The Fed Weaponized The Dollar To Crush Other Countries | Brent Johnson

And it seems like through disastrous policy decisions over the last decade of shutting down energy throughout Europe and even the United States UM, and through inflationary policies, we've kind of created this perfect storm UM and it seems that it's put a lot of pressure onto UM the sovereigns,

if you will. Right, So, now you have Germany, for example, that's been a net exporter, but now they're a net importer or their energy costs are so high now they're having to shut their manufacturing down, which is bad, that's long term effects of d industrialization. But they're also now it looks like a lot of nations are being forced to dump maybe US treasuries to get the money to bring in the energy UM. And at the same time, it looks like the Fed is trying to fight inflation,

which most of inflation is being caused by energy. So it seems like this energy, it seems like energy and this inflationary system is like at the center, the epicenter of this entire storm the world is is kind of facing right now. I mean, it's it's the end of this debt cycle, potentially the sovereign long term debt cycle. But then you have energy that's maybe the pin pricking the bubble. How would you how would you look at that now? I I think they're I think that's absolutely right.

Like energy is a huge part of what's going on now for a couple of reasons. Um. Number one, you know, anybody who's seeing dune right knows that the spice must flow right. And in many ways, you know, oil is the spice that keeps the global economy running. So to think that we could talk about all these big macro events that are going on and that somehow energy wasn't

a part of it would be kind of silly. Um. So I think whether it's a byproduct of everything else that's going on, or if that's the cause, I I don't really know, but I know it's a huge factor. Um. And to your point. You know, these these uh all use the word disastrous. People can use whatever the report

that they want. These these these kind of disastrous energy policies and green mandates, um that have been put in place before we were ready to have any kind of a transition is kind of exacerbating it, right and so and and of course, the way I always come out, I I always come at from the big picture down and I and you know, my focus is on currencies.

It's important to to understand that there's a couple of dynamics that affect currencies that that are that are directly a tied that are directly tied to energy, right um. And then this plays into geopolitics and military issues that are going on with Russia and China and Ukraine and Europe. Right. So it's all kind of interconnected. It's hard to it's hard to talk about just oil without seeping into these

other areas. But but you know, obviously the big issue with oil and with many other commodities is that they're priced and typically traded in dollars, and you know, whether you're doing business in the United States, that's typically the case. That's changing a bit on the edges, But by and large, the world still trades on dollars, and energy trade around

the world takes place in dollars. Part of the issue that's happening now is that over the last let's just call it ten years, UM, the US has become more self sufficient in energy terms. Now again, I think there was a couple of years where we were actually a net exporter. I think in the last year we're kind of maybe a march back to being a marginal net importer. Um. It kind of depends on whether shales currently pumping or not.

But but this is important for a couple of reasons because as the US becomes more energy self sufficient and is not it does not need to buy oil from the Middle East or Venezuela or Russia or wherever it is. Um that that not only helps their domestic industry, but it also ends up meaning that less dollars are getting distributed outside the United States. Right, for years and years

and years, we were a huge net oil importers. So we would the oil would come in and the dollars would go out, and then those dollars would exist in the eurodollar market and it would provide liquidity for the eurodollar market. But as the US has become more energy self sufficient. They don't have to export dollars for as many imports of energy as they used to and so but but a big part of it is that a lot of the US dollar debt that exists in the

eurodollar market was extended or put in place. However, you want to think about that while the US was exporting a lot of dollars. So you have a situation and where a lot of credit was extended and a lot of debt was taking on when there was a lot of liquidity. But now moving forward, due to the fact that we're exporting fewer dollars and that the US is tightening monetary policy, it just means that there's less dollars circulating, not just in the United States, but especially in the

euro dollar market. And so then it just becomes this vicious cycle. And you know, we've talked about this several times, right, but now you have a situation where UM due to these UM energy policies, due to the military conflicts and geopolitic political conflicts that are going on, and due to UM you know, the tightening of the money supply in the United States, you've already got UM oil rising in

all terms, but even more so in other country terms. Right, so if you think about the euro and the yen or even the yuan, um, you know, their currencies are down in the in the UK, their their currencies are down anywhere from five this year. Well, if oil is you know, ninety bucks or whatever, eighty eight bucks or whatever it is today, and then and then and oil prices are going higher, and then your currency is losing value versus the dollar. That's another ten or percent kicker

on top of it. And then you get into the supply chain issues where energy could gap up even higher. You know, you've kind of got this perfect storm for um, you know, chaos really lack of a better words. But but in short, I think I think oil and energy is a huge, huge part of this, and energy is in many ways driving the geopolitical conflicts right now, right between Russia and Ukraine or in you know, Europe and Russia. Yeah you can't, you can't. Really, These are very sticky

situations or interconnected situations. You can't really look at one without the other. Now, um, it seems that you know, this whole war with Russia is really being a you know,

who knows where it started or whatever. But I mean, it's really about the energy right now, right, And it seems like Putin has come out and said that the uh, what do you say, the economy is of fake imaginary wealth are being inevitbly replaced by the economies of real assets or whatever, right, And I think he's talking about the fake FIAT system is being replaced with real commodities. And he said what he was like trolling. He's like, um, what are you gonna do heat your homes with social

media companies? He said something to that effect. You know, Um, but I mean he he has some very good points. I mean, you know, I think Putin is one of the smarter world leaders that there is. And and you know, I think to a certain extent he's played his cards pretty well. I don't necessarily think he's a three DHS genius. But um, you know, you can't credit him or you

can't discredit him for the moves he's made so far. Yeah, So if you know, we have the situation going on to your point, um, gold priced in euros or yen is way is a way bigger problem than it is

priced in dollars. Um, So I'm saying, uh, kind of kind of like back to this this war, if the fence trying to fight inflation, um part of keeping the dollar propped up or making the dollar stronger than it helps offset that inflation that we're seeing versus other nations that are forced to buy oil with with a d

