How Trump Could Kill the Dollar

0:00David McWilliams: This episode of the podcast is brought to you by Count of its Gerald Ireland, proud sponsors of my own festival, the Dawki Book Festival, which is on the 18th and 21st of June. Now, in Dawki, you're going to expect four days of ideas, of literature, of politics, of economics, comedy and culture with over 100 writers, including Salman Rushdie, Tim Berners-Lee, the man who founded the internet and, of course, Booker Prize winner Anne Enright. Join us this summer in Dalky. Thanks again to Cantor Fitzgerald Ireland, helping people plan with clarity, invest with confidence and build lasting wealth.

0:36David McWilliams: Find out more at cantor Fitzgerald.ie. Cantor Fitzgerald Ireland Limited is regulated by the Central Bank of Ireland.

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1:54David McWilliams: To understand the economy, you have to understand human nature.

2:00Brendan Greeley: This podcast is powered by Acast.

2:07David McWilliams: How are you doing there? It is time for the podcast. And today on the podcast, we're going to be talking all about money. Now, not how much you make of it, where you get it, if you don't have it, where you get easy money. If you have it, how do you protect it and get feckers away from you who actually want to, but you don't want to give it to them. none of that. We're going to talk about the Genesis. Well, that's true. I mean, most people don't think about money. What they think about, John, it's like you know, we're thinking conceptually about money, but most people say, look, I have it, now you feck off.

2:33David McWilliams: I'm not giving any of you.

2:34Brendan Greeley: What's yours is mine, what's mine is my own.

2:37David McWilliams: Yeah, or if you don't have it, it's like, how do I make money? And more importantly, I don't want to make it easy. I want easy money. Easy money. As little effort as possible, please. Exactly, exactly. Now, what we want to talk about today, we're going to talk to Brandon Greeley, a monetary historian named brilliant, brilliant thinker who's just written a beautiful book about the dollar called The Almighty Dollar. Now, it is a real tour de force. It gets quite technical in parts, but it's got brilliant stories with brilliant characters with wonderful episodes from economic history. But what it's trying to do, it's trying to synthesize the story of money in a way that is comprehensible.

3:14David McWilliams: So where does it come from? How does it start? Is money sovereign? Is it part of the state or is it something else? And again, you know, is it credit? Is it finance? Is it trust? Is it reputation? What about crypto? Does that offer anything new to the world or is it basically only a reinvention of old stuff? And is our understanding about money simply our understanding of loads and loads of innovation in human behavior over hundreds of years, which has led us to this financial architecture, which we know to be central banking and bank regulation and all that sort of malarkey, John. It is fascinating stuff.

3:56David McWilliams: Why don't we go straight away to Brendan? Yeah. Let's get into the meat and drink of this thing and then you and I can come back and have a chat. We're going straight now to the United States to talk to Brendan Greedy. Now, as a regular listener to the podcast, you will know that I have spent probably the last five years, not just podcasting, but at least three of those years trying to research a book about story of money, the history of money, follow what you will. And anybody who's written a book will know that there are some very dark, dark moments when you just look into your research and you think, where the hell is this going?

4:37David McWilliams: Can I turn it around? Is this relevant? Is this not relevant? Do I have to throw this stuff away? Am I lost? Am I talking absolute shite? writing absolute shite. And then every now and then when I was in those weeds, I used to pick up the phone to our next guest, Brendan Greedy, one of the finances world's best financial correspondent, wonderful monetary economist, has now abandoned scribbling, not abandoned scribbling, but taken a back seat to scribbling, has gone into full-time academia, doing PhDs, all that carry on. But I am delighted to tell you that Brendan knows so much about money and he has produced his own tome, which is going to be published next week.

5:19David McWilliams: It's called The Almighty Dollar. As you can imagine from the title, it's about the story of the almighty dollar, a currency that is never out of the news these days. Brendan, how are you? Great to see it.

5:32Brendan Greeley: I'm great. And I have to say those in the darkness of you writing your book and me writing mine, those were incredibly productive conversations. Like what a blessing to have one other human struggling with the history of money when you are. We actually got places. We ended up talking, you know, in detail about Martin Luther's silver investments in ways that I think was actually generative for both of us.

5:54David McWilliams: A, generative for both of us, and B, led me to speculate. So Mark, just before we start on the Omidyar, Martin Luther's uncles and fathers were speculators and silver mines in what is Silesia in Germany. And they, like most speculators, won a bit and lost a bit. And having lost a bit and having gone bankrupt, Luther himself is sitting there thinking, hmm, who is making all the easy money here? It's certainly not my dad and my uncles who are investing and throwing all their capital, other people's capital, at silver mines. It's those guys in the church who've got this little scam going called selling indulgences.

6:42David McWilliams: And I was wondering, was Martin Luther's hatred of the Catholic or the established Christian church in some way related to the fact that his family kept going bust with silver mines? I threw it out there and it has been one of the speculative punts that has generated most discourse. So thank you, Brendan. I robbed it from you.

7:05Brendan Greeley: No, you very cleverly in the works that we were both discussing and sharing, pick that out as a story thread. And, you know, his family, they were investors in what we might think of as a joint stock company. You know, the early silver market in Germany explains a lot. Engels thought that it was the first proto example of what we think of now as capitalism, the very sophisticated financial organization that pulled capital and sent it down the mine to bring silver back up. I think that you can, you know, that's a load-bearing structure for a lot of ideas.

