The Dollar Endgame Is Not What You Think | Peruvian Bull

27:31And so by February 1999, they were able to do that. And they thought that that would simulate growth. It didn't. And then March 2001 turns around. They say, we're going to try something else. Let's start QE. Let's create this new method of creating reserves, and we'll buy government bonds off the balance sheets of these commercial banks. They start doing that. Nothing happens. 2008 rolls around. And then they say, growth is still very low. And by the way, the Nikkei is still less than half of the price it was at the peak in 1989. So we're still technically in a bear market. and the real economy in Japan has basically been, you know, zombified for the last, you know, 15 years, 18 years by 2008.

28:14And then, you know, they have the global financial crisis. They have another excuse. So they create even more QE. They print even more reserves. Nothing happens. And so the question becomes like, what's going on here? Like all our MMT models, all our Neo-Keynesian models tell us that this bank reserve creation should, by default, buoy up stock prices, right? Buoy up bond prices. And then that, you know, capital gain should flow as a wealth effect into the general economy, right? People start to feel richer. And the problem was the people kept, you know, falling back to this liquidity trap of believing that, you know, the growth was sucked out of the economy and that the only way to make money was to invest in bonds, right?

28:59And so that's why the Japanese retail investor became, and the Japanese institutional investor became the world's biggest creditor. They started lending to the French, you know, the French government, the British government, the U.S. They're obviously the largest holder of U.S. treasuries, the largest holder of British guilds, one of the largest holders of French GEBs, like German boons. You look at the global sovereign debt market, Japan is basically the funder of first resort to all of it because they've been searching for a yield for all these decades. And as the years rolled on, again, more and more crises come up and the Japanese respond by creating more and more ways to print money.

29:41And they start doing, by 2013 under Abe and his three arrows, Abenomics plan, they want to be even more, you could say, assertive, aggressive with their monetary policy. Let's not just buy government bonds. Let's buy stock ETFs. Let's buy real estate ETFs. Let's buy corporate bond ETFs, right? So they switched the regulations for the Bank of Japan that previously had excluded them from doing so. And by late 2013, they're buying wholesale equity ETFs. And again, that helps a little bit, doesn't fix the situation. And so all these years, and then yield curve control comes on in 2016. And all these years pass and they've basically been unable to do anything to ignite growth.

30:29And it all comes down to the same fundamental problem. The issue that was created in 1989, which is over collateralization, over debt, over indebtedness and inability to repay that debt with any productive economic growth had never been resolved. All the companies that had become zombified that had basically taken on way too much debt and then were allowed to survive by rolling forward on 0 % interest rates, those companies were still running. The employees were still working there. And again, you can think about it like a hospital patient. It's like a comatose person, right? The lights are on, but nobody's home.

31:07There's entire companies and industries in Japan that don't really produce a profit, that just produce enough money to pay off the interest on the loans that all these companies have taken on. And the banks that issued those loans were too embarrassed to admit that the companies wouldn't be able to repay them. And so they changed their repayment schedules and changed their repayment terms so that the company could just kick the can indefinitely. And so that's created this unique situation where basically the debt is at 263 % debt to GDP, right? The growth is basically at zero. The inflation has been at zero for two and a half decades up until recently.

31:42And the entire, you know, you could say entrepreneurial market is basically gone. There's no entrepreneurs in Japan. They have lower, to put this in reference of the 50 top GDP per capita countries, they have a lower GDP per capita than all of them, except for one. And the one is Croatia. And Japan is a first world country that's obviously extremely wealthy. And so for them to have a lower entrepreneurship rate than Croatia is insane. Or like being the lowest of all of them, except for Croatia is insane. Right. So why would Japan, like what were the demographic issues or whatever it was, why were they able to do so much QE and have like zero or negative interest rates and not have any inflation?

32:27Because that seems like a huge outlier. Sure. So again, the fundamental issue was that there was so much credit created in the 1980s and the early 90s before the crash that even the QE that they did wasn't fundamentally resolving the real issue, which the real issue was the debt overhang. So, you know, they print yen, they buy JGBs off the, you know, Japanese bank balance sheets, right? Those banks were so conservative and so worried about, you know, running into issues that all they did is just invest those proceeds abroad. And so the two decades of Japanese QE essentially became a conduit for capital to move from Japan out into the rest of the world, especially the US.

