What this covers
Recent efforts by foreign leaders have led some to claim that the U.S. Dollar system will soon cease to be the global reserve currency. Brent Johnson of Santiago Capital returns to Forward Guidance to argue that these arguments are utterly wrong, and he explains why in great detail. He expects a major squeeze to occur sometime over the next two years, although he and Jack discuss the potential for China’s re-emergence from recession as a catalyst for more potential short-term dollar weakness. Filmed on April 20, 2023. __ Today’s show is brought to you by VanEck. Go to https://vaneck.com/ForwardGuidance to access VanEck's Income Investing Yield Monitor. __ Follow @vaneck_us on Twitter, this episode's sponsor https://twitter.com/vaneck_us Follow Brent Johnson on Twitter at https://twitter.com/SantiagoAuFund Follow Jack Farley on Twitter https://twitter.com/JackFarley96 Follow Forward Guidance on Twitter https://twitter.com/ForwardGuidance Follow Blockworks on Twitter https://twitter.com/Blockworks_ __ Timestamps: 00:00 Intro 02:32 "You Shouldn't Go All-In Against The United States & The U.S. Dollar" 12:06 Van Eck 12:55 Why Trade Is Invoiced In Dollars 19:01 The Bretton Woods System And The Rise Of "EuroDollars" (Offshore Dollars) 24:18 "Don't Confuse A Possibility With A Probability" 30:52 Sanctions 33:56 The Gold Standard And The Necessary Features Of A Global Reserve Currency 38:44 Bitcoin Standard Would Be "Massively Deflationary" 40:52 Why Are Central Banks Buying Gold? 42:05 When And Why Does The Dollar Spike Higher Against Other Currencies? 47:58 The Debt Ceiling 58:13. China's Belt and Road Initiative 01:00:58 Fears Of A Sovereign Debt Crisis 01:05:06 Currency Hegemons Will Continue To Be The Norm __
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Johnson argues the dollar system will persist as the global reserve currency despite de-dollarization efforts because structural factors—the eurodollar market, dollar-denominated debt, geopolitical dominance, and the absence of viable alternatives—make replacement extremely difficult and unlikely in the near to medium term, even as de-globalization creates periodic crises that paradoxically strengthen the dollar.
- The eurodollar market (offshore dollar credit system) is larger than the domestic US money supply and creates persistent demand for dollars globally regardless of de-dollarization rhetoric
- Global non-US actors hold massive dollar-denominated liabilities to each other; de-dollarizing would destroy their own assets and reserves, making coordinated abandonment self-defeating
- Dollar strength increases during crises due to simultaneous need for dollar liquidity and flight-to-safety; QE and money printing paradoxically strengthen the dollar relative to other currencies facing worse conditions
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The eurodollar market—private dollar credit markets operating outside the US and outside US regulatory authority—emerged in the 1950s-70s as demand for dollars in Europe grew due to the Marshall Plan, Cold War trade needs, and commercial expansion; it is larger than the US domestic money supply and is fundamental to the dollar's reserve currency status.
“because they were you know as part of the Marshall Plan they were rebuilding all of Europe there uh and because the U.S was providing a lot of the financing there was there was demand for dollars in Europe there was also demand for dollars by Russia and the the now Soviet Bloc to use dollars because they needed to do business outside of Russia and nobody wanted to use Road rubles so Russia started holding U.S dollar balances in European Banks back in the 50s 60s and so these were called Euro dollars not Euros this isn't the euro currency it's the Euro dollars and then you know countries because there was so much demand for dollars because that was kind of the common currency people started transacting in dollars and you know Japan would do business with the Philippines in dollars and Brazil would do business with the United States in dollars but they would do business with Argentina in dollars and so South Africa would do business with India in dollars these are the types of things that happen and this this was Private individuals private companies private actors not government sponsored actors and trained into Global Commerce using dollars”
When the debt ceiling is hit, the Treasury's ability to issue new net debt is suspended; the Treasury can only replace maturing bonds within the limit, not add new borrowing, so it draws down its operating cash balance at the Fed, which injects liquidity into the market and weakens the dollar.
