The Biggest Short

I think that we're going to go through the biggest short squeeze in history. And what I mean by that is I think the US dollar is going to get squeezed much much higher. And it's going to get squeezed much much higher because despite the fact that many people don't like it, would prefer to have an alternative that they just don't. And the rest of the world, well the US and the rest of the world have has taken out an incredible amount of US dollar debt. That debt either gets paid off, serviced or defaulted on. And the only way that that isn't extremely dollar positive is if it gets paid off. I don't see how it can get paid off. There's just not enough dollars to go around. This is only going to ring fence the dollar's superiority. The bigger the global meta crisis gets, the more people realize there is nothing else you can turn to. Nothing.

Gold won't help you.

The ruble won't help you. The renminbi won't help you. The yen's no good.

The Euro's no good.

You may not like the dollar, but there is no alternative.

Hey guys, Ed Buglow is here. I'm the co founder of the newsletter and Jeff's partner at both the TDV and the TCV newsletter which we launched a couple years ago. Is it a couple years ago now? So I write. I write the economic review for for the Dollar Vigilantes twice a month and occasionally if I get a chance I'll write the macro Macro review for the for the Crypto Vigilante which.

Which you shouldn't miss.

Good stuff in there. I started as a stockbroker just in my 20s and I had end up finding my calling here and decided the business I've covered the dollar collapse story for 22 years. Have been involved with several financial newsletters too I should say before starting this third one with Jeff in 2010.

If you want to see what else.

I've done, just check out the link below. It'll take you to our website in the bio. I've been an investor and a trader for decades, so I'm sharing all that experience with you. I'm also a passionate student of history and economic theory and things like that. So one of us I've traded the dollar collapse story which I've been been covering in one way or another, in one manifestation or another. I've traded it for 22 years as I said, and I've traded it largely with success. But this year we got. We got kicked in the gonads because. Because The P Fed and the dollar both adwitted us. Some things we did not expect happened. For the most part, we have, we have acted to try to hedge the situation by shorting the, the everything bubble, the NASDAQ bubble, and we did that with great success. But it's still probably only just barely mitigated some of the losses overall in everything. Right? It's, it's straight out deflation policy. That's why everything is following value, even though it's not a massively deflationary policy. They wouldn't let that happen. Don't worry. For all the talk about how much they want to bring down inflation, it's funny that inflation is still up at 7.4% and they're already starting to talk about slowing down the rate of, pace of rate hikes. You know, if they really wanted to, they really wanted to end inflation, we all know what they would do. Just shut down the doors, right? So in light of what's been going on with the dollar, you see this trade weighted dollar index here, you can.

See it's been on a tear.

It's an extended bull market last, it's lasted 12 years now. So in light of this situation, should we throw this dollar collapse theme out the window? Does it matter anymore? Is it relevant? You know, to be fair, Jeff and I said that it had another life in it when we started this. So, you know, I'm going to argue today that the dollar collapse theme is especially relevant today because in a lot of the ways that what's everything going on in the world, a lot of the chaos that you see happening around the world is not unrelated. It's not unrelated to the degradation of the dollar. You know, the gains in the foreign exchange market only blur, that kind of thing. So the, the, the thing is, the problem is that all these currencies that, that we're dealing in, all the fiat currencies that we've been stuck with for 50 years or so, they're in a state of collapse, all of them. So when one of them rises on the foreign exchange market, it's just all because it's falling less fast than the others. That's all it is. And that blur is important though, to this, to how the system has extended itself beyond the gold standard. Okay? So when I talk about the dollar system collapsing, I don't mean just the dollar collapsing on its own. The other currencies couldn't last without it.

The system has been able to, to.

Last because of a symbiosis between both sides. Right? So the, the Fiat currencies on the one side find that the dollar is, is more elastic and forgiving than gold. The dollar on the other side finds that they benefits from the reserve demand expressed by these currencies we're trying to get market share into for their exports. You know, the point I want to make here is that it is a mutually beneficial system. It's, it's collapsing since it's left the gold standard. 50 years is not a long time in the space of history.

The system could theoretically last as long.

As the, the reserve currency isn't destroyed or rejected.

But here's the thing. The system has created so much debt.

And government on the back of, of it that it's, it's pushing us to those ends, right? So whether the dollar is too strong or whether it's too weak may not make a difference to whether, whether it's a nation that uses it as a reserve currency dec. To reject it as a reserve currency. And if it does that, then you're going to see that on the foreign exchange market, no other currency has that situation. No other currency faces a situation where it could possibly be rejected as a reserve currency well outside the euro and yen. But they, but they have such a small, Foreign investors have such small shares in those reserve currencies, comparatively speaking. Okay, so let me, let me move on before I bore everybody to death with this monologue here. We have a couple of young analysts with us from tdb. They've worked with me for the last year. A little bit over a year. A little bit over a year now. Love these guys. They're really good at what they do. I can't, I can't operate without them. And let me just introduce Mike Bake and, uh, Josh Thompson. Do you guys want to kind of say a few words and tell us what you do and so forth?

