#27 - Luke Gromen

29:15So yeah, so I guess almost 40 years. So the point being is that what they forgot in this ensuing 35 years is you need to ensure to reinvest into your own infrastructure, physical infrastructure, your own physical manufacturing, defense, industrial base to be able to maintain that level of dominance. Because if for some reason you lose your ability to basically go pound people in the head and nuclear weapons are ultimately that sort of trump card, then all of a sudden you get what we have on that chart that you're showing right there, right? Exactly. Saddam tried this. It didn't work out well. Qaddafi tried a version of this.

29:56It didn't work out well. Why? Neither had nukes. Putin started doing it in 08, and China and Xi followed shortly thereafter. And, you know, like you said in your conversation with Peter McCormick, like key parts of the U.S. military are now made in China. You can't go to war with China to stop them from doing this because they won't sell you the rare earth magnets that you need to make the weapons to point at them. And the lead time on redeveloping those capabilities is decades, a decade, best case. And so, yeah. One thing you're saying that I wanted to point out on this chart is the entire concept of the entire world being run on dollars is really kind of like a 80s to post 1990s.

30:38It's like as the Soviet Union fell, that's why USD just massively expanded like this and gold shrank to such an extent over here. And here is like you can argue like peak America is like right before the 2008 financial crisis. Then it was kind of skittering along like this, and then it's become receding. And we don't know the rate at which it's going to do so, but it'll probably hit 50 % in the next few years. But this is the graph that you're basically referring to when you said it's essentially a last 30 years phenomenon. Yep. Yeah. And this goes back to my sort of initial overriding view, which is post-2008, the world started going back to gold because they simply had to.

31:20It wasn't an attack on America. And quite honestly, what they're doing with gold will be very good for the parts of America that have been hurt. But that implies a lot of inflation, right? The winners—yeah, so go ahead. This is the thing where—so we agree on a lot. I think the thing which I wanted to discuss with you—so you've mentioned, for example, I think it was 1982 or thereabouts, Israel had a bout of very serious inflation that essentially, like, wiped out their debts, and they were able to reboot and get going, right? Was it 82? Did I get the date wrong? I want to say it was like 84, 85, something like that.

31:57Fine. OK. In that ballpark, right? Yeah. It was like, yeah, early to mid 80s. Yeah, something like that. Fine. So shekel just got really inflated and so on. And my view is that that will be much, much, much worse in the US for the following reasons. A, the shekel wasn't the global reserve currency. B, Israel at the time was not a central hub of the world economy. and even today is only 150th or what have you the size of the USA, right?

32:27C, lots of other countries weren't holding like shekels as treasuries. And so like, it was just very much a spoke rather than a hub, you know? So a spoke, you know, in the sense of like a hub and spoke topology, like for a wheel, right? So a spoke can just go and kind of do it at once and it fails, doesn't matter. but a hub to fill in that way, basically all kinds of spokes just blow up and so and so forth. And moreover, and I wanted your, so first tell me if you agree with that or not, that it's much worse for that to happen. Okay. I agree with that. And I would, I would say, I think that gold chart is sort of the, the preparation for that.

33:07Right. So I think, I think your view of that is correct. And I think ultimately, right, if you are a dollar asset holder and you see the direction this is going, what do you start doing? Right. It's like what you do as a human is like, hey, there's somebody over there with a bunch of nitroglycerin and they're playing with matches and you kind of slowly back away. Right. And that it tells you two things. Number one, that gold chart turning back higher is the world slowly backing away. Number one. And then I think number two, I do think it supports the view that whenever it happens, because it is a hub, not a spoke, that gold going to 50%, 60%, 80%, back to where it was when this whole thing started in the late 60s, people think that's going to happen linearly.

33:55And I think the fact that it's a hub and not a spoke issue means it's going to happen nonlinearly. In other words, we're going to have a six month period and it's going to be gold, 3 ,600, 3 ,800, 4 ,100, something, 4 ,500. Something happens, 14 ,000 in six months, something like that. And then all of a sudden you can go, okay, well, all of those dollar holders balance sheets are indifferent, right? They don't care if they owe$10 trillion or$8 trillion in dollar FX reserves and$1 trillion in gold or$10 trillion in gold and zero in dollars. What's funny about this is one of the counterarguments I saw when I posted that chart that we just looked at, people are like, that's just due to the price of gold going up and the price of treasury is going down.

