From Wedlock to Deadlock: The East-West Divorce - with Brent Johnson and Louis Gave

Europe has been a vassal state of the United States for the past 80 years; when forced to choose sides, European leaders will always side with the US over Russia, China, or alternatives because of structural dependency and lack of independent military/economic power.

“people don't like it when I say this but Europe has always been a vassel state from the United States for the last 80 years and when push comes to shove that's the truth and I know that's not the nice friendly peaceful thing to say but that's the truth and that is what has played out so I don't think that they I don't think Europe without having an [Music] incredible geopolitical crisis would have been a B to side with China or EUR or Russia and use Euros”

The 2023 US current account deficit of $880 billion is a record level, showing the US continues to export dollars at unprecedented rates despite energy independence; this supports the argument that dollar supply remains plentiful and continues to circulate globally.

“I will take uh one exception when you say the US is not exporting dollars in 2023 the US current account deficit was a record $880 billion so that's $880 billion that the US is sending every year to the rest of the world to service existing debt to buy the Commodities we need um so uh the US is exporting dollars it's exporting them by the bucket load it's never exported to that many dollars”

China's Yuan has weakened 15% against the US dollar over the past two years, undermining the argument that the rest of the world will abandon the dollar for the Yuan even though they fear the dollar is losing value.

“even though they've done that the Chinese yuana has lost 15% of its value in the last two years and so when people will often tell me that the rest of the world is no longer going to hold us bonds because the dollar is going to lose value and they're going to start using the Yuan even though the Yuan has lost 15% of its value versus the US dollar that everybody thinks is losing its value um”

All growth in global trade is now concentrated in emerging-market-to-emerging-market flows, with zero net growth in developed-market trade; this structural shift means the future of the global financial system will be determined by what currency emerging market trade settles in, not by developed market preferences.

“and the reality again is that most of the trade today most of the growth in trade today is Emerging Markets to Emerging Market in fact that's the only growth in trade in the world now is Emerging Market to emerging market”

China's largest car export destinations are not Western markets but Southeast Asia, Middle East, and emerging markets; Chinese automakers are not appearing on US streets, indicating de-coupling is already advanced and trade is being redirected away from the US.

“the reality is you know I just said earlier China's the biggest car exporter in in the world how many of these cars are you seeing on us streets the answer is zero uh these cars are being sold to Indonesia to Saudi Arabia to uh to Chile”

China has moved dramatically up the value chain in manufacturing; its trade surplus expanded from $20B/month to $70B/month not because of increased plastic toy exports but because China became the world's largest car exporter, earth-moving equipment exporter, and tractor exporter, indicating a transformation into a mature industrial power.

“China's Trade Surplus has gone from 20 billion a month to 7 billion a month not because all of us on this call are buying three times as many plastic toys for our kids and three times as many pairs of sneakers the reality is China's Trade Surplus has tripled because China's become the biggest car exporter out of nowhere nobody thought that possible three years ago the biggest earth uh equip moving equipment exporter the biggest tractor um China's become an industrial Powerhouse in its own right and the productivity in a lot of these sectors has been absolutely dumbfounding”

Current account deficit has exploded since 2017 from improvements between 2012-2017 (shale boom reducing energy imports) to record levels today, indicating that shale's energy advantage has been consumed by massive fiscal deficits rather than creating lasting improvement in trade balance.

“from 2012 to 2017 the US current account deficit improved it was getting smaller every year...since 2017 and especially since 20120 and all the crazy fiscal deficits Etc the US current account deficit has just exploded”

The central question of reserve currency sustainability is whether the US remains at the center of the next global energy revolution; if the US continues to produce the marginal increase in global energy (particularly cheap energy), dollar dominance persists; if China captures that role (via nuclear, solar), the energy foundation of dollar hegemony erodes.

“if ever we move to a period where us equities start to go down where they stop becoming a store value which you know happens every 5 10 years you know us equities go down then we best hope that bonds become a store of value again in you in the US because if we move to an environment where people are losing money at the same time on equities and bonds for a meaningful period of time we've had this over the past three four years where you know for three months you're losing money on equities and bonds you had it for six months in 20122 but if you have it for a year or two if you have it for a meaningful period of time where where you know you're losing money on equities you're losing money on bonds then all of a sudden there will be a much bigger question mark of people saying hold on is the US dollar still a store of value for me and I'm not saying this this will happen I'm saying if we do this is the damle sword hanging over the the Dollar's head today it used to be you know held up by two pillars bonds are strong equities are strong bonds are gone you're being held up by one pillar you lose that one the Ed iFit collapses”

Physical gold's difficulty in settlement (not easy to move, requires shipping, security, insurance) and reliance on trust in storage institutions creates practical barriers to using gold as transaction currency; while gold could be used for international settlement, it's significantly less efficient than electronic currency systems until a formal gold-backed system is institutionalized.

“Gold's been used for centuries and of course it can still be used but it's not as it's not as efficient and it's not as easy and it's not as quick so it it's a it's a contingency plan but as of right now until a new system is put in place that features gold as part of the system using gold will not be as efficient as using the current system”

Private Chinese citizens are buying gold at record rates through multiple channels (ETFs, bank offerings, gold bean retail products targeting younger investors) independent of central bank accumulation, suggesting that Chinese consumers perceive their own currency risk and are individually de-dollarizing.

