What Happens When The US Dollar Dies ft. Brent Johnson

28:06And so it's largely played out the way I thought what has not happened that I thought would have happened. So here's the interesting thing. If you would have told me at the time in 2024, these will be the prices of these assets, I would have said, yeah, that sounds about right. I probably would have said the dollar was a little bit higher than 104. It went to 113 at one point. So I would have guessed it was higher. But the other prices I would have agreed with. That's about where I thought they should be. But what I completely got wrong was I would have said that during that time, VIX or the vol would have averaged 25 to 30 rather than 14 to 15.

28:46So I would have expected an average vol to be probably double of what it actually ended up being. Now we had that one period in 2020 where vol went to whatever it was, through the roof. but by and large the thesis has played out and really what the thesis is it's not a prediction of necessarily what's going to happen specifically it's more a framework for how I think a sovereign debt and currency crisis would play out and where markets will trend based on the way the system is designed not that I want it to be like this not that I like it this way. I want to hear your words of what this is, because I also think that, and you and I have talked about this, that this is part of the everything code.

29:37It's all part of the same thing. We all kind of picked up that it is what it is. But why are these assets going up? And why is a broken system doing that? That's, I think, the thing that people don't really understand. And why is it affecting the US less? So something that I probably forgot to mention a few minutes ago was along this journey, and I don't remember when this was, but again, it was another one of those light bulb moments. It was around the same time that I was in that conference room playing with those pieces of paper. And I realized, you know, I was just looking at the US's that at some point along the way, I discovered the euro dollar market.

30:21And up until then, I probably knew it existed, but didn't really know what it was. And the fascinating thing is since then, I have talked to so many like super successful, extremely wealthy, top of the industry people who still don't know what it is or that it even exists. Right. And so what the euro dollar market, it's the market for dollars outside the United States, right? And the market for dollars, the size of the market for dollars outside the United States dwarfs the size of the market for dollars inside the United States. And so what that essentially tells you is the dollar is the world's currency.

31:02This is the currency that, and this is the other key part of it. There's two more key parts of it. The US did not impose this on the rest of the world. This was agreed to at Bretton Woods. Now, I will say they're probably from time to time. If countries ever really tried to start leaving the dollar system, if the market itself didn't stop them, I do think the US militarily or economically would try to stop them. But they haven't made them do it up to this point. The world shows this coming out of World War II. Russia wanted to hold dollar balances in Europe, but they didn't want to hold it in US banks, kind of for the same reasons that we've seen recently, the US might take them.

31:48And so they started holding balances in Europe. And then that led to other banks doing transactions and dollars. And so long story short, since the 50s and 60s, banks, institutions, corporations have started using and borrowing and spending, using dollars outside the United States. And so it is now the global currency. The second part of this that's very important to understand is all of the dollar debt. When I first came across the euro dollar market, and then I realized they had all this dollar debt, I was like, yeah, but it sucks because they owe it all to the United States. Then I figured out they don't owe it to the United States.

32:30The US didn't lend them all this money. They lent it to each other. And the rest of the world cannot create dollars out of thin air other than by loaning new money into existence. So it's extending credit further. So it's basically a cashless slash reserveless system. So it must grow. There is no - And the function, and debt is the essential function of it. It doesn't operate without it. Exactly. So it cannot contract. If it contracts, I mean, it can, but if it contracts, it crashes. If it contracts continually, it crashes. So it can contract for periods of time, but then it has to get recapitalized or new loans have to be created to get it expanding again.

33:23So So again, I know this starts to get into the weeds a little bit, but we have a debt-based monetary system. There is dollars that actually exist in physical form, and then everything off of that is loaned into existence. And the best way for me to explain this, especially for people who understand Bitcoin or who understand gold, the reason that people like Bitcoin, the reason that people like gold there's a finite amount of it. And then they know there's all of these rehypothecations put on top of it. And when everybody starts to scramble for the actual gold or the Bitcoin, that squeezes Bitcoin and gold higher, right?

