Jim Rickards: Western Economies About To Slam Into A BRICS Wall?

okay so what happens when you let Saudi Arabia into the bricks given the other members you have two of the three largest oil producers in the world Russia and Saudi Arabia you have two of the three largest nuclear arsenals in the world Russia and China um you have you know throwing India in um and and some others you have uh about 50 percent of global population 54 of global GDP using purchasing power parity well this is not the old third world these are not basket cases these are many of the biggest economies in the world that collectively have enormous power natural resources uh gold reserves land mass population military and again I could go down the list but this is a block that is as powerful in its own way by a lot of these metrics as the collective West which would I would call you know us Canada Western Europe Japan Australia New Zealand and a few others things foreign you might uh figure out that I am not Adam Taggart this is Stephanie pomboy of macro mavens standing in for Adam today who uh is out he probably wouldn't want me to advertise this but he's celebrating his birthday um and so here I am and I have the great pleasure of having a conversation with uh the foremost authority I would say on uh what's happening in terms of the world currency regime and future and that is none other than Jim Rickards and I'm so excited to be having this conversation with them because there's a lot as you will learn um that's going to unfold in the coming months that we'll have major implications for investors all around the globe so this should be a very interesting and enlightening conversation Jim thanks so much for joining me thank you Stephanie thanks for inviting me it's great to be with you no it's always a pleasure I I look forward to this because I this is where I get to learn a ton of stuff um so I I feel like I could just sit in the back seat of the classroom and uh and listen but um you know this whole topic of the future of the dollar as a reserve currency has really become sort of a focus of attention on the heels of the Russian invasion of the Ukraine and then the sanction of their reserves and and people came to understand that you know by weaponizing the dollar in that fashion that they were kind of pushing uh the rest of the world to find Alternatives because who knows if they'd have access to those dollars it you know in certain circumstances um and so it's shined a light on a topic that I know you and I have been looking at for much much longer than the last 15 months um you know and I think it's important we don't need to go through the whole history but to kind of Enlighten people about how this is just you know the the latest installment in a you know latest chapter let's say in a book that's been uh you know going on for I would argue two decades now with you know what this d-dollarization that people are talking about really starting back in around 2000 and gaining particular momentum after the global financial crisis in 2009 and now here we are again and things are really heating up again so maybe in sort of very cursory fashion you can kind of explain to people how much work has gone in to this process of creating a viable alternative to the US dollar over the last 20 years and what this uh upcoming bricks meeting in August means in that context to do that Stephanie and the great thing about your audience your audience is so smart we don't have to go over every Twist and Turn of international monetary policy of the last 50 years we could but we're not gonna We're not gonna do that I think people know the the outline yeah that's really what's coming that is uh that's that's the main event um so a couple of things um we should probably without taking too much for granted we should probably just Define bricks it's an acronym Brazil Russia India China South Africa so those are the bricks um and started in uh 2002 as a Goldman Sachs marketing gimmick uh Jim O'Neill and some Partners came up with it uh and all they did I'm not I'm not diminishing what they did but they kind of took the leading economy took out the G7 and Switzerland and a couple obvious leaders and said well who's left uh that will be the up and comers that fastest growing developing economies when they got Brazil Russia India and China that was kind of easy and then a few years later they added um uh South Africa uh which was a little bit of a favorite of South Africa South Africa is not anywhere near as large as those other economies or as important however it is um one of the biggest economies in Africa and if you're going to do if you're going to be the Great actually probably uh you can't just be South America and Asia you probably need to include um an African country usually pick South Africa so that's held about so uh so for a couple years it was a Goldman marketing brochure but then in 2006 at the United Nations General Assembly in New York annual meeting uh as famous you know heads of state and foreign minister Shaw from all over the world but they have what they call these bilateral uh meetings on the sidelines and sometimes they're three or four say we're all here let's just grab a conference room and sit down and talk well Brazil Russia India and China um this was a Dimitri Medina who is the president at the time you know Chris Putin is prison today um before Xi Jinping and uh uh the the prime minister of uh who actually was soba at the end he got arrested later went to jail got out and now he's back uh and uh and the and the prime minister of India so they sat down and they said Yeah we actually have a lot in common a lot to talk about and we added up we're pretty powerful group so they formalized it and then in 2009 they had a Summer Conference a formal Summer Conference with an agenda and all that in Castle wienerberg in Russia and the Russian Federation um and for those who know the Russian history that's the place where the Bolsheviks uh killed the Czar and his ministers and and the and the Romanov family but it's the Russians have a little bit of a sense of humor but anyway that's where they had this Summit and they they solidified okay we're a group we're going to work together and they did and over the coming years they they multiplied numerous numerous subgroups that people say it's the brics meeting coming up August 22nd well yeah that's the leaders Summit they have about 190 meetings a year they have working groups on uh women's rights uh Sports uh the environment climate change yeah I could go on and on um it's a very active what they call Secretariat which is you know Central organization um a few years later in 2014 they formed what they call the new development Bank NDB well what's the new development bank they uh first of all it's got 100 billion of capital part paid in part callable but also has borrowing power with that kind of ownership and that kind of capital on the balance sheet they've got hundreds of billions of dollars of borrowing power they could easily get a a pretty good credit rating uh and the the purpose is to make loans for development projects to the member countries and by the way there are stockholders of the new development Bank who are not bricks but they're kind of in the club um well what does that sound like multilateral well it's a world bank that's you that's exactly right they the world on their own terms with their own governance okay the following year they created something called the contingent