33:14So the QE that they did didn't even stay in their own financial system. And the problem that needed to be solved was like those banks and those zombie companies needed to default, right? We saw a couple of defaults in the late 90s. In 1997, there was a famous string of defaults in October of that year that resulted in an actual bank run. And the Bank of Japan announced a bank holiday that month and closed like 15 banks and then reopened them in like, you know, a week later and recapitalized them. but it was pretty limited. And to kind of explain the situation even further, like there's a very strong cultural element here as well, right?

33:51The Japanese are very ethnically and culturally homogenous. So for example, when the Nippon, which is their like, you know, local CNBC financial news outlet reporter was reporting on this in 1997, reporting on the bank runs, a Bank of Japan official ran out into the street in Tokyo and asked him, hey, can you not cover this. We don't want to spread panic. And he said, okay, they cut the broadcast, the station destroyed all their tapes and decided not to air any of it. And that's like the perfect encapsulation of what Japan is, right? It is all about saving face. It's all about cultural honor and dignity.

34:31And the idea that like you would, you would oppose an authority that's telling you to do something different is completely ludicrous. So yeah, no one ever questioned the Bank Japan doing QE and the Bank of Japan never questioned why the commercial banks weren't re-loaning or trying to simulate growth. They said, okay, they're just doing what they're doing. And all the money just flowed into the banks and then into the retail investors. And those retail investors just lent it out into the world. At the very start of the show, you said Japan was doing QQE. What is that? QQE is qualitative quantitative easing.

35:04So it's another crazy word, but it basically means, instead of doing general QE, which is basically like shooting a shotgun, you know, at a problem, like saying, oh, I'm just going to buy a bunch of treasury bonds. I'm going to buy a bunch of mortgage bonds. They decided we're going to like specialize it, right? So we're going to buy, you know, corporate ETFs, corporate stock ETFs. We're going to buy real estate investment trusts. We're going to buy, you know, individual equities. I mean, At one point, the Bank of Japan owned like, you know, of the top country, because they have their Nikkei index, of the top like 500 companies in the Nikkei, the Bank of Japan was the top shareholder in 70 % of them.

35:48And the Bank of Japan owns like 10 % of the total stock market capitalization of Japan. So, yeah, it's insane. I mean, they just went out and bought everything they could. so i just looked up the uh the countries with the highest debt to um gdp ratios and the only country above japan is sudan which is probably not great company to keep in terms of this um will they survive this like what's happening now will japan get through this sure so i guess i'll give you a little more uh like update on what's happening right now so you know obviously in you know they've been running this zero percent interest rate you know zero growth zero inflation playbook for decades.

36:30And again, they didn't really understand why they were stuck in this trap, but they have been. And so they've just been running with it. Well, a huge problem emerged in 2022 because a little institution called the Fed started to hike. And that hike resulted in a huge interest rate differential opening up between the US and Japan. So it's the yen carry trade. Yeah. And the yen carry trade blew out the yen from 110 to the dollar to 160 over the course of 2022. Do you want to just explain the dynamics of the yen carry trade for anyone that's not aware? Sure, sure. So the yen carry trade is essentially, you know, borrowing in a cheaper interest rate currency in order to invest in a higher interest rate currency.

37:10So it's a rate arbitrage. But it can get obviously more complex than that because you have FX problems to deal with, right? And there's obviously different ways to play the yen carry trade, right? But the simplest one would would go like this, you know, a Japanese investor or even an American investor goes to a Japanese bank, you know, opens up an account, they deposit some collateral, or they can even in some banks, they can get unsecured loans, they get it for, you know, 50 basis points, half a percent of interest or 0 % interest, if you're talking prior to 2024. And then they loan, they take that, that those yen, they take it to the foreign exchange market, they convert it into dollars or into Australian dollars or into British pounds.

37:55Then they go invest in British gilts or US treasuries and they profit from the interest. And so for many years, it was literally 0 % was where Japan was at. And wherever the US was at, 4%, 5 % was the yield you would make. And so that 5 % may not sound like a lot, but when you multiply it by hundreds of millions or billions or trillions of dollars, that's a lot of money. And hedge funds, institutional traders, retailers uh retail traders right family offices banks all took advantage of this and it's estimated the yen carry trade is you know somewhere north of four to five trillion dollars um and if you include all the derivatives it's probably north of 10 trillion so it's a huge huge trade and um it's one of the driving factors that has pushed the yen weaker uh for the last three or four years and and so what's the state of that so what happened when the u.s started raising rates like have japan followed suit so okay so initially they decided to you know try to fight the fire with more fire right so let's go back to where we were talking you know earlier the the fence hiking in march of 2022 the infantry infantry differential starts to explode right and not only does japan have rates at zero percent in 2022 but they also haven't moved rates since since 1999, February.

