Lyn Alden/Jeff Snider (QE, Deflation, Inflation, Dollar, Eurodollar System, Future US Economy)

the rebel capitalist show hi guys welcome to this episode of the rebel capitalist show no intro today i just hit record because the conversation was absolutely amazing i interviewed lynn alden and jeff snyder at the exact same time i can promise you this is one of the best pieces of content you will see all year so let's go straight into the conversation where we start talking about quantitative easing we'll just start with how what quantitative easing is how it works and what the the the back and forth on twitter has been with bank reserves and what they can and cannot do sure how about you frame it george because uh uh you probably have a better way of words than i would to say well i'll frame it if you want it's neither quantitative nor easing so let's just start there well for i mean the easiest thing it's obviously not quantitative because if it's quantitative and if we have a bunch of you know the best and brightest ivy league economist sitting around the table and discussing things and coming up with the right exact number you only need to do it once right because if it's quantitative you know the number ahead of time you do it it works every you unpack it it's done everybody goes away happy and you know given the experience in the united states to europe and now in japan for more than two or almost two decades now it's obviously not quantitative now the bigger more interesting discussion is whether or not it's actually easing and that typically revolves around what happens with these bank reserves that get created as a byproduct of the buying process that's a whole different discussion i think that's the discussion we're going to have here yeah exactly so the back and forth on twitter lately jeff has been if uh let's just use a primary dealer bank if they have these bank reserves are they able to go to the next auction and buy treasuries with those bank reserves or do they have to use cash because obviously the back and forth is if they're using cash then technically that may be taking uh purchasing power out of the economy therefore almost taking liquidity out of the uh economy but if they're using bank reserves then it's kind of a wash and then if they are buying those treasuries and then those bank reserves go from the balance sheet of the primary dealer bank down into the tga and then once the treasury spends that money then they're creating an additional bank liability in the commercial banking system or they're increasing deposits that are potentially chasing the same amount of goods and services so in my mind that's kind of how i frame it to keep it to keep myself uh understanding it well is i just kind of look at it as the commercial banking systems liabilities in aggregate and then the fed's liabilities in aggregate and is action a b or c increasing the commercial banking systems liabilities because to me and i could be wrong that's kind of the key component to whether we're going to see consumer price inflation well number one i mean i don't know if lynn wants to answer here but i i would just say first of all i don't know why we would even expect consumer price inflation because again uh historic history has shown conclusively that quantitative easing doesn't lead to consumer price inflation that's i mean the entire reason the federal reserve just conducted its almost two-year exhaustive strategy review was because they can't do what it says it's going to do so far as consumer prices go it does quantitative easing it doesn't lead to consumer price it doesn't lead to them hitting their their cpi target or their pc deflator target so something's wrong in between already we already talked about quantitative easing obviously cannot be quantitative so what are we missing in between there's something missing between the federal reserve doing something and therefore how that's supposed to react or how it doesn't react in the real economy we're missing something right there's there's something clearly missing from the equation and so the next step is what what are they actually doing with this bank reserve process what are we actually doing with quantitative easing and the answer is it's a simple asset swap and you know bank reserves have been historically nothing more than something like a clearinghouse certificate if you go back to the earliest days of the fed even before the federal reserve you know the united states banking system did not operate with a central bank because it had all of these private ad hoc clearinghouse associates there was a new new york clearinghouse there's chicago clearinghouse you know st louis clearinghouse all of these things that they undertook the private uh privately they undertook all most of the roles uh the emergency roles of the central banks which was currency elasticity and the way they dealt with currency elasticity was they would issue something called clearinghouse certificates so if one of the banks within their clearing house network got short of liquidity you know customers came in took too much money out of the the vault and therefore left them with a shortfall so long as they were in good standing with the clearinghouse the clearinghouse would issue them clearinghouse certificates so that they could stay afloat they could use these certificates within the network thereby allowing them to stay up in terms of you know keep current with all the various float and pay payment needs that are taking place in in the real economy but declaring how certificate can't ever leave the interbank system it's simply a an accounting ledger really for within the system that allows banks to continue to participate as long as they're judged to be solid good standing banks that the network still can wants to continue to do business with and the federal reserve when it was first instituted in the early 19th early 20th century followed what was called the aldrich plan now the aldrich plan was it was written by a bunch of people among them paul wahlberg who simply wanted to replicate the clearinghouse mechanisms that were already in use in the public system they just didn't want to be left you know the famous case after you know the 1907 panic was they didn't want to be you don't want to be beholden to jp morgan for example because jp morgan was a big part of the clearinghouse new york clearinghouse so what they wanted was essentially a clearinghouse system but in the in public hands or at least more public hands everybody knows the federal reserve is not a public institution it's a privately owned uh privately owned central bank that is actually a clearinghouse that's really what it's set up what it was set up to do and so the the clearinghouse certificates that it issues are bank reserves essentially these things there's a special account that's an interbank account that has no role outside of the interbank network system okay so so no role other than the it's a backstop to create additional loans which would mean additional bank liabilities in the commercial banking system yeah and what makes it that what's different from between the bank reserves and the clearinghouse certificates is simply that bank reserves at the federal reserve satisfy legal reserve requirements okay so if when i'm looking at quantitative easing here's i'm thinking through then lynn i'm going to get you to chime in as soon as i'm done i'm seeing that the let's say the cache for lack of a better word goes from and it's on the fed's balance sheets the liability of the fed so the cash of the xyz bank goes to buy that uh let's call it a treasury then the fed swaps the treasury so the cash goes from the primary dealer bank down to the tga then what happens is the treasury goes from the balance sheet of the primary dealer bank over to the balance sheet of the fed so it becomes an asset and then they swap for bank reserves and then the initial cash let's say is in the tga so then the treasury writes a check let's say to to to average joe average joe takes that check deposits the check into his account therefore the deposits in the commercial banking system have increased and to back up that liability there needs to be an offsetting asset so the cash or reserves or digital units of of measurement on the fed's balance sheet go from the tga back to the xyz bank wherever average joe banks and wherever he deposited that check so is that the flow is that the process or is there something in there i'm missing well george i think you're missing it the first step the fed has to or the uh the primary dealer bank has to create the cash first in order to buy the asset from the government at auction and there's this is the problem because we're getting involved into what is a cash or what is a cash equivalent right because there's no cash here there's no physical i mean there there's not stacks of federal reserve notes that are being transferred back and forth and armored cars with armed guards that's not that's not happening these are simply ledger balances on a bank or federal reserve bank or the government and the government has uh deposit accounts with jp morgan and any other primary dealers so they don't need the fed's tga account in order to do conduct business with primary dealers so if if jp morgan is buying at auction they're going to create the cash and they actually don't even have to create the cash as long as it follows along with strict warehouse accounting because these are warehouses these are these are these banks these primary dealers their their entire job is to buy the stuff from the federal government or you know other primary uh uh primary uh market issuers warehouse those securities and then sell them off to the public over time and so they're given special privileges to be able to do that one of those is to circumvent normal accounting rules they can use all sorts of different ways in their balance sheet in order to credit the government with essentially a