Every time that we've seen a substantial weakening of the dollar, we actually see redollarization. If the dollar becomes weaker against your domestic currency, you can now borrow more dollars and that old debt that you have is easier to pay off.
Did you ever think it was realistic that, of course we're going to two hundred percent tariffs against China and that was never going to come off, we'd never do traders in again, or was it always that was going to be sort of that negotiation point, the anchoring, if you will, to allow us to come back off of that into some negotiation.
We've offshored our industrial base, and so if you're going to impose massive terrorists, you know that transition period could definitely cause a very severe recession. Gold and bitcoin have worked to, you know, hedge against debasement, against inflation for decades, and of course gold has been theorized to be suppressed. That's been suppressed by central banks and by bullion banks for the last twenty thirty years. But that suppression is finally coming to an end.
Do you think we end twenty twenty five higher than we are now? Gold s and P five hundred and bitcoin.
Yes, to all three. The reason why is because.
The fact, all right, peb, you've been warning that Trump's tariffs could be the final nail in the dollar's coffin as the world reserve currency. You've talked a lot about bitcoin potentially taking its place over what time frame do you see these types of things happening?
You know, that's a difficult question to answer, and a lot of people have posed that same question to me, especially when I've given talks in person, like I did just a few weeks ago in Vancouver, Canada. But it really depends on, you know, the geopolitical chess match that all these different players play, right, what are the moves
that they're going to make? The fundamental issue that is that you know question here, right, is the actual structure of the global monetary system, which is basically subject to
something called Triffan's dilemma. And this dilemma basically implies that the US has to export dollars in order to fund the global economy or to provide enough liquidity to the global economy to allow trade to occur and now, and for those dollars comes from many different sources, from the euro dollar market, from international trade and settlement, from foreign exchange and currency reserves for foreign central banks as well
as obviously the petro dollar system. And so all this external dollar demand essentially needs to be supplied with dollar liquidity, and this means the US has to choose whether they're going to supply that supply that liquidity or not. Now, if they don't do that, then we have a global recession like you know two thousand and eight or even before in the nineteen nineties, if the US decides to
not fund global liquidity enough. But if we do decide to fund that global liquidity, we print too many dollars, as Triffin said, under our gold reserve ratio, and that causes us to break the gold pig, which we obviously eventually did. So our system switched from a gold based reserve system to what I would call a treasury based reserve system. Right, the dollar is the reserve currency, but the treasury is now the reserve asset. Now, this kind of quasi balance was able to hang for as long
as the treasury bond remains money good in real terms. Right, if you're earning real returns on your treasure bonds and eure a foreign central banker, it makes sense for you to hold these things. But the minute that the FED decides to hike rates in a very very rapid fashion to defeat inflation like they did in twenty twenty two, you start to see negative real returns on the treasure bonds.
And not only that, like you said earlier, the teriffs that Trump has announced in the escalating wars essentially economic war that has been playing out over the month of April has basically meant that the stability and structure of
this monetary system has now been called into question. And it's pretty clear if you look at global central banks on net they're funding much much less global of treasury issuers than they were in twenty eight to twenty fifteen, and if you look at even private entities, they're not buying at the same pace that they were in years prior. The marginal funder for US debt therefore has to eventually become the fat, which is what I've said before in dollar endgame, right like we'll have to do QB again
on a larger scale. And so all this means that I think the tariffs and Trump's response to other countries instituting retaliated retaliatory teriffs means that the equity markets, the bond markets, everything starts to trace very very rapidly. And that's why Trump had to basically recant a lot of the insane terror phraates that he was proposing of, like two hundred and three hundred percent on China and other countries.
Perfect framed it up very very well, all right. I took lots of notes, lots of places for us to dig in on that. Thank you for setting the stage for that. So let's let's dig into some of the pieces of this. So let's talk about Triffin's dilemma, which, to the point that you made ended in nineteen seventy one. Basically, right, Nixon took us off the gold standard, and now we're in this free floating Fiat era treasury system or whatever
you want to call it. And you talked about the need for the US to continue to supply dollar liquidity, but you also mentioned.
Like the euro dollars, So the euro dollars.
Are outside of the US's control, right, so there is dollar equity being created that the FED is not doing. We also have now stable coins US dollar stable coins, which are sort of another euro dollar standard. I would say we could argue that and both of those things could provide dollar liquidity to the world without the FED necessarily having to do that upfront, right or.
No, Yes and no.
Right.