34:04Because there's a limited supply. That's not the same with dollars, but it's the same with Euro dollars. The Euro dollar system, there is no, sorry, I said it backwards. There is nothing that it can run to except for the dollars in the US. So the US is the only entity that can create new dollars or new collateral out of thin air, other than making a loan, right? So the US Fed and the US Treasury, they can create bank reserves or they can actually physically print money. That's the base money. But everything else is loaned into existence off of the base money. So if you think of the base money as the gold or the Bitcoin and the US dollar market is everything rehypothecated off of the base money, then the euro dollar market is rehypothecated off the US, right?

34:59So if you think of it like musical chairs, the base money and that's the chairs, the US circles around the chairs, and then the euro dollar market circles around the US. So to get to the base money, the rest of the world has to go through the U.S. market. And that is why you're not going to have a crisis in the U.S. that doesn't end up becoming a crisis outside the system or outside the U.S. And it's also why when and if there is a shortage of collateral or a shortage of dollars, it happens outside the U.S. before it happens inside the U.S. Because inside the U.S. is, think of like the Cantillon effect, right?

35:43Whoever is closest to the money benefits from it most and whoever is the farthest away benefits from its least. And so, you know, I don't know if that confused people or helped people understand it, but it's essentially a leveraged system. and that the US dollar is the most important part. And there is a structural issue with a shortage of dollars that requires the world's non-US banks to issue more dollars to supply dollars because there's an ender shortage of paying for the dollars. Everyone's got to pay the interest on the dollars. The more debt there is, there's more interest payments. They don't have dollars.

36:27They can't create dollars. They either have to borrow it from the US or they have to create yet more dollar liquidity. And you raise a profound point. It took me a long time to understand it. You should reread the crisis of global capitalism by George Soros. The Asian crisis, he said, the crisis starts in the periphery and ends up in the core. And I didn't really understand. It sounded very smart. so I just repeated it many times. But basically, here was the problem of the Asian crisis of these foreigners in the euro-dollar market had borrowed too many dollars, their economies had started slowing, they now couldn't pay the dollars, and they all blew up.

37:14Eventually, it had ended up having contagion that kind of felt its way through the developed world. You know, the Swiss banks blew up and a whole bunch of stuff. another thing for people to understand what you're saying is there's an expression that again people don't understand because it's an expression which is when the u.s catches a cold yeah the world gets flu or whatever it may be right or the u.s sneezes and the world gets a cold that's right again because even if the u.s doesn't know it or understand it it is the primary operator of everything it's part of this global reserve currency and this is why i talk about global liquidity and why it matters so much because it's all one it's all the matter it's all it's it's really all that matters it's all it is it's all it's a system and when the u.s last year in 2022 started withdrawing liquidity everybody else can withdraw liquidity from their own stuff it's it's it's not great economies slow down stuff like when the u.s takes liquidity right first markets fall because it's this debasement or rebasement of currency so you're making the dollar stronger because you're taking those hard dollars out as you said so that so that makes asset classes prices fall the dollar goes up but then over that period things start blowing up first it was actually the regional banks in the US.

38:48It's not normally a US thing first, but it so happened. Then it was Credit Swiss. Then it was the fucking dollar yen. It's all the same issue. Well, not only that, but remember before that, before the regional banks. So the regional banks happened in March of 23, right? Yeah. Yeah. What happened in August and September of 22? ECB, the same day that they raised rates for the first time, they set up a special facility to buy Italian BTPs because yields were blowing out in Italy. The Bank of Japan, I don't remember if it was September or August, bailed out both the JGB and the yen market at the same time.

39:41Now, think about that. they're basically working at cross, but they had to do it because both markets were, were, were having problems and the BT, the, the, the, the gilts blew up, right. That's right. And England. That's right. And, and that was, and that was when China's real estate market started its plummet. Right. So, but the, but the, but it's to your point, like once liquidity starts to be pulled away for whatever reason. You know, this was kind of the U S had been that this was a pretty simple reason they had, you know, in January rates were what zero. And by, by September of 22, they were 5%, four and a half percent or whatever the number was.