temporary cash balance so we're i mean look but i mean now we're getting really complicated what all we really need to know is from what you just the flow chart that you just developed is that the first step in any of this is the fed is the primary dealer bank not the federal reserve the primary dealer bank has to create the cash asset whatever it's going to use usually it's a deposit in the in the government's account to purchase the bond from the government at auction mm-hmm right right so the cash is already it's already there to begin with okay so lynn are you following this and what's your your input there can you help me understand that sure there's a there's a bunch of different points to touch on there uh and i agree with a lot of it and uh if you start for example earlier on at the point where quantitative easing doesn't cause inflation that part is true so if you look back in history for example quantitative easing especially alone doesn't cause inflation because it doesn't ultimately result in too much money pla fought like chasing limited goods right because all it does is increase reserves in the banking system and if you look at both the 1930s and then also if you look at you know the aftermath of the 2008 crisis you know what you're really doing is kind of increasing bank reserves in the system it's not really getting out into the the public so for example in 2008 banks went into that crisis with cash levels that were about three percent of their total assets uh and they were you know they they increased all these kind of reserve requirements and capital requirements and all these new regulations that were laid on top of them so now banks operate with a higher reserve uh you know status and quantitative easing essentially gave them that reserves by taking some of their assets off their books it was an asset swap to kind of recapitalize them and then so that they could go forward with that higher reserve requirement historically what tends to lead to inflation is if you get uh you know either tons of bank lending or if the federal government goes around the bank lending channel and just uh you know does a lot of direct spending in the economy with massive deficits and uh you know in those situations those deficits get monetized in the sense that bank reserves are increased for the federal reserve to buy a lot of those treasuries so it's not really extracting that capital out from somewhere else it's extracting it from kind of that new void of reserves and then going into the broader economy so we saw that in the 1940s and we you know we've seen that a little bit here in the early 2020s to offset uh you know the big deflationary shock they had uh so i think it's important to separate you know qe on its own versus you know qe combined with uh you know massive fiscal spending as an example uh and then if you look at just the fungibility of you know reserves in the system and that first step that jeff is talking about i think although it's extremely complex i think that's really the sticking point i know it is for for me in my mind just that that first step when the the primary dealer banks are buying the the treasuries at auction and then that that purchasing power for lack of a better word goes into the treasury's account at the fed and that's that's kind of the the sticking point so yeah from a high level perspective it's i i've described before kind of the three bucket model where you have the reserves you have the tga and you have currency in circulation and if you look at for example how much uh you know uh mortgage-backed securities and treasuries the the fed has has acquired over the past you know any given time period you'll see a corresponding increase in the combination of the tga reserves and currency and circulation and during say for example that the tga you know draws capital out uh and uh you'll see kind of a corresponding uh decrease in reserves but as soon as they empty that tga reserves go back up and it's because basically though you know the accounting actually is as jeff pointed out it's it's not the intuitive thing you think about it's not actual capital moving anywhere but essentially what you see from accounting perspective is that as the tga goes down it basically ends up back in the bank system reserves go back up and so it's it's just one for one it's it's actually it's essentially i think that's probably a really good way to put it lynn is is you know different buckets you're just moving it from one to the other it's not creating it's not destroying it's just moving it from one pocket to the net yeah and those three buckets are all live the main liabilities of the fed so you know they have these they have these other little tiny liabilities but the three main liabilities are are currency and circulation bank reserves and the the treasury's account the tga so what i was trying to do jeff is i was trying to figure out by by looking at how this these three buckets work with the the fed's liabilities on their balance sheets and what would make them increase and decrease and how that would or wouldn't translate to oh that's easy that's the easiest question of all what makes this balance sheet is entirely monetary policy that's it there's no other reason it's all about the fomc so if the fed isn't intending to increase its balance sheet quantitative easing is nothing more than the means to do it that's all quantitative easing is it says look we've got to get our balance sheet bigger so the way we do it is by buying assets from the public and that's a that's a historical accident too which is probably worth a discussion down the road but um that's all that's all it is quantitative easing is the means by which a central bank increases its balance sheet and what happened what i think most people go go wrong is they're interpreting the fed or any central bank increasing his balance sheet as doing something monetary and that's where i think we run into all these problems yeah and so that's what i'm trying to if i'm here understanding you correctly when you're saying monetary i are you referring to the um the the commercial bank liabilities so the deposits in the real economy with held with the commercial banks that's what i'm trying to figure out if that's increasing or decreasing um excluding excluding just additional or less bank lending i'm just trying to start by taking baby steps saying okay if if this happens on the fed's balance sheet is something going to happen on the balance sheets of the commercial banks as far as their liabilities as far as customers and i think it goes back to what linda said and i want to really i want to go back to what she said because i think that's the entire crux of the argument here okay is it really where the difference where we get uh not just inflation but actual activity in the real economy is through credit the supply of credit when the supply of credit gets out of the banking system into the real economy that's really monetary action in action that's really the monetary system becoming activated and so if the problem is if we have a we have something that is constraining the banking system then it doesn't matter really what the federal reserve does because it's trying to prod and cajole the banking system to do something because it's not so simple as deposits moving left and right the way the bank bank banks construct their uh their balance sheets is incredibly complex and so if they have any kind of constraints and i know lynn mentioned capital constraints over the last crisis that's one of them so if banks are capital constrained if they're var constrained or whether when any number of constraints then it really doesn't matter what the fed does the fed can give them all the reserves they want and the banks will still do nothing with them so that's really the issue here with quantitative easing the fed is saying we need to do something we need to do something because the economy and inflation are not are not performing the way we want them to so we're going to expand our balance sheet and that's supposed to lead the banking system to doing something in the real economy and that doing something in the real economy that's where the inflation that's where the growth comes from so that's the theory so we have the fed expanding its balance sheet but we don't have the inflation and the growth in the real economy so what are we missing in between and i think lynn is exactly right because then you start to zero in on the banking system itself not the central bank but the banking system itself is seems to be the stumbling block between what the fed wants to do and what never happens in the real economy there's something stopping that from going from one to the other george i think you describe that well with separating the fed put from the government put right because a lot of people are looking at the fed as you know the fed's going to backslap everything the fed's going to do this whereas you know in this environment it the the more impactful thing is is what the government does what what fiscal spending happens uh things like that because either you have bank lending which is which is not really happening it's mostly it's mostly kind of kind of dead dead on arrival at the moment or you the federal government goes around the banking system and just you know hands out money or you know back like backstops loans for example the ppp loans that's essentially going around the bank system even though it's still going through the banking system so there there's kind of like that sort of fiscal put right is is a is a still a powerful force and you know the the federal reserve's kind of role is to to assist with the treasury like liquidity you know things like that like we saw that liquidity issue in march and they you know they can expand bank reserves to maintain liquidity in the treasury market uh but really it comes down to you know in that sense either bank lending or fiscal spending and in the absence