7:36David McWilliams: Well, I tell you, you heard it here first, and then you read it in Money, a story of humanity that in actual fact would spark the Protestant Reformation was not some religious conversion to part of Martin Luther, but what made him such a cussed, obnoxious, little angry shite was the fact that his parents had lost a fortune on money, and the church was making easy money, and he took it out on them, and fuck it, did he take it out on them. Anyway. Sounds like a fellow with a big chip on his shoulder. Brendan Greedy, the book is nearly out. It has been almost delivered, the almighty dollar. I want to get into some of the fantastic observations in it, which run counter to the established way we think about money and might lead our listeners to a little bit of clarity.

8:22David McWilliams: Now, the first way people think about money, or at least we learn about money, is that money is sovereign. So some king comes up with some great idea. And in his realm, he says, here's my coins. I'm going to put my head on the back of the coin. We're going to mint these coins. And in some way, the origin story of money is the origin story of the state. One of your arguments is that's not true at all.

8:48Brendan Greeley: Yeah, absolutely. I started this as a Fed correspondent. When I started actually pitching this book and thinking about it, I was the US economics editor for the FT, which makes you the Fed correspondent. And if you're a Fed correspondent, you only talk to macroeconomists. These are the people who understand the Fed. These are the people who work within the Fed. These are the people who run the Fed. And so you begin to adopt their assumptions as yours. One of those assumptions is money comes from the Fed. The Fed produces base money, and then the banks sort of expand the money supply through their own activities.

9:17Brendan Greeley: But the state, this organ of the state, the Federal Reserve, generates the money. And it doesn't really matter how they generate that money. So then I began actually trying to figure out how to structure this book. I first thought, I'm going to start in 1971. Nixon closes the gold window. All of a sudden, you have the dollar aloft on its own without any gold. How did that work? And then I realized I had to go back to 1913, the Federal Reserve. And then I keep going back. I have a bad habit of falling down rabbit holes. But I ended up confronting what I now think of as the 1776 problem with the dollar, which is if you assume that, as you point out, most of us do, most of us were taught to assume, that a country is in charge of its own currency.

9:57Brendan Greeley: Then when America claimed political sovereignty, new country, they should have had their own money. The 1776 problem is America claims its own political sovereignty, and it adopts as its currency, the dollar, which is a Spanish coin made out of Mexican silver with a German name. That is a problem. But it's also an opportunity If you once you're willing to abandon the assumption of monetary sovereignty and think, okay, in America, at the very beginning, it was monetary chaos. They were not creators of a currency. They were takers of a currency that came in from the outside. Now, we're sort of starting to pull on a very interesting thread.

10:37Brendan Greeley: What is the actual story of this dollar? You know, that's what led me to, you know, spend the same amount of time that you did, you know, in the mountains of Bohemia and Saxony looking at these very early capital structures. But the basic point for me of the starting point for the book is we didn't create our own money. And in fact, America succumbed to an existing global dollar zone. And once I knew to look for that, I started to see monetary chaos everywhere. I think monetary sovereignty exists. I went through an adolescent period where I was like, there's no such thing as monetary sovereignty.

11:06Brendan Greeley: It's bullshit. And now what I've started to think is you can win monetary sovereignty over the chaos, but it takes a lot of work and it's constantly slipping out of your grasp. and you have to constantly watch where monetary sovereignty is being eroded. I think that's true right now in the United States. It's definitely true in 1776.

11:25David McWilliams: So let's go to right now and then we'll go back to history. Why do you think American sovereignty over the dollar is eroding right now? Because what we hear is all sorts of speculation. Is it the end of the dollar? Is it the beginning of the dollar? Is the dollar the global reserve currency? Yes, it is. People do what people want to. Do the Chinese want to do? Do the Germans want to do it? What happens if the dollar falls? So there's these relentless questions about the dollar. What you're saying is those questions should or could have a basis, in fact, a reality, because things are getting messy.

12:02David McWilliams: Explain that to me, and then we'll go back again.

12:05Brendan Greeley: Yeah, absolutely. So I think that once we have a history of how the United States claimed sovereignty of its own dollar, we sort of understand that it's not just levitating on its own. But if we start right now with a global dollar system, what we're taught is that money comes from the Fed, the dollar comes from the Fed, and then the banks take it and play with it. That doesn't seem to be true. And in fact, the way we produce almost all of the dollars in the world is that commercial banks, private entities, mark up their own balance sheets with brand new deposits denominated in dollars. When a bank makes you a loan in America, it just marks up your account with brand new deposits.

12:42Brendan Greeley: They didn't get those from the Fed. Nobody arrived with a briefcase full of dollars,$100 bills. They just created it. The act of lending from a bank is the act of creating brand new dollars. Okay. So we know that that happens domestically. That's also happening internationally. This is so hard to grasp if you assume that the dollar is sovereign, that it inherently comes from America. But since the 1960s, banks all over the world have been marking up their own balance sheets with brand new dollar denominated deposits. This is exactly the same thing as banks do in America. The problem with sovereignty is they do this without any permission from the United States.