“as old Bonds mature and the debt Falls they can issue new bonds to replace those to keep it at the limit but they can't issue incrementally net new debt to go over the limit okay so what that means is that the pace at which the treasury has been issuing bonds over the last six months has fallen dramatically because we're up against the limit and the cash that the treasury has in their bank account at the New York fed they still spend that so typically what happens is the Fed or the treasury spends money into the market and at the same time so they're giving liquidity to the market at the same time they're issuing bonds so they're putting bonds into the market and they're taking liquidity out of the market right”
Bretton Woods 3 (Zoltan Pozsar's thesis) proposes not a full gold standard but gold making up an increased percentage of central bank reserves; this is different from a gold standard and is more plausible, though still unlikely to happen voluntarily.
“the gold standard the Bretton Woods three thesis proposed uh by zolten posts are that's not actually that we will go to a gold standard it's just that gold will make up an increased percentage of Foreign Exchange reserves or reserves uh for government uh reserves uh as well as Central Bank holdings”
The Saudi Arabia-US oil deal from the early 1970s was predicated on Saudi Arabia pricing oil in dollars in exchange for US military protection and modernization support; breaking this deal would mean Saudi Arabia loses US protection and would face pressure to build alternative defense relationships with Russia or China, a multi-year process that would expose vulnerabilities.
“the deal that was made between the United States and Saudi Arabia the Kingdom of Saudi Arabia back in the early 70s was that the house of sod which was the ruling family in Saudi Arabia made a deal with the United States and the deal was we will price our oil in dollars and as a result the U.S will provide protection to that family keep them in power over the years you know when when other factions within Saudi Arabia try to challenge their their status as the king or the head of the head of the country the U.S would you know help them defend against that and they would help them defend against foreign adversaries and they would help them build an incredibly modernized Global econ country”
A currency that is too hard and stable (like Bitcoin or gold) creates deflationary debt problems; if someone takes out a million-dollar loan when Bitcoin is $30k and Bitcoin rises to $250k, the borrower faces impossible repayment—making hard money currency standards problematic for debt-based economies.
“let's say we go to a Bitcoin standard and then you take out a million dollar loan in Bitcoin when bitcoin's thirty thousand bucks and then two years later it's at 250 000 which is where many people think it's going how do you pay off that debt right I mean it just it just becomes a massively deflationary that's just that's kind of an extreme example but that that's the way I would explain it”
A currency system doesn't need to make economic sense to persist—the Soviet ruble lasted 60-70 years despite not making economic sense, because the Soviet Union simply imposed it on its sphere of influence through force of will.
“and the thing is is whatever system they put in place it doesn't have to make sense you know think about the Soviet Ruble you know it lasted for 60 70 years it didn't make a lot of sense it didn't have a lot of economic power behind it but it lasted for 70 years because the the Soviet Union imposed their will on the people underneath it”
The US Treasury maintains a non-negative balance at the Fed by law; it cannot have a negative balance, unlike private banks or other actors, which creates a structural constraint on its spending independent of the debt ceiling.
“by law again this is just a framework you the treasury can't have a negative balance at the FED right”
Both the Bank of England and Bank of Japan had to intervene in their sovereign bond markets in the last year (gilt and JGB markets), and China had to ease monetary policy to address real estate crises, showing that multiple central banks globally are pursuing accommodative policies—therefore QE and intervention are not uniquely US phenomena.
“a year ago or six months ago you know what was happening in Britain they had to go in and they had the the bank of England had to bail out the the UK Sovereign bond market at the same time the ECB set up a facility to buy periphery bonds because Italian yields were spiking so that and at the same time China was having to dramatically decrease the or dramatically ease money uh do easy monetary policy to deal with their real estate market that was crashing at the same time that the bank of Japan was having to intervene in both the yin market and the jgb market”
After World War II, the US and Europe established the Bretton Woods system with the US dollar as the global reserve currency, backed by gold at a fixed rate; the system was designed to keep this arrangement in place by stacking the deck in the US favor, with IMF mechanisms for self-correction of trade imbalances.
“after World War II the U.S came out on top of World War II you know maybe not the soul winner but largely the best uh position participant in the war after World War II and so they along with the Europe set up the the Bretton Woods system and the current Global Order and when they did they stacked that deck in their favor in order to keep it that way right and so you know and and in that scenario they set up the US dollar would be the global uh Reserve currency but it would also be backed by gold”
France withdrew gold from the US in the late 1960s over concerns about US fiscal responsibility (Vietnam War costs and social spending), demonstrating that Bretton Woods' convertibility mechanism allowed discipline on reserve currency issuers; this directly led to Nixon unlinking the dollar from gold and ending the convertibility guarantee.