de valued currency. But on top of it, then they're being forced well not maybe being forced, but like Japan is like trying to maybe prop up their currencies at the same time as they're having to import oil at these crazy levels, right, so they're down at the same time that they're doing to yield curve control on their bonds, which so they're there, they have they have a bunch of cross currents going at the Bank of Japan here. Yeah,

so you're obviously the dollar milkshake guy. The theory is that the dollar will suck up the liquidity from all the other currencies and be the last one standing. We're definitely witnessing that plane. But this is kind of all part of that, right, So as Japan is forced to defend it, I mean, they're going to continue to value. So my so my thesis has always been that whether the Fed wants it or not, ultimately the dollar will

get away from them to the upside. And the reason I say get away from them is I think currently they want a stronger dollar, and we should probably talk about that. But even I think that before this is all said and done, um, the dollar will go higher than they want it to go. And it doesn't mean it's going to go on a straight line, and there will no doubt be periods of dollar weakness along the way.

But you know the well, even though the Fed might want a stronger dollar in the short term, they don't want a dollar that's rising so fast that it's out of control because that will literally wreck the entire monetary system. You know, the monetary system wasn't set up for a for a for a continually increasing dollar. It will literally cause the system to crash. So while they may want the dollar higher in the short term, I don't think they want it significantly higher in the long term. But

ultimately I think that will happen. Now in the short term, I think that that they actually do want a stronger dollar because a stronger dollar right now accomplishes several things, and I think some of these things they would admit to, and some of them I think they would not admit to. And some others they may vehemently deny even though really they do want it. Um but you know, right now,

for better for worse. Even though they want inflation, a small amount of inflation over time that allows them to inflate away the debt, they don't want double digit inflation year over year. And the reason they don't want that high of inflation year over years because that is very politically hard to handle. UM. It causes too much stress in the in the in the local economy, it causes citizens to push back on business leaders, government leaders, officials, etcetera, etcetera.

So the government would love to get three or four that they say they're their target is too. I think they would love three or four percent inflation for you know, five or ten years and they inflate the dead away. I think they would absolutely love that. The problem is it's very hard to get three or four percent consistent inflation. What you what you get is this, you know, very lumpy, you know, crazy inflation that we've had over the last

college year or two years. And so because of the political pushback that they're getting and because of um, what's going on in the global economy with all this inflation, they are trying to dial it back down, not the least of which is their reputation, right. They don't want

to blow up their reputation, and they're very embarre. The FED, I'm talking about the Fed's very embarrassed that inflation came in so high and they and they were they were wrong on the transitory nation nature of it, and so they want to get it back down for a few reasons. They want to get it back down in order to restore their reputation, but they also want to get it back down so that, you know, the pushback economically and politically, UM is less um. And the way that they're trying

to do that is by killing demand. Right. They don't really have control over the supply side of the equation, but they think they have control over the demand side of the equation. And if you tighten monetary supply, which means you know, you're taking liquidity out of the system, either through open market operations of the FED or through raising interest rates, tighter monetary supply should lead to less growth, and it should, you know, push demand down. And so

they're everybody broken. Then nobody buys anything, right, Well, I mean, here's here's the funny thing mark. It's not funny, it's actually tragic. But you know, I think again, for better for worse. I think Powell has been about as clear as clear a speaking central banker as I've ever heard. All year, he has come out and said, we need

to get inflation under control. It's our primary concern. We're going to raise rates, and whenever the market has misinterpreted him, he's come out a few days later, a few weeks later and said, hey, hey, hey, I want to be clear. You guys aren't listening to me. I'm going to raise rates, and we are going to have some pain. And that means that people are gonna have to get paid less, they're gonna have to lose their jobs, and house prices

are gonna have to come down. And even though those are bad things, that will be less bad than letting inflation run hot. I mean, he's been very very clear about it. Now, you might think he's lying, you might think that he's wrong, you might think he's misguided. That's fine, but there's really no confusion in what his words are saying. And so, you know, and so I think that raising rates and getting the dollar stronger is what they are

trying to do in order to get inflation down. Now ironically or an ironically, depending on I guess where you're sitting. Is that by trying to tampen down inflation domestically by raising the dollar, they're actually exacerbating inflation overseas. And what I mean by that is is if the dollar is going up ten or fiftcent, that means other currencies are

going down ten or right. And so if we already have high levels of inflation in the US and now those same goods are even more expensive in euro terms or end terms or Australian dollars or whatever it is, um, you know, and it's causing those other countries to support their currencies because their currencies are losing value too much. And those other countries, in addition to trying to support their currencies, they're also trying to support their bond markets.

UM through some form of QE. You get into a situation where you're exacerbating the the same issues that the FETE is fighting domestically are being exacerbated outside the United States. And I think we've talked about this before, but this whole situation, UM, there's a name for it. It's called

Triffin's dilemma. And Triffin was an economist back in the sixties and heat coined to this term, and he said, if an individual countries currency is used as a domestic currency and simultaneously used as the global currency, at some point along the way, it will come into con the needs of the domestic economy will come into conflict with the needs of the global economy. And and that's literally

right exactly where we're at. Um, you know, the rest of the world, because it trades in dollars, and because

the dollar is higher, their local currencies are worthless. It's making their funding costs higher, it's causing their economies to slow, and it's just a real mess, right, And so you know, we're right in the heart of this Triffan's dilemma where the US needs one thing and the global economy needs the other, and the FED and the other central banks around the world are trying to thread this very very

small needle hole. Yeah, the proverbial soft landing, right. Um, Yeah, I was saying, how I think that's just such a horrible analogy where you kind think that like they're this fighter jet with a million controls, but really it's like a hot air balloon. Right. All they can really do is like the soft landing is when you're both you and your friend are both thrown out of a third story window. He it's the ground and you land on him, so for you it's a little softer. But I mean

that's essentially what it is. Um you know. And then there's one other part of this that I didn't mention yet, and I don't remember if we've talked about this before or not. We probably have, um I put I personally believe that there's another thing that's going on here that, while not the direct reason that they're raising rates, is a is a byproduct that they don't mind, and that is that I think that part of the reason that they raise rates is it at least in the short term.