13:18Brendan Greeley: Foreign banks create these offshore dollars, we sometimes also call them euro dollars, without any permission from the Fed, without any permission from the United States Treasury, certainly no permission, nobody asked me. And they do this because it's useful for them. These dollars are useful for these banks. And so the Federal Reserve is actually chasing these dollars. It's not pushing these dollars out into the world. It's protecting these dollars, but it only realized that they were fragile, you know, over the course of the 80s and the 90s. And what the Fed does is it offers swap lines. Again, this sounds complicated.

13:49Brendan Greeley: It's pretty straightforward. The Fed will, in an emergency, lend for a short period of time its own dollars to other central banks that it trusts. Those central banks, in turn, can then provide those dollars, again, short-term loan, to their own commercial banks in case they're worried about the strength of their own balance sheets. This happened in 2008 during the financial crisis. It happened again in 2020 during the pandemic when you and I were desperately trying to figure out how to write these books about money. The Fed didn't generate these dollars. In fact, it's chasing them down, trying to figure out how to protect them to make sure that they're secure after private banks outside of our own borders created them.

14:26Brendan Greeley: That to me doesn't feel like a story of sovereignty. It feels like a story where people are creating their own money because they want to and it's useful. And then we collectively as democracies have to figure out how to make sure that money is safe.

14:39David McWilliams: So in a way, this is the push and pull approach. So listeners, if you have suffered monetary economics, you will have suffered this view, which is that the central bank create the money and they push this money into the system. What you're saying is that in actual fact, something much more interesting to happen is that the central banks are pulled around by the commercial banks who create dollars out of nothing with no permission. And of course, we hear about all these guidelines and these bank of international settlements and this, that, and the other, but in actual fact, the system is quite chaotic.

15:16Brendan Greeley: Absolutely. And when we look at the dollar system domestically in the United States, it started with that chaos as well. So before the Constitution, individual states printed their own money. The financial details of that are sort of, there's too much for this conversation. But in a way, it doesn't matter. Because in the Constitution, the framers decided they did not like the states producing money. It was lightly inflationary. It was useful to farmers. They decided, okay, we're going to give money to the banks. And so there's this clause, the United States Constitution says the states may not print bills of credit.

15:46Brendan Greeley: The bill of credit was just sort of a state printed dollar. But that doesn't mean that the states can just do without money full stop. They need to create some domestic source of circulating currency. Because again, the United States was a taker of foreign silver and gold. It did not have any domestic sources of gold in the 19th century. So what all the states do is they turn around and say, thank you very much. We're good. We're going to charter our own banks. We're going to have the banks do it instead. The banks begin printing dollar notes, dollar deposits. So you have this system very early on.

16:14Brendan Greeley: At the time of the Constitution, there were two chartered banks in America. By the time of the panic of 1837, there are several hundred. So states realize like banks are useful because they can lend money to do certain things that we need them to do. And just as important, they create a circulating form of domestic currency, bank notes. Again, it's not magic. They're not just printing money. When a bank made an agricultural loan or a merchant loan, it would hand out dollars that it had printed itself. Those dollars had meaning because the loan was valuable. The loan would provide a return over time.

16:43Brendan Greeley: The loan is the asset. The note is the liability or the brand new deposits. What we then learned over the course of the next hundred years is that banks are fragile and you have to protect them and you also have to force them to protect themselves. So we have this pattern in America of crisis, regulatory response, crisis, regulatory response. 1837, the banks blow up because of problems in the cotton market. We get the new state banking laws, new reserve requirements, new state level controllers of the currency, bank reporting, what we think now as a call report, the idea that we have the right as a democracy to know what's on a bank's balance sheet, we had to invent that.

17:20Brendan Greeley: 1857, there's another panic. By the time of the Civil War, often we talk about greenbacks coming out of the Civil War. Far more important was a national bank charter. So for the first time, the federal government is chartering private banks all over the country. They can print bank notes, but they have to buy federal debt one-to-one. It's the beginning of this back, a dollar note must be backed by treasuries. Again, there are many more panics, but 1907, there's copper market blows up in New York, banks fail all over the country. We get the beginning of a process that gives us the Federal Reserve.

17:47Brendan Greeley: The Federal Reserve is just codifying practices that banks had already made to keep themselves safe. Banks already had clearinghouses in big cities. The banks in these systems took care of each other. What the Federal Reserve did was it said, okay, this is good practice, but we're going to make it national. We're going to create one that's chartered by the federal government in every financial center. So all of this stuff is a framework that we built up to support the value of commercial banknotes. 1932, again, you get this national panic, the response, a more political Fed that feels a responsibility to make sure that banks are safe and the dollars are safe, and federal deposit insurance.

18:22Brendan Greeley: I always say like the amazing things that America's produced, like if you were going to list them on one hand, you'd have like barbecue and the Great American Songbook and probably jazz and federal deposit insurance. No one else in the world has this. The Eurozone does not have this. A vast pool of federally insured deposit dollars. This is the framework that gave the dollar value. And it's the state slowly claiming sovereignty over the chaotic practices of private banks over time. The dollar has value because of this framework. That's what made it work. Again, we had to chase it down. We had to decide.

18:58Brendan Greeley: Regulatory move by regulatory move that we were going to be sovereign over the dollar and then we've got to hold on to.

