Is the US an emerging market?

0:08Hello and welcome to a special edition of the Unhedged podcast, a live recording in a drinking establishment in Ireland, what can possibly go wrong? I have in front of me an audience of real humans. Real humans, say hello! So as usual, I am Katie Martin from the Financial Times in London, but everything else is different. I'm sitting in the Home Rule Club in Kilkenny at the Kilconomics Festival, which is a mix of comedy and economics, which sounds terrible, sounds like the worst idea on earth but it but it works it's great fun you don't need to be a huge economics nerd to enjoy it now the festival is great fun in part because it has great speakers and i've nabbed two of the best of them for the unhedged podcast today they are big welcome please for that guy david mcwilliams thank you everyone knows mcwilliams mcwilliams knows everyone but he's that guy he's an author an economics pointy head he's the patron saint of the Kilkenomics Festival David say hello to the listeners know your voice it is delightful to be doing this from here from the whole room club yeah yeah should be the first of many yeah yeah for sure I'm also joined by that other guy Mark Blythe so David and I pretending we know what we're doing Mark actually knows what he's doing He's the real deal.

1:36He's a professor at Brown University in the States. He's a political economist. I was just doing another session at Kilkenomics with Mark a minute ago, and you were swearing a lot. And this podcast is a family show, Mark. Fair enough. So just, you know, try. Try. Try and keep it in. It's a Scottish thing. We lack adjectives. Now that you've had your kebab, you should be all right. Just to set the scene a little bit, David, what is Kilkenomics? and why does this terrible idea actually work really well? Okay, so Kilkenomics came, it's now in its 15th year, which is kind of bonkers because I still think, oh, we started this a couple of years ago.

2:15The idea came from when this country had one of its many crashes. I was asked to do something very odd, which is to do a one-man show in the Abbey Theatre, our national theatre. So the head of the Abbey said, look everybody can't figure out why on Monday we were the richest people in the world and by Wednesday afternoon we were bankrupt. How do you explain that to everybody because it happened very quickly and when we thought we were flying right we thought we were buying property all over the place and everything was grand. So in the audience were a couple of friends of mine who I've known for a long time one of whom was Richard Cook who was the man behind the Kilkenny Cat Laughs comedy Festival and Richard said to me look there's something about this idea of getting up on stage and doing economics so that was it was the idea was was like most ideas was seen through the bottom of various glasses and we kicked off it was very very hard initially to persuade anyone to come of the of the speakers but what was interesting is even from the very first year the audiences were very strong.

3:27So it meant that people were actually in the mood to understand. I mean, I've always felt that economics is far too important to be left to economists. I actually feel that economists don't understand the economy in many ways. I remember when I was a kid, all of us were obsessed with, and this is girls and boys playing something called football cards, right? So you'd get these football cards. So I'd swap you two Kenny that leashes for a Martin book and showing my age, all that sort of stuff, right? And the kids were so good, all of us naturally took to supply, demand, scarcity, price, value, all these essential ideas.

4:08We took to this as second nature. The clerisy, and this is really important, have mangled the message to such an extraordinary degree that they have elevated possibly the most inarticulate, unrepresentative people to explain this to the average person who when they were eight years old understood it. So this is part of a sort of a career long campaign to bring back the football cards. Yeah, but even when you're talking about the UK budget it's all about like really abstract concepts like fiscal headroom. What the hell is fiscal headroom? You're not talking about real things so let's talk about a real thing.

4:53The SA question I would like to pose to you both today is, is the USA a big fat emerging market? So you used to be an emerging markets guy back in the day, what is an emerging market? Well I think it's very apt that we are sitting here in Kilkenny in the Home Rule Club, which is a really essential part of our Irish history. Because if you were born in Ireland, as I was, as most of us were, we were born in an emerging market. Okay, we have lived in an emerging market. Through my adult childhood and adult life, I've used four currencies. We've had two banking systems. We've had endless fiscal crisis.