40:24I mean, that's a, that's a, that's an enormous move for, and the dollar went from whatever, a hundred to one 13 or whatever it was. Um, I mean, so that, that, that's a big deal. And And I need to say something before I forget. This might be a little bit out of place, but I think it's important for people to understand this. The other reason that the dollar will be the last to fall is because what we're talking about is all this global U.S. dollar debt. There is global debt in euros and yen and some other stuff, but not nearly to the size of dollars. Again, the euro-dollar market swamps every other market in the world.

41:02So here's the issue. How do you deal with too much debt? You debase it, right? Kind of getting back to the year everything code and all of this stuff. Okay, that's fine if you're debasing your own currency. But here's the thing. All of these countries, forget their US dollar debt for a second, they also have extreme amounts of local currency debt, right? Okay. If the U.S. dollar gets weaker, that makes their local currencies stronger, which makes it almost impossible for them to inflate away their local currency debt. Because despite them trying to do financial repression, their currency is rising versus the dollar.

41:51Their euro dollar debt is becoming easier to service, but their local currency debt is becoming more difficult. And so it's a seesaw. It's a seesaw. So then if they start printing them to debase their currency even more than the dollar, then their euro dollar debt becomes impossible to pay off. See, the U.S. only has to deal with one currency. That's the exorbitant privilege. but the rest of the world, they either can inflate away their euro dollar debt or their local currency debt, but not both. And whichever one they don't do is going to hammer them. So they're in an impossible situation. Now, this might take 10 or 20 years to play out.

42:38I don't know. But I just know that they can't win, right? They can't win that thing because the other countries have to debase two currencies. The only way they can deal with it is somehow to create GDP growth. Yeah. Yeah. That is the only answer, right? Because the interest payments get bigger and bigger and bigger. They've now got the seesaw of your foreigner or the US still has to debase its currency to pay its debts. And this keeps going until that infinitum. Right. But how do you generate GDP in the current system? You have to borrow. So this is my point. This could last for another 10 or 20 years, but we will eventually get right back where we are now.

43:25Until the system is changed, the dollar will be the dominant currency in the system. And the process of changing the system, I think, will be violent from both an economic and a military's perspective. And in that transition, I think the dollar goes much higher. But the point is, if these countries do, were able to generate GDP growth, to your point, it would be as the result of the euro dollar market expanding. No, not necessarily, because it could be through productivity or, you know, my idea is population growth can be replaced by AI and robots. So it's the only way. But that's not coming suddenly either, right?

44:08That's a process. Right, right. So potentially, if we could get to some kind of a new energy source or productivity miracle that allows us to grow at dramatically higher rates than the debt, then you're right. I see very little evidence of this. I can't say it's not impossible. It's just it's a low probability, in my opinion. So people also need to understand is, OK, you're a global investor. the dollar is structurally getting stronger we're not saying it spikes higher and it's like catastrophic but over time it's endlessly bid for these problems so if you're a global investor where do you invest your capital and this is the reflexivity of a dollar bull market that people don't understand when you started saying well u.s equities are going up they're like you brent are a fucking moron can't you see it's all gonna crash and you're like no because the everybody wants that milkshake you know it's the one thing that sucks in all the world's capital especially especially if money doesn't flow into bonds as quickly or less or even if it flows out of bonds because interest rates are higher they want to generate more growth than inflation etc etc right So not only do you have the world's capital coming into the U.S., but you have money potentially leaving fixed income markets in the U.S.

45:40for equity markets in the U.S. And I don't know that that's going to happen continually. And I don't know the extent to which it will happen at all. But if it does happen, it just provides a further turbo boost on that. And I think that's the biggest misconception of what the whole dollar milkshake theory is. I think a lot of people think that it's the dollar going higher. Yes, it's the dollar going higher, but the dollar going higher is almost a sideshow. It's the dollar dominance, the dollar system dominance. The dollar is the cause. Everything else is the effect. U.S. equities, and you invest in the effect, right?