19:03David McWilliams: And just sticking with that idea, before we go on to another fascinating part of the book and argument in the book is, to what extent now does the existence of euro dollars, so I think just to give the listeners a sense, there's about 12 trillion euro dollars out there created by banks who are not regulated by the Fed. In a total American supply of dollars of around 20 trillion, I'm thinking these are around the figures. Now, what are the global implications for an increasingly globalized world where banks that are not regulated by the United States have been issuing dollars? We saw the UAE last week.

19:41David McWilliams: We spoke with the UAE on this podcast very recently about three or four weeks ago, rang up the Fed and said, you know what? We would like you to open these swap lines with us because we're worried that we might not necessarily have enough dollars. What are the implications for America of the fact that it has a responsibility for all these dollars that it didn't actually create in the first place?

20:06Brendan Greeley: So I'm going to make an important distinction here because your numbers are absolutely right. You know, the BIS estimates that there are 14 trillion euro dollars in the global system. So, you know, we're talking comparable, as you point out, to dollars produced in America. The UAE did not ring up the Fed. They rang up the treasury. The treasury also has its own swap lines. But one of the things the treasury has been making clear, because they also offered a treasury swap to Argentina in the case that Malay's party won parliamentary elections. So treasury swaps come with strings attached. The administration has made clear, yes, we control the treasury.

20:46Brendan Greeley: We don't necessarily control the Fed, but we've also got our own little swap lines. We can jump in and help you, comma, but. But, and there's a number of things that come after that, but I think it's not an accident. Listen, I don't have any reporting that suggests that this is true. This is purely assumption on my part. But I don't think it's an accident that the UAE asked Treasury for the swap line and within a week also said, you know what, we're going to leave OPEC and we're going to pump as much oil as anybody wants in the world. And we're going to drive down the price of oil as soon as we clear up the strait of farmers.

21:13Brendan Greeley: So, you know, China also offers these swap lines denominated in yuan, right? So there are some offshore yuan. They're very difficult to measure. But the existence of the swap lines from the People's Bank of China suggests that these offshore yuan must exist. The problem is, and this is really interesting research from Aditi Sahasrabuda at Brown, has sort of talked to a lot of people around the world about sort of how they feel about these swap lines from China. And the assumption is swap lines come with political strings attached. The difference is the Fed basically says, we're not protecting America.

21:47Brendan Greeley: We're protecting the, sorry, they are, of course, protecting America. but they do that through protecting the global dollar system. They have a group of central banks that they trust. In a crisis, no questions asked, they will offer the swap lines if you need them. That's not saying, okay, European Union, we're going to protect you with these swap lines in your banks, but you got to lower tariffs on American cars, right? It's just saying, we're just protecting the dollar system. We'll figure everything else out afterwards. And I think one of the dangers of the dollar system right now is that these swap lines become politicized.

22:16Brendan Greeley: The ones from the Treasury are definitely politicized. One of the fears of a more politicized Federal Reserve is that it will start to attach conditions to these swap lines.

22:25David McWilliams: Well, I'm almost sure that's going to happen given the way things have gone in the last while. But that's fascinating. That's the idea of weaponizing the dollar, weaponizing the vulnerabilities of the system. And as you said, attaching political and our geostrategic consequences to the rest of the world needing dollars. Let's talk about the difference between currency and finance. And again, I know, listener, this might sound like a big jump, but these are really fundamental parts of understanding the nature of money. And you have delved into this. You've gone into the weeds. You've figured this out.

23:00David McWilliams: Explain the difference between money and finance.

23:06Brendan Greeley: Joseph Schumpeter, in his sort of big summary of the history of economic ideas, said, you know, we're stuck with a monetary theory of credit, right? We start with money and then we stack credit on top of it. He said, what we actually need is a credit theory of money. We just start to think of money as credit. I have found recently that I have very little patience for conversations about the philosophy of money. Because philosophers, honestly, they left us a lot to chew on about money, but I'm not sure that they necessarily understood it the way they practiced it. So I just spent for my dissertation about a month in the archives at the Bodleian where they keep the John Locke papers.

23:49Brendan Greeley: So I've looked at his personal finances. He collected every scrap of paper that he got. He understood where his money was going. So, you know, John Locke didn't believe that money began with credit. He believed that money starts as a coin. For him, it was silver. He was probably influenced by the prominence of the silver dollar in the Atlantic economy at the time. But I got to tell you, David, for a man who believed that money was silver, he certainly used a lot of credit. That's how he paid for everything. He had a bookseller. He had an account with his bookseller. The bookseller sold his books and in return paid for things for him.

24:25Brendan Greeley: He never touched a coin. He never touched even a banknote. He basically lived his life on the ledger of his bookseller. You know, it gets slightly more complicated than that, but not that different. So there is a financial historian named Rebecca Spang, who I've found profoundly helpful in this. And she wrote a beautiful book called Stuff and Money at the Time of the French Revolution. And in that book, she argues, I'm paraphrasing, that any woman buying bread in a market knew as much about money as David Hume. I think that's absolutely true. And so one of the things I've tried to do in this book is sort of follow Rebecca Spang's approach and be absolutely ruthless about saying they paid for that.