Reserve Arrangement well what's that again they threw in um a couple hundred billion dollars from the members China was the biggest contributor again with borrowing power so take a couple hundred billion times five or ten you're that's that's your power um and this institution was designed to be a swing lender to members who were running a trade uh deficits or facing a run on their currency or facing the prospect of having to close the capital account exactly what we saw in 1997-98 by the way I was there for that one we ended up with long-term capital but um well uh gee a pool that is a swing lender to countries with um balance of payments deficit what does that sound like that's the IMF that's the IMF so basically they copied the World Bank they copied the IMF and I want to make two points number one it's not like the bricks popped up six months ago and said hey we're gonna have a new currency you know it's like uh Mickey Rooney and uh Judy Garland putting on a play this has been in the works for 17 years and this typical Russian Chinese they they kind of want to show very methodical so they duplicate the World Bank they duplicate the IMF uh now they have a applicants for membership and there are I think 21 or more countries who have applied for well seven have formally applied for membership they filled out their college essay and they want to be members and then another 13 or 14 um on the waiting list so to speak and uh we'll perhaps eventually become members but when you add those in some of these will be admitted um in August August 22nd that's the next big meeting uh starting with Saudi Arabia okay so what happens when you let Saudi Arabia into the bricks given the other members you have two of the three largest oil producers in the world Russia and Saudi Arabia you have two of the three largest nuclear arsenals in the world Russia and China um you have you know throwing India in um and and some others you have about 50 percent of global population 54 of global GDP using purchasing power parity that's you can debate the method but just if you do purchasing power parity you get over half of GDP 30 of the global land mass so I could go on and on my point is that the you know I did I learned development economics in the 1970s we had something to go to the third world it was like it was Russia or you know Soviet Union in the U.S then there was the third world and all you knew about them was they were poor and you know you had to get them get get them off the Runway we actually had a the runway theory of how you grow turned out to be wrong but that's what we were learned well this is not the old third world these are not basket cases these are many of the biggest economies in the world that collectively have enormous power natural resources gold reserves land mass population military and again it could go down the list but this is a block that is as powerful in its own way by a lot of these metrics as the collective West which would I would call you know U.S Canada Western Europe Japan Australia New Zealand and a few others so that's who this group is um now there are a couple other groups that may join forces with the bricks uh there's something called the Eurasian economic Union everyone's like what the heck is that well that's the EU is was Putin's answer this has been around for a long time this goes back to the early 2000s this was Putin's answer to the EU he said well you got the EU we got the eeu now it's Russia and some Central Asian Republic some of you know Belarus and Tajikistan I'm not saying this is uh France Germany in Italy but it is a a group that have reduced tariffs and um improved trade between themselves and there's some more another powerful group called the Shanghai cooperation organization or the SEO led by China and these are mostly Central Asian republics including uh kaziristan and um Kazakhstan and some others but but they're all talking to each other now what's the common denominator well it's basically Russia and China uh China is a member of two Russia is the only country in the world that's a member of all three so through pretty simple inference you could say hey Russian China are running the show and uh it's very likely that when this thing plays out I'll talk about the thing I mean realize we're glossing over that but right when there's two currency plays out that those other countries will join in when you do that uh and I got a kind of really cool widget it's a map of the world that's blank and you can go country by country and fill in by color just click on it and give it a color and I did that and I was like oh okay here's the breakfast five countries or whatever well here are the here are the applicants has another 20. um here's the SEO a few more some of them are members of both uh here's the EU has a few more again many are members of both uh and you keep going and all of a sudden like a lipo goes on I said that that is Halford mckinder's Global Island the what he called the world Island and then this goes back early 20th century first probably greatest geopolitical theorist in history Gallery this book if you haven't read it it's pretty short but he had this idea of the world Island that is exactly what they're building now why is that important other than uh the obvious which is uh you know more Collective economic and population Power by the way output of wheat um picture metric they this dominates the world well uh for one thing if you're going to have a currency Union the more countries you have the more likely you are to be successful so why let's just kind of digress for a second and what are the headlines saying you know again you you correctly said haven't we been talking about this for 10 years or yeah actually yeah but um but in the past year what are the headlines um China and Saudi Arabia are talking about selling oil for Yuan uh Brazil and China do large uh multi uh product currency deal where they accept each other's currency UAE China same thing uh selling oil for Yuan Russia China using Iran and rubles as payment methods for whatever they sell to each other you know Western Sales natural resources China sells semiconductors manufactured goods and so forth and there are a number of those I don't have to list them all but there are 10 or 15 of these the reason um the reason they've all fallen short and very few of them have actually come to tuition despite the headlines is when you have two countries and they're going to trade with each other and accept each other's currency and you can do that you're limited to what you can do with that currency and this is why this is why the Russia India thing is starting to break down Russia's been pumping oil to India India's been paying in rupees but how much curry do you need I mean what's what you're going to do and Russia's starting to block they're like hey we're up to our eyeballs and rupees let's we need a better system well um when you have a a multilateral multi-country uh currency Union that problem goes away because now Russia sells oil to China China pays in bricks the Brit currency pays you in Brick but Russia can take the brick and turn around to Argentina and say we'd like to buy or Brazil maybe we'd like to buy some Embraer aircraft and Brazil gets the brick currency and they can turn around to China and say we'd like to buy some rice and then China Etc and so you've solved the quasi-barter problem you've solved the problem of what to do with a um a pile of currency that you really can't use