Now we can probably have a big argument of how this ends up in the long run, but in the short term it cements the United States position as then on the top of the mountain. And what I mean by that is if the whole world is slowing down a can omically and having these these uh, these problems, but the US is in a relatively better place, and by raising rates in the US because that's what the US needs, but by not but by you know, but

also hurting other countries in the process. Even if everybody is going down, those other countries are coming under more pressure than the United States is, so on a relative basis, the US is securing its spot on top of the mountain. The other part that it does is I think that

it if it will force countries to choose sides. And what I mean by that is, I think we can probably all agree that, you know, Whereas for the last twenty or thirty years, the whole world was kind of moving towards one globalized economy and you know, peaceful, you know, one world, you know, over the last couple of years

that that started the fracture. And now we're we're going away from globalization more towards the globalization, and we're gonna have rather than have one supply chain, we're gonna have to or multiple supply chains. Countries are going to have to try to become more self sufficient rather than relying on others. And in that whole you know, in that whole dynamic, there's you know, East versus West, China versus the United States, Russia versus the United States, Russia versus Europe.

So there's all these geopolitical um you know issues as well.

And I think by putting countries that are maybe on the margin, you know, they're not quite sure whether they would be better off to go with the East or the West, or with the U S or not with the U S. If the U S can put them in a vulnerable spot, UM, it could then force them or try to force them or at least, you know, manipulate that country um into join in the US and you know, maybe the USS something like, you know, we will help you out with your funding needs, or we'll

give you a swap line, or we'll help you on some trade deals, give you a break on some prices, but in in exchange, we're gonna need you to vote with us at the u N on this thing, or we're gonna need you to sign this trade agreement or whatever it is. But I think only forward where in the past we've you know, handed out swap lines, are you know, been more willing to use dollar policy to

help the global economy. I think now we're going to be more focused on using the dollar to help the U S specifically, and then helping our friends where where where we think it's most advantageous to do so yeah, no, I agree with that. I think, um, what's interesting though, is back to as I said that Putin's comment before

about the the fake economy versus the real economy. If you're a third world nation that you desperately need whatever commodity, wheat or you know, energy inputs or whatever, what is the US can offer you dollars? That doesn't solve your problem, right, because if a dollar is only a medium exchange, what I need is the commodities. I need the inputs. So Russia says, hey, here's the inputs, and and the U says, well, here's the dollars, Like which one you're you need the inputs, right,

And so that that kind of creates it. I think there's a I think it's a little bit of both. So I I understand the point you're making, and I'm an energy basis and maybe like a fertilizer basis and a lot of these other resources. I totally get you

in and I think we're in agreement there. Where I think that maybe that view is a little bit overplayed is again, if everybody goes to this, right, if if everybody now goes to self sufficiency and you know, no more trading and you know, only trading with your friends. I think the US is probably, on an overall basis

the most self sufficient country in the world. And while we might not manufacture iPads and tractors and all that kind of stuff, would do manufacture more food and you know, the world in the US than anywhere else in the world. And if we get into this energy crisis, that then translates into a food crisis. Right. I think the food that we create here will be pretty be valuable and will be in in need, and that itself could be

a bargaining tool. Um. But but I do get your point, and this is what makes it so interesting, right, Um. I think to a an extent, we both agree that the end of FIAT or or the or the what's the right way, that the end of the monetary system as we know it is probably on the horizon. Um. And whether that is successful or not successful, I think the transition or the lack of transition will probably be chaotic. Yeah, And the question is how how far can they keep

kicking the can? But we know at some point that can and absolutely we I don't know about you, but I've thought, like a lot of other people, thought that it would have come already, but they can pull more magic tricks out than you have to guilty, guilty, many more,

to be honest, that that's what I mean. I would have guessed this would have happened ten years ago, you know, between two thousand eleven and after after everything we went through in the global financial crisis, I thought we would have another crisis by two thousand eleven and two thousand fourteen at the end, at at the forest, right, And we did start to have a crisis in the Eurozone in two thousand eleven twelve. But you know, Mario Droggy kicked that can down the road better than anybody I've

ever seen. And so here we are. And that's kind of how these big, big, you know, macro trends, they always take longer than you think that they're going to take. And you know, and that's why I've started saying that, you know, I mean, this could last another three years, maybe last another five years, ten years, I don't really know.

But what I do think, and I think you agree, is that you know, we were not only are we coming up on the cans in the road, but there's more than one can, right we we we we we've not only kicked economic problems down the road. We've kicked social problems down the road, We've kicked political problems down

the road, We've kicked geopolitical problems down the road. And the other thing is it's not just us, Like, you know, Europe's kicked all these cans down the road, and uh, China's kicked all these cans in Japan, and also you know, all of these countries have kicked all these cans down the road. And now the whole I feel like the whole world is converging on this intersection, and this intersection is just filled with cans. Yeah, and you know it's gonna be very hard to clear all those cans out

of the way without somebody getting hurt. And you know, it just I don't know what will happen. I just don't think it will be smooth. And and so that's kind of where I come down. I think the US still has the longest road ahead of us, you know, but I think to the to the point you were making, I would agree with I think, uh, you know, we go into a multipolar world. We probably have three or

four kind of economic trade zones. The US is more isolated probably just maybe northern hemisphere, northern southern hemisphere kind of thing like that. But I want to jump back to what you were talking about with the maybe the FED kind of fighting back weaponizing the dollar kind of a thing. Um. I know, I remember in Miami we were hanging out by the pool that day and we were kind of talking about that topic specifically. But I thought I had seen you on Twitter also saying that

you don't think the FED. Anyone who thinks the FED needs to defend the dollar doesn't understand it or something to something that something that effect, right, So like the FED would you were kind of like taking the position like what do you mean the FET needs to protect the all the fect to have to protect anything? Um, But now you're saying the FED might be actually trying to fight back. Well, so maybe we have a definition of terms problem. Right. I view what the FET is

doing as offense. I don't view it as a defense. Right. When when an emerging markets currency is plumbing and they raise rates in order to save it from following to zero, you know, and too attract capital, to me, that is defending a currency. But if you're if you're already the strongest currency and you continue to raise rates even though money is already flowing into your currency. To me, to me, that's you walking around to these other countries and cutting

their heads off with a sword. That's not your standing behind your shield, ducking down hoping that you don't get mauled, right, and so from a position is not a position of weakness. Yeah, exactly, exactly. Now, could you say that they're using their offensive weapon in order to defend their overall position. I suppose you could. Sure, you know, if we we're looking at it from that perspective, I I can see where you're coming from. Um, But you know, to me, this is not an accident. Um.