“that's exactly what happened in the late 60s uh France didn't like uh you know with the with the cost of the Vietnam War and the implica implementation of a number of social policies that cost a lot of money France said give me the goal and they even sent you know they famously sent to warship to New York Harbor to collect the gold and take it home yeah and and as a result Nixon d-linked the dollar from gold he no longer made it convertible and that ushered in the area floating exchange rates”
A productive economy first requires security and the ability to provide for basic subsistence; countries without internal security or external protection face constant threats that prevent economic development, making security provision foundational to economic prosperity.
“whenever you're talking about a productive economy you have to kind of go back to kind of the first principles what's what allows an economy to be you know prosperous and profitable and and efficient well the first thing you have to do is be able to secure your own safety and your own substance you know if if if if you have to go out and farm every day or you have to go hunt for your food every day just to stay alive and you have to be a soldier or have people you know uh being the the protectors in order to mention just to make sure that you stay alive you know that that takes up a lot of time and effort and it doesn't allow you to then go create a vibrant economy”
A global reserve currency depends on three structural pillars: trade invoicing (conducting business in that currency), currency reserves (central banks holding it), and denominated debt (countries and companies borrowing in it); all three pillars support the dollar today.
“when I think of a global Reserve currency there's kind of a three-legged stool if there's a fourth or fifth leg please please feel free to add but it's it trade invoicing currency reserves and then dollar denominated debt so when people buy and sell oil copper soybeans if Brazil sells it with China historically it was done in uh dollars despite the fact that you know neither of those countries uh control control the dollar”
Money is defined as having three properties: medium of exchange, store of value, and unit of account—fiat currencies lose value over time, but this doesn't mean they fail as currencies because money is not required to be the best store of value, only a store of value.
“the definition for money is the most marketable commodity which means it has the most liquidity and it's just a fact that the US dollar had the most liquidity around the world compared to all of the Fiat currencies now I know there's several people out there saying right now well why don't they use gold gold is a much better store of value over time okay this is absolutely true and you know when when they say that money is supposed to be a medium of exchange and a store of value nowhere does it say that money is supposed to be the greatest store of value in the world it just says it's a store of value it doesn't say it's a good store of value it doesn't say it's the best store value just says it's a store of value”
Interest rates play a dominant role in dollar movements; when rate hike expectations increase, the dollar rises; when rate cut expectations emerge, the dollar falls; nearly all dollar movement over the past year can be attributed to interest rate expectations rather than other factors.
“there's a big confusion on why the dollar got strong last year and then why it's fallen off over the last six months and to my mind there's really very little confusion it's all the movement of the dollar of the last year is almost all not all but almost all related to interest rate expectations it was about a year ago that the rate hike started and the rate hide expectations uh kept increasing and as the rate hikes happened and further rate height expectations kept Rising the dollar Rose along with it towards the end of last year when when Powell made the comment you know we still have more room to go but we have accomplished a lot we will be data dependent and at some point we would expect that we will be done he said something along those lines right well so when data started coming in a little softer when when when inflation expectations started to Peak and then interest rate hikes the future of interest rate expectations fell and even future Cuts started to show up in expectations the dollar has come back off”
Dollar-denominated debt issued by non-US actors outside the United States is enormous and held by other non-US actors as assets; if the world de-dollarizes by defaulting on this debt, they default on each other, not on the US, but their liabilities and assets both disappear—making de-dollarization self-defeating for the rest of the world.
“there's all of this US dollar debt outside the United States and it's enormous again everybody knows that the US owes 30 trillion well the rest of the world owes more than that to each other and here's here's the real key part of it is they don't owe these dollars to the United States they owe these dollars to each other again this is a French Bank making a loan to a Turkish company or a Japanese you know company doing trade Finance in dollars to a Philippine you know supplier or you know there's a number of examples like this but it's all done in dollars and so if the rest of the world just defaults on this euro dollar debt they're not defaulting on the United States they're defaulting on each other so while their liabilities would disappear if all this defaults happened a lot of their assets would disappear as well and so this is what makes it so hard to de-dollarize”
The dollar milkshake concept is based on the eurodollar market—the massive offshore dollar credit system—which means US monetary expansion benefits the whole world, not just the US, and allows the US to 'get away with' currency printing more easily than other countries whose monetary expansion only affects their own currency zone.