of bank lending you know when everything just kind of shuts down you have this big deflationary spiral that's when fiscal can come online and they can just shovel money in there and that's what we saw you know from that from that period of of roughly april they passed it in late march but we saw that from april to july and lately that's been that's been kind of shut off now so so and we're starting to see a lot of things roll over because monetary policy itself is just kind of it's ineffective in this environment yeah i think you know i mean we talked about lending and we saw the spike in commercial industrial loans for example as companies drew down on all every every bit of liquidity they could find yeah the revolt here we have here we had this example where bank lending was actually increasing at a historically high rate which was a deflationary negative because companies weren't they weren't borrowing to go out in the real economy and build new factories and buy new office space and things like that they were bored they were battening down the hatches for you know a deflationary win they were hoarding liquidity left and right so again they were telling the federal reserve in particular it doesn't matter what you do jay we're not going to do anything with the money it doesn't you can create all the bank reserves you want those bankers are staying within the banking system within the interbank banking system part of it we're not going to do anything with it we're we're sitting here and so it's not even capital constrained there's almost a willingness constraint the banks are not willing to take any risk right now and so long as they're not willing to take any risk they're not going to it doesn't matter what the fed does they can give them all the bank reserves they want they're simply saying we're in preservation mode not risk mode yeah and how does government spending play into that jeff is there a way for like lynn was saying for that government spending to get around the banking system as far as creating more purchasing power in the real economy without having to create additional loans without having the banks without the banks needing to be willing to make that happen yeah i would agree that's a that's a possibility but i might disagree with her slightly and i don't think that that's happening right now and i don't think it's happened since april uh because i think look the federal government can do helicopter money it has done helicopter money we've seen it before we saw it in 2008 with the bush tax cut same thing so what the federal government can do is it can it can provide liquidity to the household sector and the business sector as it's done this year however i don't consider it to be stimulus because it's not adding anything to the economy they're trying to make up for what's already enormous deficit the real economy has broken down and that when it was shut down we had the normal channels of redistribution in the economy which are income spending you know investment those things were stopped and so the federal government is simply trying to bridge that gap with its direct uh with its direct aid through these various programs so the fed the federal government not the fed the federal government can get into the real economy and give it aid but it's not the same thing as replicating all the process of income profits earning investment it's not the same thing at all so it's sort of like a temporary stop gap measure to hopefully stop the bleeding that's not stimulus in my mind i think that's simply just aid i agree it's an offset because for example you know back to back during that that march kind of crash a lot of people were expecting more and more deflation and we probably would have had that we would have had a sharper thing now the big kind of you know because we've seen for example let's call it inflation and grocery prices but if people didn't even have the money like that would have been even even more constrained so if we saw that big kind of deflationary spiral happen and you didn't get kind of uh you know any sort of those enhanced unemployment checks or those one-time stimulus checks then we would have probably seen negative cpi prints you probably would have seen you know kind of a sharper a pull down there so what they did was you call stimulus but it's stimulus against you know a big deflationary shock so it's really eight is probably the best word because all you're doing is kind of counteracting a portion of that big contraction so you're just making the contraction less deflationary and kind of you know they they've managed to boost up inflation expectations and yeah and a little bit of reported cpi uh we've seen a rebound in commodity prices so it kind of offset part of that big deflationary shock but yeah that so far is a one-time thing and we've seen for you know we saw consumer confidence you know different measures of sentiment and confidence rebound a little bit but then it kind of languished there because you know now they what they're looking down the pike and they're seeing okay permanent job losses are still going up there's still a lot of high debt in the system and so we're starting to see small small business revenue kind of roll over uh and so it's it's kind of the question now is like okay what's next it's kind of like a you know big hungry beast and it's almost it's almost kind of limitless in how much aid it would need to to restart that sort of cycle because right now you know with such a big unemployment shock and with such so much debt in the system uh it's you know it's really kind of a a big solvency issue potentially playing out uh and right now you know we'll see what happens fiscal policy is currently in gridlock and i'm not a political expert so i don't really have a much of an edge in forecasting when or how they're going to pass whatever the next thing is well you know i kind of see it as like a rolling in deflationary shock it's like it wasn't a one-off event just like 2008 wasn't a one-off event it wasn't a one-time event or was it it wasn't a single vet it was actually a series of events that happened and i think you know what you just said lynn i think that put it perfectly because businesses markets whether i mean wherever you look people are wondering are we through is this thing really done or was that just the first step you know did we just we did we get to get the whole thing or we just get the first part of the thing and i think that's what's keeping this you know deflationary mindset up front and center especially in the bond market is the idea that we haven't seen the entire thing yet and that they're still possibly you know as lin said the government is kind of keeping everything hopefully treading water but if it takes this much effort for everything to just tread water what does that really say about the underlying condition so i think that's you know the the unemployment shock and everything else there's there's a huge gap here that isn't it isn't being uh that isn't being filled in efficiently and quickly enough that is causing this level of uncertainty and so i think i think of it more of as a rolling deflationary shock that's more and more being uncovered as not simply a one-time thing and so we're starting to see what might be the next next leg of it if there is a next leg of it some of that starting to uh i think impact in in the real economy and not just the marketplace too yeah so we have this tug of war going on with the the real economy wanting to deflate it wants deflation it wants to get all that excess mal investment let's say out of the system and then on the other end of that rope we've got the government and the fed doing everything they can to prevent the economy from deflating so i think for most of the viewers right now who are watching this they're probably thinking to themselves okay does the government have the ability to win the tug of war right if they came out tomorrow and just let's say spent a quadrillion dollars into the real economy would that oh would that outweigh the deflationary pressures or what would happen then jeff what just as a thought experiment what do you think oh yeah we go back to historical examples japan's a perfect one it didn't matter what the bank or what the bank of japan did in combined with the japanese government they never got the inflationary they never got the growth and they kept doing bigger bigger bigger i mean qqe which was which was started back in april of 2013 is now in its eighth year so bigger bigger bigger doesn't appear to be the answer at least you know that's that's the way i say again because it's not quantitative neither nor is it easing and that you can add the fiscal component to it too as the japanese have been doing pretty steadily for the last 30 years and it doesn't necessarily lead to inflation either so really it's not necessarily about the size of the program it's more about the conditions behind it as you just said george i think you put it perfectly the feds the federal reserve and the federal government are trying their their best to hold the forces of a deflation at bay because there are the forces of deflation that are out there i mean it's not that the economy wants deflation the economy has to undergo deflation given the conditions and constraints that we have on it right now as the banking system which is traditionally the agent by which you counteract those deflationary forces continues to say i don't want to i don't want anything to do with this there's really limited means for anybody to to really offset which is really a tremendous mess okay so yeah go ahead yeah i would add that i think magnitude is a big question to consider so if you look at the japanese example you know their biggest deficits were like eight percent a year right you know i think they're gonna have a bigger deficit in 2020 i haven't looked at their at their numbers in the past couple months but if you look at historically their biggest