39:16So they've literally had 23 years of never changing their interest rate policy. It's been basically zero to slightly negative to like negative 10 to 20 bps for two and a half decades. And so for interest rate traders, which have to also worry about interest rate risk, right? Like what if Japan hikes? This is the clearest signal. They borrow as much yen as they can and they all convert it to USD and they start, you know, buying US treasuries. The problem is what that functionally does is they're selling yen, which lowers the value of the yen, and they're buying dollars, which inflates the value of the dollar.

39:51And so by doing that directionally all year, the yen goes from 110 to 160 by September of 2022. Now, on September 18th of that year, the BOJ starts to panic because the yen starts to reach the 160 mark, which is one of the red lines of very severe currency depreciation. So they decide to initiate a currency intervention to the tune of like$38 billion. And it whacks the yen down to 151. The yen slowly recovers. in October, they follow it up with more interventions, more 30 billion,$40 billion clips, firing ammo clips at the market, trying to blow out traders. And what it does is it just buys them time because they're burning their reserves to do that, right?

40:36And meanwhile, while they're doing all this stuff, and this just shows you the insanity of Japanese monetary policy, they're still doing QE. They're still running yield curve control. So they're burning literally $30 billion a month on the foreign exchange interventions. And on the other hand, they're printing like$20 billion USD a month for their yield curve control program. Because the more yen they print, the more JGB yields go up because obviously people get worried, oh no, JGB yields are going up. And so because they have this yield curve control, which is basically this cap on interest rates, and at the time I was set at zero, anytime the yield starts to threaten to trade out of the negative zone, they just print infinite yen and buy enough JGB so that the yield goes back down to the negative bound.

41:24And so it just happens over and over again where in the same months, they're literally like, oh, let's go buy yen over here. And then let's go, oh, print yen over here. And they're just like doing the same thing, burning the kennel at belt ends for months. And then, you know, obviously they start to panic because the interventions aren't doing enough. So December, 2022, they do their first move, which is they change the band of yield curve control from the negative bound up to a range of zero to zero and a half percent. So they finally move it like kind of out of the zero bound, not really, but like it's no longer pinned at exactly zero, right?

41:58It can go up to half a percent for the 10 year. We're talking about the 10 year JGB, right? This isn't their T-bills. This isn't their short-term debt. This is their 10 year bond. They're like, okay, maybe we'll let people earn half a percent over 10, you know, a year on 10 years. And then, you know, that buys them a little bit of time that causes a margin call for the Japanese securities clearing corporation in December of that year. By the next June, the yen is back at 150 again and they start panicking. So they move the yield, the band again. And then that like, you know, causes a bunch of carry trade unwind and panic.

42:35And then their stock market, you know, falls 12 % in a day. And then they, you know, the situation progresses over 2023, 2024. 2024 comes around, they do more interventions in May and June. and then they moved the band again. And, you know, by, you know, there's a lot of obviously like, I could list every single date and what they did at every single point. But the long and short of it is by, you know, 2024, they had burned through$120 billion of interventions and they'd lifted the caps on yield curve control higher and higher. And then eventually they had completely eliminated yield curve control altogether by 2025.

43:13And then they also obviously hiked out of the zero bound starting in 2024. They'd gotten, in March of that year, they'd completely gotten out of the zero bound and then they did a half point hike or up to half a percent. And right now they're actually having a meeting because they're considering hiking again to 0.75%. And so, or actually I might have that wrong. I think if they're at 0.75%, they might hike to 1%. So they might hike another 25 bits. And so the point is like, they basically tried, They threw everything by the kitchen sink at the yen carry trade. They threw all they could at the yen weakness, and none of it worked.

43:53And so now they're finally trying their last bazooka, which is actually hiking rates and trying to normalize with the US. The problem is that long term, that is completely unsustainable. Because their debt's GDP is so high. Yeah. So, I mean, it seems completely unsustainable. None of this makes sense when you look at it. Like, will Japan be able to survive this? Well, not in its current state, right? Like the Japanese economy is still, like we said, still dealing with the repercussions of what happened in 1989. And it hasn't fleshed that out. And unfortunately, as you know, like the only two ways to deal with a massive debt overhang is default slash deflation or hyperinflation or just or financial repression, right?

