have to know this. You know, and it's saying like PPP is Pew Pew Pew, you know, like the pistol.

43:24
Right. Yeah, yeah, yeah, yeah. Right. So it's a good mnemonic or something. You know, two other addendums where you just said, which are all the people who are complaining about Chinese overproduction, they're like, Oh my God, China's dumping it's stuff and so on. What they what they really mean is China has such insane manufacturing scale that they can crank out very sophisticated kinds of things like electric cars. They're not easy to make right, especially not easy to make cheaply and not easy to make cheaply and at a profit while doing so. You know, positive margin, low cost is very, very, very hard to do. They can make all of this stuff at such enormous scale and this so-called overproduction supposedly bad that they're

44:10
doing it. But imagine, I mean, in like when the US is fighting World War 2, everybody complained about American overproduction because America had all the factories just crank out everything and solid everything with just artillery rounds and just, you know, just had this absolutely enormous, you know, could have like an ice cream ship and so on and so forth. As people talked about that time. That's what overproduction means. It means that imagine complaining about overproduction of war exactly as you're saying, right. Or similarly with the tariff thing, it's related to the point on the drones, which is if you're just protecting the American home market, that is an admission that the American product is not price competitive abroad in some neutral market, right. If if it's a Morocco or Mexico or, or you know, I don't know the Middle East and you've got an American product on the shelf

45:01
and the Chinese product on the shelf. If the American product is not price competitive there, then that means it's like not price competitive in the physical world. Like you can't crank out enough at a low enough price and high enough quality. And so the home tariff, you know, anyway, go ahead. So Josh Wolf testifies to Congress in summer 2023. And I think it's a super illustration of what you just described of if we need the protection, we can't compete on a scale standpoint. And right, so he highlighted that the cost of AUS nuclear power plant, which takes far longer to build, is still six to seven times more expensive than a Chinese one per per GW. And to me.

45:47
Yeah, that was, that was the whole, like it was a huge admission, which is a GW in the US is a GW in China. There's no special physics in the US or China, right? A GW is a GW. Exactly the cost structure in the USA. It tells you that the yuan is 90% like the dollar is 90% overvalued versus the yuan because if the Chinese in the yuan market can build a GW for 1/6 that the Americans can, it tells you that the dollar is 85% overvalued, 83% overvalued against the yuan. That's right. That's right. And you know, there's another piece of this that it took me a long time to articulate properly. Let me give two or three pieces. And again, just premises and you shoot at them. You tell me if I'm wrong and you

46:32
disagree or something. So China's stock market is being flat for a long time. Flatish, right? Recently, Chinese tech stocks have started to run. But overall, I would say China saves in factories, not equities. Like for example, if you had a stock that was increasing, you could sell that stock and take the cash and then go and invest in physical plant and so on and so forth. In theory, you know, Amazon did this for a long time, even though their stock has run quite a bit, they would take their free cash flow and keep reinvesting it. So they have very low profit margins, but they had enormous scale. So that's why the Street would keep investing in their scale, right? So. And I would add to that, that the other side of that same coin and I'll let you continue is the world, because the Americans don't make anything the world wants on net save in American

47:20
stocks as the dollars are currency and they can't save in Chinese factories with American dollars or Chinese yuan since obviously of capital control. So what we end up with is often saying is we'll look at our stock market to their stock market we're dominating. And that's not exactly the message in my view. It's an apples to oranges message. There's another piece of it that again, it took me a while to figure out which is, and if you talk about how the US is printing money, somebody who's smart would say, well, China's also printing money. They're printing quite a lot. So why is it bad if they're becoming so strong with it? And my answer to that now, my tentative answer, which I which I reserve the right to revise, but what I think is actually the case is if you think of inflation as taxation without legislation, you know, Milton

48:06
Friedman's line, right, where basically by money printing you are effectively seizing a bunch of the assets of the population. In theory, you could actually spend that well. And what the Chinese government did is it spent it on roads and bridges and automated ports and gleaming this and gleaming that. And so all of this public infrastructure that increased the Chinese people's productive capacity. Yeah, and standard of. Living, but yes, but and what they also did is they also kept prices down or the RMB exchange rate down so that you exports could work, right. So they, the, the part that I think I hadn't fully