other than certain goods and services but not not everything you want and uh there's an analyst who's brilliant I read his stuff all the time I'm like man you're so smart and I just really follow him very very closely and give him a lot of credit but he came out a few days ago maybe a week and said um he'd heard about this and he was kind of dismissing he said um you can't have a currency Union without a um common fiscal policy and I said I don't mentioned his name but I said uh have you not heard of the Euro I mean there is no common fiscal policy in Europe don't tell me don't tell me that Italy has the same Physical policy as the Netherlands or that Germany has the same fiscal policy as Greece they don't they do have a central bank that issues the currency has a little bit of gold but not a lot relatives the size of the economy um but there's no common fiscal policy and there's no common bond market to this day there's no such thing as a bond I'll call it eurobond backed by the full faith and credit of the entire European monetary sound it doesn't exist you can buy German Bonds in Euros you can buy Italian Bonds in Euros but you can't buy a Euro Bond backed by all those countries so they don't have a common bond market and they don't have a common fiscal policy but they do have a currency Union that's very successful so now back to the bricks they finally have the scale they finally solved this um problem which I described which kind of is not when you've got two countries you're not too much further ahead than barter but with 30 countries or 40 countries you've solved that problem um so that's that's the the background again I want to just be at the risk of repetition I want to make two points one 17 years in the making it's not an overnight thing they've replicated the World Bank they replicated the IMF now they're coming out with a new currency now here's where here's where it gets really interesting and I tell people um I said if you want to understand this I it took me a long time to figure this out I mean I was just like slaving over but um I said if you want to understand this you have to stop thinking like an American you have to start thinking like a Russian this is the kind of thing that pretty much only Russia could come up with so uh what is the brick and by the way I don't know if they're going to call it a brick I'm saying brick for convenience it doesn't matter what they call it but I just called a brick for for uh for the time being but they'll come up with a name who knows the value of the brick is not determined with reference to any other currency it's determined with reference to Gold by weight of gold now I don't know the way they'll pick one but again it doesn't matter because the assignment is math is logic and by the way now um we're back to Aristotle's Transit of law this is the key this is this unlocks the whole thing because uh Aristotle said you know if a equals b equals c then a equals c the B can drop out it's not even arithmetic it's uh it's logic uh it's right it's called the transit live I'm certain Aristotle invented if any Greek Scholars no underwater Source let me know um so what what the bricks have done is they have dodged the biggest bullet the thing that caused Britain was ultimately to fail the thing that potentially stands in the way of all this they've defined their currency by weight of gold now uh a weight of gold has a dollar value right so a equals b equals c one brick equals one could be an ounce per kilo it doesn't matter call it announced one break equals one ounce of gold equals today 1970. okay well through the transit of law drop out the b and one brick equals 1970. one thousand nine hundred seventy dollars but that's constant I mean that logic works for a moment in time but it's not fixed because the price of gold is going to fluctuate daily or a minute by minute right so what's going to happen is the dollar gold exchange rate the dollar price of gold so the lbma the comex the the London Metals exchange um you know JPMorgan unallocated forward contracts the whole huge gold market in dollars is still going to exist in fact uh the bricks want it to exist and if I could just digress for one minute Steph I've never seen an international monetary uh economic problem with more that has created more confusion I won't say misinformation that's a little try but just confusion or maybe deliberate um hyperbole than this one because let me tell you what this is not I'm going to tell you what it is but it's important to know what it's not this is not the petroleumon this is not the Petro Ruble this is not a gold back Yuan this is not a gold standard this is not the end of the US dollar it's not the end of the Euro it's not the end of the world it's not any of those things but that's what everyone's running around on websites or whatever shouting it's none of those things in fact quite the opposite and this is the Russian mentality comes in the bricks want the dollar to be around they want the dollar gold market to exist because they get to Free Ride the dollar has to do all the dirty work in the gold space and Bricks get the Free Ride by declaring one break equal to a weight of gold again weights the key they just let the dollar gold market go wherever it goes and the brick is worth an ounce or whatever kilo whatever and uh yeah the dollar equivalent under the transit of Law changes but they're not pegged to the dollar they're not fighting that fight so this uh I analogize this it's like you're in your house in the backyard you know your landscaper is like digging trying inches and putting in plants and sweating and doing all this work and you're sitting there with a glass of iced tea enjoying the view in other words the bricks get to free ride on the dollar gold system and they don't they want that system they don't want it to go away because they get the benefit of a gold value now think of what the bricks don't have to do in this scenario they don't have to buy gold they don't even have to own gold they do but they no one no one in the world has enough gold to back a currency this currency the brick will not be redeemable into gold now maybe there's a dealer somewhere we'll take it that's that's between you and the dealer but it's not like you're going to be able to march down to the People's Bank of China with a pile of bricks and say give me the goal they're not going to do it so it's not redeemable um they're not going to make a market uh they're not going to maintain a value because they don't have to because it's by weight they just get to sit back and piggyback on the dollar goal system let down the dollar do all the dirty work with one twist and this here's the Russian contribution so uh so you don't have to close your capital account you don't you close it open it whatever you don't have to buy gold you have to make a market you know you don't even need that much gold you just say this is the ultimate fiat currency who would fail in Latin means I say so uh well they say so and there it is um and uh they uh and they put the United States basically stuff this is a bet this is a bet that the dollar is going to collapse against you over time over time I think that's a very good bet I'm not this is not a three-month forecast I'm not saying gold is going to go up or down in the next week who knows but over time now getting now now we're into what um debt to GDP ratios kind of stuff you look at all the time shows uh annual deficits uh um dare I say modern