5:38We've had current account crises. We've had the IMF in here. we have had austerity so the vast majority of Irish people that I know have spent time abroad and one of the reasons you spend time abroad is because your country produces people but it doesn't have sufficient capital to keep all the people here so we go elsewhere to places where there's more capital and less people so that Irish world view and Irish experience of emigration and perennial fiscal banking current account crises means that we're the old well if we spoke Spanish we'd be Argentinian yeah okay right and we'd be better at football and better at wine and all that sort of stuff we we are we are also incredibly good at taking insults from English people so mark I want to bring you in here because you know one of the really notable thing that's happened over the past few months is that Donald Trump is chipping away hard at the institutions of the US.

6:41At what point do we have to change how we think about the USA? I don't think you do for one simple reason, and we spoke about it on the other panel. It's the dollar. It's just simply the centrality of the dollar to everything. It's 70 % of all global transactions are conducted in dollars. 64 % at this point of reserves are basically treasury notes sitting in different places. Every pension fund in the world basically has a huge layer of treasuries there. And it's kind of international money in the sense that you don't want to hold cash because that's a liability because you don't make any money with it.

7:16You turn it into an asset. What's the easiest thing to turn it into an asset? You just buy another treasury bill. That lowers US interest rates. That allows them to consume more. That then powers the EMs because they're all doing exports. And you get this circle that's basically been going on for the past 30 years. So if dollar centrality is sort of what makes the United States the linchpin of the world economy, you need to have an alternative. Now the alternative would be China, but China doesn't want to increase consumption for various political reasons, and that means that you can't have enough Chinese currency out there because you're not spending enough.

7:49Then it could be the euro, but the euro loves running a surplus against the rest of the world, which means it basically can't do that either because it's not importing enough, it's running an export surplus. So the two other alternatives that you could do this with aren't up to the job. So you're left with what is sometimes referred to as the most attractive blue horse in the factory, which is the dollar. Yeah, exactly. So, you know, they're all crap, but this one's less crap and is more widely accepted. But sterling was a reserve currency once. You know, the long sweep of history is a real thing.

8:22Oh, totally. So, but are we in a situation where all things being equal, Trump is in office for too short a time to completely dismantle this thing? I think we do too much with the institutions. Worrying about the institutions, I share some of those worries. But I don't think that's really it. The peril clutching that goes on with the discussions about the Fed losing its independence. The Fed has been nominally independent since its founding in 1913, but right through World War II, it basically supported the bond market. All the way through the 50s, there was a guy called McChesney Martin, brilliant name, who ran the place, and he basically used the Treasury bill market as a way of regulating the housing market.

9:00It was credit allocation. It was very political. The recent spate of central bank independence really just goes across the world in the 1990s. The vast majority of central banks are absolutely tiny and have no influence on their own domestic monetary policy. Everybody follows the Fed. When I think about it this way, it's less about that. It's more about the centrality of the dollar to everything. The Fed is the global central bank. That won't change regardless of who's using it. Right, right. So, David, if you were still in London making investment recommendations to pension funds and asset managers and others, would you be telling them to think differently about the US at this stage or not?

9:38Yeah, I think the US is changing. I think Mark is absolutely right that the dollar is the central issue because it's impossible to be an emerging market and print the world's reserve currency. These are two things that are impossible to square. But progressively, very good countries can go bad. And this is one of the things that I've noticed about economic history is that bad countries like this one can actually come good. Things work in your favor. You stop making the same mistakes eventually. you know as you know you join the the right institutions for the right time you make the right alliances so I've always said in the case of Ireland it's always reminded me of ourselves in the EU is a bit like a matchmaker you know this idea of kind of marry me now and the love will come later and I think that's the sort of thing that happened to us you know we got into bed with them not really figuring and so a lot of those things have helped and gradually a poor country like this becomes rich, which is really what economics should be all about.