If you study the euro dollar system, and if you've read Jeff Snyder's work, you'll come to understand that the Euro dollar system is essentially synthetic dollars, and same with right, you know, ustt stable coins, these kinds of things, because unless they show proof of reserves, unless we know for a fact that they are backed one to one by real dollars, we can, you know, basically assume that this functions similarly to the Euro dollar system, which is basically
entirely synthetic dollars. Now, those synthetic euro dollars, right, they are backed by a portion of real US dollar reserves held that correspondent banks in the United States. So it's
not to say that the system is complete fabrication. But if let's say twenty percent of them are held as US dollars and the system grows substantially every single year, then that obviously increases real dollar demand, which is why the US has to export dollars, i e. They have to do the opposite of the trade balance, which means import goods and create a trade deficit in order to sustain the global economy. And I've seen people on Twitter, like Parker Lewis and others who have claimed, you know,
this isn't how the system works. We don't actually need to export dollars. That's all a lie. And to them, I would show them the chart of the US central bank liquidity swap lines that the FED opened post two thousand and eight and post twenty twenty in the aftermath of obviously the Great Financial Crisis and COVID nineteen. And those charts are pretty telling because you see very quickly how the FED has to offer hundreds of billions of dollars in liquidity swaps basically meaning a US dollar for
their domestic currency swap to all these regional banks. And why because they need their own banks, right, all these central banks, correspondent banks, these smaller commercials need liquidity. They need real US dollars to back up the euro dollar basically like fake dollars that they've created.
And just to put some numbers on that for the audience, we have the real problem is approximately three hundred trillion dollars of US dollar denominated debt and only about one hundred trillion dollars of dollars, right, and so we need more dollars to pay off the dollar denominated debt. It's going to demand the dollars to pay that off the US dollars table coins. I can understand you saying that because in order to get the stable coin you have.
To have a dollar. You have to pledge a dollar to get a dollar.
Back, So it's somewhat of like a one for one, if you will. The euro dollar market is not backed by anything other than the confidence in the banking system overall.
But I guess that's that's a whole other.
Issue that we can get into. But you did speak about the FED doing less treasury issue and how it's gone down, and so the FED has been less involved, but yet US treasuries are still being sold.
Now.
We do know that if you look at like central banks net purchases, that they've been going up in golden down in US treasuries, but it's almost like at the same time the demand has stayed there. So it just seems, like you said, it depends on how bad this like system degrades, if you will, right, But it seems like it's been holding pretty good.
All things considered.
Yeah, I would say it has been. But the main reason's been holding together, you know, so to speak, is because of actions behind the scenes that the central bankers and the monetary authorities have been doing. So just like what you described right there, right, the FED has been tapering off their treasury supply right essentially doing QT. If you actually look behind the hood or below the hood, you see that all things aren't really equal in terms
of prior quantitative tightening cycles. The FED in this cycle did not sell on net anything past ten years, meaning you know, during the kiwi's run up, they bought a ton of bills, they bought a ton of notes, they bought a ton of bonds, ten year, twenty year, and thirty year bonds. And then during the taper and I have a chart for this and I can send it to you if you want to display it on the screen now, where when they started the taper everything past
ten years they actually did not sell. In fact, they kept increasing their holdings of the ten year, twenty year and thirty year bonds while they decreased their holdings of
bills and notes. And so this meant that on the surface, while their overall size of their balance sheet continued to decrease, the actual holdings of bonds remained high and continued to climb, and so that meant that, in my opinion, right, the Fed understood that they could not lay off this amount of bonds without causing yields to completely blow out, and so they did this intelligent you know, behind the scenes, you'd call it STEALTHI liquidity, where while they were tapering,
they just ensured that they didn't sell any of the long term bonds and in fact bought more to provide support for the bond market. And the reason why this is important, of course, is because of duration risk. Right, banks can much more easily hedge against a short duration bond than a long duration bond, just because a long duration bond has much more interest rate risk than a bill for example.
Right, Yeah, I definitely saw that this week. We can see some of the reports on that.
Now that's the dilemma, that's sort of where we're at, and we can just frame it up with the rock of the hard place, right do we keep printing?
Do we keep manipulating? If so, like how long can that last?
But maybe that leads us into the next big topic, which is the tariffs that we have so far. A couple of things that you mentioned. One was that, you know, we had these insane tariffs, you know, one hundred and forty five percent against China and then two hundred and forty five percent against China and things like that, And you mentioned I forget the exact word you use, but you know, Trump backtracking or coming off of that, right. A lot of the mainstream media headlines that you would
see or like he's caving or things like that. But from an analyst perspective, I mean, did you ever think it was realistic that, of course we're going to have two and fift percent tariffs against China and that was never going to come off, we'd never do trade with him again. Or was it always that was going to be sort of that negotiation point, the anchoring, if you will, to allow us to come back off of that into some negotiation.
