America’s Dutch Disease: How Debt Became the World’s Hottest Export

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1:43David McWilliams: This product is not intended to diagnose, treat, cure, or prevent any disease. To understand the economy, you have to understand human nature. This podcast is powered by ACAST.

2:05David McWilliams: How are you doing there? It is high summer. It is time for the podcast. What we're going to talk about today, I think it's going to be very, very interesting, is a framework to understand what is happening in the United States. I think we need all the help we can get to understand what's going on in the United States. But what is this framework? Give us a quick rundown. So, John, the framework is the following. It's called Dutch disease, right? So Dutch disease was a phenomenon which was experienced by the Dutch economy, a highly, highly sophisticated economy in the 1960s and 70s. They found natural gas.

2:42David McWilliams: That should have been a natural windfall. It should have been something that people celebrate. break. But what actually happened was because the natural gas created demand for Dutch gas, you had to actually buy Dutch guilders to buy that gas. The gilder went up dramatically and this squeezed out or in effect elbowed out lots of other industries. So the Dutch disease was this term that was given to the notion that when you find a windfall or a new commodity, tea, it's not always good. It's only good if you manage it correctly. And what typically will happen is after a while, the resources of the country will become absorbed into the new sector, the commodity sector, to the detriment of the rest.

3:28David McWilliams: So that's the framework. I think it's really, really interesting to look at the United States. Brendan's idea is that the Dutch disease in America is not the export of commodities from America, but the export of American debt. But I'll let him explain the whole thing, but I think it's a fascinating way to look at the United States. Brendan Greeley, again, Googled him. He writes in the FT, financial historian, really very, very fine, fine mind. John, speaking of fine minds, how are you, my friend? I'm good, but I'm looking at you. You don't look so good. Thank you, John. No, no, you do. You always look fabulous, Mike, fabulous, but I can see the redhead is getting redder and redder.

4:09You're burning up down there.

4:11David McWilliams: I am in Dalmatia and it is, as you know, I come here every summer, spend our holidays here, love it. But it is 37 degrees today, John. But you know what? It's interesting because, you know, I was reading about Croatia is just about to get a massive heat bump. But, you know, all through the summer, it's south of France and all across Europe has been burning up. But I was reading recently that Europe is actually the fastest warming continent in the world at the moment. And if you look at the fires in the south of France, you know, a couple of villages have been completely wiped out, burned to the ground.

4:53But not only that, then you have the huge loss of forest, vineyards, agricultural land. And this is only the beginning. This is climate change in action that we've been talking about for years and now we're seeing it. And this is something that maybe we should come back to at some stage. Absolutely. The economics of climate change, how it's going to affect the European economy, tourism, property, agriculture, forestry, the whole lot. Like this is something that is very real and very now.

5:27David McWilliams: We really need to take note. Well, it's interesting you should say that I got an email from a mate of mine just this morning. And he said, an Irish mate of mine, he'd met a couple of Spaniards, tourists in Ireland. And they were just saying, you're so blessed with your climate. You're so blessed with your moderate heat, with your temperate climate, which is the fact that you don't get particularly hot. So, I mean, what it might do, I think we will do a series on the economic effect of environmental change in Europe. Yeah. Definitely. We will do that over the course of the next little while. But they were just saying, the Spaniards were saying, look, you're blessed.

6:00David McWilliams: Yeah. Whereas down here in Croatia, yeah, it's what they call it, it's vrute, jaco vrute, which is, it's incredibly hot. Yeah. And you can't really do anything. Well, people are selling houses now and getting out. I mean, in Spain, I know that an awful lot of them are moving to northern Spain, to green Spain. Yeah, completely. It'll be interesting to see how green or how long green Spain remains green. Yeah. You know, given the thing. But let us come back to that. Let us come back to that. But you are right. I am looking like a redhead should never be exposed to these temperatures. The lobster, it's just the whole, nothing works properly.

6:36David McWilliams: Anyway, you know, and it's that beautifully pink sort of complexion that we have when we go out in the sun at 6 p.m. in the afternoon. Anyway, enough of that. Let us go to the United States. Let's talk to Brendan Greeley. Let's talk to him about Irish America. Let's talk to him about particularly his theories about money, which are second to none. Let's go to the United States. Talk to Brent. About two years ago, when I was in the depths of depression, trying to actually get this recent book, Money, A Story of Humanity, into a condition that it could be published. And I was nervous and I was worried.