To me, this is is being deliberately done. Well, I know Powel is doing it deliberately in order to crush inflation. I mean, he has very clearly said that, and you know, I don't. I think that's about the only tool he has to try and crush inflation. You know that the FED has no control over supply chains, right, So I do believe him when he says that, But I also believe there's these other factors that they probably would not admit that they also don't mind that are happening. Now.

M talking about this fighting back or this war. Um, obviously, who are seeing it happen all over the world. Let's talk about a couple ones here. So, Um, Trump started economic war. I've often said that World War three is probably over economic and information. It's like more than a kinetic war, hot war at least. Maybe I'm just I'm optimistic and hopeful, but maybe Trump started this economic war with China with these with these tariffs, right, it was

like a trade war. And then he started he started attacking their tech with Huawei and even trying to ban TikTok. The Biden administration just kept those right in place, which is surprising. I thought the Biden and his son were in the back pocket of the Chinese, but either way, they seemed to keep that in place. And now was it last week like Biden the Biden administration like dropped the hammer on China with the whole chip saying, I mean just and then there was something subsequent to that

as well. But yeah, sorry I'm interrupted, but yeah, I agree with you. So just like out of nowhere, it's like, hey, by next week, any American is gonna lose their citizenship if they don't come back to the United States and they're just cut off completely. I mean, that seems like this big escalation in this economic war. What was the other thing that led to that? You think, Well, so the other thing that happened was when was I think

this was on Monday. Um. A lot of people didn't see it, and it didn't get much press coverage, but the Department of Justice came out and had a big press conference with you know, the Attorney General, the Attorney General of New York, all these different people, you know, six or seven people at this press conference, and they arrested I can't remember if it was five or eight

Chinese nationals and for spying in the United States. And and typically when something like this happens or or or historically when something like this has happened, the US has kind of treated it with kid gloves. They would often say, you know, they would never say it was the Chinese government. It would they would say it was someone from China, but maybe they were acting on their own or whatever

it is. But they were. They not only didn't use kid gloves, but they went out of their way at this press conference to make it very clear that this was a Chinese government operation and that China's government was trying to influence political and legal decisions in the United Dates. So to me, that was just another signal that, you know, the gloves are kind of off, or if they're not off,

they're they're being rapidly pulled off. Right, And because I just you just haven't typically seen it be that that that overt um, and considering all that's going on in the world, I guess it's it's it's not shocking, you know, before I forget, I should say, you touched on Trump started this kind of this economic war with China, I would I would say this, And I know because Trump is such a hot button issue for many people, I hope that you can put whatever personal feelings you have

for Trump aside if you just focus on two things, If you focus on the fact that he very clearly pointed out that our relationship with China was perhaps not quite as friendly or should not be quite as friendly as everybody else UM thought it should be, and that they were in many ways taking advantage of our relationship. I think he was the first one to very publicly declare that without worrying about the political ramifications of doing so. UM,

and he did it in a very clever way. I thought he did it in a way that he said listen, I like z. I think, jeez, he's really smart. If I was him, I would probably do the same thing. You know, he's been out negotiating our guys. So he did it. He did it in a way that wasn't necessarily attacking China, but he was just showing weakness in America.

But regardless of how you view that, you know that that was the beginning of of bringing all this stuff to the fore and and and showing that it's not it has been somewhat of a one way of relationship that needs to be addressed. Um So, so I think that's pretty interesting. Um. The other thing that I was going to say was that, um, I think also with shout you know what now, I can't remember this other point. I was gonna say it was something it was something

else related to China. But I think the fact that he's brought it forward, and then the fact that that Biden didn't just like you said, turn around and squash it, and and oh I know what I was gonna say, it has to do with with this chips thing, right like this. The point here is that you know, Trump made the point that, listen, we're still America. You know, we still have a lot of things that we can do. We don't just have to back down to China and

do whatever China wants. And so part of my thesis has been the despite all the mistakes we've made, and despite the fact that we maybe are not held in as great of a steem as we used to be, that we are still a global power and there are still a few tricks up our sleeve that we can use. And to your point, this thing with the chips, and you know, I thought that was a pretty clever way, you know, for the US to pull some of its

own tricks. You know, to me, that's as much as a three D chess move as anything else that's happened right now. Does it have some back blow blowback on the U s Yeah, potentially, But you know, if all these workers leave China that that's not exactly great for China either, right, So to me, it's it's just another way that you know, the global hedgemont is showing that, you know what, we may not be quite as strong as we used to be, but we're also not just

going to roll over and walk away. Yeah, the one benefit that the US has. Well, there's many, um, but one big one is that, um, the US could We don't make the iPads here, but we could we design them here. Right. Uh. We don't make all the chips here, but we design of them, right we So we could make all that stuff here if we want it, because we design it. But but most importantly, we are the consumers.