44:39if you don't want to cause hyperinflation, let's burn the debt off at 15 % inflation a year and cap yields at 5 % a year and just burn everyone out over 20 or 30 years. That's basically the sovereign playbook. That's what Japan will have to do. And that's not something they want to do, but it's unfortunately the grim reality that they're facing because with 260 % debt to GDP, 120 % private debt to GDP with the, you know, oldest and most aged demographic in the world and the lowest birth rate in the world, they don't really have an option to grow their way out of this, that they, you know, could have maybe had, they had an argument for that in the 60s and 70s.

45:24Their only option is to, you know, financially finagle their way out via inflation or deflation somehow. And so with the debt to GDP where it is, I mean, we're talking two to three decades of five to 10 % inflation to really get this thing done, probably 10%, 10, 10, 15. And that just means that the average Japanese person who's invested in bonds is going to get absolutely destroyed. This is a bit of a tangent, but do you think the fact that they've got one of the lowest birth rates in the world is down to the lack of growth and sort of nihilism within in the country. That's definitely part of it.

46:00You know, there's this really good sub-sec post I read a while back called No Country for Young Men, which is obviously a play on the movie title, No Country for Old Men. And it was about the Bank of Japan and how the Bank of Japan and central banking in general has kind of emasculated young men by eliminating risk-taking, but also obviously eliminating the penalty for excessive risk-taking. And so what they argued in that piece was that the average Japanese young man, basically, instead of having a severe depression where everyone lost their job and young men are forced to go out on the street and find work or create work or create businesses or do something, right?

46:41We had our Great Depression and we enrolled hundreds of thousands of young men to rebuild our national parks and to build trails and the Hoover Dam. And we did all these public works projects. Instead of doing that, the Japanese took the comfortable way out, right? They just said, we'll lower rates to zero. We'll do enough QE so that the stock market stops falling and everyone can go home and play video games and we'll just relax. And what that did is just completely emasculated and eviscerated the, you know, the vital life force of that entire generation. And so there's actually a word, I can't say the word in Japanese because I don't speak Japanese well, but there's a word for these people, but it translates to the lost generation.

47:21So anyone born, you know, in the 1970s was basically graduating college by the early 90s. They basically stayed at home. They didn't get a job. They didn't get a career. They didn't get a girlfriend. They didn't get a wife. And obviously that kind of dominoes downstream the society because when people don't get married, don't have kids, then their kids don't have kids. and that just means the demography rapidly, rapidly changes. And this was basically equivalent to almost a war, right? If you look at the birth rates and their collapse in the 90s and 2000s, it was basically just as bad as the World War was initially.

48:01And the problem is, you know, until this financial situation, economic situation is resolved, we're not going to get that baby boom like we did after World War II. It's crazy. It's like instead of facing sort of the harsh reality of life, they've just been sedated through this period. Yeah. The key word that kept coming back to me was zombified or like that just very well encapsulates the entire Japanese economy. So people might be listening to this being like, why is Japan so important here? Like, why are you talking about Japan? This is a Bitcoin show. Like most people listening are in America or the UK or in Australia.

48:32Like, do you see this sort of Japanese playbook coming to these other countries? I think, well, that's what I'm worried about. I think it could, right? You look at like the zero interest rates, the QE, right? And then obviously the subsequent inflation and all this financial engineering that's gone on in the West. And it's basically a derivative of what's happened in Japan. So like we mentioned at the outset of the show or maybe right before the show, Japan is the monetary experiment lab of the world, right? QE was created there. Yield curve control was created there. 0 % interest rates and negative interest rates, that was created there.

49:09The Eurozone, the US, right? Canada, like the entire global monetary system was basically just copying what Japan had done 10 to 15 years earlier. And so whatever, you know, whatever playbook that Japan chose the world is a potential playbook that other central banks could try to implement. And it might sound, you know, harsh. It might sound cruel, right? Because especially if you look at the human cost, you know, suicide became the leading cause of death in Japan by 1993. and there were tens of thousands of suicides every single year in the country. It obviously became one of the highest suicide countries globally because of the economic malaise, because young men suddenly weren't able to find a job, weren't able to find a girlfriend, weren't able to provide for themselves or anyone else.