“this year this this euro dollar market that exists outside the United States and creates an incredible amount of domestic currency demand outside the United States is really what sets the dollar apart when the U.S does QE or prints money or however you want to describe it they're doing it for the whole world right when Japan does it they're doing it just for Japan when Europe does it they're doing it for Europe when China does it they're doing it for China so this allowed because there's so much demand for US Dollars this allows the US to kind of quote unquote get away with it to a greater extent than the rest of the world without their currency you know going through you know hyperinflation or or or or uh you know just disappearing right”
Money is defined as the most marketable commodity—the one with the most liquidity and demand—and the US dollar has the most liquidity of any fiat currency; this is why people and institutions accept and hold dollars despite their loss of value over time.
“one of the definitions for money is the most marketable commodity which means it has the most liquidity and it's just a fact that the US dollar had the most liquidity around the world compared to all of the Fiat currencies”
Johnson's fears about a sovereign debt crisis have not subsided over the past 6 months, and have been confirmed by recent central bank interventions in the UK and Japan sovereign bond markets, which represent early stages of sovereign crises.
“well number one my my fears have not subsided interestingly it was about a week after that you know conference or that interview where we were talking where the bank of England had to bail out the guilt market right that's when the jet Japan Bank of Japan had to step in and support the jgb market I mean that is a sovereign crisis when central banks are stepping in to save their own Sovereign bonds that is that is is at least the early stages of a crisis”
The main goal of emphasizing dollar strength is not to convince everyone the dollar will go higher, but rather to convince people not to bet all their capital that the speaker is wrong, because if dollar strength plays out as historically normal, anti-dollar positions will be crushed.
“the whole point of me pounding the table on the dollar over the last three or four years is not to convince everybody that I'm right it's to convince everybody not to bet everything that I'm wrong uh because if you bet everything that I'm wrong and it things play out the way they always have you're gonna get crushed”
The 2019 China-Iraq oil trade deal announced as a major de-dollarization event, where Iraq would sell oil to China and receive payment in yuan plus in-kind services, only accounted for about 10% of actual Iraq-China oil trade and was never actually implemented.
“Four years ago in 2019 um there was a big headline that came out that between China and Iraq and it said that China and Iraq were no longer going to conduct their oil trade between the two in dollars and this was heralded as a you know again a nail in the dollar coffin the Petro yeah the Petro dollars days remembered and the idea was that Iraq was going to sell oil to China and in exchange China was going to provide um Consulting Services build infrastructure construction a lot they would pay in-kind services for this oil rather than pay dollars and this again this was a big announcement and then what actually what it actually was when you looked into the details of it um the amount of TR and so many people said China will no longer buy any oil from Iraq and dollars well that's not true because this deal only accounted for about 10 of the the oil trade between Iraq and China and then it turns out that the deal was never actually implemented none of this has ever happened”
When global crises occur or energy transitions are incomplete, traditional finance (denominated in dollars) spikes in price, just as traditional energy spiked when green energy infrastructure was not yet ready; de-dollarization efforts will hit a wall before alternative systems are operationalized, causing a dollar shortage and dollar appreciation.
“I think that we are going to hit the wall with the global you know global economy before those plans are in place and implemented and when that happens I think traditional Finance or traditional uh Global funding will spike in price in the same way that energy was spiking in price a year ago and traditional funding is done in dollars um so so that that that's one thing I would say”
The US probably should not have confiscated Russia's foreign reserves; this action was a key moment in accelerating de-dollarization and de-globalization efforts, and 20-30 years from now observers will likely identify this as a turning point in the de-dollarization narrative.
“I think when we look back on this 20 or 30 years from now we will say that was a key moment in the whole dedolarization or de-globalization effort um and so you know that has definitely kind of led to what's going on now”
Johnson's four-scenario framework: (1) whole world grows together due to printing, bailouts, new tech; (2) whole world declines together due to crisis; (3) US does okay while rest of world does poorly; (4) rest of world does well while US struggles. Johnson prefers dollar/US assets in 3 of 4 scenarios and believes scenario 4 is extremely unlikely based on the design of the dollar system.