46:21You understand the cause. It's the dollar going higher. I'm not telling people to just go sit in dollars. I've never said that. But what do you think is going to rise? And again, it's a relative game. You have to put your money somewhere. Or the large global allocators have to put their money somewhere. They can't just go sit in cash and go home. So they have to put their money somewhere. And so you don't get fired for putting the money in the US. right if you put all the money in the philippines and it blows up well you know you get fired you're not going to get fired for for buying coca-cola right and so it's it's it not only is it an easy decision for them um that is where the kind of the global growth is and you know you if you if especially if let's say you're an australian investor and you're managing an australian pension fund as an example, and you buy a T-bill that yields four or 5%, and then the US dollar appreciates versus the Australian dollar by, let's just say 4%, or 3%, 2%.

47:24Now, all of a sudden, you made 7 % for sitting in a US T-bill, right? And then if you decide to buy Coca-Cola, and Coca-Cola goes up 10 % that year, and it pays a 4 % dividend, and the Australian dollar falls 4%, now you just made 20%. And this is why when people will tell me fiat versus fiat doesn't matter. It absolutely matters unless you are a very lucky American who has never had to think in more than one currency. Not only that, but relative fiat versus fiat levels creates both growth and contraction, right? If the dollar is going up versus the Australian dollar or the Indian ring it or the ruble or whatever it is, then those dollar debts that those countries owe don't get paid.

48:20And all of a sudden you get a credit contraction and credit contractions are what lead to 2020. It's what led to 2008. It's what led to the dot-com. When credit stops being expanded and starts to contract, that's when bad things happen. And the dollar going up versus foreign currencies is typically what causes the system to contract because that's the euro dollar market being starved of dollars. Also, if you think of the seesaw effect of every other country having two currencies to manage and the US being the liquidity spigot, dollars in, dollars out, dollars in, dollars out. All of the seesaws doing this is why the global business cycle is correlated.

49:08They're all either strengthening their currencies or weakening their currencies, which is creating elements of the cycle. The cycle is that, the credit cycle. It's all the same thing. This liquidity cycle is the dollar cycle, is the business cycle. And it's all driven by this need for a debt-based system to survive. And what we also learned, I thought, as part of this whole equation, is that the powers that be, the central banks and the governments, completely understand the game that they're playing. Yeah. And the Twitter and newsletter world, which assumes they're all morons and we figured it out, is so far wrong.

49:55I used to be one of those guys. I used to be one of them. I was like, these guys are so stupid. Because I could only think like myself. Once you figure out how to think like other people, and then you put yourself in their shoes and you figure out what are they trying to accomplish, I mean, I'm not a fan of central bankers. And I'm not saying they're the smartest people in the world, but they are not idiots. I mean, in a weird, messed up Machiavellian way, you kind of got to appreciate what they've been able to pull off. I mean, it's really incredible. and so I think people who say the central bankers are dumb and the monetary authorities are idiots and they couldn't manage their way out of a paper bag I think you do yourself a disservice when you adopt that mindset because these are very smart clever people they might not be the most moral people in the world it's fine if you don't agree with them but do you do yourself a disservice if you think they're stupid even you know I've started to think about you know the moral dilemma of central banks 2008 was going to be 1929 and they did something which worked which was debasing the currency resetting a debt jubilee you know you and i stepped back 10 years ago we'd be like there's a debt jubilee they're going and then i realized they did have a jet jubilee it's just like you're not paying interest payments none of us are okay that's that problem out of the way if you think about this euro dollar market it's like nobody has to pay interest range for a while okay yeah they didn't couch it in those terms but that's what it was right and then there was the massive printing of money which was debasement of currency because as you said you've used the collateral many times leverage collateral if you let the collateral shrink too much you have to shrink the leverage and that can be a feedback loop like 1929 that ends up destroying everything and what they did was say well if we create magic money we debase the currency the collateral doesn't go down in it might go down in real terms it doesn't go down in in nominal terms and they save the system and they actually save the system from they did the complete end of the entire global debt system.