49:53And especially as a young man, when you lose that life purpose, when you lose that reason for being, it can be extremely debilitating and depressing. And for many people, it's just too much. But that cost, right? That cost on society, it may sound like it's too much, but when you look at it from a central banker's perspective, their worry is security and stability. And what they would say is, hey, if we allow a deflationary collapse, if we allow 40 % of the banks to fail and M2 to shrink by 30%, 40%, and a huge Great Depression event to happen, there might be crowds coming with pitchforks for the central bankers, right?

50:32For the people in power. They don't want that. So what do they do? They say the same thing as more liberal socialists say. Let's socialize the cost. Let's make everybody feel the pain. Let's sedate everybody. Instead of isolating the pain to the few people and the specific people who took on way too much debt and absolutely wiping them out, we're going to just make everyone hurt a bit and make them hurt for the rest of their lives. And so that's just the playbook. And unfortunately, I think that's what the West was doing for the 2010s and 2020s. If we're not careful, it's what they'll try to do in the 2030s as well.

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53:53That's ledn.io and use the code WBD So when you look at like the US situation now Obviously like the very recent news is that it looks like everything in Iran is sort of coming to a close Like we'll see if that actually happens But like what do you expect to happen in the economy there now? Do you think rates will continue to go up? Like I know there's been a lot of talk about that with Walsh Do you think inflation is going to be sustained for a long period of time? What do you see happening? Well, I think obviously long term my view is, you know similar to all the other macro analysts, like it's undeniable.

54:24Inflation is going to have to creep up just because of the fiscal situation, right? And the Fed is going to eventually have to start QE. What Warsh wants to do, which is to lower rates and decrease the size of the balance sheet is kind of a paradox, right? It's an oxymoron. There's been basically no central bank governor for the last 30, 40 years that's been able to do opposing monetary policies in the long term, right? For short term, sure. But, you know, Powell did the same thing. Yellen did the same thing. Yellen wanted a higher stock market and a lower Fed balance sheet in 2018. So they started laying off, you know, U.S.

55:01Treasuries started shrinking the balance sheet. By October 2018, the U.S. stock market was having, you know, four or five red days every single week. And by December, it was officially in a bear market. And we had the worst December Christmas since 1934 in December 19, 2018. So it was a horrendous crash. And then, of course, what happens in January of 2019, they reverse course, right? And by September 2019, COVID starts. We have the repo madness. And then QE comes in wholesale in early 2020. So we reverse that very quickly. And that's the same issue I see with Warsh and with every other central bank governor that's gone before him.

55:43You know, they may want to lower inflation and lower rates and, you know, thread this needle any way they can. The problem is the numbers won't let them, right? The U.S. Treasury debt is growing way too rapidly. The interest expense is growing at 12 % a year. The U.S. economy, you know, the last FedNow forecast was 1.6%. percent. Federal tax receipts or interest expense as a percent of federal tax receipts is now 24%. So basically a quarter of all your tax dollars is just going to pay the interest on the debt. Interest is now the largest line item. And I think it's very close to defense. So some months is less than defense, but a lot of months it's more than defense.

56:26It's at 1.2 trillion a year. And if you don't get rid of that, right, the U.S. fiscal situation continues to worsen. and more money needs to be created to pay that off. And so that just causes secular inflation. Now for the Iran war ending, I think that's obviously a good thing short-term. That lets some of the pressure and the steam out of the bag. But the long-term issue still hasn't been resolved. And the money we've spent on this war, right? $300 billion reconciliation deal, which Trump is saying that not all of that is going to be paid by us. It's going to be paid by the Gulf states, which good luck convincing them to pay for war that they didn't even fight in and they didn't want, you know, I don't see how that plays out.

57:08I mean, there must be something in that deal for them as well. That probably comes from the US. But it's like, it's funny, because obviously, people talk about the big print in Bitcoin all the time. And it does seem inevitable that at some point that'll happen. But is your take really that even if the big print happens, it won't be just straight up QE like we've had in the past? Yeah, yeah. I think it'll be a mix of liquidity measures, right? Capturing of retail deposits, the BTFP reimagined, right? Yield curve control. Yield curve control. Like they'll try, and they'll even probably invent new things, right?