I think it was. I mean, I think it was. It was basically like a retaliatory, almost like show of force. Right. It was a chicken game, if you will have two cars racing at each other, right, And Trump thought that he held a much much stronger hand than he actually does. Because again, the issue comes when you realize the implications of Triffin's alma as well as obviously the results of it.
The implication is that we need to fend out dollars on net to the global economy to fund basically global trade. But the other implication, obviously is that we've shorter industrial base, and so if you're going to impose massive terrorists in the you know, desire to move us back to an autarcic economy, basically an economy that's self sufficient, that doesn't need to have maybe much import export, that can basically provide everything that it that it needs just by itself.
It's going to take a lot of time to reshore industrial bases, to retrain American workers, and then there's obviously like the cost implications for high end manufacturing iPhones, consumer electronics, cars.
Et cetera.
And that you know, that transition period could definitely cause a very severe recession. But even more importantly than that, obviously it would cause an unwind of a lot of these carry trade and pro liquidity effects that have taken place with regards to this Tripan's dilemma that's been playing out for the last thirty to fifty years. And so that means that equity markets and bond markets are going to fall, you know, substantially. And I don't think Trump
was ready for that amount of economic pain. And I'm not saying that, you know, whether it's right or wrong that we should move back towards a more self sufficient and more reshort industrial economy, or if we should let our manufacturers move overseas and basically ship away all of our jobs. But there's always trade offs, right. This is a world of nuanced there's never anything simple, and so if you want to do that, that path you're going to cause, you know, incur a lot of economic pain.
And so yeah, I think that two forty five percent was just a almost like a bloviating show move, if you will. That was just meant to scare people. But in reality that that kind of thing would not hold long term if you want to basically retain our global monetary system as it is.
And I don't think that was ever the plan, right, I mean, obviously he wrote the book Art of the Deal, which is anchoring, right, you go high, you set a low, so it opens the door for negotiations.
I think a couple of things in that as well that I think.
About is that you know, Stephen Moran, who's his economic Trump's economic advisor, wrote a paper before Trump became president and basically coined the term mar Alago Accords. And so he sort of laid out this playbook that seems to be sort of what the Trump administration is following down now, this playbook into this mar A Lago Accords.
Maybe not exactly.
I think maybe he's moved more aggressively than was laid out in the paper. But I think also in that so the two hundred and forty five percent was much more aggressive. There's been a lot of talk about this potential game of chicken. I think as you called it, I would agree with that. Forming like this game of chicken, like who could go longer China or the US? Realistically,
neither of us could survive without each other. I mean it'd be very rough if we did, right, And I thought, man, I mean, China welded people in their frigging houses during the pandemic, like they can go through a lot of pain, Like the US isn't going to put up with that. Right as of like yesterday and today, though, it looks like China is like caving like super fast. Right, they already switched to easing. They're like begging for a meeting.
It's looking like they want to deal pretty quickly. I don't know if you've been paying attention to that.
Yeah, no, and I'm not surprised that they do. You know, while the CCP can maintain basically, like you know, monetary and economic harsh conditions much longer than the US can, it does not behoove them to do that at this current juncture. Right, We've seen a Chinese economy for the last two or three years that's been in basically recession or complete contraction due to the real estate and banking sectors starting to fall from their massive shadow real estate
bubble that's been imploding. We saw the you know, the bankruptcy of Country Garden and Evergrand and several other large developers, as well as defaults of major property developers all across China and their failure to pay dollar bonds as well as on shore yuan bonds, and so the Chinese economy essentially has kind of reached this I think severe inflection point where they now need to choose what they're going to go forward with a path of deflation and let
their estate bubble basically burst in slow motion essentially like two thousand and eight, or are they going to reflate the bubble and print the yuan and let the UoN devalue. And that's a difficult decision to make because either way, obviously there's economic pain, but the winners and losers are
different in each scenario. Right, If you choose the deflationary path, then obviously the equity holders and the bond holders are going to get wiped out, but you might be able to retain that yuan seven point three to the dollar peg for a lot longer. And then if you go the other way, obviously you're going to see a blood in your currency. But on the plus side, the exports become much more competitive, so China, and China has been trying to show this strong face, right, this poker face.