We buy it. Right, So our companies could make it and we could buy it where China can keep making it, But who's gonna buy it? I'm so glad. I'm so glad you brought this up. And I didn't have to bring this up because a lot of times when I bring this up, people say, oh, no, the middle class and China is growing very fast and they're gonna overtake us, And you know, maybe, but as of right now, that's

not the case. And again to your point, our consumer class or consumer society, many people see it as a negative, and I understand those arguments, but it is also that consumer society is the engine that he or it's the it's the lubrication that runs the engine of the world. Right. If you don't have a market to sell into, that doesn't help you to make all these products, um, and so on a relative basis the US. You know, again,

we don't have to have all these iPads. Um, you have to have food, right, So well, you don't have to have an iPad, you probably do need to eat. And if it really got down to brass tacks, I think we could probably feed ourselves better than anywhere else in the world. Oh yeah, we have more arable land in the United States and river and water than anybody. Um. I was just I was telling you. I was just down in Mexico and they don't have a consumer market

there and so because of that, there's no opportunity. And there's this town called portost Candido that we've been going to for years, and this one section of town has gotten really you know, all these digital nomads have come in. A lot of Europeans come there, and the locals aren't super happy because now it's gotten all touristed out and there's a lot of people. But I was telling my daughters,

just kind of trying to explain this to him. I said, but look at now all these businesses, restaurant shops that have opened up. Hundreds or even thousands of people are now employed, and now they're making money, they can go spend money, and so yeah, you need the consumers and otherwise is an opportunity. Uh. Now, let's let's jump over to another war, and that's now with Saudi. And I think this one's even bigger because to the point we're making earlier with the oil. Oil has been priced in

dollars and uh, we we can speculate about what's going on. Potentially, it seems like Biden went over there to beg for oil. They said no, they thought they had this backdoor deal that wasn't there. And Saudi has come out two things publicly. They said. One was that you're manipulating the market by these spr reserve releases. You're manipulate in the market, and so we'll just cut production. We can go harder than you.

But then their energy secretary came out and said, uh, something to the effect of it's not going to be good for you without reserves this winter or something to that effect. Right. Um, and then there's the president I believe of South Africa, which is the s in the bricks, said that Saudi is going to join the bricks. Uh. We could speculate about that, but it looks like it's there's a good probability that could happen. What would be

the implications to the dollar if that were to happen? So, look, I think I think the headline of that, Let's say that if Saudi Arabia came out and said we are joining the bricks and we are no longer selling our product in dollars, my guess is just the headline of it would probably make the dollar initially fall potentially, although that would also be seen as a potentially an active war,

which could send the dollar much higher. But but the point I'll make is is if if if they stop selling oil in dollars, that means there's even less trade taking place in dollars than there was before. And I already explained the fact that we're not importing as much as we used to means we're sending less dollars out. If they're not even selling oil in dollars anymore, then there's even less dollars circulating. But all of that dollar debt and all that dollar credit that's been extended in

the euro dollar market still exists. So now you've got an even tougher time servicing all that and paying for all that. Now I know many people will say, yeah, but now they don't they don't have to pay those debts anymore, so they'll just default. Okay, that's fine. But here's the issue is those dollar debts outside the United States are also dollar assets out the United States. In

that situation, you're not defaulting on the United States. You're defaulting on whoever you did business with outside the United States that that that invoiced it in dollars. Turkey defaulting to France, and it's Japan defaulting to Brazil, and it's you know, Saudi Arabia defaulting to or whoever it is, right, yeah, and can can you start trading in gold or can you start bartering and stuff? Sure you can, but it will not be a it will not be a easy

or or smooth or efficient process. So and and while that would certainly if they stopped selling dollars or so oil in dollars, of course, in the long term overall picture, that would probably be bad for and they were able to maintain that, right, that would probably be bad for the dollar. But I actually believe that the that the chaos that that would cause on a global basis would cause the dollar to go higher, at least in the medium term until that all those kinks and um intricacies

and efficiencies were worked out. That's an unpopular opinion, but that's what I think. When you say it would be bad for the dollar, what does that mean? What would bad be? Well, I mean, part of the reason that the dollar enjoys um it's status in the world is it's the biggest network in the world. Right. The reason everybody uses dollars is because everybody uses dollars, right, just like the reason everybody uses twitters because everybody uses Twitter.

Everybody uses Facebook because everybody uses Facebook. And even though you know, there's been competing sites and platforms that have popped up and tried to drop people away from Twitter and Facebook, you know, yeah, a few people go over there, and it's happening at the margins, but Twitter and Facebook still dominate. It's kind of the same thing here. You know,

the dollar dominates global trade. And yeah, there's a few countries that trade amongst themselves in another currency, but those platforms aren't nearly as big as the Facebook and the twitters. And but but if everybody, you know, or you know, if a big portion of people leave Facebook and go somewhere else, you know, it starts to hurt and if and if they don't come back, you know, it will over time mean that Facebook will fail. And so if everybody left the dollar over time, it would mean the

dollar would fail. And what does that mean? The dollar just continues to lose purchasing power. Yeah, I think it would just continue to lose purchasing power, and it would maybe and it would maybe no longer be the global reserve currency. Right, And therefore, you know, for the for the most part, Americans don't have to think in two currencies, right, they don't have We've grown up just thinking about the dollar because you know, we buy whatever we need in dollars.

But people all over the world grow up thinking in two different currency terms, their local currency terms and dollar terms, because that's what they need to operate. Um. And so you know, a lot of people have called having the global reserve currency the exorbitant privilege for that exact reason. You can print money in order to go buy oil or these goods and these that and that that that's called the exorbit and privilege. You know. Now in the

last few years there's been to come upas thing. Yeah, but it has long term detriments too. So it's you know, it's an exorbitant burden. Um, you know, it's a double edged sword. But you know, one of the analogies I've used is having the global reserve currency is kind of like being a vampire. Right, Yeah, there's downsides, but the flip side is that you're really strong and nobody can kill you, and you can run around and just you know,

pretty much do whatever you want. And so, um, you know, maybe this would be if everybody left the dollar, or if a big portion of people left the dollar, that would be you know, the rest of the world driving a stake through the vampire's heart. Yeah, you know, and I they might eventually get him and kill the vampire. But my guess is that he'll kill a few people along the way before that happens. Now, when we talk about all these currencies losing value, Um, you know, the Euro,