57:45Like these people, although we are Bitcoiners and we don't like central planning and Keynesian economics and people inflating our money away, I agree, it is immoral. But it is important to understand like who your opponent is. Like these aren't stupid people. These are people with PhDs in economics. And if they're at the helm of the monetary system, they can probably figure out new ways to, you know, create liquidity or to kick the can down the road further than you think they can. You know, the prime example I think of is something I found very early in my macro research, which is in, you know, 2013 and 2014, after the, you know, huge fallout of the Great Recession and the global financial crisis, you know, banks were looking for new types of high quality liquid assets to hold on to.

58:29And mortgage-backed securities were obviously not one of them. And the Fed and the CFTC and the OCC and other institutions decided, hey, why don't we create new laws that basically make money market funds invest, you know, have a section of them called government MMFs, invest 99.5 % of their, you know, total fund AUM into government bonds. Because before they were just, they were optional. But now let's make it a regulatory requirement. And then let's also make it a regulatory requirement for banks to hold treasuries as well. So that forced, obviously, a lot of bank capital into treasuries that wouldn't have otherwise gone there.

59:05And who's to say that they're not going to do that in the future with like deposits? That they're not going to say, oh, hey, every bank deposit, the$19 trillion of bank deposits in the US, they all have to be backed one-to-one by US treasury bills, four-week bills. So banks, you got to go out and buy all this treasury debt. They could do that. And that would be another way to increase demand for treasuries without necessarily, you know, printing more money immediately. I mean, the inevitable thing is the fuckery is going to continue. And like the good thing about Bitcoin is you can just buy Bitcoin and kind of ignore all this stuff.

59:36Yeah, absolutely. What is your take for Bitcoin? Get over a long enough time frame. What do you think Bitcoin becomes? I think, you know, Bitcoin is such a fascinating topic Because as you know, like when you look at it from different perspectives, it can go into so many different, you know, it can go and fit into so many different disciplines and applications from philosophy to, you know, cryptography and cyberpunk culture to, you know, future space-faring energy money, right? But the main problem that I see, which is something that Brent Johnson has pointed out to me and some others as well, is that the current system favors inflationary currency with a continually expanding supply.

1:00:23And Bitcoin, being a scarce asset with a finite supply, is going to suffer from what's called Gresham's Law, which is that bad money drives out good. Right. And Gresham's law applies up until basically complete monetary collapse, at which point it flips into Tiers law. And Tiers law is the opposite. Good money drives out bad. So like in a hyperinflation in Weimar Germany, what do people do? They all, by the very end, they're all burning wheelbarrows of cash and they're all trying to get their hands on dollars and pounds and gold bars. Right. But that doesn't happen to the very end. because in the beginning, the slowly depreciating currency, right?

1:00:59The currency dealing with 2 % inflation a year, that is actually much more spendable in the real economy than the currency gaining 5 % a year, like let's say gold would be or Bitcoin would be. And so that means that people like the market generally doesn't have much demand to spend it. And again, if you go around and ask Bitcoiners, you know, how much Bitcoin do you spend? And most of them are going to be like, why would I spend it? This is an investment. This is going to go up 10x. Saylor says it's going to go to a million, right? And whether or not you believe that, I think all Bitcoiners obviously believe it's going to go much higher.

1:01:33You know, my target's 300k in the next two years. But even if, you know, or especially if you believe that, you'll want to hold on to every sat you can. And so spending a little Bitcoin here and there might be optional, but you would never want to spend your whole stack. And so that's going to prevent Bitcoin from being truly adopted as a currency, especially in the short to medium term, up until we see very severe fiat collapse. Because Bitcoin, I think, to be adopted as a money and as a true, true medium of exchange, it's not only going to require the attractive force of it being superior, it's also going to require a repellent force of the old system dying.

1:02:14which, by the way, this is exactly how every reserve currency has taken place. It wasn't just, you know, the U.S. dollar didn't become the U.S. dollar just because the U.S. is a great country. Oh, it's amazing. It's such a good, you know, a good idea to buy U.S. dollars. It's also because the British were decimated by World War II, decimated by World War I, and they started losing all of their colonies within 15, 20 years. And so you look at the rates of the British pound and the U.S. dollar and the amount of trade volumes they had, It started collapsing, not actually right after World War II.

1:02:46It started collapsing in the early 50s because that was the point where all of the British colonies started announcing independence from Great Britain. And the endemic demand that they'd created, this structural demand they'd created started falling apart. And then obviously with that power vacuum, it all flowed to the US dollar. So until we have those two things happening, not only the attractive pulling force of Bitcoin being the superior money, but also the pushing force, the repelling force of the old fiat currency really falling apart. I think Bitcoin being a true currency is not going to happen.