“Chinese are buying uh gold like crazy so it's not only you know the Central Bank side but it's also private individuals we've got this thing coming up with the with the gold beans for the generation set um we've got um big inflows into the ETFs we've got uh strong flows from the banks”

The 'dollar is dying' narrative has been common for decades but repeatedly proves wrong because it overlooks the structural debt obligations that create perpetual dollar demand independent of reserve currency preferences, and historical reserve currency transitions typically take 50-100 years, not the 5-10 year timeframe many assume.

“I talk to a lot of people who who who know this and think that that transition happens quickly and peacefully and my biggest argument with the whole dollarization um topic is that I think many people think that it's a foregone conclusion it's automatically going to happen that those who are de dollariz in are going to win and those who are staying with the dollar are going to lose”

US inflation (PCE 3.6-3.7%) is double the US real GDP growth rate (1.6%), indicating an unhealthy economy; this means nominal gains are inflated rather than reflecting real prosperity.

“if you look at you know you look at the latest GDP numbers you now have in the US an inflation rate PC was what like I think it was 3.6 or 3.7 uh US GDP was 1.6 like you now have an inflation rate that's twice the growth rate of uh real GDP uh that's that is not a sign of a healthy economy”

The US has outperformed the rest of the world economically over the past decade despite China's nominal GDP growth, because most real economic growth globally has come from the United States, which explains why US assets have appreciated more than alternatives.

“all the real growth in the world is coming from the United States or of course there's exceptions but in general the majority of the econom growth in the world is coming from the United States”

Chinese cars are rapidly becoming prevalent in Europe; the growth rate of Chinese vehicle market share and volume is 'mindblowing' according to industry insiders, suggesting that European auto manufacturers are losing market position with accelerating velocity.

“you you you've got no idea how many Chinese cars you will see over here over the next couple of years yeah it's just it's just mindblowing what what's going on in the in the car industry”

All national governments prioritize regime survival over citizen welfare, meaning the US, China, and other powers will pursue policies (including de-dollarization, military conflict, currency debasement) that serve state power rather than broad prosperity, and peaceful coexistence is naive given current geopolitical polarization.

“from a certain point of view and I don't really like this view but the the reality is is that whoever wins winning means that the government stays in place right it means that you know the US government is still the US government it means that the PBO or it means that the CCP is still in power in China it means that Putin and his party is still in power in Russia and while I think it's nice to think think that our leaders Governors presidents however you want to classify these people have our best interest at heart they don't so the idea that they're only going to put policies in place that benefit their citizens rather than benefiting their own personal power or their personal power or their government power structure I think is extremely naive”

China's government under Xi Jinping models itself on the Bundesbank of 1970s-1980s Germany: deliberately prioritizing currency stability and bond market strength over equity market performance and growth, using policy sacrifice of stock market returns to build confidence in RMB as a store of value for foreign central banks and governments.

“for the past 10 years and this is of course what Germany did in the 1970s in Europe you know in the 1970s Europeans complained to the Americans saying hey look you guys are debasing your currency and the Americans said well the US dollar is our currency and your problem in essence go pound sand and what the Europeans did was moved all their trade from US dollar and all their savings from US dollar into deut Mark and using that road map this is what China's been trying to do and this is why if you look at the past five years the Chinese Bond Market has outperformed the US Treasury Market by 40% that it has been a policy setting it's been a policy Choice by China to favor the bonds hold the currency steady at the expense of everything else just like the bundes bank did in the 1970s and 1980s”

Russia has reduced its dependency on dollar revenues by selling energy at discount to India and other emerging markets priced in local currencies (rupees, RMB), thereby transferring wealth from Russia to these emerging markets and generating a boom in EM growth that Western observers are missing.

“what Russia has done is it has gone to countries like India and said hey how about I sell you energy in rupes at a 30% discount to uh to the market price which of course uh is is a huge game Cher for um uh for a country like India uh and it's a huge game changer for a country like China now the problem for Russia is they've earned rub rub um they've earned rupees and like what do we do with these rupees uh now the rembes they know what they can do with they can buy cars they can buy smartphones they can buy computers they can buy all sorts of things that they need um India's India is less obvious um which brings me to your Point Nico could we move to a world uh in which some of this trade is settled in Bitcoin uh and here you get to the obvious question is you know two years in more than two years into this horrible War why hasn't this happened yet you know inherently like two years ago if you'd ask me the question I would say yeah that makes a ton of sense right like that should be totally happening um this this trade should all be moving into into Bitcoin and and to be honest we saw as soon as the war started all the Russians started buying Bitcoin like crazy uh all the rich Russian were like oh my God all my money is going to be frozen quick move it onto uh onto a US b key uh and off I go um and so but two years later you do have to wonder why isn't this happening you know now you could say perhaps because the guys on the other side perhaps China's like no I'm not paying you in in Bitcoin I'm paying you in in uh in rem and B perhaps because uh India the same they feel okay we've got these guys over a barrel might as well no pun intended uh we've got these guys over a barrel Let's uh you know if we can buy in local currency that's what we want to do uh bottom line is it hasn't happened”

The duration and reliability of a currency as a store of value now depends critically on dual performance of both bonds AND equities in that currency; if both asset classes decline simultaneously for a sustained period (longer than 6-12 months), the currency loses credibility as a store of value regardless of other fundamentals.