But again, if you look at I mean even the data like I was looking at this yesterday. Ever since twenty twenty two, they've stopped publishing most of their economic data publicly. If you look at youth unemployment, you look at factory orders, you look at new homes and new home leases in China, all the figures just won't be reported anymore. By their version of the BLS and so that tells me that things are pretty bad there right now.
They just don't want the US to know because obviously that would weaken their hand.
Yeah. Yeah, but it is a game of chicken.
The way I see it is back to these mariologue with chords was like obviously put pressure on China. And I think there's even in the Biden administration with sort of this stance on China trying to put them back.
In their place.
I think it's probably more from the intelligence community than just the Biden or Trump administration. But you know, Biden is the one that took away their ability to get microchips for example, right advanced microchips, right to limit their their technology, and then started the Chips Act to start bringing on shore and some of that back.
And when you think about that, it's terrorists are really about.
Like more strategic moves, right. So it's like the US doesn't need to make T shirts and sneakers here, like we gave those jobs up a long time ago. But it's like there are strategic things that we should be doing here, like you know, rare earth elements having to steal in copper so we could actually make things. So I think there's like things that are strategic. It was never about bringing all the jobs back. It's like, what are the jobs that we need here, and let's just
bring those back. We don't need to grow mangoes or coconuts like we can let other people do those things as well. And that seems to be happening at a pretty breakneck speed. As a matter of fact, if you saw the latest GDP numbers that came out, right, we had a negative print, but that was adjusted for what
a forty one percent increase surgeon imports. But when you look at the investments that were going on in the US, I mean, Trump announced eight trillion dollars of investments going on in the United States, it looks like we're going into some sort of like a reindustrialization that we haven't seen since like the nineteen forties.
Almost, Yeah, I mean, I would hope so, right, because again, the negative effects, right, the knock on effects of the offshoring of our industrial base are is pretty substantial. It's you know, pretty sad to see as well. Like the you know, in the rost belt States, one of the leading causes for death now is opioid detention and depression and basically economic malaise is now kind of common young
young men, especially in those areas. And so when you destroy the ability of especially a large section of the middle class to make money and to provide for themselves, and you offshore that to foreign countries where they just do it cheaper, and they still don't treat their workers well obviously, right in Southeast Asia, that just demoralizes the people, and it obviously impacts the local economies very very severely.
And so I think reindustrialization obviously should happen. But the question is, of course, like you said, what things should we bring back? And I think high technology things that are critical to defense, you know, lithium, copper, cadmium, things that are needed for battery and ev production obviously, but like you said, agricultural products, certain consumer goods, we don't necessarily need to produce those here. So I think it's a balancing act.
The problem with.
The tariffs as they're constructed now is that tru you know, came out guns blazing with this tariff policy, thinking that essentially the US was invulnerable, and then very quickly saw the market start to retrace. Right. We saw the twenty year and the thirty year bond hit five percent within like a week, and credit spread start to blow out in early April, and that signaled him quickly that things were not going to go as smoothly as he had hoped,
and so we started announcing basically exclusions. So he said, Okay, we're going to apply terrorifts except for iPhone you know manufacturing, and except for automotive manufacturers, and except for you know, X, Y and Z industries that need to have their cheap goods in order to produce cheap finish goods here in the US. The issue with that is that.
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This excludes small businesses, right, so small businesses won't be won't be able to benefit from those exemptions that the large businesses are able to. And so that means that small businesses, if these teriffs are held in place as they're currently structured, the small businesses are going to be
damaged quite significantly by the terrafs. And you know, that's where I think Trump needs to make some readjustments in his overall tariff policy to make sure that small business businesses and small business owners, especially small manufacturers and goods, don't get walloped by these things.
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So we have these periods of time, these historical moments where the global monetary system sort of gets realigned. So you know, obviously nineteen forty four Bretwood Agreement, the whole world agreed nineteen eighty five, and those moments were like really getting the world to sort of agree to peg back to the US dollar to allow the US dollar
to devalue. And that appears to be the same sort of goal of this these type of cords, the Marlago coords is get in the US to sort of repeg back to the US dollar and allow the dollar to devalue as well. That's the way that it seems to
be right now. Part of that is realigning trade. So if we can get about forty percent of global trade to be aligned to the US dollar, we can keep the US currency as sort of this like I think he wants to keep it about sixty percent right now, we're about fifty nine percent of global trade.
Then we can allow the US to sort of have this coordinated devaluation. That's what I'm picking up. What do you think the ultimate goal of this is?