1:03:23I mean, that's a very long road to getting to the point of being sort of the global reserve currency. But do you think it can become like one of maybe a basket of global reserve assets before that? Absolutely. Yes. And so this is where I have the caveat, right? And where I piss off both the Bitcoiners and the Fiat MMTers and everybody. Oh, dude, you should see my Twitter, dude. Anything I say, everybody gets pissed on me. I have Bitcoiners saying, oh, you're a total shill. And I'm like, no, guys, I just think I'm more realistic and more level-headed because I am a Bitcoiner. And I do think, obviously, in the long run, Bitcoin will win, right?

1:03:58The scarce assets will win. The question is, how do we get there? And the idea that the dollar hyperinflates tomorrow and we all are using, you know, basically like relays and Moon Wallet to zap SaaS to each other tomorrow is not realistic. Now, a Bitcoin as a store of value is obviously it's proven its use case and it's going to continue to prove its use case over the next decade. And so for it to be a reserve asset is definitely valid. And that's something I pointed out in one of my recent subsec articles. I made the case that like, okay, you look at current reserve currencies, right? And you look at former reserve currencies and how they lost reserve currency status and how it changed.

1:04:42Well, where most people would look at like the trade data, right? Like how many dollar transactions are happening per month? You know, what's the total notional volume of British pound transactions happening in April 1951, right? That was like the last indicator of collapse. The first thing was that people started to divest from the bonds of the reserve currency. So the total rate of investment in British gilts started to collapse in the 1930s and then more in the 40s, obviously, then increasingly in the late 40s and early 50s, even before the trade data started to show it. So I was looking for that in this, you know, for the U.S.

1:05:22dollar, for the U.S. treasury market. And we started to see that same thing play out. And this is something Groman has pointed out many, many times. You know, from 2008 to 2015, we had a net issuance of$8 trillion of total net new government debt, right? Foreigners bought 71 % of that. They bought around$6 trillion of it. From 2015 to 2022, we issued around$10 trillion. And foreigners bought 15 % of that. So we went from foreigners buying the majority of net new debt, so China, Japan, Russia, all these other countries, buying a ton of U.S. debt to basically finance our deficits to basically them not financing us on net at all.

1:06:07That's not to say they're all going to sell it all tomorrow, but you look at the trend and in August of 2025, there's that famous chart that total value of global central bank gold holdings surpassed the value of their treasury holdings. And China, Russia, obviously, have been offlaying U.S. Treasuries for years. And they've been trying to divest from the U.S. Treasury market for years. And it makes sense because what are U.S. Treasuries? They're basically long-dated U.S. dollars. And so if you're going to get rid of, if you're looking at the entire U.S. dollar complex, what would you get rid of first?

1:06:43Your most liquid, easily tradable dollar that's like a cash deposit at a bank? No. You'll get rid of the thing that's locked up for 30 years, right? You'll sell your U.S. treasury bonds, the long bonds, and then you'll move down the curve. Especially when you add what happened with the Russia's treasuries and these assets getting frozen. That's another risk to add onto the top of that. Yeah, exactly. So it's much easier, ironically, obviously, it's much easier to freeze U.S. treasury bonds than it is even to freeze dollar-linked deposits, right? Because there's only so many U.S. treasury bonds, but there can be as many US dollars as they want to lend into existence.

1:07:20And so the system kind of encourages this way of transitioning. So watch the 30-year bonds, watch the 20-year bonds on foreign central bank balance sheets. That will tell you if they're truly deciding to move away from the dollar. And they are. They've been making those moves. But it is a slow process because as Brent points out, 55 % of global trade still invoicing dollars, 80 % of interregional trade invoicing dollars, 59 % of global forex and reserves are still in dollars. It's basically been flat for the last five years, even despite all the de-dollarization talk. So the real movement's been happening in the treasury market, not in the actual FX trade data.

1:08:02I mean, it's no wonder that the current US admin are so keen on stablecoins, because that's like one last chance to save the Bob market, I guess. Yeah, yeah, yeah. But my concern with that, obviously, is, even though, obviously, like I said, it's better, because you can manufacture demand for treasuries rather than just allowing infinite debt growth, you know, better is still a relative term, right? That, even with the size of the stablecoin market where it is now and where it's projected to be, it still has to grow significantly more for it to actually make a big enough difference in the total rate path and the total debt path of the US government.