34:48as if they were like oh you know rookie mistake and like but why is the price of that's the whole shooting match that's the whole thing it's the whole thing why is the price going up so much well oh it's only because yeah you know it's actually do you see that article the fed tried to put out last year uh where they said a small group of countries is buying gold instead of treasuries. Did you see this thing? Hold on. I think I did, but remind me. And like the small group of countries is like 45 % of global population or something, right? Yeah, yeah, yeah, yeah, exactly. Other than that, how was the play, Mrs.

35:26Lincoln? Exactly, exactly what I was thinking. Hold on. Let me show you this one. This is a banger. All right, here we go. So the Fed, by the way, this is my tweet. There was like 1.1 million views of their like, because you know how the QT of the post actually gets most of the views or what have you, right? So in today's post, the authors note the narrative is about declining dollar share and increasing roles for gold holdings by central banks, inappropriately generalized actions of a small group of countries, right? And a small group, China, India, Russia, and Turkey. Exactly. So it was like, it was very close.

35:59It was 37.5 % of the world population. Right. And the world's factory and the world's manufacturing powerhouse and the world's IT outsourcing hub and the most important port in the world. It's crazy. The world's biggest energy and commodity producer. Yeah, and what they're doing is they're taking all these small euro states. This, by the way, is a common thing that I observe is lots of, see, a lot of Americans think, okay, there's US and then maybe Europe. and they just completely discount Asia and also like, you know, the Middle East and, you know, like they just, uh, part of the reason for that, I think is, as I was mentioning on the McCormack episode, you, I think have a more global view than most.

36:48Right. But I think most people, many Americans have simply not seen enough media or being physically overseas enough to see like, Like it's real, right? A lot of there's a lot of amazing stuff that's happening overseas. And so because of that, when they hear, oh, you know, for example, Trump got all of Europe to go and sit in front of the desk, they're like, well, we're dominating the world. Everything else is a, you know, third world country. And so I'm saying, right, there's some some of that. Maybe maybe you go ahead. I saw. Oh, yeah, I saw it with Russia. Right. We're at we're in 2022. It would be right.

37:18Well, Russia's GDP is less than Italy's or Maine. Yeah, it's a gas station with nukes kind of thing. Right. Right, and it's like there's a fundamental first principle miscalculation around leverage. And by that, I mean Russia is – if you take Russia's oil production, they are roughly 11 to 15 percent of global oil net exports. If you took 11 to 14 percent of global oil net exports off the market, oil would be, I don't know,$400,$500,$600 a barrel the next day. Every bond market in the West would have crashed. What is the price sensitivity there? I actually don't know what it is. You know what?

37:55Someone ran it for me once. It's very inelastic. You have demand destruction also and so on. So it's complicated. But go ahead. It's complicated. But especially early on, it's extremely inelastic, number one. But then number two, it's that second derivative of the bond market, right? Like everyone's like, oh, we survived the 70s. Well, we survived the 70s oil spike because we had already devalued the debt from 110 % of GDP in 1946 to 30 % by 1970. 70. So like blowing up, you know, having oil quadruple overnight, basically, or in six months didn't blow up the bond mark because they could raise rates to basically, you know, we still had the inflation, but it prevented that you couldn't have a debt death spiral in the treasury market, in the fundamental asset of the world at 7%, 8%, 10%, 15 % fed fund rate.

38:42We haven't devalued the debt. So like if you tried to take Russian oil off the market, completely off the market, you would spike oil up several hundred dollars a barrel, and you would literally blow up the treasury market within hours, if not minutes, which is the fundamental collateral underpinning the entire banking system, the entire Western financial system, the entire Western financialized economy. And so it's that second and third derivative when you're starting from the wrong first principle where you say, well, Russia is not that important. Russia is critically important because people, you know, these are the arguments you get from people like, well, where's electricity come from?

39:21From a wall. And where's food come? Oh, it comes from a grocery store. You know, how big is Russia's GDP? Oh, it's smaller than Maine. Like it's the same like level of understanding. Yeah, but if you look at it, have you seen the PPP chart? The World Bank PPP chart? They had to grudgingly admit last year that if you look at them purchasing power parity terms, China number one, USA number two, India number three, Russia number four. It's astonishing. Like literally the four bricks are the bit for the brick, right? The RIC of bricks are number one, number three and number four. And now the administration has managed to put them all at least partially adverse to the U.S.

40:01for whatever. You know what it is? I think Democrats just were just like, in my view, irrational about Russia. And I think there could have been a way to avoid a war. And now, unfortunately, a lot of Republicans are, in my view, irrational in India. and the domestic sentiment is pushing a – it's definitely provoked by the – like India was fine. India was actually one of the few countries in the world that was still very pro-American. And now they just managed to push them against the US unfortunately, which is very unfortunate because I know I have a lot of friends over there. You should get the Nobel Peace Project pushing India and China together.