monetary Theory or Francis Stephanie Calvin I mean these all the all these ideas are ruining the dollar and everyone can see it but not yet and so if you want to launch this new currency and you say hey long term the dollar is going to collapse in terms of gold I'll hook my horse to this wagon called Gold by weight and I'll just reap the benefits and I don't have to do a thing um and so that the downside that one would normally Envision which is if you foresee the dollar collapsing relative to gold and the currency therefore appreciating there's a threshold of pain normally where they say well you know we don't want it that strong but if they're trading within their own block it doesn't become it sort of negates that entire problem doesn't it exactly exactly they're trading within their own block who knows if others join probably will but they don't have to they need to you need a big enough block there's a critical bounce but I would say at this point upwards of 30 to 40 countries and all the other things I mentioned that's a big enough block you're defining it by weight so you know the market goes where the the dollar gold market goes where it goes but you don't really have to worry about it because you're you're anchored to wait but here's here's the twist I like so let's say and this is how it's going to play out now you're in the United States you're like uh oh looks like I've been painted into a corner what can I do well one of the things you could do I've told the treasury this for years and listen I mean they invite me but they don't listen um one of the things you could do is buy gold but what happens when the United States buys gold the dollar price of gold goes up and the brick gets stronger and the dollar gets weaker Checkmate in other words the U.S is now in a box where you can't even get out of it by buying gold because you're gonna you're gonna weaken your own currency relative to gold in the process and the bricks are just going to sit there and not lift a finger so it's genius um I I gotta credit the Russians I'm not saying the Chinese couldn't think of something like this but um this has got Russia's fingerprints all over it uh and and getting back to something you mentioned earlier Steph okay um people have been talking about this for 20 years you know the great reset uh the end of the dollar or the collapse of the dollar gold to the Moon Etc and it's never played out and the reason or some of the ones we mentioned which is the dollar has these huge embedded advantages in the form of its Reserve currency status not because everyone loves a dollar or they even love the United States but because we have the only uh bond market big enough to absorb Global savings the U.S treasury market is huge it is liquid um but it's got a whole infrastructure uh primary dealers that bid at auction when issue trading uh settlement clearance um Futures hedging options hedging uh depository trust uh Corporation the settlement uh on and on and on it's got this huge infrastructure of um you know law schools and regulations that they've been building for a long time I was 200 uh um you know 37 years since Alexander Hamilton um but above all it has the rule of law that people just trust it or don't have to like the United States but you trust the market the U.S in response to the war in Ukraine broke the trust they froze the U.S treasury assets of the Central Bank of Russia unprecedented and I'm a sanctions expert I work for the intelligence Community it was part of what I did was you know look at sanctions and uh and insipidus and a lot else um and as far as I'm concerned I think I know that our brics fans agree that's the default you know maybe s p would call it a selective default but Russia made the money they bought the treasuries they're entitled to principal and interest and we're saying no you can't have the principal and it's just we're not paying you well that's the default I don't care how Janet Yellen must dress it up and it was a shock but worse than that everyone else in the world was watching Saudi Arabia India Brazil Malaysia and there's turkey and and others and they're saying to themselves gee what if the United States doesn't like what I did what if they don't like my policy what if there's a war in my neighborhood and they're not in favor of it are they going to freeze my treasuries well until a year ago he would say of course not they would never do that well they did in the case of Russia and they will uh potentially in the case of these other countries so that was the Catalyst the idea of getting up under the dollar yeah it's been around a long time the the feasibility that was limited capturally by the absence of a bond market big enough to absorb Global savings but now the countries are saying well what good is it to have my savings and treasuries if you're just going to steal them so I'll maybe I'm not saying bricks are wonderful all out of the out of the gate but at least it's not dollars at least it's not maintained on a digital luxury at the U.S treasury and at least you can't steal it um and so that was the Catalyst that drove this thing from a 17-year project to hey warp speed let's get it done how do we do it and there we are and the other thing that they've been doing with those uh dollars that they needed to recycle even before we impose sanctions on Russia was obviously they were they were diversifying out of treasuries into hard assets I mean you've seen a shift from accumulating treasuries to accumulating gold and obviously China building strategic oil reserves Etc and moving to Kabul together as you mentioned all these trade agreements outside of dollars but they've been actively diversifying away from treasuries even before you know they began to wonder if they wouldn't have access to that money in the first place right um but the gold thing I think is interesting because they have been accumulating gold in uh pretty aggressive fashion I think it's interesting that you draw this distinction between currency that references gold and a currency that's redeemable in Gold because a lot of the headlines that you read suggest this is a gold-backed currency which I guess this is you know clearly something you would disagree with and you have I mean do you believe that when they make this announcement on August 22nd or 23rd they'll make clear that this is a reference and they'll come out with the actual weight the gold weight and then lay it all out right a great question um it's hard to be definitive on that it's very hard to tease information now um particularly with the Russians uh about two way about 10 days ago there was a big headline you know South African uh you know they call them Sherpas but you know delegate to the brics meeting not present around a fossa but just some mid-level bureaucrat whatever um says new currency not on the agenda you know again I want to mention the answers websites new currency knowledge well I'm sorry seriously lavrov said it is now Sergi lavrov is the greatest smartest most powerful Diplomat in the world he's the foreign minister of Russia I wish I could say something similar about the US team but I can't we gotta you know Jake Solomon's a um a political hack um you know Tony blank is a lightweight uh Victoria Newlands the bloodthirsty warmonger I mean we just have you know she's got like an undergraduate degree okay okay school but what kind of training is that for running the world they're also just blinded by hubris I mean no one