deficit was about eight percent of gdp so if you you know george you mentioned the number quadrillion or whatever but like basically if you use if you use a silly number yeah if you use like a silly number which i think is actually a good thought experience if you use like a silly number and just say okay everybody you know instead of 1200 checks everyone gets 120 000 checks right then yeah you'd see a currency itself would would be you know a lot less meaningful in that sense if everyone you know has has a big kind of six figure injection at that you know and then the federal reserve kind of you know increased its you know they bought all you know most of that through the banking system and just kind of because there's no way that the the existing balance sheets would be able to absorb that much fast treasure issuance so you'd have to you know the federal reserve but most of that would wind up in the balance sheet you'd have a big increase in the monetary base and then all that capital go right to bank deposits and people would have their their accounts flushed with cash then in that sort of extreme environment then yeah you'd have you know an inflationary spike and you but you'd have like it'd be disarray in productive capacity because it's like how do you do how do you do investment when when those kind of like crazy numbers are happening so basically i would answer the question by saying that sure like you know any any any any authority that has kind of unlimited you know printing capability they can they can just do whatever they want with how many zeros they want then sure they can override a deflationary shock but i think it's a question of of you know what is what is the most effective way to do it what has historically happened in history and usually what they do is they they do just enough to try to offset it right so so you know we we had this big deflationary shock we had a you know two or three trillion dollar you know kind of injection here in the us and that just kind of offset it part of it and i think it's kind of like you know now that the market's up and now that you know things are kind of at a standstill we we you know there's not kind of riots you know aggressively happening now that like they were back then i i think it's easy for policymakers to sit back and just kind of you know they're going to debate with each other and until either we get another big you know asset price sell-off or we get more civil unrest or whatever whatever the next catalyst may be then then they'll do another round maybe it's a trillion maybe it's 2 trillion it's still small relative to the you know the tens of trillions of dollars of debt in the system and and the sheer kind of disinflationary weight to that i think eventually given enough time they can print their way out of it but it's it's i think people are often kind of too too quick in how that how that plays out i think people are i mean i saw for example when they were printing the you know when they were kind of doing that big fiscal injection earlier this year i saw people calling for like hyperinflation by the end of the year and it's just not it's it's offsetting a much larger uh disinflationary shock right yeah so jeff uh what do you think about that and um then how and again i want to go back to i'm almost sure every single viewer right now is saying jeff how can you say that because my grocery bill is going up by a hundred bucks every single week so how can you sit there and say there's deflation so let's go from a super super high level complex uh discussion to kind of just bring it down to the average joe here how do we explain grocery prices going up well grocery prices aren't inflation and you know i hate to i hate to defend the federal reserve here especially you know the famous bill dublin comment back in 2010 and 2011 where he said you know ipad prices are falling and therefore you know i know your grocery bill is going up but that's right i mean let's define our terms inflation is the broad-based general rise in consumer price it's not one segment of the basket or another segment of the basket and yes there are all sorts of arguments about whether or not we can accurately measure inflation or not i mean does the cpi do it better than the pce deflator you know i mean there's all sorts of discussions about that but the fact of the matter is broad-based general cons sustained levels of consumer price advances are not happening and point out you know something lin mentioned earlier the core cpi which is something that is i mean it's it's straightened out essentially on purpose actually fell for three months in a row for the first time ever which okay yeah maybe we can't we can't measure inflation accurately if you want to take that discussion however we can see signals of deflation in these various uh these various other estimates like the core cpi and when it fell three two for three months in a row for the first time in history the last time it had fell on back-to-back months was in 1981 and 82 which was one of the worst recessions that we had had prior to 2008 and 2009. so what we're saying is that okay if we can't really measure inflation accurately enough we can at least see signals of deflation when they do show up in something like the core cpi now what i would say is that look yes i know grocery prices are going up health care prices are going up education prices are going up but those are being balanced out and other things in the real economy which this year in particular more and more things are being discounted than they ever have been than they had at least in the last couple of years which is offsetting those things so look you go to the grocery store you pay a lot more for food you notice that that's something that sticks in your mind if your wireless phone bill goes down for you know 20 30 a month you maybe don't notice the same thing so even though the cpi picks up both of those things and you say well my grocery bill's going sky high this can't be right the cpi must be wrong it's it's what people mostly notice that matters all right yeah i think i i think kind of like to agree with that i think i think kind of separating in different categories helps people kind of work through it and a general trend we've had is actually we've had we've had decent inflation in essentials or things you can't offshore or services there's a couple different ways to describe it so we've seen we've seen healthcare go up pretty dramatically we've seen education go pretty dramatically we've seen food prices go up recently uh you know kind of sharp on the other hand we've had a lot of electronics deflation right because technology's uh you know kind of increased productivity there so much as well as labor offshoring so for example a tv cost way less than it did you know an equivalent tv high-end tv costs way less than it did 10 years ago less than it did 15 years ago and it's way better so that's an example of of tremendous deflation and it's a good kind of deflation right because it makes you know a really good tv accessible to almost everyone versus you know it used to be like a high you know those plasma tvs like high end items now like anyone can get a 300 tv that's better than those and so you have kind of that dichotomy going on recently it's also i think uh partially a matter of wealth concentration because we've seen for example inflation in high-end luxury goods to some extent for example we've seen like say how much you know kind of top paintings go for because there is so much money up in the up in the top edge lines that it can chase kind of those finite goods so you've seen kind of massive increase in prices of fine art for example whereas you don't have a lot more money down in the in the lower level so you don't have a lot more money chasing you know limited goods in the system so people aren't getting you know there's not a ton of industrial production increase there's not a lot of investment happening at the at the the kind of lower levels and so there's there's several different kind of intersecting forces and it's it is you know to just point far more complex than just what is your grocery bill saying because there's so many different kind of baskets of goods there's so many different it's kind of you know what what's happening in the higher level versus the lower level what's happening with essentials versus discretionary that sort of thing i think that's it i mean lynn that's it exactly what we're really talking about inflation versus deflation is not necessarily consumer prices themselves but consumer price increases sustained broad general consumer price increases as a symptom of an economy that is actually functioning that's redistributing well wealth and activity and profits and in earnings and spending all these things across all levels of society and what you what linda said was like look the reason one of the reasons we're not getting inflation we see it in the high end because people are in the high end of things they're doing really well that that's a sign that the economy is not working as it's designed that quantitative easing is not leading to the banking system doing the things we needed to do we're not getting the broad-based monetary redistribution through credit that would be a symptom of an inflationary growth scenario so the lack of inflation isn't necessarily deflation we're not talking about 1930 anymore we're not talking about prices crashing at 45 rates yeah what we're talking about is essentially the symptom of the monetary system you know malfunctioning my view which isn't allowing economic growth to reach every single part of the economy that we would see in a healthy scenario what we would see is that money and activity and spending and all these good things would penetrate all level societies instead it's being stratified especially in the top levels which suggests that look we're not we're seeing an economy that's malfunctioning and then we have to