40:37Yeah, exactly. That's right. But the problem is here, the problem is that the current admin in many ways treats its enemies better than its friends. So, yeah, it's sort of, and you know, it's fascinating. I read, I've seen that purchasing power parity chart. I would, I would add on two things. First, there was a new, um, Asia times article this week highlighting, I think it's called the skull chart or something. And, and what the Trump, you know, why Trump keeps it right. Yeah, exactly. And it was incredible to me. he lays out that I don't know if it's the IMF's calculation of PPP GDP, but they look at it per capita.

41:14And even as much as they begrudgingly admitted it, apparently the PPP per capita GDP of China is still basically on par with Mexico. And he's like, are you crazy? Go to the top 100 cities in China and look at it relative to Mexico City and tell me. It's obviously the numbers, like whatever it is that I don't know exactly how the numbers are being manipulated because China, as I said, has an interest in sandbagging and America has interest also in sandbagging finest numbers for them, right? Yeah, exactly. So America's just something, China's sandbagging. And the combination is China wants to appear weak and America wants to appear strong.

41:51And so exactly how China is coming in at like this very low GDP per capita number, If you've been to China, it's obviously a very wealthy society. Like it's obviously ahead in many ways. Go ahead. Yeah, I was going to say, you know, the other thing I'd highlight within that is, and this speaks to the fundamental, a fundamental problem with the strategy vis-a-vis Russia and China and now India, but Russia and China particularly, which is if you go to your average Western, particularly neoliberal economists and talk about PPP GDP, they'll tell you it's bullshit, right? It's a bullshit number, blah, blah, blah.

42:31Yeah, they always say that. Yeah, exactly. They always say it, always. But there is, when it stops being bullshit is when the bullets start flying. Because in the end, whether you've got a hundred dollar really nifty missile, or you can make 100 just slightly less nifty missiles for that same hundred dollars, the guy with the bigger ppp gdp wins going away exactly in russia and so like you know in this negotiation if you're russia and china we literally can't go to work like you you know if if war is the politics by other means or the continuation of politics by other means ppp gdp metrics means this has to stop at either short of conventional war or nuclear war and russia and china has to have to know this.

43:22You know, and it's saying like a PPP is pew, pew, pew, you know, like the pistol, right? Yeah, yeah, yeah, yeah. Right. So it's a good mnemonic or something. I, you know, two other addendums to what you just said, which are all the people who are complaining about Chinese overproduction. They're like, oh my God, China's dumping its stuff. And so what they, what they really mean is China has such insane manufacturing scale that they can crank out very sophisticated kinds of things like electric cars. They're not easy to make, right? Especially not easy to make cheaply and not easy to make cheaply and at a profit while doing so.

44:01You know, positive margin, low cost is very, very, very hard to do. They can make all of this stuff at such enormous scale. And this is so-called overproduction, supposedly bad that they're doing it. But imagine, I mean, in like when the U.S. is fighting World War II, everybody complained about American overproduction, because America had all the factories, just crank out everything and solve everything with just artillery rounds and just, you know, just had this absolutely enormous, you know, could have like an ice cream ship and so on and so forth as people talked about that time. That's what overproduction means.

44:35It means that, imagine complaining about overproduction of war, exactly as you're saying, right? Or similarly with the tariff thing, it's related to the point on the drones, which is if you're just protecting the american home market that is an admission that the american product is not price competitive abroad in some neutral market right if if it's a morocco or mexico or or you know i don't know the middle east and you've got an american product on the shelf and the chinese product on the shelf if the american product is not price competitive there then that means it's like not price competitive in the physical world like you can't crank out enough at a low enough price and high enough quality.

45:16And so the home tariff, you know, anyway, go ahead. So Josh Wolf testifies to Congress in summer 2023. And I think it's a super illustration of what you just described of if we need the protection, we can't compete on a scale standpoint. Yeah. And right. So he highlighted that the cost of a U.S. nuclear power plant, which takes far longer to build is still six to seven times more expensive than a chinese one per per gigawatt and to me yeah that was that was the whole like it was a huge admission which is a gigawatt in the u.s is a gigawatt in china there's no special physics in the u.s or china right a gigawatt is a gigawatt exactly the cost structure in the u.s it tells you that the yuan is 90 percent like the dollar is 90 percent overvalued versus the yuan because if the chinese and the yuan market can build a gigawatt for one sixth that the americans can it tells you that the dollar is 85 percent overvalued 83 percent overvalued against the yuan that's right that's right and you know there's another piece of this that it took me a long time to articulate properly um or let me give two or three pieces and again just premises and you shoot at them you tell me if I'm wrong and you disagree or something.