imagines that the bricks could ever pose any material threat to U.S hegemony uh in any fashion you're absolutely right I was in the pentagons a few years ago but I was like completely called tabletop word games about 15 experts sitting around doing scenarios and um I was sitting one seat away from a guy he was U.S treasury uh Financial like delegate to Asia so kind of Ambassador large for the dollar and his name was David Butler so I was kind of a nice twist but um so I said and I was telling people so I tell I'm in the Pentagon I tell them what I'm telling you in your audience like I don't you know uh it's the best analysis I have to offer although we're we're a lot further along today um and I said you know and this is back when the Iranian sanctions were a big deal this is before before Ukraine before Russia I said you know this stuff works to an extent it's not perfect but it does work and we did drive around to the bargaining table for the jcpoa in 2015. so that sounds completely in effect I said but you guys are over you're weaponizing the dollar you're taking it too far and you're going to get a backlash how many times can you punch the punching bag before the punching bag gets up and walks out of the room that's what you're facing if I tell them this like they could say eight seven eight years ago and David dollar takes his hands he takes both hands and slams them on the table Palm down boom and he goes the US dollar has been the global Reserve currency it is the global Reserve currency and it will always be the global Reserve exact quote and I said David I feel like I'm in Whitehall in 1913 listening to John bull saying Sterling as the global Reserve currency and it always will be Etc I said yeah why but hubris is a good word um you know I'm plain English taking it for granted I mean if you take your status for granted then you'll you can do all kinds of crazy stuff and not worry about it but you can't take your status for granted you have to earn it every day um and uh and through and and you we got the trust we started with the trust earned like I say since uh uh 1791 uh but we blew it and I've I've always said and I told the I told government officials this I said I don't really think our adversaries can destroy the dollar but I think we can do it ourselves we yeah I agree with that 100 and I think that so that brings me sort of if I could jump to the next uh issue that I see with all of this is while it doesn't directly threaten the Dollar's role as the reason currency in the way you lay out because they still need to work on building markets that are deep enough that they can recycle all these um you know uh surpluses into uh but ultimately it does threaten the Dollar's Reserve standing because every trade agreement that is undertaken in something other than US dollars is vendor financing money to the U.S treasury that's no longer coming in which means there's only one natural buyer left and that's the Federal Reserve and kiwi as I've said since 2009 becomes a deficit financing necessity it's not some discretionary economic policy it becomes the law and the FED has to just monetize until eventually the dollar you know buckles under the weight of all that uh you know Reckless and that's exactly right and I would have said and I have said um you know in discussing could China be the global Reserve currency whatever and I I don't repeat it but I went down all the elements and mechanics of hedging of a of a bond market big enough to be the global to absorb Global savings and the treasury has that and I said China's not even close so China's not going to be Global Reserve currency I don't know maybe never um they don't have any of those things they don't have primary Deals they don't have auctions they don't have a large bond market they don't have a rule of law neither does Russia who trusts the Russians um but then in thinking about the brics currency I had another one of these like aha moments like Rina galipo goes on I said oh I was doing some I was writing or something doing some research on World War one uh basically the history of government Finance Civil War is what I was looking at and uh I saw this uh Liberty Bond poster and it was you know Lady Liberty Statue of Liberty with a torch and she said the tablet she had like a liberty Bond and she was like come on America we got to win the war by Liberty Bonds um and in my book the new Great Depression which came out in 2021 was a half the book was about the pandemic half was inflation deflation for the other half was the pandemic and one of the issues that came up because I said well it's kind of a new pandemic one that I read about the old one and I read like four or five books on the Spanish flu 1918. and one of the vignettes was they they didn't they didn't know until 1930 what caused the Spanish Flu they didn't know what virus was really until the electron microscope but um but they had a sense that it spread around and um so all so in Philadelphia in 1917 there was going to be this big parade to buy liberty bonds it was like a freedom When The War pep rally and all these doctors at the University of Pennsylvania and elsewhere like don't do this you know you're going to get a hundred thousand people on Broad Street and you know they're all going to die of the Spanish Flu uh in effect uh and they went ahead anyway they did it because for two reasons one that's how important it was but two um there was more extreme censorship under Woodrow Wilson than there is today under Biden I know that's that sounds like can't be true but it was they were arresting people you couldn't write a newspaper article about the Spanish flu because it was considered bad for morale in terms of the war in fact the reason it's called the Spanish Flu is that Spain was not in World War one they were not a belligerent so their newspapers like hey we got this flu you know and they were writing all that in the rest of the world's like hey I read the Spanish newspaper said they got a flu so they called it the Spanish flu even though Spain had nothing to do with it because but they were the only country that was allowed to talk about it so uh but what that did if you look at the history of um these are some old names and just you know been around a while you know EF Hutton Dean Witter Merrill Lynch uh when when were these firms founded it was around 1910 1912 1914. um and a little bit later in some cases but that the Liberty Bond was the beginning of the retail investing Market in the United States prior to World War one uh U.S wars were always financed by like you know Big Shots you know uh Steven Gerard financed the world the War of 1812 Nicholas Biddle Finance the Revolutionary award J J cook financed the uh James Cook rather financed the the Civil War these like dealers who did it but that all changed um around World War one so my point being there's an example contrary to everything I just said about China building a top-down Bond Mark and I don't think they can do it here's an example of a bottom-up bond market where you basically got retail investors to buy into these bonds and if you get enough of them you're going to have a bond market because somebody will start making a market in it and let's say you go to a typical Brazilian and you say hey you got two choices you can buy a rice denominated Bond you can buy a bricks denominator Bond what do you want what do you think yeah you know and then yeah by that by the world so I so that's not going to happen overnight