25:02Brendan Greeley: How? What was the actual payment? What did they actually do, right? What went across the barrel head in return for the bread? And the thing that we find again and again and again is at the smallest levels, money is credit. The coin does not sit underneath the money. It sits on the edge. It's useful for clearing sometimes. But, you know, in every market that I've looked at, you know, when we look at Annapolis, Maryland at the time of the revolution, what you had was shopkeepers kept ledgers. and those ledgers served as money. Bar keepers kept ledgers. You know, if you had a tab at a bar, somebody else could buy your tab.

25:40Brendan Greeley: And in doing so, they would pay their debt to you. We can see this. We can see this happening on the bar ledgers. Again, you know, I followed a carriage salesman in New Orleans, you know, who sort of moved into the sugar trade. Almost all of his money was not what we would think of as cash. It was not silver. It was not gold. It was just obligations that he had with carriage makers in New Jersey. And, you know, eventually when he became a sugar planter with his sugar factor in New Orleans when he moved up the river to plant sugar. So the money starts with credit and we can understand it. It's not magic.

26:10Brendan Greeley: It's finance. We can understand finance. It drives me crazy when you talk to macroeconomists about money. They're such hard-nosed people. And then the second you start talking about what money is, they're like, I don't know, man.

26:22David McWilliams: It's like a social convention or something. Well, it's fascinating you say that, Brendan, because a lot of Irish listeners will know that in the past in Ireland, there was a reason why in most villages, the grocer, the publican, and the undertaker were one and the same person. So this was part of the class, the commercial class that existed in Ireland after the famine, before the famine, all the way up until the 1950s and 60s. What those people were doing, in effect, was they were the bank of the village. They provided the credit for the punters and the grocer. They provided the credit for the punters in the bar and they financed the funeral.

27:06David McWilliams: Why did they finance the funerals? Because at the end, the funeral was a day of atonement. The individual had assets and then at least they knew where the money was. And that's why it was all settled. Now, I've always found this fascinating because that makes sense to us. It makes complete sense, right? You know, you think, why was the grocer and the undertaker and the barman the same person. Because what bonded them all together was the credit and debits of the village. And that's exactly what you're saying.

27:37Brendan Greeley: Absolutely. Death was a moment of settlement. When you look at the Maryland Gazette, which was the newspaper in Annapolis in the 18th century, what you see are a lot of death notices. And the death notices say, clear your accounts with this person. And a lot of what we know about the economy of that era comes from looking at summaries of wealth at the moment of death. And the summary of wealth would at the bottom, it would list every asset that you had. At the very bottom, it would say debits and credits, people who owed you money and people whom you owed money. And there's this great story of Anne Catherine Green, who was the wife of Jonas Green, who was the state printer or the provincial printer of Maryland.

28:14Brendan Greeley: Jonas Green died. He seemed to have been a generous man with credits. So a lot of people had book credits that they owed Jonas Green for printing jobs that he'd done for them. And Catherine Green absolutely knew how a printer's office worked. The next day after he died, she put another edition of the paper out, said, hi, I'm your new printer. By the way, many of you owe my husband money. Remember that I own a newspaper. And if you do not clear your debts with me on the occasion of his death, I will print your names in this newspaper. Very sharp woman. And then use that to buy her house free and clear.

28:48So let's establish one, money starts with chaos

28:52David McWilliams: and central banks chase the chaos trying to police it as events overwhelm them, underwhelm them, and they react to it. That's the first big claim of the book, which I love. Second big claim of the book is that money starts with credit. It doesn't start with coins. It doesn't start with a physical transaction. It certainly doesn't start with the nonsense of barter and all that stuff that we learned when we were in school. Okay, so it starts with credit. And credit then is finance. It's the bedrock of finance. And things like reputation, trust, rates of interest, all these things flow from that and are enmeshed with that.

29:30David McWilliams: And then finally, what does this mean for our comprehension, Brendan? And I know we're trying to synthesize a book in a very short conversation. Well, not that short, but a conversation. What does it mean for people's, once you understand those two things, that money is chaos and sovereignty tries to catch up with it. The euro dollar system is enormous and there's a fragility at the center of the global system, which may or may not be policed by the Fed, but increasingly be policed or could be politically by the Treasury. And certainly if the Treasury takes over the Fed as Donald J. Trump would like, there's no doubt that those swap lines, which are an essential lubricant of the international system, will be politicized or will become more politicized.

30:12David McWilliams: And then finally, you take those two big ideas, right? What does it mean for people's understanding of, we started the Fed, central banking, the Federal Reserve, because an enormous amount of newspaper coverage, of online coverage is, you know, the Federal Reserve said this, and the macroeconomics and the Federal Reserve said that, and they're looking at the rate of interest and the rate of inflation. What you're kind of saying is that's all slightly nonsensical.

30:42Brendan Greeley: Yeah, I'm guilty. Look, I've worked within that system. I was a Fed reporter. And I understand the job of Fed reporter. I'm, you know, there are amazing Fed reporters out there. Colby Smith at the New York Times, Nick Timmeraus, they do amazing work. That is important work. I begin to realize, though, that the reason you report on the Fed and the reason people pay for newspapers subscriptions, Bloomberg subscriptions to get timely news about the Fed is that it absolutely affects the price of debt in America, right? They can raise or lower interest rates. That does have real financial consequences.