46:37So China's stock market has been flat for a long time, flat-ish, right? Recently, Chinese tech stocks have started to run, but overall, I would say China saves in factories, not equities. Like, for example, if you had a stock that was increasing, you could sell that stock and take the cash and then go and invest in a physical plant and so on and so forth. In theory, you know, Amazon did this for a long time, even though their stock has run quite a bit, they would take their free cash flow and keep reinvesting it. So they have very low profit margins, but they had enormous scale. So that's why the street would keep investing in their scale.

47:12Right. So, yeah. And I would add to that, that the other side of that same coin, and I'll let you continue is the world, because the Americans don't make anything the world wants on net save in American stocks as the dollars are currency. And they can't save in Chinese factories with American dollars or Chinese. You want since obviously have capital control. So what we end up with is often saying, oh, we'll look at our stock market to their stock market. We're dominating. And that's not exactly the message in my view. It's an apples to oranges message. There's another piece of it that, again, it took me a while to figure out, which is if you talk about how the US is printing money, somebody who's smart would say, well, China's also printing money.

47:51They're printing quite a lot. So why is it bad if they're becoming so strong with it? And my answer to that now, my tentative answer, which I reserve the right to revise, but what I think is actually the case is if you think of inflation as taxation without legislation, Milton Friedman's line, where basically by money printing, you are effectively seizing a bunch of the assets of the population. In theory, you could actually spend that well. And what the Chinese government did is it spent it on roads and bridges and automated ports and gleaming this and gleaming that. And so all of this public infrastructure that increased the Chinese people's productive capacity.

48:37Yeah, and standard of living. But yes, but what they also did is they also kept prices down or the RMB exchange rate down so that exports could work, right? Right. So they the part that I think I hadn't fully conceptualized is inflation is taxation, but taxation could be used in a positive some way, because in the US, it's it's just not like the hundred billion is taxed in California. It's all just stolen. And it's just all radical, radical waste beyond anybody can imagine. Right. Yeah. And the global war on terror. Right. We spent eight trillion dollars. And what do we have to show for that? Like nothing.

49:18Exactly. That's right. Even even this whole buildup to fight China is, you know, I could tell from the beginning, honestly, you know, that that that chart of the supply chain, like the U.S. military is made in China. Yep. The one that we both. Right. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Yeah. Go. Exactly. Good memory. Exactly. That's right. So there is a$400 million Pentagon study that basically showed that these famous American weapons, the Tomahawk and the JDAM, their supplier supplier is in Shenzhen or Shanghai or something like that for hundreds of different kinds of companies.

49:52Right. So and of course, China has a full database of every part that's going out there. And so, you know, there's a button they can press that says shut off the American economy. Right. Which is why Trump had to blink on this trade war. and he's been up lots of other countries, but he keeps extending the 90 day thing with China or what have you, because he can't cut it off. Right. And now you're seeing Hegseth basically saying, and this very, I don't think it's the defense strategy being publicly confirmed yet, but that thing you tweeted and the thing I tweeted, right. You posted, if I'm not mistaken, that Hegseth that told China, there's no conflict with them.

50:29Yeah. They're turning away. And I, to refocus on basically rebuilding here. I think it is the biggest development since the fall of the Berlin Wall from a geopolitical standpoint. Absolutely. It is that big. And the stuff about the Department of War and so on and so forth, it's almost like a shouting retreat, right? Like in the sense of MAGA, and look, I'm sympathetic to some, I mean, you know, I understand why, where they are and where they're coming from. So I'm sympathetic in some ways. but they're conflicted because on the one hand they want america to be great which is this giant empire that has you know all this strength and this number one and so on on the other hand they want it to be just a country again not an economic zone which means like withdrawal from the whole world and everybody else you go and do your thing stop exploiting us and so on and so forth they don't understand the tension between these two worldviews which is to say that pullback is actually, in some real sense, a weakening of the empire.

51:32And then the question is, will Sanders of the Living persist? And now here's a point that maybe you'd agree with, maybe you wouldn't. I think it's very difficult for them to do this pullback because the U.S. can't tolerate a decline to, like, number two, since its business model is money printing. That requires you to be global number one. If you stop, if you pull back from Asia, and now you're just doing the Western Hemisphere, and you may pull back from Europe and just let Russia have that, okay? Now, everybody reassesses where they want. It's no longer a global reserve currency. It only has some historical kind of traction to it.