by any means but I I think there is the potential for an indigenous bottom-up retail bond market in the brics currency for the reasons I mentioned um that over time sooner than later perhaps could could give you something like a reserve currency status so the this thing is so well thought out uh and they've even things that I would have objected to as recently as a couple of months ago I said well it won't happen because I'm like I've now modified my because I'm like no actually it could happen yeah no and I think that context of how long they've been working in cooperation and not just the amount of time but the depth and breadth of the cooperation and the fact that they're like you said you know they're they're coordinating on social issues economic issues geopolitical issues and then I read in the piece you sent me um about a sub a submarine telecommunications cable that they're setting up I mean can you do you have any more detail on that you could hear I mean that's just I actually I actually know a lot about it uh but they've built their own fiber optic submarine cable they call it Brix cable um and uh because the US is very good at tapping these things um I've actually did a job once where I had to figure out all the global telecommunications in the world through cables long story but um there's something called seaweed me which is a c is southeast Asia we is um Western Europe and me is Middle East so see we may is basically the cable system that connects Asia and London and then there's a separate one that goes from London to the United States I know where it goes I can't I can't say but as it has a nice home in the United States um and I know where the Middle East choke points are and again I won't I won't say those but um the point is if you can if you cut that cable at one of those choke points or you go off in somewhere in the Mediterranean and cut that cable you shut down internet communications between Europe and Asia like in a heartbeat and by extension the United States um more sophisticated version uh is to tap them easier said than done every now and then the internet will go out and go oh you know some problem with the Internet it's like well no you're talking to cable and you know you'll be back up in a couple hours so the bricks know this and they are laying their own cables now these are said than done in terms of protecting them but they want to have encrypted secure Communications and payment channels again they've been scoot over by the West we kicked him out of Swift we kicked them out of um you know other inner Bank Payment Systems they ended Visa the Visa is no good in Russia MasterCard is no good in Russia um you know the banks can't transact and dollars certainly okay uh this is the 12th largest economy in the world it's the largest landmass in the world it's the largest nuclear Arsenal in the world um Etc but you're saying you can't be part of the international payment system well there's a simple solution to that we'll just build you wrong yeah and that's what they're doing it's amazing um and I guess uh you know they they've found a way around all of the infrastructure that we have in place that we've built over you know basically centuries um and it looks like they're just gonna LeapFrog right into the digital age both between that submarine telecommunications cable but then also um you see this brics currency really as a digital currency do you not or I mean they're not going to issue tender they're not going to have physical paper bills no they're not and you also won't it won't be a local currency what I mean by that is uh when you go to China you'll still use Yuan how can you go to Russia you'll still use rubles and there it does vary from the Euro because in in Europe you use Euros in all these countries but that's okay the important thing is the countries when they settle trade deficits and surpluses or do purchases and sales between and among themselves they'll do it in bricks um and then that's much better than getting you one or wibbles sure but again you go to China you'll still use your one so the the one's not going away the Ripple's not going away who cares you know they go to Mexico I gotta get some pesos actually use dollars in Mexico but um but you mean you take the point in Philadelphia we call this walking around money that the bricks is not currency is not going to be walking around money we're not going to pay for versions we're not going to have in our pockets I mean I don't know 10 years who knows but not now um in terms of what's going to happen on August 22nd yeah that was going to be my next question can you game out uh what happens in the in the market response here well the market response is going to be interesting because I mean it sounds like I broke into a safe in the Kremlin and stole this information it's out there but you have to know how to look you have to know where to look and you have to know how to analyze it and again you have to just get out of your American mindset and think about this from their perspective or you or you won't get it um but um so the meetings in Johannesburg it's locations flipped around but they've ended up in Johannesburg technically a place called Samson which is a Johnsburg so crime ridden they built another city right next to it that's pretty clean so they call it satin that's where the conference is going to be this is the leaders Summit I mentioned they have 100 or more mini Summits all over the world this is the leader Summit so um ramaphosa of uh South Africa Lula de Silva Brazil Prime Minister Modi of India and Xi Jinping of China are going to be there now Putin was supposed to be there but the hearing is complicated there's an outstanding warrant for Putin's arrest issued by the international criminal court on you know so-called war crimes you know I don't think we can issue a few of those but uh it's kind of under the thumb of the US South Africa is a member of the international criminal court there's a treaty and they signed it so um everyone's like well arrest Putin when it gets off the plane and president ramaphosa said no we're not going to do that and he called the Kremlin said rest assured we're not going to arrest you but the opposition party in South Africa filed a petition with the Supreme Court to get an arrest warrant plus you have to worry about ngos and third parties and you know other people who might take it upon themselves so Putin I think very wisely said this is a distraction we don't need this right now so he's going to stay in Moscow and he'll participate by zoom and a lot of people go well there goes the the Brick Summit I think the opposite is true this is going to first of all infuriate the rest of them and it's going to make them more determined because this is an example of Western hegemony this is an example of hegemonic bullying again I don't only takes size on the politics I'm just telling you what's going on and so the fact that Putin's gonna sit in the Kremlin and zoom in um is is another example of Western bullying for one of a better word uh but they're going to go ahead with it uh number one number and Sergio lavrov who's the farm Master will be and um I think he's the brands behind this um so uh and I'm not here's what I'm not saying I'm not saying we're going to go to bed on the 22nd of August and we're going to wake up in the 23rd this new currency and the dollars now no that's not happening um they're going to announce it uh it will be introduced in stages