52:15And the price to be paid is it's costing us, call it between eight and 12 % a year of debasement costs versus a total white belt. I don't think people appreciate how close we actually came. I think they intellectually, they know it, but I don't know that they, or they intellectually, they accept it, but I don't I think people really appreciate how close it actually was. I spoke to, it was in the summer of 2000. And it was still going on until 2012. Remember the European, Eurozone price? Yeah, yeah. So it was around, I think it was 2009 or 2000. It must have still been 2009 because I was still at Credit Suisse.

52:54And we used, at Credit Suisse, we used Pershing as our back office, the custodian, right? And I remember speaking to somebody in the margin department of Pershing. Imagine the margin department of Pershing in October of 2008 or March of 2009. For whatever reason, they were doing the rounds and they came out to San Francisco and they met with us. I'm not sure why they were there because they're these back office people, but they had really important jobs. And I remember asking this guy, I said, tell me about October 2008. He said, you just have no idea. You have no idea. He said, I don't remember what the numbers were, but he was like, literally, we would see a trillion dollars leave in an afternoon.

53:44And we would see it go down and down and down. And this was like a year on from when it happened. And you could just see the look in his eyes was just like, he had scars from those days. Right. And so it was very, very close. It was very close. And so I ask people, because I see this a lot, is that central bankers are evil. I'm like, okay, what do you want? Yep. You either get slow bleed of your financial well-being or they nuke it and destroy everybody. Which do you want? You've got two choices. There is no third way. I know that I, for me, I mean, I'm a free market guy. So I'm just like, you don't need central banks.

54:41Let people choose whatever they want. Let the market figure it out. But I've come to realize that's just never going to happen. There is always going to be a government of some size and of some kind. And once you have a government, then the government, no matter how small or how big it is, it's going to interfere in the market in some way.

55:01And even though if I want it to be one way, there are several very nice moral people who don't want it to be the way I want it to be. right? And I think there's a lot of people in the gold world or in the hard money at camp or in the, you know, non-fractional reserve camp who think that all the problems of the world would be solved if we got rid of fiat currency. But one of the most famous financial speeches in history is by a guy named, I can't even think of his name now. He did the cross of gold speech. He was a senator from Nebraska. And it basically, when you had it, when they were on a hard money standard back during the the 20s and 30s they couldn't get any credit extended to the farmers and so the farmers the hard-working farmers the guys that got up at 4 a.m to milk the cows and then plowed the fields and then all of that all day long you know not the big wall street types they were getting their farms taken away their kids were going without food they were you know they were becoming homeless that was and so he was like you are not the famous line is that you will not crucify man on a cross of gold.

56:11That's the famous line from that speech. And he was basically saying the tight money supply that goes along with hard money was hurting the average person and the hardest working people. So there is two sides to every story. It's not so simple that you get rid of fiat currency and all the the world's ills are fixed when i look back i think the austrians last chance the the the ability to reset the system was probably the asian crisis it was probably because everything got so big after that yeah because yes, Asia had nuked anyway, right? They'd had a debt deflation. But Greenspan cutting rates then, which I understand why, because they were out of dollars and they need to let dollar liquidity.

57:09But that was probably the last size this time the system was small enough to maybe have got away with it. And then after that, maybe that's wrong, but after that, it became just way too big well to to your point and this this is again some of this stuff gets very arcane so i try to explain it in very simple terms but for anybody that doesn't understand how the system works i'm going to give you just a quick like a 30 second primer because this is key to it all is that you have base money or you have collateral everything else is loaned into existence off of that in order for the system to continue functioning it must continue to grow which means credit must continue to get extended.