10:43We are unusual in the white world because the white world's narrative is a narrative of decline since the 1950s as a general rule. We are kind of an outlier in the sense that we happen to be West Europeans and our narrative is one of expansion. I think that in the United States it's an insult to emerging markets to be calling the Americans in emerging markets because if you see what the Brazilians have been trying to do if you see what the Asians in particular been trying to do they have been trying to gradually do the right thing so you meant the central bankers they've said well you know what maybe the independence of central banks isn't a bad idea this is a good idea we try to do this you know tariffs they said well no we'll join multilateral organizations we'll open up on our economies, etc.

11:31So my sense is that self-confident countries do not introduce tariffs. Insecure countries introduce tariffs as a general rule. Self-confident countries say we can deal with the open market. Insecure countries say they can't. One of the things I learned years ago was that a total calamity for developing countries was this thing called import substitution, which was a very vogue idea in the 1950s and the 1960s, where large Latin American countries in particular, to a lesser extent Africa, but Latin America because it was a more functioning, a democracy in society and economy, more sophisticated.

12:16They convinced themselves that the way in which they would grow was rather than import Volkswagens from Germany, who the joint firms are very good, they'd make their own Volkswagens and they would actually import the know-how and then in some way they would keep the intellectual capital and they would keep actually the financial flows in these countries. This seemed to have proved to be a very, very poor idea. So the notion that you would have import substitution as the central part of your economic strategy, which is Donald Trump's thing, seems very, very peronist to me. So I think that it's not that the United States is an emerging market, but the United States looks to me like a country that is embracing Peronism, Argentinian-style Peronism.

13:00Argentinian-style Peronism is something that they introduced from the 1950s, and gradually and progressively, the seventh richest country in the world, Argentina, became the 77th richest country in the world. I mean, that's quite an achievement. We were talking a little bit on our previous panel, Mark, about like the really big success of the USA over the past 30 years is to turn itself into a huge machine for just sucking money out of like everywhere else on the planet. Yes. Like, this is quite a skill, right? But it leads to the point where markets reflect how much money is being sucked in and not the real fundamental value of the things inside it.

13:46I guess the kind of, you know, the real crescendo of that is this huge rally that we've seen in US tech stocks and the massive dominance of US tech over the rest of the world. Is that reaching its limits now, do you think? So there's two flows to the money. The one is everybody wants to buy American assets, right? So that's the flows into stock market property, etc, etc. And the other one is there's too many exporters in the world. And they make more stuff than they can never absorb themselves. It has to go somewhere. So you send it to the United States. When you then buy that stuff, you send American currency to whatever foreign banking system, and they now have an asset liability mismatch.

14:26They don't use dollars. And if you're an exporter, you don't want to turn that one-for-one into domestic currency and dump it in your economy, because wages and prices will go up because people will have more money. Consumption will increase. People would be better off. But if you're an exporter, you don't want that, because you want to maintain a low exchange rate, low levels of consumption so that your BMWs are cheap. So you then sterilise that, either publicly or privately, and you turn them into the most easy thing that you can do, another Treasury bill. And then that lowers US interest rates, and that increases demand, and you just keep doing it again.

14:56So there's two sides to this. I've got a huge amount of supply, and I've got a huge amount of demand on both sides for dollars. Now, let's do a counterfactual where you can't buy American assets, and you don't have those flows. the dollar would just be a big currency and it wouldn't actually be central to the world. But because we have structurally so many exporters who need to buy a safety asset, and because that creates outside growth in the United States, because the United States basically has a monopoly on all of the intellectual property, the martyrs and so on and so forth, then you want to buy those American assets.

15:29So they've just been doing this. So it's not just sucking money out of the world. The world is pushing money into the United States. And I don't see it ending because I don't see where else it can go. But in terms of the amount of it that's flowing into US stock markets, normally you can't see that there's a bubble building up in markets until it bursts. Right now, pretty much everyone who looks at markets is like, there's a bubble going on right here in the States. That's weird, isn't it, David? It is. I mean, I think that your colleague, Brendan Greeney, wrote a very interesting piece in the FT, I'd say about six months ago.