31:09Brendan Greeley: is. Hama, but it doesn't necessarily always affect the rest of us. When you work as a Fed reporter, you got your top, you got your lead, right? And then you've got your nut. And then after that, after the nut graph, you've got a paragraph that you're supposed to write that says, why is this important for normal Americans? As a Fed correspondent, I found that paragraph harder and harder to write. Because, you know, the Fed, so the Fed is a bank, important to remember, The Federal Reserve is just a big bank that does what we tell it to do. And, you know, the purpose of a central bank has changed over time.

31:43Brendan Greeley: The canonical example of the central bank, the Bank of England, was chartered for the sole purpose of, and this is in the 1694 charter, carrying on the war against France. That was its job, right? To beat the frogs. That was its job. Over the course of the 19th century, as we know from like all this canonical literature from Walter Badgett, that, you know, the Bank of England figured out new jobs. And then those new jobs become explicitly what we expect of a central bank, right? So they gave the Bank of England the job of producing bank notes, right? Because banks wouldn't always produce them in the units and in the volumes that you need for commerce.

32:17Brendan Greeley: Then it gets the job of providing liquidity in a crisis on its own balance sheet. These are things that central banks had to figure out to do in response to crises. And then the government says, yes, please, that's your job. We'll put that in your job description, the mandate. You know, we can change the mandate. We have to understand the distinction between what we as a democracy can instruct the Federal Reserve to do and the Federal Reserve's independence to make those decisions on its own. So what you don't want is the Treasury Department reaching into the Fed and say, lower interest rates tomorrow or buy all this kind of debt tomorrow.

32:49Brendan Greeley: But you do want the flexibility for the Fed to be responsible to Congress, responsible to a democracy. And we should have the ability to say, you know, you have a new job and that job is important. You know, when we look at the Fed's actual mandate, it's to help the monetary and credit aggregates grow. You know, monetary aggregates are just deposits. Credit aggregates are different kinds of loans in a way to increase the productivity of the economy. That's in the Fed's mandate. Fed doesn't think about what productive loans are, what unproductive loans are. It doesn't really have meaningful credit or monetary aggregates anymore.

33:22Brendan Greeley: It just doesn't think about that stuff. It's gotten out of that business. So my frustration as a Fed reporter is, God, it's such an important institution. and it's very easy to get captured by the Fed because they're lovely, they all have PhDs, they clearly care for what's best for America. And if you've ever reported from Washington, you know that those three qualities, particularly altogether, are incredibly rare in that town. So you sort of begin to identify with the Fed as a Fed reporter and want to protect it as an institution. The challenge is we have to believe that the Fed is an important institution and that we want them to thrive.

33:55Brendan Greeley: We also have to stop letting them assign their own homework and then grade themselves on their own homework. We have to understand the Fed is a bank and it can do what we ask it to do. And that doesn't compromise monetary independence. We have to be careful about that. But, you know, we have decided every 50 years or so that a big bank that answers to us has its own new job. We should feel the power to give the Fed a job if we wanted to take on that job that we think would make the economy more productive. I also think that one of the things that's gotten lost when we forget that the Fed is a bank and we forget that banks create money, is this distinction between backing and redemption.

34:33David McWilliams: Explain that to me.

34:34Brendan Greeley: So in the 19th century, early 19th century, banks in America carried a reserve of dollar silver coins, the same what Alexander Hamilton called the ancient dollar. It's the same dollar that comes from Bohemia and then the Spanish Empire. Okay. Okay. So on demand, they kept a reserve of these coins so that they could redeem your bank notes for coins, right? That's the understanding that we have of what gave those bank notes value. That's not enough. The coin sat on the edge and could be redeemed on demand or the note could be redeemed for the coin on demand. What actually gave the note meaning was the balance sheet of the bank.

35:13Brendan Greeley: The bank made loans. It made loans to farmers or made loans to merchants. And those loans were productive, right? If you had a reserve of silver, but crap loans, your reserve was meaningless because it was going to run out immediately. So the coin sits on the edge of this. It doesn't sit on the bottom of this money. Coins are important. And there are traditions of money that say, you know, the chartless theory of money says it's just a ticket that the nation spends into the economy and then taxes back out. I don't think that's true. But coins matter. They existed. We had them for a reason. But the coin sits on the edge of this transaction.

35:44Brendan Greeley: It doesn't sit underneath of it. And so slowly, as you know, we went through regulatory response after regulatory response to different crises, we made the monetizing of these assets stronger, right? It becomes easier and easier to say this is a farm, this is your inventory, those have meaning, the dollar actually is represented by the asset of your inventory or your farm. And it becomes possible only after 100 years of regulation to in 1932, say private loans are no longer redeemable for gold. And then in 1971, say to the World central bankers, sorry, you can't come to Fort Knox anymore for gold.

36:17Brendan Greeley: So when you pull the coin out, you pull it out from the edge and not from underneath. It's not an act of magic levitation. It's the consequence of 150 years of bank regulation that makes it possible to think about these arrangements that are backed by farms and inventory.