57:54Any kind of a system that has to grow and therefore always grows will eventually become exponential. In other words, if you plot a number and you take it times 1%, and then you take that number times 1%, 1%, 1%, and you create an exponential, you graph this, it will eventually go straight up. I think to your point, the Asian crisis was probably when it was already you know coming up at a pretty good clip but after that it probably you know turned straight up and then we had 2008 and then we had 2020 and it's it's uh it's growing it has to grow now the issue is for people to understand this compounding problem that you've got is with if gdp is growing at two percent and i make the maths easy and interest rates are 2 % and the government is 100 % of GDP in debt, which is the US.

58:50That's 100 % of GDP growth every year to pay the interest on the debt. The private sector is in debt. Okay, that's a problem. Now, at world level, it just becomes a bigger and bigger problem. And then when you allow interest rates to rise, you now don't have enough GDP. So what you end up doing is having to monetize it because if not you get a debt deflation which is what you've been explaining so you create the system by which it has to perpetuate this liquidity cycle which ends up causing assets to go vertical because of the debasement over time which then does force people into other solutions which is why crypto rises and stuff like that because you know and whether people go into gold that and forces more people into equities and less people into bonds and the whole situation just keeps going until something changes but here's a question i wanted to ask you there's a group of people now would say money is broken yep there is the cross of gold that was said money was broken yep is money by definition always a push and pull game where it's broken for somebody and works for somebody else i mean maybe that's what we're missing that we always think in the past it was better but it's never been better well this this kind of gets we get it start to get into a very philosophical realm hill where which i which i find fascinating by the way because there's and here's the thing like in my opinion there's a duality to money.

1:00:33And in my opinion, you have to be able to look at it from both sides of the table or both sides of the coin in order to get through what's coming. Because I don't think just being in one camp and the dogma associated with that one camp is going to help you survive what's coming. There's going to be moments where you need to understand things from the Austrian perspective. There's going to be moments where you need to understand things from the Keynesian perspective. So money, I think many people who study money, especially to be an Austrian or to be a hard money advocate, you almost have to study money.

1:01:11It's very hard to just understand what they're talking about unless you go study it. And the people that study money like that, they typically come to the conclusion that money is a commodity. It's the most marketable commodity. It's the one that solves the most coincidence of once, the double coincidence of once. And it occurs naturally and you can't create more of it. And it's what the market chooses as money. The other side is that, and there's actually more history that suggests the second way is more correct than the first. There is evidence that suggests that first way is correct. But the other side is that money is whatever the biggest, strongest guy says it is.

1:01:56And whether he's a local governor or a warlord or the president or the prime minister or the head of the clan of the cave bear, whatever it is, right? If he says, this is what we're doing and this is what you need to pay me in, in order for me not to hit you over the head with my club, then that's what you pay him in, right? And whatever that is, that becomes money. And so, you know, when you say, is money broken? Again, it depends on who you are and what you're trying to accomplish. That was my point. It's like different people, it was either breaking the farmers and now it's breaking the middle class.

1:02:30Right. It's always breaking somebody. So I, again, I know this is never going. Just thinking through this philosophically, money by definition is scarce. Therefore, by definition, not everybody gets it at the same time. And every time we've tried to solve that, everybody gets it at the same time. Let's call it communism. It doesn't work either because the whole system is too short of money because you're spreading the money thin. Yep. Or you're an African dictator and you're spreading the money fat, i.e. one person gets it all. Yep. There's no way to move that scarcity. And even the study of all economics and all politics is somehow trying to figure out how much butter to spread on the bread.

1:03:10Right. And this is why I, again, I even have a duality to it in my own self, because on the one hand, I know how I would like it to be. I would like for the market to figure it out and have no government involved. But I also know that's never, ever going to happen. Right. And so I have to understand that while if no government existed, then maybe this is what would happen. But because the government exists, this is what's going to happen. And I think it's important to understand what free market economics would lead to, but you can't put your whole portfolio to work based on that because we don't live in a world of free market economics.