“Fiat currencies they go down over time right I mean like staying like accumulating Bank notes in a safe is a pretty shitty strategy um so as a store of value when you get your currency really you either have to put it in bonds or equities or or real estate but you know let's just do bonds and and currencies um and for the longest time you know if again if you were a central bank if you were a foreigner like me and you looked at your US dollars that you earned because the US runs an $800 billion do current account deficit every year so you earn US Dollars you had two choices I can put it in bonds I can put it in equities um and if I thought okay for the next five 10 years actually both looked okay and you had a period of 30 years where you were making money on both bonds and equities if you took enough of a long time frame if you had a long time frame um now for the first time we're looking at a five-year loss period in bonds in uh in in US bonds bonds us treasuries are no longer a store of value”

Gold serves two distinct functions: (1) a play on emerging market growth (emerging markets are 2/3 of global physical gold demand), and (2) a call option on systemic breakdown (financial crisis, geopolitical collapse, etc.), with different drivers in different geographies and time periods.

“gold at the end of the day is two things uh first and foremost it's a play on Emerging Markets um you know you look at where physical demand for gold around the world is it's all Emerging Markets basically a third of gold demand is China another third is India another 20% is the broader Middle East and then throw in 10% for Russia and the ex Soviet States um you know the people who buy physical gold I bar and llarge in Emerging Markets so emerging markets do well gold does well emerging markets do badly gold does badly now of course a lot of people say well that's because you know gold is also inverse US Dollars Emerging Markets are inverse US dollar U but look at the past 18 months as an example the US dollar has been strong Emerging Markets ex China have been super strong India's booming Indonesia's booming Middle East is booming Etc gold demand has been strong it has gone up in the face of a strong dollar because again like Emerging Markets when Emerging Markets boom gold gold boom”

Xi Jinping is historically unique among recent Chinese leaders for being explicitly outward-focused (emphasizing Belt and Road, Asian Infrastructure Investment Bank, Silk Road Fund) rather than inward-focused on domestic problems, indicating a grand strategy to embed China in emerging market growth and create an alternative financial ecosystem.

“C gen ping I think has a profound he's a transformational president for China in many ways um but the number one way he's a transformational president is he's really the first outward-looking president in China you know I think for since maong every president that came in came in and said okay I got so many problems at home I don't really care what's happening abroad I got so many things to tackle here I'm not going to to waste my time you know traveling abroad figuring out what's happening elsewhere Etc I got a full plate of of domestic problems when CJ ping comes in you know his very first speech is all about the one belt one road the Silk Road fund the Asia infrastructure Investment Bank um it's a very imperialist vision of China's future”

TikTok's willingness to shut down 17% of its revenue rather than submit to US pressure to divest demonstrates that some actors (particularly younger generations, Chinese firms) will accept significant economic costs to avoid political coercion, suggesting the cost of geopolitical coercion may be rising.