7:15David McWilliams: And this is what happens when you're writing. You're second guessing yourself all the time. And I knew that one person could actually look at the manuscript, knock it around, give incredibly constructive, slightly harsh, it must be said, but a constructive comment and direct me along the way. And that was Brendan Greedy. And Brendan read the manuscript. He said, not sure about that, David, if I was you. Yeah, slightly overstretched that, etc. Could do better. But definitely could do better. Definitely could do better. David is a hardworking student. Yeah. Could do better. But as a result of Brendan's intervention, particularly, particularly, by the way, if you're interested in this, on medieval German coinage.

7:57David McWilliams: And we're getting very eclectic. Brendan actually put me right. So Brendan, it's lovely to have you on the podcast. It's really great to see you. How are you doing? You're almost there with the new book. Oh, I'm in those depths. I'm exactly where you were. First of all, I'm sure I deserve that lovely introduction. But I think we got something, I think something really interesting came out of that, which is we actually had some fascinating conversations about the history of money while we were working through your manuscript and while we've been talking about mine. You know, one of the hazards of being a financial historian is that every once in a while at a party, somebody will ask you what you do.

8:29And then you have to tell them. And you can sort of watch them back away, desperately hoping they'll bump into anyone else. You know, I don't get a chance really to ply my trade except for the odd person who is fascinated with what I do. I'm so grateful to occasionally have these conversations with you because I feel like we got somewhere. We definitely got somewhere. We arrived at a place where we agreed. We definitely got so.

8:52David McWilliams: So I wonder how this podcast is going out on the back of another podcast about Bitcoin. I want to ask you about two things. You've written two exceptionally interesting articles in the last two weeks in the Financial Times, both of which absolutely captivated me. One was about the loneliness of the Bitcoin slash crypto critic, skeptic, etc. But the second one, which I want to talk about first, was an article about what we call Dutch disease, trying to understand what is happening in the United States with the extraordinary accumulation of American debt, with the way in which the accumulation of American debt is changing the economy and consequently the society.

9:38David McWilliams: And the mirror image are at least the parallels with what happened in Holland in the 1970s. It is a brilliant, brilliant, brilliant analogy. I want you to explain a framework to understand what is happening with the dollar and American debt, through which you can therefore understand even more what it's doing to the American economy and consequently the American society. Small ask. I set you up. Brendan, off you go. Yeah, that's a lot. It's going to take me a lot to wrap this up in a nice little bow. Let's see if we can pull it off together. So in the late 60s, early 70s, there was gas discovered as sort of part of the North Sea offshore oil complex.

10:20There was, you know, natural gas discovered in Groningen. And so the Dutch started exporting natural gas. And what happened when they did that was they were still on the Gilder at the time. And it did a couple of things. One is it raised the value of the Gilder. People wanted to buy natural gas. So all of a sudden, they sort of have headwinds against exports, the gilder is expensive. So they can't sell the other stuff that they make. In addition to that, domestically, they've got some windfall taxes on this gas that they're exporting, and they start spending domestically, which also drives up inflation.

10:54They've got some extra social spending. And what happens as a result of this is within about a decade and a half, all of the other industries collapse. I don't have the figures in front of me, but they did actually make clothing. They made shoes, not the wooden ones, the actual leather ones we wear. And that industry really was sort of dropped below 50 % of what it had been before discovering gas. This also happened to the UK, by the way, a little bit later. So as this is going on, you sort of recognize you've got this commodity export, which should be a blessing. And what it's doing is destroying your economy.

11:27David McWilliams: So explain the process whereby the discovery of gas or oil or any commodity elbows out, squeezes out, or destroys the other industries. Explain what is actually happening. Is it because the currency rises and then the people who are actually producing other stuff, they get squeezed out, they become uncompetitive? Is it because workers want to work in this sort of industry where the wages are higher, which is the gas or oil industry? Is it because the government jaundices its decision towards it? What is going on in an economy that finds this? And then why is this connected to America? Yeah. So you actually summarized this really well in your question, but yes to all three.