No, I absolutely think that you're right on the money with that. If you look at statements from you know, a Cent even Lutnik right as well as that paper that you mentioned which I've I've read excerpts from, they do seem to be basically an agreement on weakening the dollar substantially. And the weakening dollar thing is actually a very intelligent strategy if you look at it from a
geopolitical standpoint. The way that the system is structured is very counterintuitive, right, because again we most of us would think that, especially goldbugs, would go out and claim that a weaker dollar means that gold is going to rip, the dollars is going to collapse, Dixie to thirty, and Peter Shift will be vindicated in the end. Right, we can all, we can all throw a party rit with
Mike Maloney and Peter Shiff in their warehouse. But if you look at the fundamental reality again of how the EU at all system works, of how the global monetary system works, that's not the case. I wrote a paper about this back in mid April. But every time that we've seen a substantial weakening of the dollar, we actually
see redollarization. So that means, you know, if the dollar becomes weaker and you're a foreign let's say you know, you're a consumer goods manufacturer in Pakistan, U owe dollar debt already via the euro dollar system. Right, if the dollar becomes weaker against your domestic currency, you can now borrow more dollars and that old debt that you have
is easier to pay off. So that means, on net, the whole system actually starts to increase their borrowing of US dollar and US denominated debt, and so that means obviously that the system becomes even more reliant on the dollar over time with a weaker comparatively weaker dollar, and so de dollarization is not when the dollar's falling in this case, that's redollarization, and a spike in the dollar is actually the you know rush for liquidity that all
these corporate rits and countries and banks are doing in order to fund their dollar debt. So a higher Dixie is actually emblematic of a breakdown in the global monetary system, not a lower one. And so that's why we saw obviously a very high Dixie in the nineteen eighty five Plaza Cords. That's why they had to devalue, because they had to reset the global monetary system and allow enough liquidity to flow out to settle all these dollar denominated debts.
And so, you know, Brent Johnson has been running about this for a long time as well. Right, this this lower dollar actually strengthens the milkshake and it extends the lifetime of the you know, dollars dominance in the global monetary system.
Yeah, when you look at the dixie a dollar index compared to a basket of other top currencies, we're nowhere near the top where we were in the nineteen eighty five Plaza cords. But I was just looking at a chart of from the BIS of the US dollars relative strength. So it's like an adjusted matrix and we're like a
but weal well above historical levels. So when you look at it from that perspective, But even if you look at from the Dixie, I mean, maybe a more historical number might be eighty five or ninety I mean, which if you look at it from that perspective, if you think maybe the goal is to.
Devalue the dollar, would it revert to the mean? What is the mean?
Is that eighty five or ninety? Is that a ten to fifteen percent drop from here? And then what does that mean? How do you think about that math or that mechanic?
Sure, yeah, you're right, you know what very long term Dixie averages is eighty five, eighty seven, you know, up to ninety. So a ten to fifteen percent drop from here is basically bring us back to baseline. And like I said, that means that you know that weaker dollar will help to restabilize let's say the euro dollar market
and to provide liquidity for all these banks. But more importantly, obviously, it will help these other countries who need to earn dollars into you know, essentially hold those dollars as foreign exchange reserves for future money crisis, like the like the Japanese have been doing with their interventions, or even like you know, the the BOE or the ECB may have to do in the future to defend the euro or the pound. And a higher dollar is basically restricting all of those.
All of those goals.
Now, a week of dollar will impact obviously tourism for Americans. They'll be harder for us to buy go a boat and buy goods and services if we're if we're going and traveling, But overall, it's a net benefit for the global monetary system as it is.
So that seems to be perfectly in line with this plan, because what Trump wants is more manufacturing in the US, less exports, and so if we have a week a dollar, that's exactly what it does. It makes us more competitive on our exports, and it makes it harder for people to import into the United States exactly.
And if you can switch, remember again they still need to provide dollars. So if you can switch the dollar funding line from just exports and trade for goods, which is just you know, quid pro quote transaction where I give you dollars and you give me a bunch of
Chinese electronics or Taiwani semiconductors. Right, if you switch that from a you know, let's say, like trade based arrangement to a financial arrangement where instead of saying, hey, I'm going to be you know, giving a bunch of dollars for your manufactured goods, I'm going to swap a bunch of dollars for your you know, own currency reserves. That allows that the system to reindustrialize, I guess much better than it would if you were stuck on that first mode.
And so what they're trying to do is this kind of game of geopolitical chess where they're trying to figure out how to manage their supposed mandate of reshowing the American industrial base and solving the problems that the populacets have basically proclaimed to be plaguing America, as well as working with the global monetary system as it works today, right, not allowing a global monetary crisis to develop under their watch.