“and so I I think the view that oh if CH if the US doesn't if China doesn't have the US it's toughed is a i it's a very us-centric view that was a reality 10 years ago and no longer corresponds to the reality of China's trade flows today well I I I I'll just say one last thing and then we we we can let this go part of the reason they are able to sell to these other Emerging Markets is those other Emerging Markets are selling into the United States and the econom in the United States has been very good the last three years should that change are you saying are you saying that that Mexicans that us isn't going to buy things from Mexico because Mexicans are buying Chinese cars that seems unlikely to me if the US does that they're they're like completely like cutting their well listen if if if you are of the belief that this divorce does not continue to accelerate and instead starts to cooperate more then I think you're absolutely right but if like me you think this divorce accelerates and more trade barriers go up not less and sides get chosen more than they've already chosen I do not believe that China will continue to be able to sell they'll be able to sell all of their production but at a much lower price than they're currently selling into West into into the markets that are dependent upon the United States I do not believe the US can have a recession and the rest of the world doesn't feel it so but I think maybe that's where we disagree I I think maybe you think I'm not I'm not saying I'm not saying the US is having a recession uh I no no my my point is China's Market are no longer primarily the US right but the markets that they sell into those markets are the us all those countries that you mentioned they sell into the US The Whole World's connected you can't just like you can't just like say they don't use I don't think I don't think I don't think the US can turn to Indonesia and tell Indonesia look if if you don't if you buy Chinese cars and we won't buy your nickel like if the US does that yes you're right it's a complet different world but I don't think the US can credibly do this I don't think the US can turn to Saudi Arabia and say hey if you keep buying Chinese cars if you keep buying Chinese Earth moving equipment we're you know we're going to make sure that the oil you try to sell around the world isn't going to flow I if the US does that it's going to piss off absolutely everyone and end up you know cutting the the very branch on which it sits on it's it's not that's that doesn't seem credible to me that's that's the economic volatility that I'm talking about um so two like one question that combines maybe the Euro and Bitcoin basically this this the story is this Europe has been trying to dollarize in a way by you know coming up with the Euro this is going back decades right and shortly before the war in Ukraine started shortly before Russia attacked Ukraine there was a huge gas deal priced in euros that um and and also using Euro that China and Russia um um came up with they since have switched uh to to Rubles and and Yan and have dropped the Euro the Euro has been completely dropped by many um after after the ECB also you know cut off Russian um reserves do you guys think that there was a chance there for Europe to to to you know not go along with the sanctions and and and you know pos position itself as as um you know in in between and position the Euro as what something as an alternative to the dollar in inter International Trade um or is this is a pol political thing where they just had to sight with the west and the second question question of course is um you know technically a lot of a lot of these this stuff could be done with Bitcoin I I know Putin has talked about it once there hasn't been a lot of uh developments but I do have to ask your opinion on like the next 10 years uh is is there any chance that you see that we will that the world will move to a neutral uh Reserve currency or neutral Trade Currency like that well so I I I'll take this first um people don't like it when I say this but Europe has always been a vassel state from the United States for the last 80 years and when push comes to shove that's the truth and I know that's not the nice friendly peaceful thing to say but that's the truth and that is what has played out so I don't think that they I don't think Europe without having an [Music] incredible geopolitical crisis would have been a B to side with China or EUR or Russia and use Euros um and and as a result they didn't um one one thing I want to point out because you just mentioned something I think it's important that people realize this is when people say Russia no longer sells energy uh in dollars and Euros they only sell it in in Rubles well here's the thing nobody outside of Russia has rubles so the only way to get rubles is to buy them from Russia so how do you do that well you wire euros and dollars to gazprom bank gazprom bank takes the dollars in euros and gives you rubles and then you go buy rubles with energy or you go buy energy with rubles but all they've really done is put a step in between so the idea that Russia no longer sells energy and anything other than rubles or uan it's it's it's it's a shell game um so Russia is still getting um rubles I'm sorry dollars and and Euros for their energy um but you know as far as you know kind of this a peaceful solution to all this I would love to say Yes um that would I I would happily I I would stand on the top of the Empire State Building and yell I was wrong if we can get out of this with some kind of a peaceful solution but I just I just feel like the dice have been rolled and we just kind of you know the the leadership of all these countries they want to stay in power and I don't think any of them are going to back down um I think they're all Psychopaths and I don't think that you can look at them as regular normal thoughtful logical people I think they're going to do what they think that they need to do to stay in power and unfortunately I think that's going to cause a lot more chaos and a lot more volatility just wanted to say that's the major advantage of shishin ping because he doesn't have to care about being reelected um yeah Lou that's true that's true yeah look I I actually had a presentation uh six months before the the Ukraine war broke out um saying look you know as this is Europe's big moment uh all of a sudden Europe's going to get energy priced in euros um and this is you know this was the case to be bullish Europe that all of a sudden we would be getting a cheap cost of energy you know the the big case for being bullish the US for the past 12 years was that the US had a much cheaper cost of energy and the US's cost of energy is always in dollars of course and then all of a sudden Europe had that window where it looked like you know we were going to get a ton of cheap Russian natural gas pric in our own currency um and then from there of course Europe Russia owns all these Euros so they would be buying European cars buying houses in Europe or you know European Goods so it would be a very um uh you know positive self self reinforcing uh virtual Circle uh and of course the wars thrown out out out in the water now you know we could debate all day could Europe have handled it better could Europe have done this could Europe have done that it doesn't really matter right um here we are Europe had a chance that chance is gone and and so be it uh and Europe's loss for me uh isn't so much an the emerging market gain as it is uh sorry it's not as much Russia's gain as it is the emerging or the US's gain as it is the emerging Market's gain and I think this is very important you know I I don't think there's energy is trading in in Rubles but energy is definitely trading in rem andb and it has traded in Indian rupees because what Russia has done is it has gone to countries like India and said hey how about I sell you energy in rupes at a 30% discount to uh to the market price which of course uh is is a huge game Cher for um uh for a country like India uh and it's a huge game changer for a country like China now the problem for Russia is they've earned rub rub um they've earned rupees and like what do we do with these rupees uh now the rembes they know what they can do with they can buy cars they can buy smartphones they can buy computers they can buy all sorts of things that they need um India's India is less obvious um which brings me to your Point Nico could we move to a world uh in which some of this trade is settled in Bitcoin uh and here you get to the obvious question is you know two years in more than two years into this horrible War why hasn't this happened yet you know inherently like two years ago if you'd ask me the question I would say yeah that makes a ton of sense right like that should be totally happening um this this trade should all be moving into into Bitcoin and and to be honest we saw as soon as the war started all the Russians started buying Bitcoin like crazy uh all the rich Russian were like oh my God all my money is going to be frozen quick move it onto uh onto a US b key uh and off I go um and so but two years later you do have to wonder why isn't this happening you know now you could say perhaps because the guys on the other side perhaps China's like no I'm not paying you in in Bitcoin I'm paying you in in uh in rem and B perhaps because uh India the same they feel okay we've got these guys over a barrel might as well no pun intended uh we've got these guys over a barrel Let's uh you know if we can buy in local currency that's what we want to do uh bottom line is it hasn't happened and today what you're seeing is a massive transfer of wealth from Russia it's a Russia for 200 years was organized to extract Commodities and sell them cheaply to Europe and now all of a sudden it's extracting Commodities and selling them at a discount to India to Indonesia to Korea to China um so this a huge benefit for for those guys and that's one of the drivers of the underlying boom that you're seeing in these countries a boom that most people most people are missing you know for all the talk about how the US is the only place to invest Etc like few people realize this but so far this decade so in the 2020s turkey's actually done better than the US Turkish stock market in US dollar terms like because you know obviously the local currencies devel Val a lot but um the Mexico's outperformed the US India's outperformed the US um you look at Emerging Market debt markets you know Indonesia China India Brazil Mexico all these countries have outperformed the US debt markets not by a little but by 40 50 100% like the outperformance of these markets has been absolutely enormous um we're living through a completely new Emerging Market cycle where you're seeing the FED Titan you're seeing an Emerging Market crisis Russia invading Europe you're seeing China be overall pretty weak and against that massive outperformance of Emerging Market debt market and even some of the equity markets and nobody cares which is great because it means that this bull market has longed to go it's it's always funny to me that this one of the things that I find fascinating about markets is is that different people can look at the exact same information and come to wildly different conclusions and that's that's what markets are all about isn't it wouldn't it be boring if we all had completely same same opinion um but gentlemen I think that that has been a great conversation I I really enjoyed it many thanks to to to to to brand and Louie many thanks Nico for for for taking a time I I think we we we discussed a really wide range of topics uh I think we all agree that that Europe is screwed and that's that actually dollarization is a is a long process One Moment In Time probably means you want to go long maybe that's the contrarian Play I Was G to say maybe we should buy Europe so yeah I I think we we we talked about gold we we're all pretty excited about gold we from our point of view that the Western Financial investor isn't isn't the marginal buyer anymore I think this this has really changed over the last couple of uh of of quarters which is which is going to be a core topic of this year's report but anyways um I really really want to thank you from the bottom of my heart I I I very much enjoyed that I learned a lot um would be more than glad to to to host you for for for drinks in Vienna Lou and Brent um Nico of course uh we we'll have an interview after the Eng gold with trust report very soon so gentlemen again thank you very very much thank you very much great to see you thanks for good to catch up”