12:09So it basically makes every export more expensive. So you're, because the Gilder rose in value, anybody who wanted to sell something suddenly found they were selling into international markets, which were less likely to buy the shoes, for example, that the Netherlands was manufacturing because they're more expensive everywhere else in Europe where they shipped it. And yes, also what you find is what they call the factors of production. You know, new grads go into that industry. All the talent, all of the energy that is available goes into that industry. And so a writer for The Economist magazine recognized this.

12:44And I've tried to figure out who this is. I've talked to people I know at The Economist was trying to dig into the archives. I don't know who it was, but they named it Dutch Disease. Now, the irony is, of course, the Netherlands is thriving now in a completely different way. They've recognized it. That's just not a political economy that fits or applies to the Netherlands anymore. But economists still call this Dutch disease. You discover a commodity, you start exporting it, it should be a blessing, and it kills everything else you make. So how does this apply to America? This is really difficult conceptually to see.

13:13And I sort of broke my head on it for a while trying to figure this one out. Because economists will tell you that money is neutral. It doesn't really affect anything. And that, in a way, debt is also neutral.

13:24David McWilliams: Two of the most ridiculous things economists have ever purported, actually. Yeah, of course. Yeah, they just don't want to talk about money. It's really frustrating. So, you know, I used to be a Fed correspondent for Bloomberg and then for the Financial Times. And I sort of really internalized what economists think about money. And the irony is, as a Fed correspondent, you talk to economists all the time. You get their opinions on what the Fed is doing. And they don't really have a good framework. Their theories of money are really bad. They sort of want to pretend money doesn't exist, which is ironic because that's what the Fed does.

13:54They're in charge of the money. Anyway, so if we think about what happened in the United States in the late 70s, early 80s. So after 1971, Nixon removes the gold bag and the currency floats. So that's a much longer process, but I'll simplify it and say eventually we arrived at a regime where different currencies floated against each other. It's roughly the one we have today. In the 60s and 70s, Americans were really, really worried about what we call the current account deficit, which basically means we're borrowing more money from the rest of the world than the rest of the world is borrowing from us.

14:27And that rises and rises and rises. And something happens. There's a political economist named Greta Kripner who's written a great book, and if I were a better man, I could remember what it was called, about the United States in the early 1980s, where her argument is basically that the United States government under Reagan, the federal government realized we can just keep borrowing and it's fine. There are no repercussions whatsoever. We can borrow and borrow and borrow and it does not matter. So under Reagan, we started issuing treacheries and then more treacheries and then more treacheries. And we're paying for a variety of things.

15:01Most of what we're paying for under Reagan is defense spending. You know, that drops in the 90s under Clinton. And sort of we get to this point of parity where we're actually not borrowing any extra money as a country in the United States in 2000. George W. Bush wins and immediately starts cutting taxes. And so the deficit goes back up. And Americans, we do this kabuki theater where we talk about the debt, we argue about the debt. But one thing we all do is we just borrow more money because there's never been a consequence. It's fine. It doesn't seem to affect our borrowing costs. So in the basic economic model of what should happen when a country borrows money is as it gets a little heavy, and keeps borrowing, the price of debt should rise, the interest it pays on its bonds should rise, and that will chase it and bring it back into line so it borrows less money.

15:49That does happen to some countries. Doesn't seem to happen to the United States. So something else is going on. The traditional economic theories that we think about, international political economy as it was, doesn't really have any purchase on America, doesn't explain what's going on. A different way to look at this is if you ignore what Americans Americans say about their debt and look at what they actually do with their debt. We have discovered American debt as a natural resource. We can issue treasury.

16:21David McWilliams: So let's do that again. You've discovered American debt as a natural resource, like a gas or an oil find. Yeah. So imagine there's a tap in Texas. And out of this tap comes the ability to buy anything we want as Americans. So if that were oil, we would sell it abroad and buy anything we want. But it actually turns out that that tap is treasuries. The United States federal government can continue to issue bonds, which we call treasuries, seemingly infinitely. We have yet to plumb the depths of how low this can go or how much we can issue. So it means that any administration, no matter what their priorities are, can borrow and spend on those priorities.