figure out why it's malfunctioning and so that's the disinflationary drag not necessarily you know textbook academic deflation but it's a disinflationary signal that's a symptom of an economy that isn't working in the way it's supposed to and so that's what i'm talking about i'm talking about okay we're not seeing the growth we're not seeing a wide enough proportion of the economy benefiting from the normal process that we expect an economic economy to generate and so that's that's giving off this disinflationary signal that even the federal reserve has finally admitted it finally sees the same thing too you know the fact that they have been unable to hit their inflationary target for over a decade is a sign that something's a miss here we're missing something something's not working and i think lynn just hit it right on the head it's the fact that we're not seeing broad levels of economic activity that would allow this inflationary environment to develop we're not even getting to that far so you know it's not your grocery bill it's it's it's the lack of economic growth that goes into all the stuff you don't see beside the grocery bill we talked about the commercial banking system not being willing to lend out money because they're looking around them saying we don't want to take on this risk but do you think there's a demand component to it as well jeff or berlin where we've pulled so much demand forward from the future with these super low interest rates that now people are just they're not making enough income to take on more debt like they don't have the balance sheet capacity do you think that's a a component of it as well i think so if you look at uh you know one of the works i do is i look at the the long term debt cycle which which was partially popularized by ray dalio but basically if you look over the long term you have these short term business cycles and every time you have kind of that deleveraging event policymakers rush in they cut interest rates they try to encourage more lending so over over the course of several those business cycles that they end up getting you know they never fully de-leverage they partially leverage and then they start leveraging back up again but meanwhile interest rates never hit their previous highs they keep hitting lower lows so as as kind of that cycle plays out you get lower lower interest rates you get higher and higher debt levels and that's not you know that's inherently distillationary that's that's not most of that debt is not productive and then at eventually policymakers hit the zero bound so they did that in the early 1930s and they did it again you know in during the 2008 crisis right so when you hit the zero bound that's when monetary policy becomes even less effective and historically you know during both of those periods you had you know you have that very high debt levels you have very weak lending because there's already so much debt and assist and there's so much risk there's not a lot of productive you know kind of investment happening uh you know outside of certain key areas so for example we have a lot of tech development happening right now but that's that's a pretty small percentage of the labor force in the grand scheme of things and kind of a small part of the economy especially for you know kind of the the say that the bottom half of spenders for example and so historically in that environment that's that's when the banking system kind of seizes up and then you get you tend to you run into these larger deficits and these other ways that the usually fiscal policymakers try to go around the banking system because there's so much debt in the system and even from a banking perspective there's just not a lot of reason to lend outside of kind of very targeted areas and i'm sorry does the fischer equation play into that guys because what what's going through my head when you're saying that is is i've heard lacey hunt talk about if the fed pegs the the overnight rate at zero let's say and we actually do have deflation then according to the fischer equation the the more it the economy is deflating if the fed is pegging the overnight rate at zero uh real rates are actually going up and that would prevent lending that that would be that would be the uh you know that would prevent those loans from happening because those real rates are going up and up and up so does does that have something to do with it and if it does is the only i don't want to say solution but is would the fed then have to get ahead of the curve and then just go dramatically negative to make uh real rates negative and therefore try to stimulate and i'm not saying that would work that's the whole theory behind quantitative easing george i mean that's what they've been trying to do since 2008. the whole point of quantitative easing is not about bank reserves that's just the byproduct of the process what the what the federal reserve is trying to do is create inflationary expectations what they're trying to do is get people to believe in this inflationary process and that will drive real rates into the negative con constrained by the zero lower bound academic monetary policy thinking believes that the only way you can go around the zero lower bound is by by creating inflationary expectations and so if everybody believes bank reserves is money printing then everybody will act as if that money printing will be inflationary and the fed will get its negative real rates today and the reason it doesn't work is because people in the banking system number one as we talked about is constrained therefore it's not gonna it's not gonna create the credit that it needs to to actually make these inflation expectations into something real but beyond that what happens when people in the economy in the marketplace begin to realize the federal reserve is a powerless organization that can't create inflation then they may want to create negative real interest rates at the zero lower bound but what happens instead you get stuck in this deflationary spiral where the fed does the more the fed does the more the marketplace and the banking system particular knows it's not going to work therefore they they actually harden what they called in japan this deflationary mindset and so it actually works against it but you know this rising nominal rising real interest rate scenario is not it's not the thing itself it's not that right uh high uh real interest rates are the problem they're describing something else that is the problem that's the way that economists are saying something's wrong because the nominal or the real interest rate must be extremely high well what is it what is it that's actually wrong and part of it is as lin i think we just talked about the banking system is the means by which credit and money flows through all all tiers of the economy that's what that's what banks are really good at i mean we talk about wall street and you know we you know we we uh we we we're very hard on some of these banks and some of the things they do but we need those banks to actually is less we're going to do a different kind of a system we need the banking system to operate at full capacity so that we can get liquidity we can get money we can get credit into all levels of society so that small businesses have credit not just the biggest businesses that everybody has access to all the economic functions and not just certain parts of the economy that's what's really held everything back and it's nothing the federal reserve can do to get the banking system to allow this entire redistribution system for this redistribution function working and it's not just inside the united states either when we talk about the euro dollar in the global monetary system it's a problem for the entire global economy because now you have not just certain parts of the us economy that aren't working you have entire places across the global economy that aren't working either because they can't get the monetary resources they need either so the constraint on the banking system and the federal reserve's inability to solve that constraint is what they describe as described as high negative or high real interest rates yeah so jeff let me ask you a question and then lynn i'd like to get your thoughts on this on on jeff's answer so is it possible to fix the us economy without fixing the euro dollar system no i think it's not i think what the what the only way we're going to be able to fix the economy especially in the long run we can get it working a little bit here and there as we saw in 2017 or 2014 or 2010 you know it seems to go it seems to progress a little bit and then it sputters again and it's even worse than the rest of the global economy so if we're talking about a long run solution i think we need to replace the system we need to replace the euro dollar system i would prefer to see one that isn't entirely bank centered because obviously we've seen the downside of of what happens when it sputters and when it doesn't work right we need to find a system that works on all levels and does so predictably in a long-term fashion okay lynn what do you think i agree with that i think if you get if you get a partial kind of dollar devaluation you can have one of those like 2017 periods where you get kind of a relief from it temporarily i think the system that's currently structured is is at the point where it's not really good for the us or the rest of the world anymore yeah and i think that that goes all the way back to the the trippin's dilemma essentially you basically had multiple decades where the dollar is the global reserve currency the at the same time the us you know after world war ii the the united states was was almost 40 of global gdp because it was kind of the last man standing after that you know everything that happened then you had kind of the rebuilding of japan you had the rebuilding of europe you had you know the rise of emerging markets especially china and so now the the u.s is a is a