16:01and he was trying to look at the United States and he compared it to Holland during the Dutch disease. So basically he said like Holland found a huge amount of gas in the late 1960s and everybody thought hallelujah that's great there's always been an energy problem. Holland has always been an energy importer. They found loads of gas this is going to be a one-off massive positive boost for the economy and it was initially but obviously what happened a wee bit like what's happening here with the multinationals. Because the gas sector was so high productivity, there were loads of good jobs there, loads of good wages, it was generating loads of corporation tax for the state.

16:44Gradually but progressively the Dutch state became out of kilter because resources went into the gas sector and they didn't go into other sectors. So by the mid 70s the Dutch found themselves amazingly almost self-sufficient for a certain amount of their energy requirements, which was a massive positive, but they also noticed that a huge amount of their industries were becoming very, very fragile. And it wasn't just that there was a global recession, it was that they had actually lost lots of the capital and lots of the people, and they also saw that other parts of the economy, for example the housing market and rents were being dragged up by this extraordinary thing called the gas sector.

17:25So they concluded this thing, Dutch disease, is that you can acquire an ailment from something that looks too good to be true. And what Brandon was saying, I was really persuaded by the argument, was that what the Americans found was not gas, but an insatiable appetite for their assets. So that they realized, oh my God, we can just keep printing these pieces of paper. there is no moment where the market walks away and says we won't buy them. There is no moment where the market says well we'll only buy them at such a low price at the rate of interest is through the ceiling. That in fact what the Americans found was that there was an enormous appetite for American finance jiggery pokery, little pieces of paper representing value.

18:17And what he said is that if you're trying to understand the decline of American manufacturing, you have to see it in the context of the ascent of American money. And the ascent of American money has in effect elbowed out real industries. It has also led to the hyper-financialisation of the system. And the hyper-financialisation of the system is in part what drives up house prices, which is in part what is creating the precarious feel of the younger generation, the people who voted for Mandami. My point is, countries change. And what has happened in America is that extraordinary willingness of the rest of the world to hold American assets, like the Dutch people finding gas, has had some very dramatic, deleterious effects on the economy.

19:06And those effects, such as the crushing of American manufacture relative to this, you know, the fire, you know, the finance, insurance, real estate area, is what is driving some of the Trump agenda. Because that's saying, look, we've lost our Pittsburgh Steelers steel. I mean, the Pittsburgh Steelers, there's no steel there anymore. There's a football team, which is an entirely leveraged piece of entertainment asset. You've lost the steel industry, but what you have is this like money-making machine on Wall Street And what Wall Street does, as we all know, is that Wall Street does many, many things, but the last thing it does is distribute capital around the country in an efficient way.

19:51This is like silly economics, right? Yeah, we'll have that. This is the little bit of when you should start telling the kids and economists, no, no, don't believe that. The stock market does not redistribute capital around the country. What it does, it allocates capital to people who have homes, and the Hamptons, who are a very small minority. And they tend also, they might also have franchises for football teams. Like, what you're talking about is a process where it's not that America is becoming an emerging market, but America is moving towards a status quo that looks rather unstable to me. It's not like today the dollar will fall out of bed and it'll be all over.

20:32But But gradually and progressively, the United States may well be 22 % of the world's GDP, but it's 4 % of the world's population. It means 96 % of the rest of us aren't American. And gradually, a power like that disappears. But so, Mark, how close do you think we are to midnight, I guess, in the US stock market? You know, some of the valuations that are there in the tech sector, some of the excesses that you see. Elon Musk has got a trillion dollar pay packet, you know. That Palantir is priced at eleventy bazillion times earnings, you know, more or less. Look, none of these guys are people that I would leave to look after my dog for a weekend, right?

21:22I think that is fair to say. But Mark, you know, how close do you think we are to some sort of reckoning in stocks? Do you think we're close? Yeah, I do. I mean, it's quite obvious because we've been through this many times before. He's written a whole book about it. Look, here's what we've done. We've taken a levered bet on five firms to the tune of$3 trillion. That's basically what's been driving the economy. And the bet is the following. And it's interesting. It's actually something that the Soviets used to believe in, that enough of a quantitative change leads to a qualitative change. And if I just keep adding enough chips to these centres and add enough gates and so on and so forth, then eventually on Friday next week or at some point in the future it'll wake up and say good morning Hal and then whoever has that will run the world.