the end down, the Turk, you mentioned Turkey. The Turkish layer is down eighty I don't know over the last five years to the US dollar. Right, So if you look at the Turkish lira over five years is down whatever it is at this point. Um, other currencies are down, you know, whatever amounts they're down Argentina's down more probably,

but that's all compared to the dollars. So you your theory, the milkshake theory is always the dollars getting stronger, which it is right, um, but it's getting stronger to other currencies. But if we look at the same five year period, the dollars down to the SMP five D, it's down forty percent to media in real estate since January. So the dollars getting stronger to currencies, but it's also getting

weaker two assets at the same time. How do you think, Well, that's that's you know, that is kind of the theory. You know, I have the dollar. Milkshake theory has never said you should just buy dollars, leave it in cash and just sit there and buy everything when it's really cheap, right. The theory has always been that we will ultimately get into a situation where the US dollar and US dollar

denominated assets rise versus the rest of the world. So, um, you know, I've always said that we'll get into a situation where we will have the dollar, gold, and the Dow all rising together and I potentially US real estate too, and you know, and that that is a situation where maybe everybody's printing maybe maybe the whole world is doing QWI, including the US. But all of that money that's being

printed comes into the United States. It goes into stocks, that goes into gold, it goes into houses, that goes into commercial real estate or land or whatever it is. Right, and so you get this situation where equities are going higher, land is going higher, gold is going higher, the dollar is going higher. Um, but those those assets are going higher versus the dollar, but the dollar is going higher versus all the other currencies. So UM, I mean that

that's that's ultimately what the milkshake is. I don't think that people should just be sitting in cash. So just using the all or as your unit of account, your measuring stick. Yeah, exactly, exactly in the US market as your safe haven. Yeah. Alright to two more things I wanted to talk about one. Uh man, Uh do you always see on Twitter people say I can't believe there's app is free? Um? I would imagine, um, a lot of people love you and Luke going back and forth.

Oh yeah, it's great, it's great. I know it's friendly. Uh what would you say that you disagree on and not who's right or wrong? But what do you think is that main disagreement there? Well, the first thing I'll say is for anybody who has anybody who's watching this and has seen Luke and I go back and forth on Twitter, Twitter, I think sometimes loses context. And when Luke and I are going back and forth at each other, I guarantee you he's trying to sing me, and I

guarantee you I'm trying to sing him. But what you don't see is maybe we're smiling behind the screen. You know, I not there like pounding the table saying I hate Luke and he's really stupid. You know, he's a bad guy, And that's why I'm responding, right, And so if it comes across as mean on Twitter, I can absolutely guarantee

you it's not mean behind the scenes. But I will also say that part of the reason that I have pushed back as hard as I have against his views is because I think there's a lot of people who will read his work and will say, Wow, that's really interesting, that's really smart. I can see that plane out and Luke says it in such a convincing way, in such a certain way that I think they they then assign a higher probability of those things happening than I think deserve.

And I've seen this with retail investors before, where they have a hunch and they buy a bunch right. And so the reason I've pushed back as hard as I have is I said, oh, hold on a minute, these might be probabilities, or they might be possibility, they may even be probabilities, but what you're talking about is not necessarily a high probability. And so I don't think everybody should run out sell all their dollars put it all on something else, because I don't want people to get hurt.

And a part of the reason I've pushed I think to us and I don't. I would say this if Luke was here, and so if he disagrees with it, If he hears us and he disagrees with this and he wants to tell me that I'm wrong, that I will absolutely accept that. But I tend to think that Luke talks about the way he thinks things should be or the way things could be, whereas I try to take a more kind of real politic, hard nosed this is what's actually going to happen point of view, whether

I like it or not. But what What is that though? Is that is that he thinks he thinks he thinks like hard assets like gold, energy, and maybe bitcoin are really going to move to the forefront, and currencies are are being replaced. But you think that that's not happening so fast. I think that I think that's not going to happen. I think I think our system is in real trouble. I think the powers that be will do everything that they possibly can and use every tool and

deceitful method to defend it. Right, So I don't think this movement to a non fiat hard asset system will be as easy or smooth or as likely as as I think he thinks if that does happen. If I am wrong and that does happen, I think that the US has a better portfolio of hard assets than any

country in the world. Now, sure there's a few others that have good portfolios as well, but if you're taking just hard assets and real goods and all of that stuff put together, I don't think if I had my choice out of all the countries, I would choose the United States in that type of an environment. So, even if he is correct on that, I don't think that

necessarily a bad thing for the United States. UM. And then I think the other thing is that, UM, some of these geopolitical realignments that he has spoken about being possible.

Of course, anything is possible. But the idea that the Europe was going to just give up on it's decades old relationship with the United States and their defense umbrella of NATO and all of these longstanding institutional relationships and side with Russia over the United States, to me, while maybe it made sense from an energy perspective, just wasn't going to happen. And so that's probably why I pushed back on stuff like that as as hard as I do.

I mean, these these things, these things that that we're talking about changing, they may very well change, and I think we're in the type of an environment where those things can change, but they aren't going to change without a lot of volatility. And when I say volatility, I don't just mean economically, I mean economically, socially, militarily, all

of these different things. To me, this is this is the big, big game, right And what I mean by that is, you know, we often when we're talking about China and Russia and the United States and Europe, it's always chess versus checkers, and I don't know, I think that is the completely wrong analogy. I literally think this

is the game of thrones. I think this is you know, this is all the big boys and girls are out there and they're fighting for the top spot, and I think they will use all the dirty tricks and methods that they have at their disposal to do that. And so regardless of whether and when I look back at the last fifty years, whenever there's been a crisis, the dollar has gotten stronger, I don't think it's different this time. So I think when we get into this crisis, I

think that means the dollar rises. I don't think it means it falls. And so that's I think that's that's how I understand the difference. He might think differently, and you know, there's no guarantee I'm right on this, but I think he would say something similar. I think this will go into the last last topic, but I think it goes into time frames. So yeah, absolutely, no, no question. A lot of times I see two people that completely disagree at my at my at my conference, I had

Stephen van Meter and Greg FoST there. One loves bonds and one hates bonds, but when you got them there together, they actually agreed more than they did exactly. That's true. I was there for that. I remember that you were there, right, And so it's like, well, Stephen is talking about for the short time frame. Greg's thinking of over a long time frame, right, So a lot of it's that, but I think, so let's let's talk about that a little bit.