1:03:47There are always going to be government influences. There are always going to be bigger players. There's always going to be the haves and the have-nots. Now, of course, in a perfect society, that wealth gap or that inequality gap is a little smaller, but there's always going to be some. And truth be told, I want there to be some, because I think that's what capitalism is, right? Capitalism is striving to create a little bit more, get a little bit of a head, use your own work, your labor, your ingenuity to catapult yourself forward. And if you catapult yourself forward, then you catapult society forward.

1:04:24So, you know, I don't want a world that has equality. I want a world of inequality. I want equality of opportunity, but I don't want inequality. I don't want equality of everybody. And so when we get into a monetary system, I don't have the right answer. But I do know that we've reached a point where money is broken for many people. The problem is it's not broken for the people with power. And the people with power get to decide as of now what money is. And so I think you need to understand that. I think that's absolutely right. Again, it's understanding the system we're in, not the system you want.

1:05:01I see this a lot in, particularly in Bitcoin, which is as equally hardline as the gold community. Yeah. And they're very proud of a deflationary money. But it's very, very difficult to operate at any system with a deflationary money because it just creates hoarding. And without hoarding, there's no expenditure. Yeah. I think you probably, at least for a period of time, and maybe that period of time gets worked out over time and then it becomes a better system. But for a period of time, a deflationary currency would actually increase inequality as opposed to decrease it. i agree and it's a matter of how much you hold of it because you get richer every year um in purchasing power terms it also just sucks money out the system so that's not perfect in itself for it to exist for gold to exist as ways out even to build a new system on that's okay but i don't think you're ever going to get around the issue i don't think and we've seen it.

1:06:10You know, one of the things, the observations about the crypto market was exactly the same as the gold market. In fact, I just copied it from the gold market was that we are humans and we love leverage. If you give us something that has collateral value, we will create leverage on it and make the supply inflationary. It is what we do for a living, but just as human nature. And so we will recreate that. Even if we went back to a gold standard tomorrow, we would just leverage the shit out of it until it blew up. And that's why gold standards eventually fail because you leverage it until it breaks.

1:06:43So, you know, I've said this many times, like all the currency pegs to the dollar are going to break because all pegs always break eventually. And it's because of leverage. That's why pegs eventually break is because to your point, humans are going to leverage it. I mean, it's a tale as old as time. So one of the things you and I have talked about is that, look, the other thing people don't understand is the dollar is cyclical. So, you know, just because you're talking about a strong dollar over time doesn't mean it goes up and down with the business cycle. But you and I kind of have this belief for a long time that the DXY gets to a crazy level.

1:07:22And it may be at some point so painful that they have to try something larger and more structural to contain it. Yep. whether they succeed with that neither of us know i don't even have a strong view but they will we will get to that point where the dxy is at 150 or 180 or whatever it is yeah and the world's gonna have to say no right yeah well and i think that i i think that is what it will take that level of pain for the world to come together and figure out what's next um i because until then i I don't think it's fixable by one party. I think you need to, you know, everybody needs to agree.

1:08:07It's very, if this could be solved without pain, it would have already been solved. And I think it's, I think this is probably a good point for me to say this. I think there's a lot of people out there who think that I don't think the DXY can fall, that I don't think it's possible. Listen, the DXY can go to 95. I mean, if the Fed wants it at 82, they can probably get it to 82. The point I would make is all this does is extend the current system. It doesn't, the dollar falling to 80 does not kill the system. The dollar falling to 80 perpetuates it. And I think eventually when and if this system ever changes, it will be because the dollar is now, to your point, going to 130, 140, 150, 180, whatever the number is.

1:08:54because it takes pain to get stuff like this done. And if the dollar goes to 90, assets are going to be flying. Where's the pain there, right? And so I think to sum this up, I think the key point people struggle with is, yes, you believe the system is broken. You can see it and you know why it's broken. And yes, it's an indebted system, but that makes the dollar the most attractive global asset. And I think the key point is, and therefore just accept that it is, and you can make better investment decisions without trying to fight anything else. This is very key. It's fine to want to try to change the world.