48:51
conceptualized is inflation is taxation, but taxation could be used in a positive some way because in the US it's, it's just not like the 100 billion is taxed in California. It's all just stolen and it's just all radical, radical waste beyond anybody can imagine, right? But in global War on Terror, right, we spent $8 trillion, and what do we have to show for that? Like, nothing. That's right. Even even this whole build up to fight China is, you know, I, I could tell from the beginning honestly, you know, that chart of the supply chain like the US military is made in China. Yep, it. Is the one that we both. Right. Yeah, Go, yeah, go. Yeah, yeah. Govani, I think is the source of it. Govani Exactly. Good memory.

49:36
Exactly. That's right. So there is a $400 million Pentagon study that basically showed that these famous American weapons, the Tomahawk and the J Dam, their supplier supplier is in Shenzhen or Shanghai or something like that for hundreds of different kinds of companies, right? So and of course China has a full database of every part that's going out there. And so, you know, there's a button they can press that says shut off the American economy, right, which is why Trump had to blink on this trade war. And he's been up lots of other countries, but he keeps extending the 90 day thing with with China or what have you, because he can't cut it off, right? And now you're seeing headset basically saying in this very, I don't think it's the defense strategy being publicly confirmed yet. But that thing you tweeted and the thing I tweeted, right, you

50:22
posted, if I'm not mistaken, that headset that told China there's no conflict with them. Yeah, they're turning away and to refocus on basically rebuilding here. I think it's, well, I think it is the biggest development since the fall of the Berlin Wall from a. Absolutely. It is that big. And the stuff about the Department of War and so on and so forth, it's almost like a shouting retreat, right? Like in the sense of megand look, I'm sympathetic to some. I mean, you know, I understand why where they are and where they're coming from. So I'm sympathetic in some ways. But they're conflicted because on the one hand, they want America to be great, which is this giant empire that has, you know, all this strength and this number one and so on.

51:08
On the other hand, they wanted to be just a country again, not an economic zone, which means like withdrawal from the whole world and everybody else. You go and do your thing, stop exploiting us and so on and so forth. They don't understand the tension between these two world views, which is to say that pull back is actually in some real sense a weakening of the empire. And then the question is, will Sanders living persist and may. Now here's a point that maybe you'd agree with. Maybe. But I think it's very difficult for them to do this pull back because the US can't tolerate A decline to like #2 since its business model is money printing that requires you to be global #1 you can if you stop, if you pull back from Asiand now you're just doing the Western

51:56
Hemisphere, and you may pull back from Europe and just let Russia have that, OK, Now everybody reassesses where they want. It's no longer a global reserve currency. It's only has some historical kind of traction to it. All kinds of people move into gold. There's a repricing thing you're talking about. the US loses control. The dollar is no longer the reserve currency. And that means prices explode in the US upward because the dollar's purchasing power drops and they could explode upward as a very rough estimate. This extremely rough. There's 300 million Americans. How many people worldwide are currently using the dollar? Maybe 1 to 2 billion, Maybe 8 billion at the Max, right? Some billion, let's say 3 billion, OK. And if that shrinks back to just U.S. citizens or even just U.S. citizens plus some Canadians and so and so forth, that could be like a 90% decline in the tax

52:43
base. You could, if even if it went from 700 million to 330 million, it'd be a 50% decline in the tax base. It'd be a 50% devaluation of the dollar, right? That's like a radical. Then on top of that, all these countries will stop sending parts and so on so forth. So you can see a stacking of tariffs plus rise of Bitcoin, rise of gold, plus other countries pulling out effectively of the dollar taxation union. And so I think it's very hard to see a good outcome for that, though I also don't see any other possible outcome. Let me let me know your thoughts. I agree with your framing of it and I think I agree with your conclusion around we're at this point where we don't really have a choice.

53:29
If we continue this business model, we we literally cannot produce the weapons we need to enforce this business model. So this business model is de facto dead. It just hasn't been fully marked to market yet. I think your math. Around the marking to market of it is, is directionally accurate and we can debate, you know, various, various whatever it is. You know, as you were saying that I'm reminded of a of a of a great meme. I've posted it Once Upon a time. But if you go back in the US economic data, you can go to 1963 right before we took silver out of quarters and Dimes and you can go look at what like the, the minimum wage is for, you know, what minimum wages. And I want to say it was like $1.25 or something like that.