1:08:42And the bigger problem is like the real issues that need to be solved are the fiscal problems, which obviously no politician wants to touch. Oh man, it's going to be interesting. Just buy Bitcoin and sit on your hands and wait this thing out. This has been really cool. We should definitely do this again. Is there anything else we've not touched on though that you want to cover today? I mean, I would just say like, you know, I think Bitcoin, what's so fascinating to me about it is that again, most people view it as like this negative, it's a negative thing that institutions and that global central banks that are, you know, Iran was accepting Bitcoin as payment for the, you know, global finance, for global trade.

1:09:23I view that as a massive positive. And the reason why is because the way that you will, you know, win with Bitcoin, the way that you'll take over the global financial system is not by, you know, creating an entirely separate one and forcing everyone at gunpoint to come to yours. is by infiltrating and basically co-opting the existing mechanisms into yours. This is how the US dollar gained prominence over the British pound. We basically copied the British rails and we just did them with the dollar and we encouraged your dollar loans and encouraged your dollar deposits and just kind of proliferated their own system of gilt and British pound lending and improved upon it and did it again.

1:10:09And I believe that that is the way that this is going to play out. You know, the main issue of macro, the main issue of especially U.S. macro is that Triffin's dilemma, right? The U.S. is forced to send out money to the global financial system to ensure that there's enough liquidity. Bitcoin solves that, right? Bitcoin actually obviates the need for that because Triffin's dilemma requires a centrally issued currency. Triffin's dilemma says, you know, oh, the U.S. is the sole issuer of currency and the rest of the world needs that currency. And so because of that demand imbalance, the U.S. has to decide whether they want to print more money than would otherwise be justified by their gold peg, right?

1:10:53Their peg of dollars to gold. Or if they want to not do that and the global system starves for liquidity and everything starts to seize up, right? That's an issue of a centralized issuer and a global demand. Bitcoin is a decentralized issued currency. Bitcoin doesn't suffer from this. If any country wants to earn Bitcoin, they can do it. If any country wants to trade Bitcoin, they can do it. There's no censorship rails that exist that do with fiat. And so that means that in the long run, not only is Bitcoin a better reserve currency, it's the perfect reserve currency. And so I don't see how that doesn't dawn on people over a long enough time frame.

1:11:33I don't see how that doesn't make people realize, wow, like instead of buying gold, which is a good store of value that can hold my in my bank vault, I could buy Bitcoin and I can transact it digitally anywhere. And then if if, you know, the Reserve Bank of Russia wants a payment from, you know, the Reserve Bank of China, I can just send a Bitcoin payment on chain and it can be verified by the entire global system and in two or three blocks. And it's immutable and unchangeable. Wow. This is like this is better than than gold. This is digital gold. And so I think that once that starts to dawn on people, especially people at the high level, I think things will really start to change.

1:12:10But again, we're thinking about central bankers. We're thinking about people who are boomers. They're old. They don't understand technology. They don't understand Bitcoin, unfortunately. So I think it's going to take a while. But I do think that that's the future. And I'm obviously long run very bullish on Bitcoin. I do believe we're going to get to a million dollars a coin. I just think it's a matter of how we get there. I mean, Bitcoin is going to win. It's crazy that you can send billions of dollars for less than one sat per VBite. You spend fractions of a dollar to send a billion dollars. We are going to win.

1:12:39I think Bitcoin's already winning. It's just going to take some time. We're still so early, man. Absolutely. We are. We are. Roberto, this has been very cool. We'll have to do it again at some point for sure. We've been talking about making this show for a very long time, so I'm glad we finally did it. But tell everyone where they can find your substack and everything like that before we close out. Sure. So I have a substack. It's called Dollar Endgame. and again that's where I kind of flesh out this like evolving theory of macro that I have you can just go to dollarendgame.substack.com or you can go to my Twitter profile which is at Peruvian underscore bull I used to go by Peruvian bull and you'll find everything there I'm the only verified Roberto Rios Peruvian bull account so if you see a bunch of clones please don't pay attention to those and I also have a brand new YouTube channel and that's called Peruvian bull as well we have new like you know mid-length 15-20 minute uh deep dive macro videos coming out so go subscribe if you're interested awesome i'll put all of that in the show notes but thank you so much man i will definitely speak to you again soon awesome sounds good thanks for having me thanks man

1:14:00Thank you.