much smaller percentage of global gdp it's like it's like 20 some percent now it's like you know roughly 20 and even lower if you look at purchasing power parity uh it's in the teens based on that metric and it's no longer the biggest uh commodity import in the world uh you know that's china now and so we're basically we're trying to run this this system for decades now even though and it's all running on you know one one country's currency and then it's it's all this big unregulated kind of euro dollar it's just like a it's a really kind of a messy situation now and basically if you get kind of that constrained in amount of dollars kind of floating around and all that leverage build on it you get you get these big kind of dollar dominant debts you know denominated you know in in you know it's dollars so those countries can't print dollars they can't they can't kind of uh offset they can't devalue their debts and so that the system's kind of uh you know i think at its limit and in the us you know we don't have the problem of the you know the the debt to nominating the currency we can't print but essentially what we have done is because there's all this persistent demand for the dollars you know we run kind of persistent trade deficits now that's mostly impacted the the the goods so we've had we have a mild services surplus but we have decades and decades and decades of persistent goods uh deficits and so the overall you know thing we've seen is we've kind of seen out of like a hollowing out of our manufacturing base and we've seen kind of a transition to a very services oriented economy which is which is partially that's part of why we have so much wealth concentration you know a lot of it's kind of monetary policy but the other half of it because we do have more wealth concentration than most the rest of the developed world and that's because you know in part because we we've kind of we have this big kind of center around technology and banking and government and we've kind of hollowed out a lot of that blue collar work we you know the skill skilled kind of craftsman unskilled work uh all that kind of blue collar stuff we've really kind of exported a lot of it and it's partially based on how we structured the system and and decades ago we had a lot of benefits from it you know is it described as an exorbitant privilege and i think i've seen jeff before describe it as an exorbitant burden now and i would agree with that that it really at this point it weighs almost everyone down the way it's currently structured including the us it's just kind of it's a very kind of messy system that doesn't really benefit even us anymore let alone others yeah that's a really good point because it's one i try to make all the time because one of the arguments against you know doing something about the euro dollar system is oh the us will give up this exorbitant privilege that it has with the dollar denominating you know everything is denominated in u.s dollars and the point i make you know all the time that you just par you brought up is that look it doesn't even work for americans but we don't realize it because we're inside the u.s we're inside essentially a dollar bubble we don't see the direct impact between a currency system that doesn't work and the effects of that whereas the rest of the world they can see that because their currencies move in in direct proportion to you know you made the point lynn about you know countries should be devaluing their currencies as a way to get around this well they're devaluing their currencies but they're being devalued involuntarily and the result of that isn't a way out of their mess it actually makes the mess even worse so people can realize outside the us they can see the direct direct relationship between a currency system that doesn't work and the economic consequences of it so we have we have a bigger task in front of us to talk to americans and say look you have to realize that the us dollar system as it's currently constituted doesn't work for you either so even if we give up the us dollar as a reserve and go to something else whatever that might be it's not necessarily a bad thing it's not like we're giving up something that's really valuable it's we're getting rid of something that's trash and hopefully going to something that benefits everybody there is a way forward to do that it's just i think first of all there has to be a political understanding that that's the case the case right now is the goal the global dollar system as it actually is can as it actually exists right now doesn't work for anybody right and lynn you mentioned or you used the word structured we structured the economy but i think it's it's interesting in the sense that i don't know if the economy was structured this way or it was more reactionary meaning that we have the the euro dollar system and the economy gets built around that as opposed to us actually being um proactive in building an economy around this euro i think is maybe even more reactionary therefore since it was reactionary we don't know the problem because we don't understand that um we were just building this economy around this other system that has more control or more impact directly i the austrians call it contillion effects and the continuing effect says as money enters the system it benefits those closest to the money entering the system which is if the bank system and your the banking system and the euro dollar are the ones that create the money it's going to bank it's going to be that new money creation is going to benefit the banking system the most and that's what we have that's what we had happened for decades lynn pointed out you know the u.s lost its industrial base financed by this euro dollar system and in this inside the us it was replaced by essentially the fire sector we had this enormous increase in banking insurance and and you know all real estate and these you know credit bubbles and things like that so the u.s even got the worst of the the build up of you know globalization we got the worst done because we we lost real jobs productive jobs that are good middle-class jobs and replace them with this shaky ridiculous often insane and stupid financial system that now doesn't even benefit us that way so you know it's not really a hard case to make to the even people in the united states that the system hasn't really worked for a long time it's just i don't think people are aware of it and they keep going back to well you know ben bernanke jay powell janet you know these people seem smart they seem to know what they're doing we'll give them the benefit of the doubt they'll do all this money printing and qe that seems like it maybe it'll fix things we'll let them handle that kind of stuff and we won't we won't we won't we don't uh ask any bigger questions just to touch on your point because uh you asked about how intentional it is i i i would describe it as kind of like you know uh frankenstein's monster because you have you had an intentional element to it right yeah but then it got out of control so you know the for example the petro dollar system is in part an intentional construct you know the u.s wanted uh you know most commodity pricing and particular oil pricing to happen in dollars so even if even if france buys oil from saudi arabia it happens in dollars even though it's none of their currencies and that was kind of an original kind of intention and you know we've had kind of military kind of endeavors to kind of enforce part of that and we've had kind of sanctions on any you know kind of entities that try to go around that that petrodollar system to some extent and so you know i it's partially an intentional design but it's it's one that that got out of control because of the whole euro dollar market and it's just it's no longer serving kind of the original purpose that it that you know however unintentioned it was meant to serve in the first place and you know i think i think the the kind of he described it well with we you know with the industrial base out of the way it's really what we have left is the fire sector so we have all you know there's there's maybe 10 of us or 15 of us that have kind of benefited from this system right so if you work on if you work on wall street if you work if you work in government or lobbying government or kind of you know around the whole dc complex uh you know if you work in in tech right in kind of low labor intensive high margin you know those sort of industries then you can benefit a lot from it because you know you you kind of get some of the benefits of the global reserve status so you know you have kind of a strong currency but you're not really getting any of the downsides whereas if you're kind of anywhere in you know call the bottom 80 percent of or so and especially as you get to to the lower levels at the bottom 60 percent bottom 30 percent that as you go down that that kind of spectrum uh that's when you get more and more of the of the burdens from it and less and less of the benefits and that's it yeah it wasn't broad enough right i mean the benefits from globalization at least in the u.s it was in some places else but depends but the benefits of globalization and this financialization of the economy were not broad enough to carry the economy going forward when the financialization part of it run into trouble as it did in 2007 and 2008. that's what we're really seeing inside the us the consequences of that where we don't have enough of the fire sector to offset the lost industrial basis in some ways it's a relatively simple thing and because we don't have the banking system make up the difference anymore how do we you know there's your lack of inflation there's your lack of distribution throughout the entire global economy and as lin said quite well that you know it concentrates everything into the pieces that did work or pieces that do work and then you know even the monetary policy comes you know quantitative easing well