52:10All kinds of people move into gold. There's a repricing thing you're talking about. The U.S. loses control. The dollar is no longer the reserve currency. And that means prices explode in the U.S. upward because the dollar's purchasing power drops. And they could explode upward as a very rough estimate. This is extremely rough. There's 300 million Americans. How many people worldwide are currently using the dollar? Maybe$1 billion to$2 billion, maybe$8 billion at the max, right? Some billion. Let's say$3 billion, OK? And if that shrinks back to just U.S. citizens or even just U.S. citizens plus some Canadians and so on and so forth, that could be like a 90 % decline in the tax base.

52:47even if it went from$700 million to$330 million, it would be a 50 % decline in the tax base, it would be a 50 % devaluation of the dollar, right? That's like a radical—then on top of that, all these countries will stop sending parts and so on and so forth. So you can see a stacking of tariffs plus rise of Bitcoin, rise of gold, plus other countries pulling out effectively of the dollar taxation union. And so I think it's very hard to see a good outcome for that, though I also don't see any other possible outcome. Let me let me know your thoughts. I agree with your framing of it. And I think I agree with your conclusion around we're at this point where we don't really have a choice.

53:31If we continue this business model, we literally cannot produce the weapons we need to enforce this business model. So this business model is de facto dead. It just hasn't been fully marked to market yet. I think your math around the marking to market of it is directionally accurate. And we can debate various metrics, whatever it is. As you were saying that, I'm reminded of a great meme. I posted it once upon a time. But if you go back in the U.S. economic data, you can go to 1963, right before we took silver out of quarters and dimes. And you can go look at what the minimum wage is. What minimum wage is?

54:17And I want to say it was like$1.25 or something like that. in 1963. That's five silver quarters. Well, if you look at the silver melt value of a 1963 quarter today, I want to say it's like five bucks or something, four bucks, six bucks, right? So when you say, okay, well then in real money terms, if we had stayed on a gold standard, right? Just let me go with the gold silver, right? But a real money standard, then minimum wage in the United States should be five quarters, six bucks, 30 bucks, 25 bucks, whatever it is. What is it really? It's like less than half that. And that's the whole grift.

55:06That's the whole grift post 71 in a meme. And it describes exactly what you're saying, which is - You should post that. That's a good one. Yeah. Yeah, right. So it's and I posted before I could repost it. And it's it's it is exactly what's about to happen. And I think ultimately what we are watching from the Trump administration and key economic officials, what we are watching with the the browbeating and discreditation of the Fed. I don't think, this is my view of it. I could be wrong. I think Wall Street is entirely too focused on sort of the short-term tactical reasons for why Trump wants to do this.

55:48Oh, it's, you know, he has bad polls or this isn't going well or China's beating him. I don't think that's what it is. I mean, I'm sure it's probably a part of it. But I think the real reason they're beating the heck out of the Fed is they need to change this system. They need the Fed to help them basically start this boulder, this dollar boulder rolling down the hill in terms of, you know, if continuing on sort of U.S. as empire where China makes the weapons for the empire to threaten China with is a dead business model. And it is. Then we have to move to something else or else things get really bad.

56:25And so like the least worst option is you devalue the dollar. You have the Fed help. The issue with this, though, is there's so many graphs I can post, and I'm sure you've seen a bunch of them, on the level of polarization in the U.S. It is, of course, blue versus red, but it's also women versus men. It's young versus old because of the Social Security issue, Medicare, Medicaid. It is, unfortunately, for some, like white, non-white. It is American citizen versus foreigner. It is also, in a sense, American versus other countries, you know, and so and so forth. Right. And and on and on and on. The thing is just riven by, you know, I'm starting to see people even fighting over religion in a way that I actually hadn't seen before in my life, like actual real fights between Catholics and Protestants, for example, on my feed.

57:18I was like, this is like pre 90. This is something I just never seen in your in my lifetime, like passionate kinds of arguments on this kind of thing, right? And it didn't look like they were joking around either, which is new to me, you know? And so from my standpoint, the only thing that is keeping this fragile, like just take Democrat, Republican. Democrats, there's that study that shows only 4 % of Democrats are married to Republican. Obviously Democrats don't vote for Republicans. Now with blue sky, they don't even socialize with Republicans. The one thing they still do, and only barely, is they still trade with Republicans.