36:35David McWilliams: Now, Brendan, that leads to the last question. If the coin is the product of 150 years of not just regulation, but asset building, wealth creation, streams of income, et cetera. Where does that leave this stuff called cryptocurrency? I mean, it's just not new, David. That's the problem with it's, you know, I've, I went to, I went to Kilkenomics last year

37:05Brendan Greeley: and I was on a bunch of crypto panels. And you're coming again this year and happy to anytime you ask. At Kilkenomics on stage, I finally realized that like how I think of crypto, which is that there are lots of different kinds of crypto. There are stable coins and there are tokens and there's Bitcoin. Okay, all of it together is finance as if the past never happened. There are analogs for every single bit of crypto. When we think about what a token is, it's just a stock, right? It's just an equity share in something in the future. When we think about what a stable coin is, It's just a bank deposit.

37:39Brendan Greeley: It is a runnable dollar denominated liability sitting on the other side of a balance sheet from a bunch of assets. And once, you know, when I talk to somebody about what a stable coin is, I keep coming back to the same response, which is my dude, you just invented a bank. We have those. We know how they work. And so I think there's only one innovation in finance. It's not completely true, but like the most prominent innovation in finance, which we run into again and again and again, is putting runnable liabilities on one side of the balance sheet and crap assets on the other side. That's it. That's the innovation.

38:10Brendan Greeley: And so I think that the danger we run into with crypto is that all these things that are presented as technical innovations are actually financial sleight of hand. The technology is not that important. The finance we know, we understand, we can grasp. There's a reason why we have the SEC in the United States. It's because stocks all went belly up in the 1930s. There's a reason why we have the FDIC and the comptroller of the currency and state bank regulators in the United States. It's because even though we're grateful for bankers, for being risk takers and innovators, and we have to make sure that we know what's on their balance sheets.

38:44Brendan Greeley: We got to be hard nosed and like take a clear look at them and make them prove what's on their balance sheets. So what we've done in the United States with stable coins, for example, is we've taken the regulatory status of antebellum America and recreated it. There's no deposit insurance on stable coins right now in America. and they're regulated by the states. We tried this. I guess it produced some innovation, but it produced a lot of danger as well. So Wyoming seems to be doing an interesting job of regulating its stable coins, but that's one of 50 states. And we have had in the past a race to the bottom on bank regulation.

39:20Brendan Greeley: We could very easily have another one on crypto regulation. I just think crypto is not that new. And like every time I talk to a crypto dude, I'm just like, oh my God, just read a book, Any book. I can recommend some. It doesn't even have to be mine.

39:34David McWilliams: Well, on that note, I do recommend The Almighty Dollar by Brendan Greedy. Whether you're a crypto dude or not, I read the original draft. It is fascinating. We start in deepest Germany, maybe even Sudetenland, which is now part of the Czech Republic, or Czechia as it's called. We go to Spain. We go to Latin America. We come back to America. we look at the fact that Alexander Hamilton wasn't such a great dude we go through wildcat banking we go through these various crises we emerge at the Fed basically it is a tour de force and Brendan as always it's an absolute pleasure and we will see you down in Kilkenny in the first week of November happily

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41:25David McWilliams: Parles-tu français?

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42:08Brendan Greeley: I love having Brendan on. He's so kind of enthusiastic enough for it, isn't he? He's brilliant.

42:14David McWilliams: Yeah, he's very unusual in the tribe of monetary economists out there. I mean, he evokes far more emotions. The book is fantastic.

42:24Brendan Greeley: Absolutely. Anyway, the thing about that, listening to Brendan there, is that I thought I'd actually learned so much, and I did learn so much about money and how it works and what it is. What surprised me about what he was saying there was this whole idea of the euro dollar and how it's kind of created without permission or knowledge, I'm not sure, from the US Fed. And there's$12 trillion there about floating around there. So I'm not really sure if I understand that. How does that work? How does that affect the dollar, the value of the dollar,

43:01David McWilliams: but also politics and money markets? Well, okay. So Eurodollar, very simply, John, it's called the Eurodollar. After the Second World War, Europe was awash with American servicemen.

43:14Brendan Greeley: Yeah.

43:14David McWilliams: And they didn't want to accept payment in dodgy German marks, which had been hyperinflated away, or French francs, or sterling. They're Americans, so they wanted dollars. So banks in Europe, John, post-war, late 1940s, early 1950s, had to be able to create dollars. So when those American servicemen, those American soldiers, GIs, went into a bank in Germany or the subsidiary of an American bank in Germany, they had to be able to do their banking in dollars because they didn't want to accept the currencies, in effect, the Mickey Mouse currencies of Europe. So they required dollars. So the banks who were subsidiaries of the United States in Europe simply started to make loans in dollars to these American servicemen.

44:06David McWilliams: So if the American servicemen wanted to buy a Cadillac, for example, and they were based in Germany, or they wanted to buy, you know, an Elvis Presley album, or they wanted to buy something, they needed dollar accounts.

44:18Brendan Greeley: So only if they were buying American goods. So they weren't going to be using these European goods in the local shop to buy a pack of fags.

44:26David McWilliams: No, no. But you see, you think, because after the Second World War, all goods were American because Europe's industry was completely decimated.

44:33Brendan Greeley: Sure. Decimated. Yeah.