54:17
Or you know, in 1963, that's 5 silver quarters. Well, if you look at the silver melt value of a 1963 quarter today, I want to say it's like 5 bucks or something, 4 bucks, 6 bucks, right. So when you say, OK, well then in real money terms, if we had stayed on a gold standard, right? Just let let me go with the gold silver, right. But a real money standard then minimum wage in the United States should be 5 quarters, 6 bucks, 30 bucks, 25 bucks, whatever it is. What is it really? It's like less than half that. And. That's the whole grift.

55:04
That's the whole grift. Post 71 in a meme and it describes exactly what you're saying, which is. You should post that. That's a good one, yeah. Yeah, right. So it's and I've posted before I can repost. It and it's. It's it. Is exactly what's about to happen. And I think ultimately what we are watching from the Trump administration and key economic officials, what we are watching with the brow beating and discreditation of the Fed. I don't think in this my view of it. I could be wrong. I think Wall Street is entirely too focused on sort of the short term tactical reasons for why Trump wants to do this. Oh, it's, you know, he has bad polls or thisn't going well or China's beating them. I don't think that's what it is.

55:52
I mean, I'm sure it's probably a part of it, But I think the real reason they're beating the heck out of the Fed is they need to change this system. They need the Fed to help them basically start this boulder, this dollar boulder rolling down the hill in terms of, you know, if continuing on sort of US as empire where China makes the weapons for the empire to threaten China with is a dead business model. And it is then we have to move to something else or else if things get really bad. And so like the least worst option is you devalue the dollar. You have the Fed help. The issue with this though, is there's so many graphs I can post and I'm sure you've seen a bunch of them on the level of polarization in the US. And it's not just it is of course blue versus red, but it's

56:39
also women versus men. It's young versus old because of the Social SECurity issue, Medicare, Medicaid. It is unfortunately for some like white, non white, it is, you know, American citizen versus foreigner. It is also in a sense, American versus other countries, you know, and so and so forth, right. and on and on and on. The thing is just riven by, you know, I'm starting to see people even fighting over religion in a way that I actually hadn't seen before in my life, like actual, real fights between Catholics and Protestants, for example. On my feet. I was like, this like pre 90. This something I just never seen in your in my lifetime, like passionate kinds of arguments on this kind of thing,

57:24
right? And it didn't look like they were joking around either, which is which is new to me, you know, And so the from my standpoint, the only thing that is keeping this fragile, like just take Democrat, Republican Democrats. There's a study shows only 4% of Democrats are married to Republican. Obviously, Democrats don't vote for Republicans. Now with blue sky, they don't even socialize with Republicans. The one thing they still do and only barely is they still trade with Republicans because the dollars. So so it's like, you know, to reverse the mag of saying it actually is an economic zone, not a country, because it's a bi national thing where blue American and red American are as different as North Korean and South Korean. Like they don't agree on whether

58:09
men or women exist, right? Like fundamental, you know, that's just like one huge obvious, you know, visceral example, right? But such huge gaps are like North Koreand South Korea, but they have a fundamentally different conception of how the economy works, the world works, what should be legal, what should be illegal, totally, totally, totally different. And they're getting more different. And, you know, some people say wokeness is being beaten because it's being beaten on X, which is true. That's like saying, you know, like communists have been beaten. Yes, after the Soviet Union fell, not everyone had to be communist. But North Koreand Cuba continued being communist, actually, right? And that's a good example. That's a good way of thinking about like, blue America. A lot big chunk of us continue to being communist. What's my point?