17:02And there are no consequences to the price of debt. we don't pay higher interest rates on all this debt that we borrowed. So when you look at what happened in the United States in the 2000s and the 2010s for various emergencies for the Iraq war, for bailouts after 2008, or rather stimulus programs after 2008, we just borrowed and borrowed and borrowed and borrowed. And what you would have expected is international investors would have punished the United States for that. They didn't. Anytime, until very recently, and I think we can talk about what's going on recently. But until very recently, anytime there was an emergency, even if the emergency was in America, people wanted to buy treasuries.

17:41So America has this tap. We can pull on it whenever we want, and it gives us the ability to buy whatever we want. And I think we can think of that as a commodity tap, just like we're selling oil or natural gas into the international market. So the literature on Dutch disease is actually super helpful for understanding what's going on in America. A lot of things happen. You get an increase in the value of the currency, which makes it difficult to export. So there are a lot of reasons why American manufacturing collapsed in the 70s, 80s, 90s. We can talk a little bit about trade. We can talk about various things.

18:15But one of those factors is the dollar is way more expensive than it should have been. When we floated currencies in the 1970s, America was 50 % of international trade. It's now 25%. But we haven't seen any corresponding drop in the value of the dollar. The value of the dollar is not in any way in proportion to America's participation in international trade. Again, here's where theory breaks down. The Mundell-Fleming theory of sort of how exchange rate works says, if you desire products from a country, then you have to buy the currency of that country. Bank deposits in that country so that you can pay for that product.

18:47It should make the bank deposit, that currency more valuable. You know, as we've sold less and less to the world, the value of the dollar hasn't dropped. Which means the value of the dollar is not to buy American products. as the theory would predict, it's to hold American assets. People just really want to hold American assets. So the literature on Dutch disease says a couple of things. One is you should see manufacturing collapse and you should see a focus on the export sector. You know, you spent time in New York just like I have. The finance sector in America is distended, swollen, unnatural.

19:22It doesn't make any sense. It is not in proportion to the financing needs of America. It is in proportion to the financing needs of the world. You know, there's this joke about England, the empire evaporated and all they were left with was a bank. You know, in America, like if our empire evaporates, we may be left with the capital market.

19:37David McWilliams: So let's break it down. So what you're saying is that because the world has, up until now, had a ferocious appetite to buy American government bonds, this has allowed the American government or various different governments, depending on what their internal or external agenda is, to issue debt. All the time, the debt GDP ratio goes up, but all the time, the dollar has been underpinned by this demand for the rest of the world for these American assets, and that's caused the dollar to rise. As a result of that, making stuff, real stuff in America, cars and Harley-Davidson's, whatever that happens to be, has become much more expensive.

20:15David McWilliams: All the while, the trade deficit expands. Again, we are discussing this against the background of tariffs and trade talks and all this stuff. But internally also, graduates and people who seek out money and people are saying, well, you know what? Making motorbikes, that's not kosher. That's not cool. That's not where the cash is. The cash is in this weird casino called Wall Street. Finance, reinventing money, buying low, selling high, all that sort of good stuff. And so gradually what you've seen over a 30-year period is a disproportionate amount of American income going to finance, a dispromotion of American income not going to manufacturing.

20:52David McWilliams: And Bob's your uncle. It explains lots of things. It does. First of all, John, this guy is so good. He lets me meander and then he like pulls me back in the entire thing out of empathy for his audience, struggling to keep up with whatever the hell it is I've been saying. Yes, all of that is correct. I would add there's other literature on Dutch disease, which I think is really relevant, which is that once you get this incredibly valuable commodity export, you get what economists call the curse of resources, which means it actually also affects governance in your country. If you got this incredibly valuable spigot just shooting money out, the fight no longer becomes politically, you know, who can create the best political economy for America for growth?

21:38It becomes a mad dash to control the spigot. And one of the things that we've noticed, particularly for the Republican Party, I'm sort of happy to point figures here, Democrats still talk about debt, and generally, not always, but generally they pay for their programs. Not when we did the stimulus in 2008, not when we did the stimulus again in 2020 after COVID, but in general, Democrats try to pay for their new programs. Republicans don't. And increasingly, you see them flailing, trying to explain economic models that describe how reducing taxes will actually balance the budget by creating more tax income, more tax revenue for the federal government.