57:56because of dollars. So it's like, you know, to reverse the MAGA saying, it actually is an economic zone, not a country. Because it's a binational thing where blue American and right American are as different as North Korean and South Korean. Like, they don't agree on whether men and women exist, right? Like fundamental, you know, that's just like one huge, obvious, you know, visceral example, right? But such huge gaps are like North Korea and South Korea, where they have a fundamentally different conception of how the economy works, the world works, what should be legal, what should be illegal, totally, totally, totally different.

58:31And they're getting more different. And some people say wokeness has been beaten because it's been beaten on X, which is true. That's like saying communism has been beaten. Yes, after the Soviet Union fell, not everyone had to be communist. But North Korea and Cuba continued being communist, actually, right? And that's a good example. That's a good way of thinking about like blue America, a big chunk of us continue to be economist. What's my point? My point is, I don't think you can just retire the dollar and then ship a new script. Like what happens? Let's say that happens. Okay. What happens the next day?

59:07First, blue America and red America would not be able to agree on a currency union after that. Number one. I reject the premise a little bit in that I don't think anything's going to happen to the dollar. So like you go to Latin America, right? They've added zeros forever and they still use the same currency. It's just, you know, how many zeros does it have today? So I think the dollar will remain. Now, what do I think is a distinct possibility is let's continue with the with the USSR example, right? I've got I've got friends from Ukraine who emigrated from Ukraine after the USSR fell. And they they told me this great story.

59:44They said, look, my family was the richest family in the village. My father was a doctor. We had enough in our bank to buy five cars. And so we were rich and they closed the banks on a Friday. And then two weeks later, they opened them back up. And the money that on that Friday, when it closed, bought five cars, bought a month's of grocery, same currency, same register. Like it just, the real purchasing power was taken away like that, you know? And when I say, well, what, you know, what, you know, And her husband was like, oh, yeah, I was saving to buy a motorcycle. Close the banks, reopen the banks.

1:00:21I buy a carton of cigarettes with the money I had saved up to buy a motorcycle. How do people holding gold and silver do, right? And they're like, oh, everyone who held gold and silver is fine. And like your purchasing power is maintained, right? Presumably, you know, Bitcoin, I think, would do be more than fine. But I think that's a much more likely, some version of that, right? of bank holiday, close it down, reopen up, and you've got – however they deal with it on the other side of it. You could do a wealth tax. You could do capital controls. The whole world is going to be different on the other side of it.

1:00:56But I think it's still going to be dollars. I think it's still going to be dollars. And then I concede your political – things get tricky from a political standpoint, right? Do we fight or do we do after 9-11 where it's like, oh my god, we're all going to starve if we don't frigging – know, you know, you know, I, I, but I think COVID showed that like, you know, the disaster doesn't make Americans come together anymore. It just pulls them apart and they just fight more. Right. It's fair. It's fair. It would, you would have to be, you would have to have a great leader because I think you're, to your point, the time, you know, the time of when nine 11 happened, think about a totally different era.

1:01:34I tell my boys, all right, my boys are, are, are in their early twenties, late, late teens. and I tell them, you cannot fathom how amazing America was. How unified it was. 85 to like 2000, like 2001, 2002 even. It was frigging amazing. And yeah, we're not there now. We are absolutely not there. We can't agree on facts. We can't agree on pseudo facts. We can't agree on science. We can't agree on anything. And to your point, it makes it very dangerous. I fully concede it would make it very dangerous. Let me make a second point, which is orthogonal to the first, but adds to it, which is if you were picking a tech stack from scratch today, okay, forget about the political, just technological, because of how the dollar was started, when it was started, and when I say the dollar, it's like ACH, it's Swift, it's a suite of technology, it's Fedwire, and so on and so forth.

1:02:22That tech stack was, when it was started, cutting edge, leading edge. But because it was all set up pre-internet, other countries now that have kind of got all this stuff only going post-internet, Like, you know, China has very sophisticated with WeChat and Alipay and so on and so forth, India's UPI, you know, PogSeguro in South America. And, you know, there's very sophisticated internet native payment systems, obviously cryptocurrency, but also all of the fintech companies, right? Like 18 years ago in 2008, 17 years ago, there weren't that many people around the world who knew how to stand up a new currency, to run payment rails, to do fintech, crypto.

1:03:06That was actually a relatively rare skill set. There were like a few hundred thousand people with a Bloomberg terminal. Now, that is a very widespread skill set. I can do that. I mean, I launched USDC at Coinbase, right? It's the number seven asset, right? Right. That by the way, that's a counter argument some people will give. They'll say, well, dollars will continue to get adopted because stable coins are going to grow. And I actually do agree with that. So the timing on all this is TBD. It could be that everything dies against the dollar and then the dollar, you know, collapse against Bitcoin and gold, just like all local newspapers died against NYT and Wall Street Journal and Washington Post.