So well, you know, just really before I forget, let me let me make this point because this kind of came up recently with Luke and I were talking back and forth, and again, I kind of hate talking Luke when he's not here. I like to kind of always do it when the person is there. But I'm pretty sure that we would have a similar conversation if we were together. Is that, um, you know, the whole you know, actually happening versus wanting it to happen. Right. I think

there's this. I think that there is this and I'm not saying that this is for Luke, but I think when Luke writes this stuff that you know, the U. S isn't potentially in trouble for these things. To me, there's this kind of this zeit geist in the United States.

And I call them the self loathing Americans, and that's maybe a bad way to say it, but it's the people who are woke enough to realize that maybe we're not the best, you know, person or the best country in the world, and maybe we've kind of overplayed our role as the hedgeman, and maybe we're actually the cause of a lot of these problems rather than the solver of a lot of these problems. And you know, we've spent all this money, we can never pay it back.

And there's almost this there's this romantic version or idea that the US needs to get what's coming to it right. And so then when they when they see somebody write something or say something that sounds like it's going to be bad for the US, they want to latch onto that because that's what they think needs to happen from kind of this moral perspective and um and and as a result, I think people will often ascribe a higher probability to an event than the and is actually warranted.

Um And there was another point I was gonna make on the end of that, and I can't remember what it is now, but I agree with you. I mean, I agree with all that all the stuff that we've talked about, and I think, uh, um to it. You know, America's hands down, no doubt about the best country in the world still today. Now. Uh, the trajectory that we're

on is disappointing, but it's still America's to lose. We have the land, we have the energy, we have the industry, we have the creativity, we have the consumer base, we have like we have everything. Um, it's our it's ours to lose. Um, and so UM. You know, hopefully the trajectory changes. UM. But uh so let's let's talk about the time frame and base cases and we'll kind of end it with that. But uh, you know, I like

that you talk like that. I think, yeah, And I think that the whole time frame is the thing I think. I think Luke and I probably agree that ultimately the US is going to pay for all these PROFLI good, you know endeavors Um. No, but he stays on top forever. Everything comes going to end. We all know that. UM. But the timing I think is much different. UM. I happen to think. I think he thinks it comes much earlier. UM. I think it comes much later. And I think that

if it does happen. Um, it won't necessarily happen in the way he thinks it will happen. Well, I tend to think I tend to think that the next system will be another fiance system. I think that and my fear, this is my fear. My fear is that you know, we are going to have some kind of military conflict that will resolve this, and whoever is the winner of that military conflict will not necessarily see the world as

a place that they want to treat very nicely. They may want to treat it the way they think is the best for them, right, And whether that's the US or somebody else, I don't know, Um, but I I I think that they would then institute a new you know, Fiat standard or Fiat style system rather than going to some kind of a free market bitcoin or gold or some something else. I don't see somebody winning this big battle and then just handing over the power to somebody else.

That very very rarely happens. Let's let's back up just a little bit and then we'll come back to that. So earlier you had said, you know, how far can to kick the can down the road? You maybe there's another three five eight years, Like you don't know, right, so three f eight years, Um, it seems like right now, the FED keeps saying we're gonna crush inflation and crush inflation,

raise rates, raise, raise rates rates. But the markets are almost like calling their bluff because they like, no, like, look, you're only like, we know you're committed, but if the whole system sees is up, you're gonna be forced to change. So will the market sees up before the Fed gets inflation down? And so the markets are kind of calling their bluff. Uh, this can is coming to this proverbial and at some point I think you kind of said the whole world too and quei together and everything got

melting up. So do you think this happens? You know, maybe the FED hits that proverbial wall in the next twelve months, then over the next five years we qui meilt up together. Yeah, So I'll make a prediction. And here's the funny thing is a lot of people say you should never make predictions because you know, you get that you can never get to get the time probabilities. The thing is, I don't. I don't. The reason I don't mind making predictions is I don't mind being wrong.

I mean the idea. I mean, our job is essentially to predict the future and then put assets in a way that's gonna benefit from that. Right. I can't think of anything more arrogant than to think that you can predict the future with perfect accuracy. So if what I'll say, what I think is gonna happen, and if it doesn't happen, that's gonna be funny. I I promise you I will

get through it. But my my thought is that we will probably make a new low sometime in the first quarter of next year, and then after that, I think the FED will pivot and what what what exactly the pivot means whether they just slow hikes or stophikes or go back to I don't know, um, but I think a crisis will be required to pivot. I don't think that they are going to pivot when inflation is still high, unemployment is still low, and asset prices are still higher

than they were in March. I mean, that's what you got to remember, right, Like, markets are down anywhere from fift you know, this year, but they're still up from where they were two years ago. Right, So the fact that asset prices have come down a little bit. I don't think necessarily bothers the FEDS will the FED pivot. The FED will absolutely pivot, because that's their job. The whole reason the central banks are in existence is to step in and save the system when it comes under threat.

But they're not necessarily put in position to save the market when it's not needed. And for all those reasons I talked about earlier, about him being embarrassed and they got inflation wrong, and they need to protect their reputation, I think necessitates the crisis before they come back in. And so you know, when I see markets the way they are up today, I understand why they're up, and it makes sense to me why they're up, But I don't think it's right. I don't. I don't think the

markets making the right decision. I don't think that they I don't think the FED has already decided to pivot, and they're gonna pivot next week. Now. If they do, and I'm wrong, that'll be fine too, right, Like I'll just have to react to that and deal with it um. But I think your reason is, your reasoning is right. The timing could change, but at some point, yeah, yeah, exactly,

and it could sooner than you think. It could break it next next month, Right, we could run out of thee who knows, right, so that you could easy, it could happen in two weeks. Right, could wake up one morning and you know something happened and now they have to go, you know, Mark, I mean, here's the amazing thing, right.