22:18That doesn't happen. Those models don't work. And even the skewed models that they prefer don't predict what they want to predict. And what they're flailing to do is come up with a theory to explain what's actually happening, which is that they have fought for control of this bigot. They have control of this bigot. And it doesn't matter what happens. They're just yanking on that handle and it's spewing money out and they're giving it to the people who got them elected, which are people who are wealthy and want to have lower taxes. I think the biggest challenge in America right now, well, God, there are a lot of challenges in America, but the one that frustrates me is we can't talk honestly about what's happened.

22:52Because, as you and I have talked about, political and economic theory don't work anymore. They don't explain what's going on. The old theory of what values currencies does not explain what's going on with the dollar. You know, the old theory is about what should happen to the price of debt as you borrow and borrow and borrow. Do not work. They have no predictive power. They don't explain what's going on. I do think that if we think of America as having Dutch disease, suddenly discovered that we have access to this tap that spews out money, it explains a lot about why governance is breaking down, why you see an increase in corruption in America, because all you want is to fight for access to that handle that controls the taps.

23:32You can point it in the direction of the people who got you elected. I think that, for me at least, has been much more helpful than anything economists have ever said. anything else economists have ever said to explain sort of what's happening in the political economy of America right now.

23:45David McWilliams: We see, I find this really fascinating. Just for Irish listeners, you know, we should think of maybe the multinational corporations, which the American corporations, which are basically a tax spigot for us in the same sort of way. You find this amazing resource. It seems to be able to produce endless amounts of tax revenue. As a result of that, the government gets completely captured by people who want to grab that tax revenue, to grab that spigot. This is where maybe explains why Irish government spending has gone from 70 odd billion a year to 120 odd billion a year in four or five years. And people are going, where the fuck did the money go?

24:22David McWilliams: The money went into the machine, into the monster. It didn't go to roads and railways and schools. Bits of it did. But there's no step change in Irish quality of life. All you have is left-wing people, right-wing people, businesses, trade unions, whatever, public sector, private sector, trying to grab the control of the tax spigot that is a multinational windfall. And this is completely skewing the economy. And this may also, the reason I found your article fascinating was, A, it was a framework I hadn't thought about that kind of explained what is happening in America, but B, as an Irish economist, I thought that's actually what's happening here.

25:04David McWilliams: That's exactly what's happening here. And the interesting thing is, Brendan, we don't know how it ends. Like, I don't know how it ends in America. Does the United States continue to be able to issue the debt that it wants to issue? Is there a moment where demand for American assets worldwide is just like, well, maybe we're not into that anymore? I don't know. Can we park that question for a second? Because I want to follow on something you said about Ireland. First of all, in the comments to that article, several commenters from Ireland said the exact same thing you did. I think you're not the only Irishman who sort of read that article and thought, well, that's useful for us too.

25:41So I think there's something there. I also think that what you said about schools and roads and railways is incredibly important. And I think this is another way in which economics sort of hasn't given us useful models to think about how to do this. Economists focus on the quantity of sovereign debt. They have a quantity theory of sovereign debt. They're desperately trying to figure out at what point in your debt to GDP ratio does the whole thing come crashing down. And, you know, there was a time when we thought, OK, maybe it's 75 percent. And I actually sort of used to volunteer helping high schoolers do this American deficit challenge where they try and figure out how can they balance America's budget to get debt to GDP ratio down to 75 percent.

26:20It's a magic number. You know, then economists are looking at Japan. Japan doesn't care. They just keep issuing debt. It's fine. Seems to still work. Then we look at America. I mean, I wouldn't describe America as working, but this part of America does. We can continue to issue debt. So the quantity theory of debt doesn't really have any predictive power. I'm much more interested in a quality theory of debt. We understand this intuitively from people we know. So if you've got a friend who's running up credit card debt, if that friend is starting a bakery, you think that might be a good risk. You know, that's a business.