1:03:43And then they died against, you know, social media and that might be the right model. I think that might be the right model, right? Yeah. Yeah. So, so that's, that's possible. Um, which will be a lot of instability in its own right. Right. But, um, the, so anyway, so the technological point, I think if you have the dollar no longer being stable, it's so easy for people to set up an internet based thing, whether it's a cryptocurrency or a FinTech or a cryptocurrency backed FinTech, like a lot of stripes, new products, coin-based new products are kind of in that line of thing, right, then no one would adopt the dollar again after it was delegitimized or partially de-dollarized.

1:04:23Like you wouldn't choose it from – you'd only use the dollar as an incumbent technology. You wouldn't pick it from scratch if everybody was picking again. Let me pause there. Yeah, it's a fascinating point because there was a – you can call up on China's scope a speech given by General Kiao Liang of the People's Liberation Army. And this is the same guy who, when he was a colonel, wrote Unrestricted Warfare in 1999, which was a book that I believe still never been published in English, kind of laying out, hey, we got to go against the Americans all these different ways and in unconventional ways.

1:04:57So by 2015, he's now a general. And he gives a speech to senior CCP party members. One of the things, and the name of the speech is the U.S. uses its dollar to dominate the world. And it gives a Chinese version of events of U.S. going off the gold standard and weaponizing the dollars through various cycles over the ensuing 50 years, 45 years. What article is this? It's called U.S. uses its dollar to dominate the world. It's on China Scope. It was published in April 2015. Interesting. And so one thing as it relates to what you said there that I think is very powerful is towards the end of the speech, he says the Americans made a mistake by thinking that China is their enemy.

1:05:45We're not their enemy. The enemy of America and the American dollar are the technological platforms that the Americans are leading the world and pushing out. He said, what is the dollar? The dollar is a currency. When we start to settle trade without the dollar payment rails, will the dollar currency hegemony still exist? This is the question the Americans should be thinking about. Now, he said this 10 years ago, and then he cited the 2014 payment statistics all done without dollar rails on Alipay at the end of 14 on Taobao and whatever other Chinese consumer websites. And they were already doing staggering levels of consumer volumes outside the dollar in non-dollar rails.

1:06:39And he's warning America like, hey, you guys are rushing headlong to push these technologies that are literally undermining the branch. You're cutting off the branch that you're sitting on as it relates to the dollar. And so when I hear you say what you laid out, it's exactly what he warned about 10 years ago. And I think we're watching it in real time. And I think not only is it gaining critical mass by virtue of China's mass and global usage of things like Alipay and WeChat, but also with U.S. policy where, you know, after you weaponize the dollar enough times, you know, to me, I think when the history books of the last 15, 20, 25 years are written, you know, I think the kicking Iran out of swift in 2012 will go down as one of the great strategic mistakes in history.

1:07:25It was like, you know, it was like being Alabama, playing a team that you're already up 70 to nothing and running a trick play that you need to use against LSU, you know, in a close game and getting it on film. So the whole world, Russia, China, everybody watched that and went, oh, my God, they can hyperinflate us overnight. Within a year, the Chinese were saying we're done buying treasuries and then began really. And then that was peak treasuries. And it started falling. There are whole treasuries. Absolutely. I am surprised they haven't liquidated more than they have because they still hold whatever hundred billion of them.

1:08:01But maybe, you know, I don't know, but maybe it doesn't matter. It's only a hundred billion. I think they have on net. The thing we never see, right? Think about it. That's simply an asset side of a balance sheet, right? We don't know if those are pledged as collateral against the Port of Perea. So that's right. You're right. They could have virtually sold it already. And that's how I would do it if I was them. Because look, if you sell them outright, you're going to get a knock on the door from the American embassy. And it's just an ass ache, right? Yeah. But if you use them as collateral, they love you.

1:08:29Hey, great. I'll take Piraeus. I'll take that oil field. I'll take that copper mine. I'll take all that gold. And again, it's kind of like the same way of the Chinese want to understate their strength. The Americans want to overstate it. Like the American banks are happy to take this dollar collateral. And the Chinese have got to be going like that. Very clever point. Very clever point. So that – because the thing is, the reason I always thought – this is the table that you and I are referring to. It's the treasury table of like countries and their treasury holdings. And one of the weird things about that is it has like Cayman Islands and Belgium and these really small countries supposedly have a lot of treasuries.