22:06This is the dumbest bet in human history because it's not going to happen. Scaling is not going to lead to AGI. Ask any of the actual people who understand the science and they'll tell you this is bullshit, this is all marketing. So clearly it's going to go. Now here's the interesting thing about it. 51 % of US stocks are owned by the top 1%. Only 22 % of 401Ks, retirement plans, have assets of more than$10 ,000 in them. The vast majority of Americans have no connection to the stock market whatsoever. 80 % of US consumption is powered by 20 % of the spending of the top 20%. So you've got a very, very unequal distribution here in the sense that the economy is powered by the top 20%, the stocks are owned by the top 1%, and they're all along on a levered bet.

22:49Good luck with that. Now when it goes down what happens, and this is the interesting thing, the nightmare scenario is 2008 and the reason 2008 was very bad is because it wasn't the retained earnings of the firms that they were playing with themselves. If you want to lose your own money that's fine, you lose, your investors lose but the damage isn't that bad. When you borrow everybody else's money to keep making the bet and the bet goes wrong it metastasises through the whole system. So far most of this has been retained earnings because these are the most profitable firms in the world. they are now beginning to borrow.

23:19And if they're borrowing, that's the problem. Because if it goes down, it infects the whole system. So I actually want it to go down sooner rather than later. Because the longer you wait, the more borrowed money will be in this. And that's when everybody else loses. If it goes down now, the top 1 % of households lose. There will be a knock-on effect to the rest of the economy. But it won't be catastrophic. It'll be catastrophic to the firms. That's fine. They made a bet on God. It's not showing up. Yeah. Yeah, and there's also this small thing which used to be called profit. I know. So when you run a little festival like this, on Monday, this little festival, we'll say, okay, what was the revenue?

23:58Grant. What was the cost? Great. Is there a gap between it? I know it's very old-fashioned. And I think that when you have an entire, as you said, ecosystem, which denies the basic idea that making profit is important, and it has some relation to value. Then value becomes storytelling. The king of this is Sam Altman, right? So he runs OpenAI. These are storytellers. They're not business people. He runs OpenAI. It's a loss-making company. It has made, over the past few months, $1.5 trillion of spending commitments. And they've put together all of these deals with other tech firms and whatnot. guess who they've had providing the financial advice to go along with those transactions?

24:50Softbank? Nobody. Oh, even better. Yeah, no, they've figured it all out themselves, because they're very special boys and they're very clever. Remember I said, this is when I come back to this very special boys idea. You know, I think we're all agreed that what we're witnessing in the United States, particularly for an Irish audience, is emblematic of a sort of thing we went through 25 years ago with respect to houses. is what really interests me, and I think this is what Mark is saying, I don't know if you've noticed in the last couple of months an increasing amount of what I always think should be the biggest red flag, which is a special purpose vehicle.

25:26Once you hear this, that your money is in something called a special purpose vehicle, take it out, right? Go across to the bridge bar and drink it all. because you will have a far better time you will be safer your money will be safer your friends will love you right okay so what I've noticed in the last couple of days and of course the data centers is part of it is the sort of the is the location the geographical location of all this spending is that now these large companies are hiving off their data center investments and they're putting them into special purpose vehicles so you've got this unholy and terrifying alliance of the likes of Altman and private equity okay and what they're doing now is they're creating these opaque special purpose vehicles because they're fucking ashamed to have this stuff in their balance sheet right okay because it looks so awful and I think these are straws in the wind if you're trying to think how close are we to that moment by the way we might be there right now given what's been happening.