26:58It's going to create assets, and it's an asset. It's going to create revenue in the future. If my friend is a responsible baker and runs her books well, then I'm fine with credit card debt. I wish the interest rate were lower, but I think this is good. You're taking a risk, and it's the kind of risks that we should take in capitalism. If your friend is running up credit card debt, and she is going to Ibiza and buying a jet ski, you know that you can tell your friend, that's not creating an asset. That's creating a good time, but it's not creating an asset. It's not going to give you revenue in the future that's going to help you pay down this debt.

27:29So we apply this in our own lives. We apply the quality theory of debt in our own lives. Weirdly, we're unable to apply it at the sovereign level. What debt should do is buy stuff that's going to make your economy more productive. So if we go back to 2000 or 1980, when America seemed to the two points at which America seems to have discovered, there's a spigot in the center of the country and we can just yank on it and everything and it pays for everything. We could have run broadband cables to everywhere in America. We could have fiber optic cable to every home, every door front. We didn't do that.

28:03We could have improved the quality of the roads. Roads are not great in America. So consistently, there are fights in Congress over the highway fund. We could have light rail in every city and high-speed rail everywhere in America. We could have paid for these things. We could have done the energy transition. These are all things that we could have paid for. The reason, and I'm not saying these things because I vote for Democrats. I'm saying these things because they would have made the economy more productive. If everybody's got broadband at their homes, you can develop business models that sort of work, that create new tax revenues.

28:32So America could have borrowed and spent in a way that would have created assets in America that would have made America more productive and brought in more tax revenue. We didn't do that. Just like you're saying about Ireland, you know, you can see, like I've also traveled in Ireland. You can sort of see as you drive to the West in Ireland where the Celtic Tiger ran out. You can see where it ends in the West, right? Yes, absolutely. Yeah, yeah. It's somewhere shy of Sligo. It's over. Yeah. It's about Longford, actually.

29:00David McWilliams: It's Longford, yeah. By the way, John's people are from Longford. Yeah. It's a Longford. Simply because he's from there. He's got a past to take the piss out of his own. Well, John, I will tell you, my people from Ballyhonas and the Celtic Tiger did not reach Ballyhonas. That's very true. That is very, very true. Let's come back to the issue, right? Yeah. is there so the economists have put the quantity theory of debt where there's a magic number where it all falls apart right yeah what we've seen we actually spoke to russell jones last week about japan exactly this thing this is well you know it just keeps going it keeps going it keeps going on the qualitative side we do have a mismatch between the amount of debt that's going on and the quality of life that debt is buying that's what we're talking about right so whether or not broadband creates jobs or not, it creates a better daily experience of the world, right?

29:52David McWilliams: So it's a quality of life issue. Where does, and I want to conclude our discussion now. In fact, I'm thinking we might do the Bitcoin discussion as a different discussion, maybe next week or the week after, Brennan, if that's okay with you. Where does your framework leave the United States right now when the United States is A, in a tariff war with the rest of the world? There is no big not to be picked on. B, there is a promise from the White House is going to rebuild American manufacturing and there'll be all sorts of blue collar jobs everywhere in the United States. They're going to reassure lots of American corporations who are now making stuff in places like Ireland, for example.

30:36David McWilliams: And America will be made great again. Can America be great again when you keep issuing debt like a drunken sailor? When I think about what kept the magic money machine levitating in America, it's two things. The first is that for all of our flaws, we had the rule of law and pretty good bank regulations. One of the things that came out of the Great Depression in the 30s was federal deposit insurance. During the 19th century, there were bank failures all the time, And states sort of had their own rules for reserves, for bank notes and bank deposits. And, you know, they were sort of generally captured by local elites who wanted good terms on loans.

31:20And so the bank quality in America failed all the time. After 1932, there was violence against bankers in Iowa. So this is a really good book called The Moneymakers by Eric Ralfway. Kind of points out that when Frank Delano Roosevelt is watching what's going on in America, He is looking at actual violence against bankers in northwestern Iowa, like an uprising, guns, barricades, that kind of thing. And he's realizing, like, we have got to fix the banks. We've got to make them safe. And that is what created mandatory national deposit insurance in America. Roosevelt sat all the state banking regulators down and said, I'm sorry, your 100 years of fun is over.