1:09:06And what's actually going on there is there's some funny business with like banks in those countries that hold treasuries on behalf of somebody else. And obviously treasuries are, especially the 10-year, it's collateral that is pledged and re-pledged over and over again and all kinds of fancy things around the world. And so, of course, you're right that China can get liquidity on its treasuries without actually selling them. They just pledge them. And you can see the chart of that, yeah. As I would argue, I have a chart. Let me see if I can find it. And that's all just private paper. They don't have to disclose any of that, right?

1:09:39No, and you can see it with GDP to FX reserves, right? So like US, you know. That's it. That's it. That's very clever. I mean, maybe obvious. Maybe somebody else discussed it. It's the first time I had heard that particular argument. It's a very good point. You know, I want to kind of give one more tech lens on this to what you said, which is the dollar as a database is a natural view of like crypto and blockchain people because that's what a blockchain is. A blockchain is a new kind of database, right? And in a sense, I think of the Fed and then the Royal Bank of Canada and – or no, it was Royal Bank of Canada.

1:10:20Basically, the Fed, the Bank of Canada, Bank of England – I forget all the official names, the Bundesbank of Germany and so on. All of those central banks and then all the banks underneath them and all of those people under those – so it's like four layers. There's the Fed, all of the U.S. colonies, basically, right, including Bank of Japan. Then all the banks that are licensed by those central banks and then all of the citizens under them, right, that sort of four-layer structure. That is what I think of as the Fed's video game, right, because they control all the points. They can freeze. They can seize.

1:10:53They can rewind a transaction. They have root access over everything in this database, right? Right. So and they use this against Russia. And actually, there's this book called Treasury's War. By Juan Zarate. Great book. By Juan Zarate. Right. It was actually a smart guy. I think he actually worked at Coinbase at one point. So he basically pointed out that, you know, because the U.S. had control and so much of the world's value flowed through this database that the U.S. had control over, they could freeze and seize and use it for anti-terrorists and that fine. OK. What's happened is you have two contenders, let's call them crypto in China, that a larger one is kind of inside the empire and one is outside the empire.

1:11:36Right. That are databases that the Fed does not have root access over. So it cannot freeze and seize things on the Bitcoin blockchain and other blockchains, not too easily, at least. and it cannot freeze and seize things in the digital yuan or on the Russian ruble or the Indian INR or AED or SGD or other currencies. Some of these are a soft peg to the dollar. Some of these are hard peg, like HKD and AED are peg to the dollar, but they could remove the peg if they needed to and they could go to gold because they run their own ledger, right? So the database aspect of this, But the big thing about it is these two economies, which I call the internet economy, the crypto economy, and the Chinese economy or the BRICS economy, right?

1:12:24Those are growing and then squeezing in the Fed's video game over here. Let me know your thoughts on that. It's just another lens on the whole thing. Yeah, no, I think that makes sense. And I think it's enforced by, particularly on the BRICS side, and the leverage is the physical world, right? It is, you know, we're leveraging manufacturing dominance. We are leveraging energy. We are leveraging the real politic of we have nukes, and the United States has never attacked a nuclear power country. Right. And then the population side, right? You have an enormous, highly educated, highly motivated, and rapidly moving up in terms of living standards per capita consumption.

1:13:18They have the physical world backfill. So as they squeeze, what do we hear so much? Well, they can't live without our consumers. Well, 15 years ago, 20 years ago, 100%. 10 years ago, yeah. Now, it's gotten to the point. We can see it in sort of where the pain has been with post-Liberation Day. Treasury market blew up in seven days, seven trading days. And Trump was getting warned by major U.S. retail CEOs, like, there are going to be empty shelves for Christmas if you don't stop this. Back in April, I hear he was warned. um and so yeah they are backfilling the entire thing is so crazy like you saw the manufacturing jobs print of uh you know how many anyway go ahead you're saying sorry yeah no so i think it's this physical world is is bad they're leveraging that against that sort of those those other two video games if you will squeezing the feds video game i think that's i think it's it's a model i hadn't heard before but that makes sense to me cool awesome all right sir well i think we covered a lot.

1:14:20Anything that you want to say? You have, you know, people should go and check out your sub stack or. No, yeah, I'm very interested. Yeah. Interested in learning more about our research. FFTT-LLC.com, different institutional and mass market products. And as you know, I've got a fairly active feed on X at Luke Groman. But so, yeah, I appreciate it. Cool. This is great. Awesome. Thank you, sir. Likewise. Talk soon. Really enjoyed it. Thank you very much.