26:35It's not necessarily that valuations reveal something. It's expensive. I think behavior reveals it. So when the financiers are trying to hide what they're doing, you know that this is the tech equivalent of your big short moment. And it's the opacity that should be ringing the bells for us. And I think that's what's going on. Now to come back to our topic, which is, is the US or could it be an emerging market? The question is, if this were to happen, and if, let's say, Mark is right, but there is a percolation down into the average balance sheet, and the United States goes into maybe not 2008, but something nasty where you get contagion in the system, and you have, you know, investment funds go bust, and then you realise, oh shit, they were on the hook for that.

27:30and you get a systemic problem. Then the question is, does the Federal Reserve act as it did in 2008 and bail out the United States? Or does the Federal Reserve use its power as the Bank of England did over our friend the Lettuce? What was her name again? Lettuce. Sorry, I was gone there, right? does the Fed behave like the Bank of England and actually destroy the premiership because I think it's fair to say that the Bank of England had a hand in that and that's interesting it was a very targeted rescue wasn't it it didn't flood the zone it was very clever so if the Fed doesn't flood the zone because the Fed is upset with Donny Jay and still has a sufficient amount of independence what we could then get is a very interesting political crisis resulting from the behaviour of our friends in Silicon Valley.

28:35That would be quite ironic but certainly possible. It's not my central case but it's the one that I find interesting. Do you think the Fed would have the balls for that fight Mark? Well their overwhelming ambition in life is to don't do anything that's political. But everything is political. That would be the most political thing that they could do. I think if the Fed really thought that they were facing extinction, in the sense that none of the regional Fed positions, it's a very hybrid system, it's actually quite complex, and we focus on the main committee and people who are on the main committee, but there's lots of regional Feds, and usually the appointments of these things are completely uncontested, but basically what the administration's doing is actually now getting there at that level and trying to change the whole nature of the institution.

29:20I think if the Fed thinks that it's on a suicide run, it's going to lose everything long term, this could be the last chance of gambling on resurrection, then they might be tempted to do it. But if they did it, the backlash against it would also destroy the Fed. Yeah. So if they just let markets fall and didn't step in the way. And they've got no track record on doing this. I mean, essentially, every time there's a problem, you get asset insurance. The Fed exists to insure the assets so the private sector makes no losses. That's what they do. It's not what the central bank's meant to do but it is what they actually do so I'm with David this is not a central prediction by any means but it's definitely not far out in the tails the question is how do they play it you know they have the moxies for doing it it's it's and this kind of brings us back to the idea you know is there a Bank of England moment a traditional a sort of if you look back at history moment where the institution that issued the currency that when I was a kid still if you played in the local under-11s and you played well it was regarded as a sterling performance jay that was a sterling performance right were you good in the under-11s i was actually do you know you know you're not good it's really humiliating number one my dad was the manager and number two i was the goalkeeper right okay and you know it's not good There's no midfield general knocking around.

30:46But my point is, right, is that at some stage, this currency that was so credible that it was absorbed into our language,

30:58gradually became less so. Now you can say, of course, it was the end of the British Empire. I mean, there's lots of stuff going on in the Second World War. First World War, et cetera. First World War, probably, and then definitely Second, right? but you can see a series of events which would definitely chip away at the omnipotence of the dollar and the usability of it. I wanted to do a quick little segue to the UK since you bring it up and we don't have a lot of time but we've been talking about this a fair amount over the course of this, the fun thing about coming to Kilconomics as a Brit is that you just get the piss taken out of you the whole time by Irish people about what the hell are you guys?

31:43What the hell are you guys doing over there? And the answer is, I don't know, but it's not great. But I would argue pretty forcefully that the UK, yes, it's in a mess, but it's not in absolutely dire straits. It's not absolutely bankrupt. It's not going to have to go to the IMF. The only people who say the UK is going to have to go to the IMF are massive idiots. And And then someone sent me a link of someone saying the UK has to go to the IMF. And it was David McWilliams. Exactly. Exactly. So I think that, and I said this last January, so we're ahead of the idiots. So if the United Kingdom cannot pay its way, as in it constantly runs a budget deficit, and if it cannot generate the growth rate and the rate of, I think the debt-GDP ratio is around 100 now.