it may not have benefited much in the real economy but it sure it seems to have benefited many people on wall street so then it even concentrates more of the benefits of this system as it is into smaller and smaller and smaller spaces and that's why we see all these you know myriad economic difficulties inflation puzzles social problems political problems dissolutions all of these things go back to the fact that you know for a very long time we had a system in place that really didn't benefit people the way we were we were led to believe it then yeah no people those entities that structured how we do things now correct if i'm wrong jeff but it would be your view that they didn't really understand the system they didn't i don't think they wanted to george i think that's a big part of it is you know the the the way the policy was even described in the 1960s they called it benign neglect i mean paul's aimless and coined the term which was essentially we don't want to know you know lynn mentioned triffin's paradox it's like the monkey thing right was essentially this benign neglect which was the government saying we have no idea we have this current account problem we don't even really know what it is we can't account for it we've got central banks swapping dollars all over europe and so we don't really know how to solve triffin's dilemma but the banking system seems to be doing it without us so we'll just we won't ask any questions just let it happen let the bank sort out the details and as long as it throws off these benefits then who cares right i mean that's really what benign neglect was and i think you know the point lynn pointed out earlier the early euro dollar system did have a good use and good potential that it was you know it allowed trade and globalization and good things to happen productive types of activities that took place but over time like a lot of things it just got out of control it got it you know with nobody watching the wheel it went into all sorts of you know qualitative as well as quantitative expansion and it really did get out of hand and get into all into a a degree of dysfunction that nobody anticipated nobody nobody seemed to care about because it was making a lot of people rich and doing a lot of things right as it's going up nobody wants to spoil the party it's only after the party's over that we start asking questions that's just basic human nature if you go back to the globalization angle like who it benefits the most right so we often point out that you know we outsource a lot of our production and so we get cheaper goods and services back which you know is partially true but then it depends on on who you're asking so for example if if you work on wall street if you're you know a doctor if you work in government you know you you didn't lose your job and yet you get all the benefits of that of that you know the the cheaper products and services however if if you were you know if you were a manufacturer if you were you know a blue-collar worker a skilled you know car maker or something and then you know now they closed your plant and now they're making it mexico you know you're not you're not benefiting from that slightly cheaper car in the same way because you you lost you know your income or or even if you still got another job you have you know your your ability to negotiate a better compensation package is is damaged because you know you can't go too high because they can they can easily go to mexico and make that around you right so if if you're kind of like in that that bubble where you're totally unimpacted by any of the consequences but then you get all the benefits of the cheaper goods it's all good you just you pretty much just win whereas if you're if you're any one of that kind of the spectrum people that have been impacted by that uh it could even just be you know it's it's many it's people that work in in you know kind of manufacturing themselves but then it's also a lot of the infrastructure around that so if you were in a town for example and you you know you you worked at a restaurant that was kind of near the the manufacturing place but as that as that kind of industry died in that town and then it spreads to all the different kind of you know the services around that town so you know the restaurants in that town died and everything had to move so all those people were impacted so they they're not really benefiting from the cheaper goods in the same way as someone that wasn't impacted with any of the downsides yeah but i don't think either of you guys would argue for a closed system either so what we're saying is we want broad-based benefits that are sustainable and legitimate i think lin the point that lynn is just making let's extend it a little bit the reason that i think americans in particular were willing to un were willing to take uh to let this this process play out was because the benefits were not you know not just you know cheaper goods and cheaper services but then you also have uh rising access to credit rising housing prices rising you know other thing assets wall street stock market these other things that made it seem like this is a good trade-off you know it masks the downside of globalization which which you know i would argue the zero dollar system was bastardized globalization it wasn't real globalization it wasn't real trade because real trade gets conducted on capital flows which you know acts as a constraint so we almost had unlimited capacity to do all sorts of transformations across all of these places and i don't think most people understood the consequences of it because look you know my you know i lost my job at the factory but i get but i got a job working as a barista but i also now have a housing you know the price of my house has gone way up that i can i can get a home equity line of credit against so maybe things aren't so bad and it really you know that only works for a while and then when it stops working you really then you're stuck and then you start to question what went wrong but you don't know what went wrong because so much time has passed and you don't really see cause versus effect and you can't really trace one to the other and so you start looking for all different kinds of answers who has solutions maybe this quantitative easing stuff will work maybe i mean there's no real way to go from one dot to the other and connect everything into a nice nice easy story that people can understand globalization and a free market free trade let's say between countries is a good thing but in this case the way it was done with this euro dollar system kind of haphazard approach that just kind of form or evolved out of necessity the way it did things it made it to where it was lopsided to where there was uh at least for the united states it was a net negative instead of a positive is that what i'm hearing yeah thank you go ahead i was just going to say a significant part so if you look at how how most countries operate right if if they you know running a persistent trade deficit for example often what happens is the next time they have some sort of recession or financial crisis usually they have a you know some degree of currency devaluation if they don't have a ton of external debt that could be good right because then it makes their it makes their exports more competitive it it you know it reduces their importability which doesn't feel good at the time but it basically helps to come the the country realign between uh production and consumption uh because you know they were consuming too much they weren't producing enough uh and then that that kind of currency devaluation as long as they don't have that debt helps them kind of you know uh you know rebalance uh the united states never gets that that period of rebalancing because you know the the the foreign dollar system is there's so much persistent demand for dollars and so we we never you know we never get that that correction we never kind of say okay our currency you know devalued so our import power is less and our exports more competitive we never get that kind of rebalancing cycle so we just have decade after decade of kind of hollowing out our manufacturing base running literally decades straight of persistent trade deficits yeah i would almost call it like silent rebalancing right because we did get some rebalancing but it was not an unemployment rebalance because that's usually what happens as lynn said you know you get to the recession and you have to deal with your current account deficits and you have to realign production with with demand except we never did that instead we had this rebalance as we talked about before where the where the unemployment in in the real economy and production those kinds of things the goods economy did take place but on the other side of it we didn't you know rebalance we just got other jobs to replace them service like low-level service sector jobs fire jobs those things those kinds of things so it was it was a silent rebalancing that people you know i mean because it was incremental it was slow it happened over time you don't really realize it's happening as it's happening and then when you get to the consequences of it when it starts to fall apart you have no answers for why things happen the way they are you know why are we stuck in this situation why can't we get out of it it must be you know you don't really understand what you know cause versus effect it's just the rebalancing kind of happened but it didn't happen the way it should have happened because under true capitalist system it's supposed to be a paying basis it's supposed to be if you want to import a lot of goods then you better be able to pay your way through it and you don't pay your way through it by this persistent demand for your currency that's an artificial unconstraint that allows the system to go way beyond where it should have the natural limit of this kind of a trading system was decades ago and so it kept going and