Let's just say that switching the in total entire global monetary system is not a smooth There's all types of unintended consequences that will happen throughout that it can't be a smooth process. We could certainly argue for and against the case that Trump moved too fast or was too aggressive, but.
I would say, like zooming out. I don't know if maybe you retweeted.
Or I saw somewhere online, but uh oh no, it wasn't you with somebody else. But they're just saying, like after Powell's announcement today that like he's a he's a legend.
Like I mean, he.
Seemingly might have pulled off a soft landing, which nobody thought was possible. China's coming around to negotiation looks like a deal with India's done.
The dollar devalues a.
Little bit, the world gets what they want, we bring some manufacturing back to the US. I mean, I kind of see a path here with unintended consequences all throughout. I'm just kind of bullish. What's your view?
Yeah, I would, I would broadly, you know, agree with that statement, although I would give some right so obviously, you know, after that first kind of you know, Mayhem with Liberation Day slash liquidation Day and the credits bed flowing out and spy falling, as well as nick Ay and DAX index falling substantially in early April. They've they've been able to reshuffle their their chestboard and make the
best moves that they can given the circumstances. The issue, you know, comes when you start to like visualize the long term problems that are still plaguing in the US. Right. Although we can again restructure some things within the global monetary system like resource some industrial manufacturing, or provide liquidity via dollar swap lines to these other central banks and then weaken the dollars substantially like we did in the positive courts in nineteen eighty five, the long term problems
of the debt and the deficit are not solved. And even given Elon Musk Doge Project and you know, substantial pushes from Republicans and a few Democrats to reduce the deficits meaningfully, nothing has really been done. And the actual, you know, put, the actual accomplishment of that goal is much much more difficult than most people realize, right because there's so many vested interests that have basically money being that's being made from the government deficits, and so we
don't solve the debt problem. Even with rates here, we don't solve the deficit problem. We don't solve the eventual need for QI or for finding some other source of funding. And even if the FED continues to do their sealth qui by you know, shifting issue INCE or the treasure, that can do the same thing, right, the treasure can shift issue INCE from the long end to the short end and essentially provide quasi self liquidity via that mechanism.
Nothing fundamentally has been solved about the thirty seven trillion dollar debt and the one trillion plus of interest six months we have every single year. And so that's the issue that I still see hurting the United States.
Yeah, then ain't being solved. There ain't no solution for that.
I mean, there's a there's a small chance potentially through some high inflation for a couple of years, like Luke Grama talks about, maybe through super you know, double digit inflation for three four years, we can bring the ratio of debt down potentially and if you know, some miracle with efficiency gains through AI through Trump repealing, you know, twenty thirty percent of the regulations and unleashing the American economy. Maybe we can make a dent and growing out of
it a little bit. I don't see us making a lot of ground on that. So that's just kind of like is what it is, is like the it's like the modern medical system, like we'll just treat the symptom.
We can't really cure it.
We let's just manage the sickness kind of a thing. So in that frame, which we're both sort of agreen, then really it comes down to the rate of degradation, like how how bad does it get in how fast? But the direction that we're going is pretty set, so we have to think about then how do we protect ourselves?
Or I like to think abou how do we make money through this?
Right?
I know you like to talk about gold and bitcoin, as do I.
Two assets that are sort of not only outside of that financial system, but out of outside of any country as well, maybe as lifeboats. How do you look at them in regards to the mechanics of this debt bubble that we're in.
Sure, so I've written several pieces about gold and bitcoin and their correlation to global liquidity, and Michael Howells also
touched on this as well. There are several other macro analysts you can check out, but essentially, what I found is that gold has been a pretty prescient front runner of global liquidity waves by about twelve to eighteen months, and bitcoin has been unfortunately the laggard, but obviously a much more extreme and you know, volatile laggard in the in the sense that if gold will go up, you know, let's say ten to twenty percent, bitcoin can go up
sixty percent seventy percent, just because of the nature of its electronic means of payment as well as obviously smaller market cap. But gold and bitcoin have worked to you know, hedge against debase, against inflation for decades. And of course gold has been theorized to be suppressed, and I think that there are there's credence to that claim. That's been suppressed by central banks and by bullion banks for the last twenty thirty years. But that suppression is finally coming
to an end. And the reason why it's coming to an end is something I talked about in a podcast in March as well as a written piece in February. But what I essentially was getting at was if you look at the comax and the physical orders and the physical deliveries that are now being made. It's starting to reach epic proportions, right even rivaling what we saw during twenty twenty in March during the COVID nineteen shutdown and the massive withdrawal of liquidity from the global banking system.