32:01You do not get to have these top-heavy, wobbly banks anymore. Every single bank, if you want to take deposits from consumers, if you want them to know a dollar is a dollar, we're going to make sure that a dollar will always be a dollar. So we have the Federal Deposit Insurance Corporation. This is something that the Eurozone doesn't have. This is something that the Eurozone has been fighting for for a decade and a half. Like, are we going to have, you know, do we have a banking union and a fiscal union in addition to our currency union? I think America's currency union really became complete when we finally had a banking union, federal deposit insurance.

32:34So I'm a big believer in federal deposit insurance. I think there are a couple of things, beautiful things that America has produced. Barbecue, the great American songbook, you know, on that list of top five, jazz. I would put federal deposit insurance because it gave us a single national reliable.

32:51David McWilliams: I can really see why people avoid you at dinner parties, by the way. I hide this shit from people. You publicly actually espouse it. You know, I had this moment recently where I was talking to some other historians, so like a bunch of nerds. And I said out loud, I said the following words, I've been reading a lot of 17th and 18th century accounting manuals recently. And the historians went, nerd! You should have stuck to the jazz, actually. Yeah, yeah. Yeah, the jazz, it's a little bit, you know, it's more cross-cultural, it's cross-gender, it works. Go on. So if we think about the two things that sort of kept the money machine aloft, One of them was sort of reliable rule of law and sort of fairly decent banking regulations.

33:36You know, one of the things that we've seen in the fight since the global financial crisis and the euro crisis is that America was actually willing, even though the banks are incredibly powerful in America, they're even more powerful in Germany. And America was willing to impose some capital requirements that Germany was not willing to impose, in particular on Deutsche Bank. Again, this is all relative. I wish we had more power over our banks, but we don't. So, you know, we have fairly comparatively reliable banks and the rule of law, which means if you invest in America, you're not going to lose your money.

34:05Nobody's going to take it from you. And it's not going to collapse because the banking system collapses. All right. So that's one thing that's holding all this a lot. The other is America has had for the entire 20th century this incredibly inventive, generative economy. You know, we're sort of an exporter, an importer, but we make a lot of stuff in America. And we did for a long time. And, you know, theories of innovation, sort of, some of them revolve around if you make stuff, you can invent stuff. But you got to be in there making the stuff with your hands. Yeah, no, absolutely. Right, the beauty of Silicon Valley.

34:39People have been trying to recreate forever. I visited Cambridge 10 years ago and I was driven around by some very hopeful entrepreneurs who said that they were going to turn Cambridge into the Silicon Fence. That it's super hard to do. like get the thinky thinkies and the doy doys and get them together, like actually making stuff, thinking and doing together. That's really difficult. And America pulled that off. When we remove the rule of law, when we challenge the rule of law in America, when we do, as the Trump administration yesterday signaled they were going to do, take away patents from Harvard, we reduce the incentive to think and do and make.

35:16You know, universities working in tandem with people actually building stuff have been in this incredible engine for innovation in America. And we're dismantling it. We're dismantling this big domestic generative idea economy. For some reason, even as the dollar rose, people invented new stuff in America. And I think we're dismantling that. So the two things that we have, this incredibly generative economy that makes new stuff and then sells it domestically, and reliable rule of law and banking regulation. If those are the two things, if I'm right, and those are the two things that hold the dollar aloft.

35:49The Trump administration is sort of rapidly dismantling both of them. You know, we'll talk about crypto later on another day, and unfortunately forever. But I think the stablecoin bill is a disaster. The stablecoin bill is a disaster because it creates a new class of dollar that people are going to rely on that takes us right back to the 19th century. And this sort of unreliable framework of state regulation sort of removes the beauty of federal deposit insurance. It says, here's a new kind of dollar. You don't have to worry about it. Just have at it, states. Good luck to you. And the challenge is, I don't see anybody else willing to take on the responsibility that America has, and in particular the Fed, of maintaining the global dollar.

36:25The Fed will bail out foreign banks who hold their own dollars. Nobody else is willing. Nobody wants to do that. That is a pain. Yeah, nobody wants to do it.

36:33David McWilliams: Nobody wants to do it. You ask the Europeans, like, no way. No, absolutely not. No way. They don't want the responsibility. But, you know, it's possible that as Europe becomes more comfortable, let's be honest, as the Germans become more comfortable with the idea of debt, and as China's domestic economy becomes more generative, I don't think anybody else is going to take on the global bailout role. But there's going to be other places to park your money. It's going to be more appealing to have an asset in China. It's going to be much more appealing to have an asset in Europe. And so I think that this status we had where the United States was safe and generative, I think that status is being challenged.