“so I have it in my mind there's a scenario where the whole world does okay together somehow you know whether it's due to money printing or whether it's due to bailouts or whether it's some new technologies discovered the whole world could grow together and be okay we could have a situation where the whole world could go down together because things get really bad uh and you know and then that sorry everybody goes down together I could see a scenario where the U.S does okay while the rest of the world does it very poorly but I cannot see a scenario where the rest of the world does well in the US does poorly now is it possible yes it's possible but to me that's a very low probability event”
The BRICS organization has been announcing plans for a common currency and de-dollarization for 14 years since its founding in June 2009, yet in all that time nothing has actually been implemented—these announcements are plans, not executed reality.
“the brics organization um which is basically a loose Trade Federation kind of at best was founded in June of 2009 kind of at the bottom of the crisis the global financial crisis um and and from the very beginning it was a way to increase trade amongst these you know the global south or however you want to describe this right some of some of the Emerging Markets um the one of the ideas was that they will come up with some kind of a common currency which they can conduct trade and for the last 14 years since that was first announced every year they get together and they talk about these things and they come out and they make a statement and said we're working towards doing this but so far nothing has actually been done”
Despite headlines claiming Russia has completely de-dollarized, Russia still actually holds and uses dollars; when people claim to buy rubles, they must send dollars or euros to Russia to exchange for rubles, showing ongoing dollar usage beneath the surface.
“the reality is is they already still do and they you know this idea that they don't they only sell dollars they only sell energy and rubles well it's true but the way that people get rubles is they send dollars or Euros to Russia Russia gives them rubles and then they do the transaction so this idea that Russia has totally de-dollarized as a game it's it's it's headline versus reality I'm not saying they're not making efforts and I'm not saying that they haven't been somewhat successful in doing it I'm just saying this idea that they no longer use dollars in any shape way or form it's incorrect”
Fiat currencies lose value over time by design, and governments prefer loose money that allows them to inflate away obligations; therefore governments will never voluntarily adopt hard money standards that constrain their ability to print, regardless of the technical superiority of sound money.
“I think most people who have studied money understand that fiat currency loses value over time that number one is why governments use it governments who are the ones that make the decisions don't want money to be a good store of value governments don't want hard money they want loose money that they can use to make promises with and then pay them off right or use this printed money to pay off the promises”
The United States will not passively accept de-dollarization or loss of its role in the world; it will push back, potentially through geopolitical and military means, making any transition away from dollar dominance volatile and conflicted rather than smooth.
“the U.S for better worse whether you think they should or shouldn't would will not just stand by and watch as its place in the world is degraded um and so I think they will push back and that will lead to volatility”
Over the last 15 years, US monetary policy interventions (QE, helicopter money, operations twist, Fed scandals, Trump's demand for rate cuts) should have caused the dollar to collapse by weak-dollar logic, but instead the dollar reached a 30-year high last year, contradicting the simple narrative that dollar printing leads to currency collapse.
“think about everything they did after covet or let's just go all the way back to the global financial crisis qe1 QE2 operation twist qe3 helicopter money bailouts PPP you know scandal at the fed you know the Donald Trump saying they need to cut rates all of these things that have happened to the dollar over the last 15 years were should have sent it much lower and yes six months ago it was at a 30-year high”
Multilateral currency systems can exist temporarily, but they are inherently unstable because they lack a single decision-maker; conflict emerges and a hegemon will eventually consolidate power and impose a hierarchical system that favors their interests.
“I think we could have a multilateral system for a little while but I don't think it would last for a very long time and and part of the reason is and this gets a little philosophical but in many ways Global Reserve currencies are not about economics they're really about power and it's about an imposition of Will and whoever the biggest baddest boy or girl on the Block is typically enforces their will now that's you do I not have to like that but that's typically what history plays out as and if you're going to do business with the biggest baddest girl or boy on the Block you're probably going to have to use their currency or whatever they would like you to use and so I think that's why you can have these relative short periods of of multi-polarity or multi-currency or Regional blocks But ultimately I think the conflict that comes out of that we'll see a hegemon emerge and when that hegemon emerge they typically don't care what anybody else thinks and then and and I and I think you will be subject to whatever they whatever system they would like to put in place”
The dollar has fallen 12-13% from its peak but remains significantly higher than its value during the COVID crisis, and discussion of 'how much the dollar has fallen' requires zooming out to see the longer-term context.