58:54
My point is, I don't think you can just retire the dollar and then ship a new script like what happens? Let's say that happens, OK, what happens the next day? First, blue America and Red America would not be able to agree on a currency union after that number. One see, I don't think I, I reject the premise a little bit in that I don't think anything's going to happen to the dollar. So like you go to Latin America, right? They've, you know, they've added zeros forever and they still use the same currency. It's just, you know, how many zeros does it have today? So I, I think the dollar will remain. Now, what do I think is a distinct possibility is let's continue with the, with the USSR example, right? I've got, I've got friends from Ukraine who emigrated from Ukraine after the USSR fell. And they, they, they told me this great story. They said, look, my family was

59:43
the richest family in the village. My father was a doctor. We had enough in our bank to buy 5 cars. And so we were rich. And they closed the banks on a Friday and then two weeks later they opened them back up. And the money that on that Friday when it closed, bought 5 cars, bought a month's of grocery, same currency, same register, like it just the real purchasing power was taken away like that, you know? And when I say, well, what? You know what? You know, my hit her, her husband was like, yo, yeah, I was saving to buy a motorcycle, close the banks, reopen the banks. I buy a carton of cigarettes with the money I had saved up to buy a motorcycle. How do people holding gold and silver do right, and they're like, oh, everyone who held gold and silver is fine and like your

60:29
purchasing power is maintained right. Presumably, you know, Bitcoin, I think would would do be more than fine, but I think that's a much more likely Rep some version of that right of bank holiday, close it down, reopen up and you know, you've got and however they deal with it on the other side of it, you could do a wealth tax. You can do capital controls. The whole world's going to be different on the other side of it, But I think it's still going to be dollars. I think it's still going to be dollars. And then I can see your political your political that thing. Things get tricky from a political standpoint, right? Do we fight or do we do after 911 where it's like, Oh my God, we're all going to starve if we don't friggin you know? You know. You know, I, I, but I, I think COVID showed that like, you know, the disaster doesn't make Americans come together anymore. It just pulls them apart and

61:16
they just fight more. Right, it's fair, it's fair. It would you would have to be you would have to have a great leader because I think you're to your point, the time, you know, the time of when 911 happened. Think about America, totally different area. I tell my boys, all right, my boys are are are in their early 20s, late, late teens. And I tell them, like you cannot fathom how amazing America. Was how unified it was. 85 to like 2000, like 2001, 2002 even. It was it was friggin amazing. And yeah, we're not there now. We are absolutely not there. We can't agree on facts. We can't agree on pseudo facts. We can't agree on science. We can't we like we can't agree on anything. And it to your point, it makes it very dangerous. I fully concede it makes it. It would make it. Very dangerous. Let me make a SECond point,

62:02
which is orthogonal to the first, but adds to it, which is if you were picking a tech stack from scratch today, OK, forget about the political, just technological because of how the dollar was started when it was started. And when I say the dollar, it's like, ACH, it's swift, it's a suite of technology, it's it's fed wire and so on and so forth. That tech stack was when it was started, cutting edge, leading edge. But because it was all set up pre Internet, other countries now that have kind of got all this stuff only going post Internet, like, you know, China has very sophisticated with WeChat and Alipay. And so it's over India's UPI, you know, POG Seguro in, in South America. And you know, there's this very, there's very sophisticated intranet native payment systems,

62:47
obviously cryptocurrency, but also all of the fintech companies, right? Like 18 years ago, in 2817 years ago, there there weren't that many people around the world who knew how to stand up a new currency to run payment rails, to do fintech crypto, that was actually a relatively rare skill set. There were like, you know, a few 100,000 people with a Bloomberg Terminal. Now that is a very widespread skill set. I can do that. I mean, you know, I launched USDC at Coinbase, right? That's number seven, you know, asset, right? That by the way, that's a counter argument. Some people will give, they'll say, well, dollars will continue to get adopted because stablecoins are going to grow. And I actually do agree with that. So the timing on all this TBD. It could be that everything dies against the dollar and then the dollar, you know, collapse against Bitcoin and gold, just

63:35
like all local newspapers died against MIT and Wall Street Journal in Washington Post. And then they died against, you know, social mediand. X that might be a right model. I think that might be a right model, right? Yeah, yeah. So, so that's that's possible, which will be a lot of instability in its own right, right. But the so anyway, so the technological point, I think if you have the dollar no longer being stable, it's so easy for people to set up an Internet based thing, whether it's a cryptocurrency or fintech or a cryptocurrency backeDeFintech, like a lot of Stripes, new products, new products are kind of in that line of thing, right? Then no one would adopt the dollar again after it was delegitimized or partially de dollar.