The only currency system likely to emerge that truly reduces US monetary dominance would be one featuring gold as a reference point or backing (similar to Bretton Woods), because gold is outside any nation's control and cannot be weaponized by the US against other central banks.

“the reason our turning back to gold is because I think of a loss of Faith partly uh in uh in global institutions and and in the US and in global institutions in general in the US in particular uh because of the Russian sanctions I think that was an absolute absolute GameChanger so now the odds that China will say you know what I'll keep all my gold in in New York and I'll Trust the New York fed to move my gold bar from you know from here into the Russian box or into the Kazakhstan box or into the Pakistan box yeah that's not going to happen right”

Economic activity fundamentally equals energy transformed; countries save dollars primarily to purchase oil (and other energy/commodities), not industrial goods anymore because industrial production has shifted to China/Asia; this means the primary structural demand for dollars derives from global oil pricing in dollars, not from trade in manufactured goods.

“economic activity is energy transformed um and you know most countries save US Dollars whether you're India Indonesia China to buy energy and mostly to buy oil let's call it what it is like most people hold dollars to buy oil”

Empire-building historically requires infrastructure development; every empire from Persia to Rome built roads to extract commodities cheaply and export finished goods at higher value; China's Belt and Road Initiative and its de-dollarization agenda are part of the same civilizational strategy.

“the history of every Empire is fundamentally a road building exercise you build roads to bring in Commodities cheaper and to push out finnished Goods higher value finish Goods to the outer Realm of the Empire that's what every Empire does that's why in Persia they said diarias is a Trader that's why in Europe we say all roads lead to Rome Road Empires build roads um now once you've built the road there is no reason well you don't want the trade on that road to be denominated in US Dollars um you don't because you end up basically paying tribute to your biggest geopolitical rival”

In 2023, emerging market debt markets (Indonesia, China, India, Brazil, Mexico) outperformed US debt markets by 40-100%, while emerging market equities also outperformed, yet this massive outperformance receives little attention from Western investors, suggesting a major market inefficiency or information gap.

“you look at Emerging Market debt markets you know Indonesia China India Brazil Mexico all these countries have outperformed the US debt markets not by a little but by 40 50 100% like the outperformance of these markets has been absolutely enormous um we're living through a completely new Emerging Market cycle where you're seeing the FED Titan you're seeing an Emerging Market crisis Russia invading Europe you're seeing China be overall pretty weak and against that massive outperformance of Emerging Market debt market and even some of the equity markets and nobody cares which is great because it means that this bull market has longed to go”

Bitcoin has not become a significant settlement currency for international trade despite expectations, even though Russia faces sanctions and would benefit from de-dollarized alternatives; this suggests Bitcoin's limitations as a currency for large-scale trade settlement relative to national currencies like RMB.