uh it will take a while to uh but but the big thing is the thing I mentioned which is the definition will be by weight of gold now by the way I don't take too much time on this this process is an exact duplication of the process that John Maynard Keynes went through with Bretton Woods and he was ultimately unsuccessful he was overruled by the United States and Harry Dexter white who was the U.S delegate who turned out to be a style Anastasia and we found that out later but um but what Keynes wanted if you and I'm sure you know this he won a World money he wanted the bancor he didn't like the idea he wasn't against gold not at all but he was against the idea that somehow only the dollar would be tied to gold and everybody else would be tied to the dollar that meant you had to go to the U.S and via the IMF and say mother may I you know devalue or whatever because the US wasn't charged um Kane's Cain said let's have one currency unit a world money he called the bank War and the other thing he did when he started I've read all his papers he started his research with a commodity basket I said well all right now so uh what's what's the bank we're worth same problem the bricks are facing what's the banker worth he said well he could have so many barrels of oil so many bushels of weeds so many tons of copper etc etc through this commodity basket I very quickly discovered that Commodities are not quite as generic or homogeneous as people believe their oil yeah but they're 17 72 grades of oil around the world based on sulfur content viscosity Transportation costs they're not all the same so through a process of elimination he just said why don't we just use gold and Gold's easy uh it's something that's pretty and shiny but it's it's uh it's an element it's not even a molecule it's it's an atomic number 79 it's either gold or it isn't there's no debate about what gold is and it serves the same purpose which is it gives you an anchor and anyway that was rejected about six months ago maybe a little bit longer uh maybe late last year I remember reading about the brics deliberations on exactly what we were talking about and maybe this is what Fargo was a year ago as long ago was a year as a year but um they were talking about a commodity basket uh you know oil wheat copper all this stuff and I I just said my I kind of laughed I said they'll never work they're going to end up with gold they're repeating Kane's process and they're going to have the same result which is they're going to find it's not really feasible uh and they're going to end up with gold and sure enough they have but uh but the extent to which this is very much based on John Maynard King what what what Keynes wanted to do not where we ended up not the Britain wood steel but but the Cane's deal with um with the world money tied to Gold that's what they're doing yeah well um you know since gold is near and dear to my heart uh when I sort of Follow The Dominoes as it were to the Natural conclusion here and even if on August 23rd the world doesn't completely change um just that drip and drab that we talked about earlier where there's less money flowing into the U.S treasury to finance or deficits which clearly aren't shrinking um so we've had a problem um and it's a problem which I happen to believe will be confounded by the recession that is going to come regardless of what the stock market might like to imagine right now right um which point you know the fed's going to have to restart QE and I would think that that would push the accelerator again on this whole question of the dollars standing and the willingness of the rest of the world to um indulge uh the exorbitant privilege or you know whatever phrase you want to use and to me the ultimate conclusion that I come to and I'd love your thoughts on this is that you know we just we have an issue that's untenable we can't Finance our deficits at this point there's just no way and if the FED has to kick up all of the slack its balance sheet is just going to explode um to the point that it's just untenable for the dollar and to me the natural conclusion is well that just means we're going to have to go back to a gold link because otherwise we're going to have inflation that's why my Republic style inflation do you have is that just a harebrained idea or what is your thinking on that uh first I agree with everything you said up until no no with two footnotes the first one is is the fed the ultimate buyer Last Resort of treasures yes um but there's an intermediate buyer which is the US banking system in the 1950s a typical large U.S bank balance sheet was 40 Treasures that was normal that wasn't like hoarding uh today it's about five to seven percent so I think you'll get a phone call to Jamie dimon and uh look at the all the other CEOs uh Jane Meyer of the lady of city um they'll call them first to say people got to buy bonds of course they're all under the thumb of the US government and they will so you might have a pretty good cushion of bond buyers before you have to turn to the fed and expand the FED balance sheet now especially if it's a reset because they're not going to want to make loans with that money they'd rather buy treasuries that are perceived to be safe correct especially with positive positive carry and liver ten to one under Basel you can make a very good Returns on Equity so um so you do have a large pool of intermediate buyers before you get to the FED it doesn't really solve the problem it just passes it around the banking system by the way the Chinese are doing something very similar right now everyone's like why hasn't the um uh people's back in China sold more dollars well it's because they're making the bank store the commercial banks are selling the dollars and propping up the Yuan uh and we can see something similar in the United States so that's one I I just kind of pencil in the commercial banking system at least the big Bank says potential buyers of not quite Last Resort um as a way to put it but the other the other thing um the the bricks what they've done this is part of the business they've opted out of The Exchange Market they're like because normally if the dollar is getting weaker you're getting stronger um that's bad for exports it's bad for expert related jobs Etc you know and it's currency was that was my first book currency was but they've by defining their currency by weight of gold not not dollar amount but by weight of gold they're out of the Foreign Exchange Market so and they can like they can just sit back and watch the show yeah um the other potential buyer and this is what you know another self-serving conclusion is uh public pensions because they're so underfunded um and if if the federal government actually has to backstop them they may say look now from now on you have to hold X percent of your assets and then treasury bonds or something like that and create a natural buyer for the paper um but you know it's a good point there are some pools of capital out there that can't support the bond market but then there's an opportunity cost like what else could they be doing you know uh infrastructure other kinds of investment uh startups I mean there are other things to do with them hello exactly right right I mean that's going to be very interesting to to see how that all unfolds yeah yeah well this has been tremendous are there any things that you think uh were left on The Cutting Room floor here that you want to go back to and and dig into oh actually one last