37:14And the only other thing that's holding onto the dollar is the Fed's willingness to bail everybody out who's holding dollars. And, you know, we're already seeing that Trump is trying to figure out who we can put onto the Fed and challenge that as well. So I'm not very hopeful. I mean, basically, I've got this book about the dollar that you mentioned, the almighty dollar, it's available for pre-order in the United States now. I got to start saying that to everybody I meet.

37:36David McWilliams: Yeah, you're American. You got a flog. I got a flog. Sell it. Oh, my God. I'm American. I got a flog. You Irish are the most ruthlessly entrepreneurial people I have ever known. Don't give me that. But I will say, you know, one of my concerns is like, what's the dollar going to look like on May 5th of next year when this book comes out? Things are changing so rapidly in America that I don't have the confidence that I did when I started this book that this regime of stability and the American inventive economy is going to churn on forever. Brandon, listen, that was a tour de force. The book is called The Almighty Dollar.

38:10David McWilliams: In fact, we're going to come back next week or the week after. We're going to talk about Bitcoin, other forms of money, because there's a ferocious appetite for chatting about this, for being skeptical, for being enthusiastic. But that's a different conversation. This was, I think, an amazing IOPER, an amazing framework to give our listeners through which to examine what's going on in the United States. And as always, Brandon, it's an absolute pleasure. David, it's always a pleasure. John, nice to meet you. And you, Brennan. Thanks, Emil.

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41:09You know, it's such an interesting way to look at America and American debt. I mean, this is something that Elon Musk is banging on about to Trump. But this so-called Dutch disease, I keep trying to say Dutch elm disease, but that's something totally different. Totally different. But just going back, just park the debt, American debt thing there for a second. I just wanted to ask you about the Dutch disease in the 60s and 70s. At the same time, Norway discovered, and Britain, North Sea oil, a huge amount of it. How come they didn't suffer from the same problems?

41:47David McWilliams: Well, the British did. The British did because the British suffered from the collapse of British manufacturing in the 1980s, which was a function of, amongst other things, the overvaluation of sterling, which was a function of the oil find. You're right. Mrs. Thatcher allowed sterling find its own value. And in effect, what she got was the elbowing out of British manufacturing. And it was replaced by the City of London. And the City of London, exactly like the United States, basically had 20 or 30 years where finance was the main industry. Yeah, yeah. The Norwegians are really fascinating. The Norwegians saw what was happening in Britain, saw what was happening in Holland, and they did one thing.

42:28David McWilliams: Remember Brendan was talking about qualitative and quantitative debt? Yes. They qualitatively said, okay, we are not going to piss away this windfall in tax breaks, which is what the British did. So Mrs. Thatcher cut taxes in the 80s, and they pissed away the oil fines. in effect that gave the money to BMW, right? Yes. And German cars, right? The Norwegians said, look, we're not going to do that. So what they did was they created these funds which took the money off the balance sheet of the day-to-day Norwegian government, put them into a sovereign wealth fund, which in effect was saving for future generations.

43:03David McWilliams: That's the first thing. So they didn't have the same massive windfall in the economy. Number two, in comparison to Britain and Holland, both of which were highly sophisticated manufacturing, services-based economies with lots and lots of companies, Norway was a very, very primary product, resource-driven economy. They exported herring. In effect, they had a large fishing fleet. They had agriculture. They had a huge amount of hydroelectricity, but very little else. So there wasn't that much to destroy in Norway. Okay, yeah. It's the same way as there was a huge amount to destroy in Holland and in Britain.

43:43David McWilliams: So I think that's the answer. But I think in conclusion, if you look at what Brendan says as a framework to understand the United States, I think it's a very good one. And I think listeners will have learned a lot. In fact, I've learned a lot because I hadn't seen it in that way. So I think it's, again, sometimes you meet people who've just got that little bit more insightful thought than most others. I'm Brendan Greedy is one of the can we leave it there? yep talk to you Tuesday

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