44:35David McWilliams: So anything you bought came from the United States. So for a period of time, the banks started issuing dollar-denominated loans. And then they kept issuing dollar-denominated loans. So you'd arrive up and you'd say, I want to trade with the United States. And I need, let's say, a facility of$100 million. And they'd say, okay, fine. We'll give you that. That's fine. So what you had was a banking system in Europe. This is where the euro dollar comes from. The banking system in Europe that had assets on its balance sheet that weren't dollar denominated, but was issuing dollars to Americans and to European companies.

45:14David McWilliams: And because gradually after the Second World War, all things began to be priced in dollars, oil, commodities, steel, heavy metals, all these sort of things that the world traded, rather than go to America to get your dollars, you can just go to your normal bank and say, could I have a dollar loan? So this euro-dollar system emerged from the real economy. And then, of course, the financial economy in the 1960s, 1970s, and 1980s, they started issuing these loans and debts in dollars, right? They started issuing dollar debt. This all grew up parallel to the American economy, right? So basically what you had was the spread of dollars around the world issued by banks who were not regulated or mandated by the United States.

46:07David McWilliams: Now, what he's saying is this is very much like what happens when you go to buy a car, John. So when you go to buy a car and you look for your 40 grand to buy a car, 30 grand or whatever it is, the bank doesn't ring up the central bank and say, can I have permission to give John Davis money? They just deposit the money into your account and the money exists. So it's kind of magicked up out of nowhere. So if you imagine that the euro dollar is the international equivalent of the bank creating dollars, right? Now, what it means is that there are two systems in play in the world. There is the regular dollar, which is in the United States, and there is this euro dollar, which is all offshore.

46:48David McWilliams: Now, how does the central bank in the United States, the Fed, square this circle? Yeah. That there are dollars which are redeemable in dollars in the United States, are worth the same, but are not actually produced by the Fed or regulated by the Fed. The way they do this is they anoint certain central banks as friends, and they give those certain central banks a swap facility, which means that if there's ever a run on the euro dollar, if there's ever a crisis of dollars in Europe or anywhere else outside the United States, that they will provide the liquidity to militate against the crisis. So in a way, what he's saying is that the Americans, we talk about the reserve currency, you know, and everybody's talking, will the dollar remain a reserve currency?

47:38David McWilliams: It can only be a reserve currency if the central bank, the Federal Reserve, undertakes to honor those swaps. So in a global crisis, the Central Bank of America will actually inject liquidity into the market, settle everything down, somebody's in control. So it means that, I think the implication for the podcast and for people's understanding is that when you hear people saying, oh, the dollar's over, the death of the dollar, right? You know, there's going to be a new reserve currency, whether it's the minby or the euro. Our central bank in Europe would have to undertake the same sort of swap facilities to inject euros into this whole system if we were to have a reserve currency.

48:20David McWilliams: And I don't think anybody in Europe wants to do that. Certainly nobody in China wants to do that. So that's the difference. Yeah, but okay, I understand that. But also, when you're talking about, you know, the weaponizing of the dollar and these swap lines, is an act of extreme aggression then, isn't it? Well, it's both aggression and kind of stupidity. So what he's saying is that the Treasury and the Federal Reserve are two very distinct organizations. So the Federal Reserve is an independent bank which is apolitical on paper. The Treasury is basically the Department of Finance of the United States.

48:58David McWilliams: And that comes under the control of your friend Scott Besant who is working for Donald Trump. If you think about it, right? So Scott Besant has now said, look, there is another source of these dollars, which are our dollars, and we will give them to you. So for example, the great example was Millet, right? They said to Millet, if you win the elections, we will give you, I think it was$20 billion. I can't remember the figure, right? Yeah, I thought it was$40, actually. Maybe it's$40. So suddenly they're making the provision of American dollars in Argentina contingent on a certain side winning the election.

49:38David McWilliams: Now that is financial warfare on a monumental scale. Yeah. Because what they're saying is if we want your guys to win, but if our guys don't win, we will penalize the country by precipitating a currency crisis in Argentina. That is very dangerous stuff. And that's where, I think we might even leave it here. I mean, that's what I think, what Brendan's book, it's fascinating in a whole variety of areas. But I think what it does is it shows us A, how almighty the dollar is, i.e. how ubiquitous it is and how hard it is going to be to ever replace it or at least replace it in the next 10 or 15 or 20 years.

50:19David McWilliams: no matter what the Americans do. That's number one. But the second idea is how a politicized Fed could highly, highly, highly supercharge American foreign policy through their monetary policy, which they haven't done before. They haven't said, look, the dollar is our dollar. If you want it, you do what we say. What they've done thus far is always said, look, the dollar is nonpolitical. You can use it and we'll help you along the way. Right? Yeah. The Trump administration or whatever comes after it could make the dollar highly politicized. And that would be the beginning of the end for the dollar because I think Brendan's big point is that the dollar is almighty because it's beyond politics.

51:03David McWilliams: It's just this creation of credit. It's a currency that people accept. The minute you put strings onto a currency, for example, I think that that's the end of the currency. So what he's just saying is a warning sign. that although it might seem in the very short term attractive to Besant to do this, in the long term, what gives the dollar its extraordinary power is the fact that it's accepted by everybody one-on-one. And you can always think that your dollars are as good as American dollars. If that were to change, because there's condition put on your dollars as a foreigner, then I think the mystique of the dollar would be shattered.

51:46David McWilliams: so maybe we will leave there mmm woohoo

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