“you know two years in more than two years into this horrible War why hasn't this happened yet you know inherently like two years ago if you'd ask me the question I would say yeah that makes a ton of sense right like that should be totally happening um this this trade should all be moving into into Bitcoin and and to be honest we saw as soon as the war started all the Russians started buying Bitcoin like crazy uh all the rich Russian were like oh my God all my money is going to be frozen quick move it onto uh onto a US b key uh and off I go um and so but two years later you do have to wonder why isn't this happening”

Russia's switch to ruble-denominated energy sales does not truly de-dollarize trade because buyers (China, India) must first acquire rubles by selling dollars/euros to Gazprom Bank, creating an intermediary step rather than true de-dollarization; the dollar is simply inserted into the transaction structure one step earlier.

“when people say Russia no longer sells energy uh in dollars and Euros they only sell it in in Rubles well here's the thing nobody outside of Russia has rubles so the only way to get rubles is to buy them from Russia so how do you do that well you wire euros and dollars to gazprom bank gazprom bank takes the dollars in euros and gives you rubles and then you go buy rubles with energy or you go buy energy with rubles but all they've really done is put a step in between so the idea that Russia no longer sells energy and anything other than rubles or uan it's it's it's it's a shell game um so Russia is still getting um rubles I'm sorry dollars and and Euros for their energy”

Hong Kong's Financial Secretary during the 2008 crisis revealed that Hong Kong would rather pave Victoria Harbor and build three new bridges than implement unemployment benefits because permanent transfer programs cannot be eliminated, while discrete infrastructure projects end—explaining the different debt strategies of capitalist Asia versus welfare-state West.

“he said look we will pave the whole of Victoria Harbor and the whole of the peak before and build another Three Bridges across the harbor before we do unemployment benefits uh because unemployment benefits once you give them you can never take them back we know that when we say we're going to build a bridge and it's going to cost a billion we actually know it's going to cost three billion”

While a highway might be considered 'unproductive' in economic efficiency terms, it is more productive than 'Grandma's hip replacement' (medical transfer spending) because the highway creates ongoing transport capability while medical spending redistributes existing wealth—illustrating the difference between productive and redistributive debt.

“however unproductive a highway might be it's going to be more productive than Grandma's hip replacement um which is what the Western World broadly funded”

The US has become structurally expensive: goods and services prices in the US far exceed comparable prices in Asia and Europe, making the US uncompetitive on price and reversing the historical pattern where the US offered lower-cost consumption.

“like you go travel in the US from anywhere else in the world and like oh my God everything is just like stupidly priced here um like you know just the prices all feel wrong now my whole life ... I'd go to somewhere like Oklahoma and I'd feel like oh my God they can't give it away you know it's like as soon as you left New York or San Francisco the US always felt super cheap to me like again New York San Francisco were expensive but those were sort of pockets and the broader scale of things the US was super cheap let's not kid ourselves that this is the case today um now you go to Japan you cannot spend money if you try which is the opposite of what I've known my whole life it used to be you know when I first moved to Asia if you went for dinner in Japan you have to check your bank balance before you went out um this is this is no longer this is no longer the case um and Europe is stuck somewhere in between uh it's not super cheap not super expensive the US is super super expensive but you go to you go anywhere in Asia today like the comparative advantage that they have both in terms of the productivity of their industry and in terms of the cost of goods is just the Gap is too big”

The US dollar has approximately $30 trillion in offshore (eurodollar) debt obligations plus another $80 trillion in off-balance-sheet derivatives in dollars, which creates an inescapable constraint: any de-dollarization process requires reconciling this enormous existing debt stock, making a smooth transition to alternative systems mathematically impossible.

“the rest of the world owes over 30 trillion in US dollar denominated debt they owe another 80 trillion in off-balance sheet derivatives in dollars”

The 2013-2015 shale revolution (adding Saudi Arabia-equivalent production capacity to the US) was the single most important macro development of the past 15 years and underpinned US economic strength, asset performance, and dollar dominance through cheaper energy advantage—making future energy policy the critical determinant of dollar strength.

“thanks to the Shell Revolution the us became an energy superpower you know the US basically added a Saudi Arabia in the space of 15 years for me that was really what has underpinned dollar strength that's what's underpinned the US bull market the fact that for 15 years the US had a much cheaper cost of energy and more plentiful energy than than anybody else”

The Chinese government does not care about the performance of the Shanghai composite stock index, as only 10-12% of Chinese citizens own stocks (vs. 70% in the US), and most Chinese companies do not fund growth through equity markets, making stock market weakness irrelevant to Beijing's policy priorities or Xi Jinping's success metrics.

“I think in his long list of things he wanted to get better uh the it's not that the stock market was at the bottom of the list it wasn't even on the list um the um I think what was on the list was moving more of China's trade uh to Redmond B and to to to reduce the dependency on the of its economy on the dollar um which it it has been doing rapidly and you know this does take sacrifices and it if it means sacrificing the stock market again C ping doesn't care for for a very simple reason and that is that while in the US 70% of people own stock directly or indirectly in China it's it's between 10 and 12% of people who own stocks um and it's mostly the very rich so if it goes down it's like eh who cares it doesn't have the sort of social impact it has uh in the US”

Gold confiscation risk exists in all countries (the US confiscated gold in 1933 and could again if necessary for state power; the same applies to China, Russia, Brazil) despite rhetoric suggesting otherwise, and private gold holdings in emerging markets should not be treated as 'safe' government-independent assets.