So the question now becomes, right, who is doing this, Who's drawing this liquidity, and who's drawing this physical gold out of the system, and who is trying to front run at what they view, in my opinion as a new global liquidity wave. And I think that is mainly
the Chinese and now the Americans. If you look at the physical gold orders from Shanghai, from the Shanghai Gold Exchange, they've been very very consistently showing an increased appetite for gold ever since twenty twenty two, and especially a delta in the difference between the Shanghai physical gold rate, which is their cash basically like their spot market for physical
gold and the COMEX. You see like a fifty sixty to seventy dollars delta open up at sometimes, and so that allows traders to arbitrage the trade between those two nations, and so that was responsible for the first leg of gold appreciation from let's say twenty twenty two to late twenty twenty three mid twenty twenty four, and that shifted obviously once especially once Trump took office, we saw a massive amount of gold deliveries and what I believe to
be a rush of physical redemptions for Fort Knox. Now, again this isn't confirmed because the government won't release this data. But according to stone X, which is one of the exchanges in the LBMA and one of the market makers that settles physical gold trades, they found that there was around you know, seven hundred tons of physical gold that was shipped from London to the United States in the
two months of January and February of this year. Now, the official import numbers are for thirteen hundred tons, so that means that, you know, if we shipped in seven if they declared seven hundred tons shipped to the COMEX and then there was thirteen hundred tons total, where's that
other eight hundred tons going? And a move of that size, obviously is in two months what the US would normally import in a year or two years, and so it's a huge move and the only type of gold that doesn't have to get outright claimed on our import export numbers is what's called monetary gold. So this is gold in four hundred ounce bars. And so that monetary gold would only really be going to one place, and that's
Fort Knox. And so again you just use the equals be A plus equal C. Rationalization is that the US is now starting to I guess you could call it reshore or call in its gold reserves and basically called a bluff on the l B m A and on the Bank of England on their paper gold certificates that they've that they've sent out. And so that's why the lease rates in London exploded in January and February. That's why we saw massive gold backlogs, redemption backlogs at the
Bank of England. And that's probably why they don't want to do the audit just yet. Even though Elon Musk and Trump have talked about auditing the gold reserves at Fort Knox. It's because they're still waiting to refill all of the empty vaults with with physical gold because right now what they have is mostly IOUs in there.
It's an interesting theory. We'll see how that shakes out. I did a video talking about this number one. Obviously, that talk got.
Really big about why don't we audit it? Which seems so simple, like why don't we audit it?
And they're like, of course we audit it happens all the time. This is not public, so I don't know. We'll see about that.
But I also talked about in a video that potentially, potentially what if we found out there was more gold than Fort Knox, then that could be equally as bad, if not even worse, because.
Why did you say that?
I would say it'd be worse because what if we had more gold in Fort Knox than we thought we had?
So then why would the US be buying more gold?
They're preparing for some sort of currency collapse that they're trying to shore up.
What do they know that we don't know? Should we be shoring up our currency? Right?
I would I would think it would signal a weaker standpoint. I think the US could argue why it doesn't have gold. I mean Canada has no gold, right, Like the US could argue getting rid of some of the gold, oh we have it on loan whatever, But having more gold almost seems like it could be worse. Like if the US thinks their currency is going to collapse, they're buying more gold. Maybe we should so I thought that was an interesting caveat, but yeah, we don't really know.
I do. I did see last night breaking news.
I haven't been able to find out if it's true or not, so I didn't want to talk about it publicly. But you probably had seen it, talk of China and Saudi opening up a gold settled oil window.
I don't know if you saw that last night yesterday.
No, I didn't.
So that's that's big news. I haven't been able to really verify that. I've seen it from from a few people talking about it. But yeah, potentially having you know, gold and oil settled by China and Saudi Arabia could be a pretty big deal.
What about the bitcoin piece?
Sure, so bitcoin right has been trading as this. I guess you'd call it like levered proxy for global liquidity for the last let's say three four years, and really, you know, this is not new or just unique to just bitcoin. Again, gold trades, although at a at a different timescale, meaning like like I said, gold will front run the liquidity waves and the contractions and the sp FIE hundred and QQQ also are very very close in
their correlations to global liquidity. If you stack a chart of global money supply or global central bank balance sheets minus obviously the TGA and the reverse repo window, and then you compare that to the SPY, is like a zero point eight eight correlation, which in finance, of course is extremely strong. So it's not just obviously Bitcoin that's been sensitive to global liquidity. It's literally every single financial asset,
especially in the US. But Bitcoin has been trading this kind of like quasi range here and between seventy and ninety for the last few months, and I think that that's indicative of where we are in the global liquidity cycle. Right.