64:20
It's like you wouldn't choose it from you'd only use the dollar as an incumbent technology. You wouldn't pick it from scratch if if everybody's picking again. Let me pause there. Yeah, it's a fascinating point because there was a, you can call up on China scope the a speech given by General Kiao Liang of the People's Liberation Army. And this this the same guy who when he was a Colonel, wrote Unrestricted Warfare in 1999, which was a book that I believe still never been published in English, kind of laying out, hey, we got to go against the Americans all these different ways and in unconventional ways. So by 2015, he's now a general and he gives a speech to senior CCP party members. One of the thing in the name of the speech is the US uses its dollar to dominate the world,

65:06
and it gives a Chinese version of events of US going off the gold standard and weaponizing the dollars through various cycles over the ensuing 50 years 40. Five years? What article is this? It's called US uses its dollar to dominate the world. It's on China scope. It was published in April 2015. Interesting. And so one thing as it relates to what what you you said there that I think is very powerful is, is towards the end of the speech, he says the Americans made a mistake by thinking that China's their enemy. The American we're not their enemy. The enemy of America and the American dollar are the technological platforms that the Americans are leading the world

65:51
in pushing out, he said. What is the dollar? The dollar is a currency. When we start to settle trade without the dollar payment rails, will the dollar currency hegemony still exist? This the question the Americans should be thinking about now. He said this 10 years ago and then he cited the 2014 payment statistics all done without dollar rails on Alipay in at the end of 14 on, you know, Taobao and you know, whatever other Chinese consumer websites. And they were already doing staggering levels of consumer volumes outside the dollar in non dollar rails. And he's warning America like,

66:37
hey, you guys are rushing headlong to push these technologies that are literally undermining the branch. You're cutting off the branch that you're sitting on as it relates to the dollar. And so when I hear you say what you laid out, it's exactly what he warned about 10 years ago. And I think we're watching it in real time. And I think not only is it gaining critical mass by virtue of China's mass and global usage of things like Alipay and WeChat, but also with U.S. policy where, you know, after you weaponize the dollar enough times, You know, to me, I think when the history books of the last 152025 years are written, you know, I think, I think the, the kicking Iran out of Swift in 2012 will go down as one of the great strategic mistakes in

67:22
history. It was like, you know, it was like being Alabama playing a team that you're already up 70 to nothing and running a trick play that you need to use against LSU, you know, in a close game and, and getting it on film. So the whole world, Russia, China, everybody watched that and went, Oh my God, they can hyperinflate us overnight. Within a year, the Chinese were saying we're done buying treasuries and then began. And that was peak treasuries, and it started falling their whole. Treasuries. Though I am surprised they haven't liquidated more than they have because they still hold whatever, 100 billion of them. But maybe, you know, I don't know, but maybe it doesn't matter. It's only 100 billion. I think they, I think they have on net. The thing we never see, right think about that's simply an asset side of a balance sheet,

68:08
right? We don't know if those are pledged as collateral against the Pinterest. Day so that's that's right you're right they could have virtually sold it already and. That's how I would do it if I was them. Because look, if you sell them out, right, you're going to get a knock on the door from the American Embassy and it's just an assay, right? Hey, but if we use them in collateral, they love you. Hey, great. I'll take Piraeus, I'll take that oil field, I'll take that copper mine. I'll take all that goal and the and the again, it's kind of like when it's good for same way of, you know, the Chinese want to understate their strength. The Americans want to overstate it like the American banks are happy to take this dollar collateral and the Chinese got to be on. Clever point, very clever point. So that because The thing is the reason I always thought that this the table that you and I are referring to, it's the treasury table of like countries and their treasury holdings.