“the idea that they wouldn't do it in China I think is completely wrong of course of course they would and they would do it in Russia and they would do it in Brazil they would do it everywhere if that's what they had to do to stay in power”

Europe had a unique historic opportunity to position itself as the neutral middleman between US and China circa 2022, building strength through cheaper Russian energy priced in euros; the Ukraine war and Europe's decision to side with US sanctions destroyed this opportunity irreversibly.

“I look I think I think there was was a terrific role for Europe to play in this divorce it could have been the middleman it could have it could have stood there um and I think through through policy failure we've basically completely failed to do so”

The geopolitical situation is analogous to the Three Rings from Tolkien's mythology: one ring corrupts (US unipolar moment), two rings divide (current US-China duopoly), three rings provide balance (a tripolar system with Europe, US, and China); the failure to build three-ring balance means continued division and instability.

“there's a quote from tolken that uh from The Lord of the Rings I'm showing my geekiness here that that I really love and the the the quote is you know at the beginning of the book they go why the three rings were were forged and the idea was that one ring will always corrupt two will divide uh but with three there is balance and that's basically how the the book starts um and um and I think to be honest you had you had this unipolar moment in in the US um and you did have massive corruption in the US uh and you did have you know stupid Wars uh runaway uh you know Runaway government spending massive regulatory capture when you're the unipolar superpower uh you get away with doing a lot of stupid stuff for a lot of long time and and the US got away with it for 20 years um you know policy mistake after policy mistake um I think we had a chance to move to a sort of to have three rings of power to have Europe to have China to have to have the us but but we failed Europe failed um Europe failed and so we now end up to to Brett's point in a two- ring world uh with with division”

A weak Japanese yen (160 or higher) will directly undermine German and European competitiveness by exposing European manufacturers to combined pressure from both Japanese export competition and Chinese industrial power; Europe cannot sustain this 'two punch' scenario.

“Europe cannot live with a Yen 160 uh it can't even live with a Yen 140 to be honest uh but a Yen at 160 is going to kill Germany it's going to kill Sweden it's going to kill Switzerland it's going to kill France a Yen 160 plus the competitiveness in in China that's like a onew punch like most businesses can sustain one punch it's the second punch that knocks you down Europe is going to take a two punch hit here uh the 160 Yen the the competitiveness uh from from China”

The Bretton Woods gold storage system (post-WWII) held foreign nations' gold in New York Federal Reserve vaults in labeled boxes, with trades simply moving gold from one country's box to another, but this system broke down because Russia and other non-Western powers no longer trust the US to hold their reserves after sanctions against Russian frozen assets.

“if I can jump in here I think if we go back to the 19 to the pre uh to the initial Breton Woods day um you know France had its gold in New York the UK had its gold in New York uh the Germany had its gold in New York and when trade needed to be settled and AG basically had that little cubicle and when trade needed to be settled you move it from the UK box into the French box um have you have you been there by the way have you been to the it's actually pretty cool you should you should go see it sometime so you just move it you just move the gold bar from the French box to the US box or you know and so some such uh but the whole point today of course and to Brent's point I think it's important the reason our turning back to gold is because I think of a loss of Faith partly uh in uh in global institutions and and in the US and in global institutions in general in the US in particular uh because of the Russian sanctions I think that was an absolute absolute GameChanger so now the odds that China will say you know what I'll keep all my gold in in New York and I'll Trust the New York fed to move my gold bar from you know from here into the Russian box or into the Kazakhstan box or into the Pakistan box yeah that's not going to happen right”

The dollar-milkshake effect (all assets up, dollar up, rates up, gold up simultaneously) has been visible in 2024 YTD but over the longer horizon (2018-2024) represents the core pattern: the dollar has appreciated 8% while gold is up 30-40%, equities are up 40-50%, and rates are higher—all supporting currencies rather than currencies being replaced.

“I I think it's very visible this year but but the reality is if you look back since the since I first started talking about this 2018 2019 period over that time period the dollars up 8% Gold's up I think 30 or 40% equities are up 40 or 50 % and rates are up and so that is the dollar milkshake and over that time period the US has largely outperformed the rest of the world um now of course”

De-dollarization is a long process (not one moment in time), suggesting that investors should consider buying European assets as contrarian play while the consensus narrative focuses on de-dollarization and US strength.

“dollarization is a is a long process One Moment In Time probably means you want to go long maybe that's the contrarian Play I Was G to say maybe we should buy Europe”

Chinese industry is leaving Europe at scale; really smart people are leaving Germany for Liechtenstein, Switzerland, Dubai, and other locations; this brain drain and capital flight represents Europe's loss of competitive position not just to China but also to internal talent/capital flight toward better locations.