going and going whereas under a capitalist paying system it would have stopped a long time ago and then we could have said okay what do we do now you know we can't compete with mexico or china maybe there's a way forward other than to let the this just benign neglect like the currency system solve all our problems for us because it doesn't solve problems yeah man now this makes a lot of sense i mean this is it's like the light bulb is going on in my head as i hear you guys speak so i guess to i want to be cognizant of your time to kind of end here i'd like to go over um jeff you were saying that we can't really fix the system as is right now and have a permanent solution because it's predicated upon the banking system and that is inherently um volatile let's say so we'd need a preferably we'd have a system outside of the banking system so my first question would be what does that look like and then i'd like to get both of your feedback on if we can transition to a better system smoothly is there a way to do that or are we just the only way to transition is if the whole thing collapses and we rebuild it like the like the phoenix coming out of the ashes i hope not i hope that's not the transition but it's a difficult thing and it starts with you know recognizing the problem as it is and recognizing that there is a problem and if if we wait for politicians to get their asses their heads out of their asses and say okay we need to do something then maybe that's that's what we're left with doing that the crisis you know the next big crisis is what finally convinces them they need to do something so and that's probably that you're trying to market towards the fed right i mean you're always very emotional when you talk about the fed with a meal and whatnot but that's probably the crux of it in it because you see the problem it's so obvious to you but they're ignoring the problem just making it worse they're doing it's worse i mean this grand strategy review really got me going because they're doing everything they can to avoid all the evidence is pointing back at them and so they're doing everything they can to avoid the truth which is monetary policy doesn't work the banking system is malfunctioning we need to do something about it and so they flatten the phillips curve they come up with our star nonsense all this other crap just so they can avoid what all the evidence is showing them and so you know back to your other question where do we go from here i think we transition to a world hopefully that is based in some way on digital currency blockchain whatever whatever it might be i don't necessarily believe that might be bitcoin but i think there's value in the bitcoin technology there's definitely value in blockchain technology maybe an iteration or two down the road there is definitely a way to do a currency system that is non-bank-centered and if you really think about it blockchain if you use blockchain as a payment space you know to account for all the payments that flow throughout the economy we don't even need banks anymore we can we could have a bankless monetary system that would actually i believe function assuming that we could set it up in the right manner in right manners is a loaded term that you know opens all sorts of pandora's boxes but i think there's a way to do this a digital currency way so that it can be dependable predictable and operate in a steady fashion sustainably steady fashion that solves a lot of the basic issues with the eurodollar system i don't think it'll necessarily be perfect but we can't let perfect be the enemy of good here right wow that that's a bombshell right there jeff i've never heard you talk about a a currency or like a digital or cryptocurrency like that very cool lynn what do you think about that i i think so i think the kind of the solution could take multiple forms and i think it depends partially how far you look out and then how optimistic you are about kind of um policymakers around the world kind of agreeing on a shared system or just kind of break breaking apart because i i think i think one thing we're seeing now is we're seeing sort of a slight transition towards multi-polar you know kind of uh oil pricing and commodity pricing and i think it's it's one of those things where where a currency inherently has a big network effect especially you know the global reserve currency so the more dollars were used the more we build up kind of offshore dollar debt and then the more demand is for dollars and it kind of entrenches itself and it's a it's a really kind of hard ship to turn and we're starting to it's become such a problem uh that we're starting to see kind of signs that that many countries are kind of starting to kind of emphasize that more and more so it starts of course with the with the countries that are more adversarial to the us so we've seen you know russia de-dollarize uh they've they've pressed to do more of their trade and euros and and other currencies we've seen for example two years ago the trade between russia and china was almost entirely dollar based and now it's less than less than half dollar based and euros actually uh just overtook dollars uh for you know for the trade that happens between those countries and you know now we're seeing kind of drama around the north stream two pipeline right so there's there's all sort of those geopolitical kind of chess board stuff that different countries are kind of aiming for and whether or not the us goes along with it or kind of sanctions things like that it's kind of like the last gasps of a of a system that's not really working anymore and you know people have kind of different levels of understanding of of of who who benefits and whether or not they want to end the system and how they want to end it so i think kind of a a messy outcome is just a more kind of a multi-polar system where you have kind of a little bit of a increase in diversification of the of the types of currencies that are used to buy you know oil essentially uh but then you know kind of in that world you shift more towards neutral settlement right so we're seeing kind of uh central banks kind of gravitate a little bit towards gold here we're seeing kind of because it's kind of a counterparty fee uh you know kind of there's no counterparty risk there they have kind of their own sort of partial inflation-adjusted kind of assets sitting on their on their central bank balance sheet but then yeah i think if you kind of do it better than that you kind of if there's some sort of unification some sort of agreement to kind of kind of deal with the system then i think you can get into better constructed kind of systems where you have more of a more of a neutral settlement you know kind of layer you don't have kind of so much reliance on one country's currency and and all the sort of associated problems that come with that okay so i think the main takeaway there is is we could have a solution but the the smoothness or lack of smoothness with the transition is dependent upon politicians being intelligent and working together so yeah the listener needs to weigh the probabilities there which in my mind is about as close to zero as you can get yeah unfortunately that's that's the reality of the situation right i mean we're depending i mean we really can't do anything without the public sector i mean there are some things that we can do i mean you can have prior private currencies spring up but you know without without participation of the public sector it's much less likely to succeed in any long-term fashion so ideally you want some kind of public private partnership where the private size real private side realizes that you know going forward we want to have a stable system and the public side realizes that they're not going to have complete control over it have some input some kind of you know policy advice some kind of of actionable of ways to get into the system but it cannot be one or either or situation where it's all public or all private it's got to be some kind of partnership because that's what will make it sustainable and stable for the sake of time we'll go ahead and leave it there i've got about 100 more questions and i think we've opened up an avenue to about 15 more conversations just like this on other topics such as digital currency the global currency or the global world reserve currency what not but i want to personally thank both of you for doing this this was just an honor to sit here and get to listen to both of you and ask questions i'm a huge fan of both your work and i know everyone that watches this or listens to this is just going to be so excited and they're just going to gain so much value from this back and forth so so thank you both for your time and for your willingness to do this thanks george appreciate it yeah thanks for thanks for having me and thanks jeff for the for the chat i really appreciated all this yeah yeah and guys within closing for the viewers who want to find out more about what you do uh where can they go to check that out the website the twitter you guys can let's go through all that go ahead jeff oh i'm at alhambra alhambrapartners.com which is alhambra investments i'm the head of global research there you can follow me on twitter at jeff snyder underscore aip okay and i'm at lynndalen.com and i'm on twitter at lynn alden contact all right guys [Music]

Channel: George Gammon

Views: 83,069

Rating: 4.9207716 out of 5

Keywords: lyn alden, lyn alden schwartzer twitter, lyn alden interview, lyn alden schwartzer, lyn alden predictions, jeff snider, jeff snider real vision, jeff snider eurodollar, jeff snider repo, jeff snider repo market, jeff snider interview, jeff snider eurodollar system, jeff snider dollar collapse, jeff snider gold, jeff snider stock market, jeff snider macrovoices, jeff snider alhambra, jeff snider fed, jeff snider central banks, jeff snider dollar

Id: B4xcCO9v-Os

Length: 69min 40sec (4180 seconds)

Published: Fri Sep 11 2020