1:09:47I think that's admirable. I think it's a worthy cause. And if that's what you're into, go for it. All I'm saying is if you're investing your portfolio based on that, or if you're investing somebody else's portfolio based on that, you may hit some very rough roads along the way. So when it comes to managing your portfolio, or especially if you're managing somebody else's portfolio, you need to manage the world as it is, not as you want it to be. I think that's a perfect place to end. because I think it's, I know it sounds easy, but it's a profound statement that it took you and I decades to figure this out.

1:10:23We've both gone kind of an interrelated, but also independent journey of coming to the realization to see the world as it is. Now, I think I'll leave on this one note is watch Stan Druckenmiller. He's a awful bear of everything. He thinks the world is totally fucked. his portfolio looks nothing like his worldview almost ever egg i need to make one final point because you brought it up and i have that's a that's perfect because just because he wants something to be some way he might have his portfolio look dramatically different and he often does the last thing i'll say just for people who are new to this concept you touched on druckenmiller well it was druckenmiller and soros who put on the famous imperial circle trade.

1:11:12The dollar milkshake is essentially the ultimate imperial circle. You have high rates in the most important economy in the world, and you have the government doing incredible amount of fiscal spending in the most important economic economy in the world. And that makes the dollar go higher. And counterintuitively, that makes US assets go higher with it. So if you want a different explanation than what I'm getting, just go on Google and type in Imperial Circle, Soros, or Druckenmiller, and it'll be a better explanation. Fantastic. Brent, I knew it was going to be a great conversation. Yeah, that's why we need to do it again.

1:11:55Always. And I'm sure they'll be fighting in the comment section for months to come. Absolutely. All right, my friend. Good to see you. All right, you too, buddy. See you. I hope you have a greater understanding of Brent's thinking because it is very important and I happen to believe it is correct we don't have all the same conclusions we even think some of the causes and effects may be different but conceptually the framework is the same and I deal with it in certain ways and Brent will deal with in other ways I've distilled it all down to the simplicity of there's only two secular trends on earth that outperform this debasement technology in crypto and crypto outperforms technology so that's the best bet that's how i've got to it but brent manages diversa portfolios for people unlike me who appreciate and can take the risk brent's investors are more protecting their wealth and they don't need or want to do that and that's fine but i think follow brent on twitter because he's always arguing this case and you'll see what i find useful about following brent apart from the fact you know he's a great friend and i love how he thinks it's the answers and the tweets that are that are addressed to him that i think are really interesting people's anger with the system they take out on their assets which is weird you should never do that our job is separate you can be very angry at the system you can vote against it you can develop new things you can do anything but our job is also to get through this and unfuck our future and that's the purpose of that and talking about unfucking your future you know these kinds of conversations this is what makes real vision well vision this show the the journeyman it's just a small part of what we do the whole point of real vision is to give you the knowledge the tools and then the network of people to connect with to talk about these ideas to share ideas to share trade ideas to share observations of the world AI to help you make sense of it all.

1:14:10If you want to understand what's going on in the euro dollar market, just ask the AI. How does it work? If you want a summary of this piece, because it's very important you understand the dollar milkshake theory, just click on the notes section. Create yourself a note. Make it public. Let other people comment. There's the chats section as well, the macro chats and crypto chats. Get involved. It's here to help you in your journey of unfucking your future. So just, it's free. Just go to realvision.com. I beg you to do that. If you enjoy these shows, this is just a fraction of what we do. This is me showing off some of my journey, but the journey of Real Vision, that's a hell of a story.

1:14:51Anyway, I'll see you on Real Vision. Take care. We hope you enjoyed this episode. At Real Vision, we arm you with expert knowledge, time-efficient tools, and a powerful network to help you succeed on your financial journey. Get a taste of financial freedom with our free offer at realvision.com forward slash free. That's realvision.com forward slash free.