“the really smart people were leaving Germany and they were going to lonstein they were going to Switzerland they were going to they were going to other places in Europe and they were they were going to Dubai exactly”

Japanese gold buying surged dramatically in early March 2024 when the Bank of Japan diverged from market expectations by committing to indefinite yield curve control, causing the yen to weaken from 146 to 155, which triggered Japanese investors to exercise the 'call option' on gold as insurance against currency collapse and financial system stress.

“if you go back to March early March the boj says oh we're going to sit on the yield curve forever which goes against Market expectations the Yen moves from 146 to 155 very quickly and the Japanese start buying gold like crazy uh and you can check this there's a gold ETF 1540 JT um the the main gold gtf it's like GLD but in Japan all of a sudden the volume on this things went up 5x and and it started trading at a 10% premium to nav”

China is currently sourcing approximately two-thirds of its imported oil and natural gas in RMB rather than US dollars, with Russia and Iran providing oil entirely in RMB and Qatar and others partially in RMB, though China has not yet achieved the goal of 100% RMB energy pricing because convincing major suppliers like Saudi Arabia is deemed too difficult.

“China's first goal was how do I get all my imported oil in my own currency rather than US Dollars and they're not 100% % there yet but they're more they're like two-thirds of the way there yet now between Iran and and Russia both taking 100% R&B for both oil and natural gas they've also signed natural gas contracts with Qatar for REM andb so they're about two-thirds of the way on natural gas as well”

In the hypothetical scenario where China decouples from the US and cannot export to US markets at current prices, prices of Chinese exports would decline sharply and Chinese firms cannot service existing debt at lower prices, implying China would face a debt crisis if US markets closed regardless of de-dollarization progress.

“if they had to sell all that productivity and all that production to other parts of the world whose currencies weren't strong and whose markets aren't as big they can sell it but I don't think they can sell it at current prices and it's not only the US that has taken out a lot of debt over the last 20 years China has taken out a lot of debt over the last 20 years and they took that debt out based on current prices so if they have to start now selling to New Markets at lower prices I don't think the profits from those new markets at lower prices are of a size that can efficiently service and pay off all that debt that they took out”

Russia is the outlier case in geopolitical decoupling because it has massive natural resource wealth and minimal debt, allowing it to endure sanctions and de-dollarization far better than China, which has taken on substantial debt and relies on sustained export revenues to service it.

“now Russia is kind of an outlier here Russia hasn't taken out a lot of debt and Russia has enormous natural resources and that's part of the reason why Russia despite the sanctions despite the you know whatever you want to call it the positions that that the West is taking against Russia has done pretty well or at least been able to hold on longer than than many expected I don't know that if if if we continue on this path of decoupling East versus West I don't think that China can hold on as well as Russia has held on that that's my now Louie may feel differently but that that that's my that's my view”

US politicians and central bankers operate as if they believe they have unlimited agency and can pursue any policy without consequences, when in reality structural constraints from debt, currency dynamics, and geopolitical competition mean that 'stupidity' has hard limits and costs are now arriving.

“and I think that's important to remember when we have these dollar dollarization discussions and where's the world going to be in 10 15 20 years you know I think everybody knows that historically Empires rise Empires fall Global Reserve currencies don't last forever but I talk to a lot of people who who who know this and think that that transition happens quickly and peacefully”

Chinese policy makers see the US as now openly hostile; from their perspective, there is no rational reason to continue funding US growth by holding dollars and US Treasuries, creating a structural incentive for China to accelerate de-dollarization and reduce dependency.

“now you know C gen ping I think has a profound he's a transformational president for China in many ways um but the number one way he's a transformational president is he's really the first outward-looking president in China you know I think for since maong every president that came in came in and said okay I got so many problems at home I don't really care what's happening abroad I got so many things to tackle here I'm not going to to waste my time you know traveling abroad figuring out what's happening elsewhere Etc I got a full plate of of domestic problems when CJ ping comes in you know his very first speech is all about the one belt one road the Silk Road fund the Asia infrastructure Investment Bank um it's a very imperialist vision of China's future and when I say imperialist I don't mean that China's going to go and invade the Philippines or Indonesia it's that the history of every Empire is fundamentally a road building exercise ... now once you've built the road there is no reason well you don't want the trade on that road to be denominated in US Dollars um you don't because you end up basically paying tribute to your biggest geopolitical rival”

Most of the US debt growth over Vangermeersch's career (added 30 trillion to the original ~4.5 trillion base) went to funding unproductive items (foreign wars, social transfer payments) rather than productive infrastructure (dams, highways, railroads), indicating the debt is financing consumption and geopolitical competition rather than asset creation.

“and when I you know I always ask myself what did the US get for that 30 trillion you know where's the Hoover Dam where's the uh interstate highway system where's the highspeed Rail Link um the reality is a lot of that debt has gone either to fund High highly unproductive Foreign Wars um highly unproductive in terms of everything of course but most mostly in terms of America's Prestige um and it's G to fund social transfer payments”

Bullies exist historically because they usually win—people back down to bullies rather than defeating them—and the US functions as a bully in international system but not necessarily a doomed bully; arguments that the US 'must' decline due to overspending or geopolitical challengers confuse historical inevitability with current game theory.

“bullies exist because that's usually not what happens bullies exist because people usually back down to the bully now eventually bullies fall but they don't always fall right away”