I don't know if you were watching um the markets yesterday, but after the close yesterday Apple reported earnings and Amazon reported earnings and the you know, markets were down three or four percent and after hours and now today they're up two or three percent. So there's a seven points swing in less than twenty four hours. I mean, markets are just really psycho right now. And I think anybody who has certainty and what's going to happen is a

fool because nothing is certain right now. So I want, I want to jump back to where we were so I get it. Man, timing is impossible, but I think the trigger points are right, and could it does happen next month or early next year, we don't know. But I want to jump back to the last part, which

is UM which kind of shocked me. Uh is another Fiat system on the back and and and the reason why that kind of shocks me is there's a theory I forget the guy's name what it's under, but it's basically says that, oh, it's like the theory value of money or whatever, right where like um. So, like when Zimbabwe blows up their currency, they get a new currency that's pegged to the dollar again, and then they blowed up again, they repack it to the dollar. So they

have to create a new currency. It has to be pegged to something of real value. Um. And the dollar was created based off of a peg to the gold value. So how do you create a new fiat currency that's not anchored to anything? Okay, So the way I would describe this is two things. Even if they don't peg the new fiat system to something, that doesn't mean that gold won't go to five thousand or ten thousand dollars.

So I'm a huge gold bowl long term. I think whatever the transition to a new system, I think we'll see gold be much much higher than it is today. So but that doesn't mean that it will be officially recognized as money. The other thing is it wouldn't shock me if they use gold as part of the new system or in some way use it to restore confidence

in the short term. But I don't think we're going back to a to a situation where we will have a standard gold standard and it is used as the global money and the whole world just you know, agrees to it. Um. I think if anything was chosen that the whole world would accept, it would be gold. But I just don't think whoever wins this grand battle um is going to do that. The other thing I would say is it doesn't have to make sense for something

to last. And what I will use as an example is, um, you know, the Russian ruble after the World War Two, Right, Um, the Russian ruble and the Russian of the whole Soviet economy, Um, from you know, nineteen forties to the nineteen nineties was nothing to be excited about. Right, didn't do a good job of protecting purchasing power, Their economy didn't thrive. Um. There was no free market principles there that guided its value up or down. But yet it lasted for fifty

years because the Communist party. So if your Communist party said this is the way we're going to do it, right, this is the rule, And if you don't follow the rules, you end up in Siberia working in a labor camp for four years. Um. And I've my fears is that that could happen again. Um again, I don't want that to happen. That's not what I would choose to do. But the idea that we're gonna have this big grand battle and then after that we're going to have peace,

love and harmony. I I love the idea and I hope, I hope that that happens. But I'm a little skeptical. Well, I'm rooting for peace, love and harmony, but I am too, man, we'll do it together. Yeah, yeah, yeah, alright cool, um yeah. You know. The bitcoiners hope is that it places restraints. Right. So, um, if I was having a party at my house and I started kicking everybody out of my house party, Um, I've lost control over them. They've gone to start their

own party and I no longer have control. And enough people opt out of That's what happened with the fall of the USS. Are enough people opted out of the economies, created black markets, parallel markets, and then the uss are lost control, which is why nations always imposed capital controls. At the very end, they have to keep people and

that's why black markets of always existed. Right. Yeah, so it's like if, if, if, and and even we've seen Christine the Guard talk about that we have to close the exits, she says, And so if enough people can get out of their system and into a new system that they can't control, then they just lose control and they just there's no way to get now, throw out of a gun. Right, they have monopoly on violence, I suppose to your point, and people would say, don't don't

underestimate the amount of violence they have. But I think that's that's the hope, is that maybe there's a way that people can go get into a new system that works, and uh, there's no threat of violence, but we'll see, we'll see. Um, well, we'll wrap it up with that. I know that was a long conversation. I appreciate it. Uh. I wanted to get into your musical chair analogy, which

I thought was great. But you have it on your Twitter, So people should just go check out your Twitter um, which is still an anonymous account kind of by the way. You know, you don't have your face or your name on there, but Santiago Capital will make sure to link that in the show notes down below. Um, anything else that people should be aware of other than your Twitter No, I think you know just I I do a number

of these type of podcasts. I always annoyed talking to you. Um, you know, I've I've talked about this stuff a lot, you know, at conferences, interviews, uh, podcasts. Um. If you go on Google or YouTube and you type in Santiago Capital or dollar milkshake at this point, there is a lot of links that will come up, and um, on my my pen tweet on Twitter has like a little five minutes summary that kind of explains it in more

detail as well. But listen, I think that the thing that I always tell people is number one, don't worry about being wrong, because everybody's wrong. Um, nobody gets it always right. And the other thing is don't there's a difference between certainty and conviction. It's totally fine to have conviction, but don't have certainty on anything because this is gonna get really crazy. And the one once you're certain about something, you know you're about ready to get hit in the

head because nothing is certain anyway. I'll just leave it with that, all right, brand, Thanks thanks for your time, appreciate it. All right, thanks man, all right, that's a rap. Hopefully you enjoyed that conversation with Brent Johnson of Santiago Capital. Check them out on Twitter. Always insightful stuff. Man. We've covered a lot and hopefully I really want you to take away a couple of things. One, there is no

such thing as certainties. There's only probabilities. As he said, we have convictions, and convictions are okay, but don't believe that things are certain. You need to be prepared for whatever is going to happen. Create your base case, set up your portfolio accordingly, and then always monitor the situation to understand when to pivot. Anyway, I'd love to hear what you think, and that's what I got to your success about