The FED began their taper just a few years ago, and they've continued their taper, albeit at a slower rate, and then we've found out, like I said earlier, that they've been really just tapering the short bonds, not anything past ten years, which means that on net, the liquidity
drain on the system isn't as bad. And now they're venture this area where they're kind of in a limbo, right, just like with other cycles, they aren't set on cutting the rates to zero yet, and they aren't set on doing Q yet, but they also aren't telegraphing that they're going to hike rates anytime soon or keep them here for the next three or four years. There is a plan to slowly reduce interest rates. So because of that,
Bitcoin has been also in limbo as well. Because global liquidity is kind of in this doll drums, Bitcoin's been in these doll drums as well, and we probably won't see a breakout above one hundred and twenty K until we see major easing by at least one of the large global central banks.
Well, you mentioned Michael Holley yesterday, I'm on his newsletter. Nice you mentioned how earlier yesterday on his newsletter he put out that global equity hit a new record all time high and it's been on the uptrend, and he said that he actually changed his forecast.
He thought that global equity would peek out Q four.
Twenty two, twenty five because it runs on these you know, five year cycles, he calls it. But now, because of what's happening with with the major central banks, he thinks it's going to go well into twenty twenty six. So we have seen global equity taking off quite a bit. Just seems like the US hasn't quite jumped on board with it.
Maybe sure, but even that still you know, that still doesn't take them to count the lack right like we like, if you've seen the chart of the global M two and bitcoin three months still lags by. Yeah, it's still lags by quite a few months. And of course we said bitcoin is you know, sense of for global equidity. But there's obviously a lot of caveats, right, there's, uh, the the moment to moment reshuffling of debt, there's the
the refinancing of the treasury bonds. There's the tariff wars, right, and what what banks and corporations are going to do with regards to you know, their currency reserves in the in those cases. So it's not a simple picture, right. That's why when people ask me, like, what's the fund of mental benchmark global liquidity? What is it? Like, tell me one number, it's very difficult to caulle It's not one because there's so many.
Yeah, it's not one number one numbers of all.
Yeah, but it's also it's like if they change the SLR, for example, and exempt treasuries from being in the leverage ratio, that would change how liquidity is flows throughout the system. But it wouldn't come up on any screen. You wouldn't see the number of Michael Howell's calculation change. That would just be a regulatory change, right. And so those kinds of like I guess, esoteric or abstract impacts are are
hard to quantify and hard to parse out. So and again, remember this is a it's a strong correlation, it's not a perfect correlation. Doesn't mean that tick for tick, where global liquidity goes, bitcoin goes that single day. There's still obviously a market.
For I like Michael Howell's model. I like the Bitcoin layers model. I think Real Vision has a good model. Those are the kind of the three that I look at, and they're all kind of tracking pretty similar. I want to wrap this up, and so let's just let me let me throw you an easy one here. Dig into your crystal ball, but polish that thing up and I'm gonna lay give you a layup here though, But do you think we end twenty twenty five.
Higher than we are now in the bitcoin price?
And let's just say markets overall.
Yeahcoin, yes, all three, Yes to all three. And again the reason why is because the fundamental factors that are pushing all three higher. Haven't changed, right, We're still looking at you know, potentially, like you said, higher global liquidity. And then in the coming few years, and especially by the end of the year, we're still seeing the carry trade impacts and the dollar recycling impacts of Triffon's dilemma,
pushing US dollars back into US equity markets. And you know, debasement is still inevitable given the current US debt levels and the fiscal situation. So because of those three reasons, I don't see any any strong argument as to why at least you know, or even one of those three should be lower. I think all three are going to
be higher, substantially so. And I think gold, especially like I said, it's telling of more inflation coming in the future in twelve to eighteen months, just because it's been such a good predictor in the past of coming inflation waves.
Yeah. Perfect, all right, I'm going to wrap it up with that. Thanks for joining.
You really laid that whole whole sort of global chessboard out very well, and I agree with you on the sort of inevitability of where we're at, at least for the foreseeing future. Here, I want to link down in the show notes down below. You have your was it a dollar in game? Your newsletter that you're right, which is great yep, so linked that down below, and your Twitter handle anything else that you want to call out for everybody to go check out.
I have a YouTube channel as well. I talk about markets, talk about gold, bitcoin, commodities, equities obviously, so that's just at Peruvium Bowl, so you can check that out as well.
Yep, we'll link to that down below.
Thanks for jumping on, Sweet, Thanks for having me