“again we talk about it falling so much it's Fallen 12 13 yeah but it's still higher than it was at the coven crisis right so you know you know the whole zoom out thing I think is appropriate”
Most de-dollarization announcements are simply headlines over actions, and investors make the mistake of betting heavily against the dollar based on these headlines while ignoring the gap between announcement and implementation; this is a mistake because the probability of de-dollarization in the near term is very low.
“I've talked to too many investors over the years who they hear something like this they say oh my gosh I have to get out of dollars and they run and they put 70 of their portfolio in gold or uranium or some kind of hard asset or some kind of an anti-dollar play or anti-united States play um and and rather than just you know playing the probabilities that go all in on it and I really want to kind of help people understand why you shouldn't go all in against the United States and against the US dollar”
The US is typically every country's first or second largest trading partner, so companies in those countries need dollar access to do business with the US; if countries de-dollarize, they lose access to US markets, which is a major cost that the US market size imposes on any would-be de-dollarization.
“the US is typically every country in the world's either first or second biggest customer um you know Europe I think is to your or either Europe or China might be one or two but then the US is always number one or you know one or two as well and so if if these foreign country companies are going to totally de-dollarize and no longer use the dollar well then they're not going to do business with the United States the United States is not going to conduct business and you want or Reales or Euros the US is so if you want access to U.S markets you're going to need to use dollars”
No other country currently has the combination of attributes that back the US dollar: military power, economic size, capital markets, institutional strength, and willingness to enforce its currency; therefore even if countries form coalitions against the dollar, they lack the capacity to replace it with a viable alternative.
“and the reality is there's just no other country in the world that can do all those things right now now I know the rest of the world is trying to put together a Coalition in order to counter it and perhaps one day they will be successful but right now today it's extremely unlikely”
If a sovereign credit event occurs and Treasury bonds fall in value, treasury prices would rally, not fall, because bond crises trigger flight-to-safety flows into US Treasuries; this happened in 2011 when the US debt was downgraded and Treasury prices surged despite the downgrade indicating payment risk.
“when the debt was actually downgraded by the s p by SM standard and Poor's in 2011. you would think that that would send treasury prices down because they're not being paid well no actually treasury prices rallied like crazy and it's because it was going to cause chaos in the financial markets and and everybody knows that the US government will at some point pay those bonds and pay that interest now they may pay for it with printed money but they are not going to default”
China's Belt and Road Initiative loans are often denominated in dollars rather than yuan, allowing China to use surplus dollars it earns to extend credit; as dollar shortages emerge globally, these loans will come under increasing pressure and defaults may increase.
“a lot of these belt and Road initiatives have been done in dollars the the China has used their dollar surpluses um to um you know extend Credit in dollars I think as you know this dollar shortage I think that that will happen comes up in the user I think these will increasingly come under pressure”
A Chinese yuan milkshake (equivalent to Johnson's dollar milkshake concept) is implausible because the yuan does not trade significantly outside China; external yuan demand is minimal and most foreign holders of yuan are just converting to get another foreign currency, not holding yuan balances.
“the problem with trying a a a Chinese Yuan milkshake is nobody wants you want you know it doesn't even trade outside the outside of China very much there's a there's an internal you want and an external you want but the external you want is really just to get another foreign currency and go on your way like no nobody's holding you on balances in in their accounts”
Many investors respond to dedollarization fears by going all-in on anti-dollar plays (gold, uranium, hard assets) rather than maintaining diversified positions that account for probability, which creates catastrophic portfolio risk if historical dollar patterns repeat.
“I've talked to too many investors over the years who they hear something like this they say oh my gosh I have to get out of dollars and they run and they put 70 of their portfolio in gold or uranium or some kind of hard asset or some kind of an anti-dollar play or anti-united States play um and and rather than just you know playing the probabilities that go all in on it”
Central banks and institutions holding dollar revenues do not simply hold cash; they invest in gold (which many central banks have done), US Treasury securities (which pay interest that compensates for inflation), or other appreciating assets; holding dollars is about access to dollar-denominated capital markets, not about faith in the currency's stability.