32:30Yeah. So if your read interest rate is, what is it, four, four-ish, maybe pushing, let's say it's, you know, and things get nasty, so five, and your growth rate's zero, you do begin to look into a debt dynamic, which is quite worrying. And then of course you can say, oh, it doesn't matter, we've got our own currency, and the Bank of England can just print and print and print. But also people love buying our bonds, you know, our syndications are like ten times over subscribed. They do, but again, what they love now and what they love tomorrow week might not necessarily, because this is the emerging market thing.

33:03This is the original sin. This is classic McWilliams, Irish picking on the Brits. It's not. It's not. In fact, in fact, in fact, I think Kilkenomics is, we are open to our English. Of course. Of course. We are. You just think that we're bankrupt. So, let's move on. But I do think you have to look that, you know, Could you have imagined a situation where a Tory Prime Minister with a significant majority would be ousted after 25 days because of an economic policy that financial markets, who had the day before been very, very supportive, walked away from? That's the fragility of the emerging market psyche.

33:54You know the IMF, they come in, they don't come in. These things happen. You already have them. That's very sanguine. I mean, we had a Liz Truss moment. If we have a Rachel Reeves moment, then I will lose the bet and I will buy you a pint. But I can't say it personally. It would cost you a lot more than a pint. I actually wrote him an email at exactly the same time when he said this. I go, you know better than this. What are you doing? David's right about the fact that things can change very quickly. And that is very important. And sentiment is incredibly important in what we used to regard as rock-solid markets, even if they're three times oversubscribed, ten times oversubscribed, right?

34:31But the real constraint here is, what do you do with the money that you don't have? Which is to say, what does Britain need money for? If they don't need money coming from somewhere else, they wouldn't go bankrupt, right? So it's the fact that Britain, for the past 30 years, has been living on other people buying British assets. That's why there's no balance of payments constraint, which used to be in the 60s, the thing that always ended up getting the United Kingdom. And we have no really good idea as to why this happened. Basically, Britain got lucky for 30 years. Its balance of payment constraint disappeared.

35:01And if you have your own currency and you're a small open economy and you import, for example, one third of your food, if your exchange rate takes a pummeling, you're going to get that Argentina effect where inflation comes through the import channel. Then you have to raise interest rates. Then you're in a whole hill of pain, particularly if you've already got 100 % debt to GDP and you're already paying 5%. So this is not a trivial thing, but is it the central tendency? There's many other horses in the blue factory that are going to go for first.

35:47Listen, we do this thing on the Unhedged podcast called Long Short. We can go long a thing you love or short a thing you hate. Mark, what are you saying? No, you go first. All right. We're going to go long sterling for you. And short the dollar for him. Okay, that sounds fair. I would actually go long sterling as well, because I think it's been overdone. You can't do that! No, I can't! I'm hedging with your hedge. All right, then I'd do something different. I mean, my long term is, I would basically, in the meantime, go long the dollar, then short it, basically, when the carbon point comes. Okay.

36:22So just stay within dollar assets and flip. Yeah, yeah. I'm gonna go short like totally ridiculous stuff like Elon Musk getting a trillion dollar pay packet like Saudi Arabia trying and then seemingly failing to build this absurd lion city in the sand so long that it would reach from London to Calais that's how big this thing is turns out it breaks the laws of physics among other things as well as being like a huge mincing machine for all wildlife that tries to migrate through the area. It's just the most... I described it the other day as like, it's like a fever dream for men who have overdosed on money.

37:05And this stuff... That's very well put. Thanks. That's really well put. Thanks. All of that stuff is just like colliding with reality and I'm kind of here for it. I think it's quite amusing to see it all kind of start to fall apart. I hope it falls apart a bit more quickly. We are going to have to wrap it up because this podcast is mercifully short. People love the fact that it's short. But David, Mark, you've been excellent sports. Kilkenny, you've been excellent sports. Thank you so much for coming along.

37:39Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. Topher Forhears is the FT's acting co-head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

38:24We'll be right back.