68:53
And one of the weird things about that is it has like Cayman Islands and Belgium and these really small countries supposedly have a lot of treasuries. And what's actually going on there is it's, there's some funny business with like banks in those countries that hold treasuries on behalf of somebody else. And obviously treasuries are especially the 10 year it's a, it's collateral that is pledged and re pledged over and over again and all kinds of fancy things around the world. And so of course, you're right that China can get liquidity on its treasuries without actually selling them. They just pledged them and you can send. A chart of that, Yeah, is. I would argue that I have a chart. Let me see if it goes. And that's all just private paper. They don't have to disclose any of that, right? No. And you can see it with GDP to

69:40
FX reserves, right? So like US, you know. That's it. That's that's yeah, that's very clever. It's I mean, maybe obvious, maybe somebody else discussed about it. It's the first time I've heard that particular argument. Very good point. You know, I want to kind of give one more tech lens on this to what you said, which is the dollar as a database is a natural view of like crypto and blockchain people, because that's what a blockchain is. A blockchain is a, a new kind of database, right? And in a sense, I think of, you know, the Fed and then the, you know, Royal Bank of Canadand, or that was Royal Bank of it, basically the Fed, the Bank of Canada, Bank of England, I forget all the official names are the Bundesbank of Germany and so on. All of those central banks and

70:25
then all the banks underneath them and all of those people under those. So it's like 4 layers of Fed, all of the US colonies basically, right, including Bank of Japan, then all the banks that are licensed by those central banks and then all of the citizens under them, right? That sort of four layer structure. That is what I think of as the Feds video game, right? Because they control all the points. They can freeze, they can seize, they can rewind a transaction, they have root access over everything in this database, right? So and they they use this against Russiand actually this book called Treasuries War. Juan Zarate. Great book. Juan Zarate, right? It was actually a smart guy, I think. I think he actually worked at Coinbase at one point. So he basically pointed out

71:10
that, you know, because the US had control and so much of the world's value flowed through this database that the US had control over, they could freeze and seize and use it for anti terrorists. And that fine, OK. What's happened is you have two contenders, let's call them crypto in China, that a larger one is kind of inside the empire and one is outside the empire, right? That our databases that the Fed does not have root access over. So it cannot freeze and seize things on the Bitcoin blockchain and other blockchains, not too easily at least. And it cannot freeze and seize things in the digital yuan or on the Russian ruble or the Indian INR or, you know, AED or Sud or

71:55
other currencies that some of these are soft peg to the dollar. Some of these are hard peg like HKD and AED are peg to the dollar. But they could remove the peg if they needed to and they could go to gold because they run their own Ledger, right? So the database aspect of this, you can the big thing about is these two economies, that which I called the Internet economy, the crypto economy and the Chinese economy or the BRICS economy, right? Those are growing and then squeezing in the Feds video game over here. Let me know your thoughts on that. So just another lens on the whole thing. Yeah. No, I think that's, I think that makes sense and I think it's, it's, it's enforced by particular in the BRICS side and lever.

72:40
You know, the leverage is the physical world, right, It is. You know, we are, we're leveraging manufacturing dominance, we are leveraging energy, we are leveraging the realpolitik of we have nukes and the United States has never attacked a nuclear power country. And then and then the population side, right. You have a, a high, you know, enormous, highly educated, highly motivated and, and, and rAPIdly moving up in terms of living standards per cAPIta, right consumption there. There's a they, they have the physical world backfill. So as they squeeze right, what do we hear so much of? Well, they can't live without our consumers. Well, you know, 15 years ago, 20 years ago, 100% ten years ago.

73:26
Yeah, yeah. Now, you know, it's gotten to the point where we can see it in sort of where the pain has been with post liberation day. Treasury market blew up in seven days, seven trading days and Trump was getting warned by major US retail CE OS like there are going to be empty shelves for Christmas if you don't stop this back in April. I hear he was warned and so they are backfilling the entire. Thing is so crazy, like you saw the manufacturing jobs print of you know how many. Anyway, go ahead, you were saying sorry. Yeah, no, I think it's this physical world is bad. They're leveraging that against that sort of those those other two video games, if you will, squeezing the Feds video game. I think that's.

74:12
I think it's. It's a model I hadn't heard before, but that makes sense to me. Cool, awesome. All right, Sir, Well, I think we covered a lot. Anything that you want to say you have, you know people should go and check out your sub stack or. No, Yeah, Yeah, they're interested. Yeah, interested in learning more about our research, fftt-llc.com, different institutional and mass market products. And as as you know, I've got a fairly active feed on exit at Luke Groman. But so, yeah, I appreciate it. Cool. This great. Awesome. Thank you, Sir. Likewise talk. Soon, really enjoyed it, thank you very much.