“most people or even institutions and central banks who earn dollar revenues don't just put it in a vault in cash you can buy gold with it which many central banks have done you can buy U.S treasuries which many central banks have done and those treasuries pay in interest rate so again you know the interest rate largely makes up for the loss of purchasing power”
Nuclear weapons create a symmetric stalemate between the US and other nuclear powers like Russia and China; the argument that the US cannot beat Russia or China because they have nuclear weapons ignores that the US also has nuclear weapons and similar defensive capability.
“the idea that that there's no way we could beat Russia because they have nuclear weapons well then why is it so easy for Russia and China to beat the United States because we have nuclear weapons too and so again I'm not I hope to God this doesn't you know become some kind of a kinetic shooting War but the idea that the U.S cannot possibly win and that's the way a lot of these arguments come across and that this is a given dolorization is a given it's just a matter of time you might as well get on board because there is nothing the US can do to stop it well unfortunately if that's your view there's a lot of things the U.S can do to stop it”
The debt ceiling has been a recurring flashpoint that historically precedes periods of dollar weakness, but raising the debt ceiling is followed by periods of dollar strength; this pattern is likely to repeat, with the current debt ceiling debate potentially explaining some recent dollar weakness.
“historically whenever we have bumped up against the debt ceiling it has historically been a weak time period for the dollar and as soon as that debt ceiling has been raised it the dollar typically tends to appreciate now there's always exceptions it's not always the case but I'm just telling historically that is what has happened um so I I would expect that to happen again this time”
The dollar smile model explains dollar strength: the dollar is strong when economies are doing well (people want to invest in the US and the Fed raises rates), and also strong during crises (people need dollar liquidity), but weak in the middle (when things are stagnant and better opportunities exist elsewhere).
“the smile is basically when things are really good and the economy is growing and the FED is raising rates well then people want to invest in America because you get paid a higher rate for holding under the dollar and things are expanding the reason they're raising rates is the economy is expanding you know you want to get in you want to buy U.S assets watch them appreciate so under that scenario the dollar does very well on the other end things get really bad you know some kind of a global crisis Global liquidity dries up and because there's all this dollar debt in the world and you need dollar debt to not only do business with the United States but service your euro dollar liabilities the dollar becomes in great Demand on that side of the smile as well now in the middle in the middle of things they're just okay here you know we don't have a crisis we're not really growing we're kind of stagnant but things are better somewhere else then that's when the dollar would typically fall versus other currencies”
Global reserve currencies are ultimately about power—the ability to impose will—rather than economics; historically pound sterling, Dutch guilder, and US dollar each dominated based on the geopolitical and military dominance of their issuers, and that pattern will continue.
“Global Reserve currencies are not about economics they're really about power and it's about an imposition of Will and whoever the biggest baddest boy or girl on the Block is typically enforces their will now that's you do I not have to like that but that's typically what history plays out as”
Sanctioning Russia has reduced its GDP growth relative to expectations and depressed energy revenues, forcing Russia to run larger budget deficits and restructure energy taxation; therefore sanctions do have measurable economic effects despite headlines claiming otherwise.
“if you disagree then just go look at the GDP of growth over the last 20 years of places like Russia like Iran um like Venezuela and some other countries around the world that have had sanctions put on them it does have an effect and the reality is is that right now those sanctions are having an effect on Russia they had a pretty good year last year but this year their oil and gas revenues are down so much that they're running their biggest debt budget deficit in decades”
De-dollarization is an extremely complicated process that is much harder to execute than to announce, analogous to how the Green New Deal has been announced for years but implementation faces constant obstacles, because achieving alternative currency systems requires solving a Gordian knot of structural and geopolitical problems.
“this problem that's being dealt with by the rest of the world is D dollarization problem is an extremely complicated one and it's extremely complicated for a number of reasons and and I understand all the reasons they would love to get out from underneath the system but it's it's it's just much much easier to say than do and if all it took was anger and frustration to de-dollarize the world would have been de-dollarized decades ago but it isn't because it's it's this gordian knot that it's just it's really hard to untie”