question for you and maybe this would be one of those questions um is does the election in 2024 here in any way uh impact your thinking about the outlook for the dollar I know it's it's hard to get into that without getting super political but you know when I think about the bricks trying to create a an alternative to sort of the western infrastructure and financial setup Etc um it just seems like we're kind of we're not I don't know if oblivious is the world word but it was sort of benign neglect that the US isn't taking any of this seriously policy makers like you described really don't view this as a legitimate threat to the U.S uh hegemon status much less the reserve currency status um so they're kind of just not paying attention to this don't take it seriously do you think that that will change in Washington and with the election in any way shift the urgency on policy makers here to be a little more serious uh yes and no it doesn't say mostly no but let me uh talk about the election for a bit and I don't I I people think I'm a political junkie I do follow it closely but I kind of part of me doesn't care I'm like ah it's a mess but um but I gave a presentation to a big audience the other day and it was an end of the thing panel and they said you know what are we missing or what's going to happen where I say here's the thing uh was uh what have we learned I said well we haven't learned about uncertainty because we already know about uncertainty we all understand that we're living in an uncertain world and we have to make allowance for that so we didn't learn that we already knew that I said well what is new is the tempo of shocks is accelerating um there are shocks go back to the panic of 1837 or 1857 or 1898 you know you know all of them I've lived through another enough of them I'm kind of a magnet for trouble but there's no end to financial panics um but uh what's uh what what what's different about this is that uh we may be uh looking at a a Tempo that's a lot fairer so it's not every seven years or every ten years anymore between the US is losing the war in Ukraine badly uh you might even see Poland come in and right off the Western half of uh Ukraine what the former Ukraine up to libiv and Russia take the bottom one-third including the entire Coastline through Odessa and leave a little rump State landlocked rump State around Kiev maybe um so uh there's no way there's no way to cover this stuff up the New York Times And The Washington Post I read them the same way I read prabha during the Cold War it's all lies but they're valuable lies because it's good to know what the other guy's lying exactly yeah he's lying is that you must be you must have a reason for that it must be important to you so this intelligence value in lives and that's why I read times in the post but I you know I taught um I teach a seminar Financial Warfare at the US Army war College very select group about 12 people in the class seminar style mid-career 40-ish um you know Lieutenant Colonels Navy commanders um you know that level but but they've been hand-picked as the future big brains these are people who in seven or eight years are expected to be you know three-star generals National Security advisors and I do the financial Warfare module um and I and I told them this I said uh well I taught the class in 2022 I said the sanctions are going to fail Russia's Behavior will not be altered Russia's military will not be diminished and they will backfire on the United States and they got a lot of pushback because everyone's gung-ho you know and that's you know this year when I the class was there I um I said here's what I taught last year's class and I was right about everything I was everything I said was right so that got their attention um and there was one lady kind of quiet but very nice lady and she came up to me afterwards oh because I made a big deal about sourcing because if you don't if you if you can't trust the New York Times The Washington Post or NBC or anything how do you find out what's going on I mean I'm not on the battlefield I'm not even in London um and it was hard I mean I'm good at it but that was hard that took months to track down sources and websites and that you could rely on it wasn't like the Russian uh defense Ministry um and then uh so this lady came up to me after the class and she said uh Jim could you you have could you give me this your list of sources I said of course you know I'll email to you no problem but then I thought to myself wow you're kind of senior in the state department you have a top secret security clearance you you're like you should know all this right why are you asking me for service right I gladly gave it to her but it shows how corrupt our government is that they're lying to themselves and that's the worst possible position to be in or how it it bred that hubris is you know this idea that we don't have to research this because it's never going to be a legitimate threat to the way we work right now or the status quo is going to remain the status quo forever it's just amazing oh my gosh well this whole Russian thing has been you know it looked like we really provoked it to some extent um at least had a role in you know pushing Putin in there um presumably with the idea that it wouldn't endure to the US's benefit somehow and it ends up not only being a disaster from a military standpoint but because of the sanctions now from a financial standpoint as well so I mean if you were to invent the worst possible policy you probably would have done everything that that they did there that's right Victoria Newland won this war she said she just got promoted yesterday she's now um deputy secretary of state she she replaced Wendy Sherman who I always agree with Wendy but she's smart Victoria Newland has now replaced Wendy Sherman as deputy secretary of state second only to the Secretary of State um but uh she wanted this war and she got it was an old proverb be careful what you wish for you may get it and that's exactly what happened by the way quick footnote Victoria Newland is going to South Africa the week before the brick Summit interesting because she's yeah she's going to try to bully South Africa into like not doing the deal or uh joining Russian sanctions or anti-russian sanctions it's going to fail the mission is going to fail yeah so talk about uh two decades late and several dollars where have you been for the last 17 years that's the opposite of diplomacy this is like uh schoolyard bully and and why was John Ellen in Beijing uh three weeks ago yeah magic mushrooms According to some reports so right oh my gosh I mean you can't make this stuff up but you know uh they get what they deserve because they've been you know walking blind into this whole situation um and and now we're paying the consequences so we'll see Jim this has been phenomenal I really enjoyed getting to talk to you maybe uh we'll see what happens on the 23rd but maybe we can do a conversation you know uh some months down the road and and uh Mark our progress and see if anything new has developed on this front good I'd love to thank you well I hope you have a wonderful summer the rest of the summer stay cool and uh thank you again so much for your time I always learned so much getting to talk to you really appreciate it take care thanks bye thank you thank you

Channel: Wealthion

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Id: 88pP53lcBwQ

Length: 63min 7sec (3787 seconds)

Published: Tue Aug 08 2023