Sure, I'll hop in. My name is Joshua Thompson. I think I got started on my path or my journey here by reading Doug Casey. And then I ran into Jeff Berwick up in New Hampshire at Fork Fest. Ended up going to the Acapulco meetup for the first time. And then I was a subscriber and I started messaging Ed all sorts of questions about economics and trading and markets and, and he would send me videos and paragraphs and paragraphs to read and books and articles, and I stayed on top of it. So last year, started working for Ed with Mike. And it's been a very educational experience. We all, we all look at a variety of markets and economic data from around the world. But I Like to focus in on the mining sector and spend a lot of time looking at drill results, reading corporate profiles and, and just trying to find something that the market has missed so that we can make a recommendation. And of course we all review those as a team. So go ahead. Mike.

Yeah, my name is Mike. Probably my background in economics goes back it's my early 20s when I didn't know much. I had a little bit of blind luck in the real estate game and thought I had discovered something and invested more into real estate only for 2008 to happen and needless to say it didn't really pan out very well for me at that point in time. It was a bit of an eye opener that I really didn't understand economics at all. And so it started what would end up being a long journey of discovery where which led me to gold, to crypto and to eventually the TDV where I was a subscriber for several years before like Josh, you know, Covid kind of flipped my life upside down and I was for the first time in my adult life looking for new work just when Ed was looking for an analyst. So very grateful that I'm now part of the team. I'm a junior analyst, a writer, a researcher and even support the team with some graphic art as well. And yeah, that's my story guys.

Awesome.

Thank you. I appreciate that. Mike has got a creative side to him if you haven't already figured that out. He's created cover page for the Dollar Vigilante newsletter for the last year. He's also done the same for the mining and exploration and the special reports that we do. We've got a report coming out on the gold backed crypto area that is pretty exciting and, and he's put together all of that including the, the content. While we won't be necessarily recommending pushing any of the gold back currencies it will be sort of a an overview of the whole sector and, and there'll be some rankings and you know the, some of the, some of the coins will have a page with features that we've identified for that so you can compare which coins you might want to try and potentially go back. Crypto can be a a better alternative than the other stable coins that are. That have been the center of so much controversy these days. So and Josh has, Josh helps us with the, with the money and exploration monthly every month the content within there scours the, the Canadian wires for, for exploration drill results I think basically looks at every drill result that is released and we filter them. He Filters them and we discuss them and the ones that make it into the winning and Exploration Monthly. He take he writes up a little synopsis for you if you are interested in very, very early stage stuff. Josh also found our latest pick which I won't mention the name but you should check it out. It's a nice little miner with a mid t mid tier miner that has some assets in Bulgaria, some in South America. I don't want to give you more information to protect our premium subscribers who pay for that stuff but if you're a premium subscriber and you you missed our latest pick, hit the website and check out the stock portfolio. We'll see it there. So Josh and Mike are going to pepper me with some, some questions here and afterwards after that I will present you with my fundamental premises in defense of the dollar collapse story because it is relevant and, and it's where and it's, and it's important to discuss.

Okay, thanks, Ed. All right, let's jump into the questions. And the first one is about the dollar shortage. And one of the main arguments for that is that as the FX value of the dollar rises, it squeezes offshore borrowers who have to pay back debt in. Do, do you think that this has been an important factor for the dollar's recent strength and do you think it will increase as we go forward if the dollar keeps rising?

To the first question. No, I don't think it's, it's behind the dollar's recent strength. The dollars, the currencies that are really collapsing against the dollar are the other reserve currencies in the DXY index, in the trade weighted dollar index, not so much any of the emerging market currencies per se. And the reserve currencies that are doing the worst right now are those that kind of, that have been experimenting with negative yields in recent years, in my opinion. So total the total debt in dollar terms outside of the US Economy, which is what's important when we're talking about, you know, foreign demand for, for dollars is 15 to 20 trillion dollars. The total amount of global debt is 300 trillion dollars, you know, private and public. Okay. So it's a, it's a small drop in the bucket, comparatively speaking, that line of thinking. Also, it assumes that the people who are borrowing dollars off sure don't hedge their position. Okay. It assumes that, it assumes that it these dollars are going to be repaid because if they're defaulted on, there's going to be no demand for, for the dollars to be repaid. And it assumes that it assumes that these, these debts are not going to be rolled over too.

Right.

It assumes that they're not going to say, well okay, it's due, so let's just roll it over and increase the amount. Which is kind of the way the game is played anyways.

Right. Okay. So if that's not pushing the dollar up, something is. And do you think, you know, what, what, what do you think will reverse this high dollar demand? You know, we're seeing the dollar start to roll over here potentially. What do you think's causing that and will it keep going?

Well, what is driving the dollar is, is as I said, so the problems with the currencies that experimented with negative yields, but also capital flight in the last year especially we've seen this capital as a result of the Ukraine, Ukraine conflict, for example, that was sort of a catalyst. So you saw a lot of capital flight come into the dollar, which has been sort of the dollars benefiting the dollar for much of the last 12 years. Capital flight from the EU crisis early on and now from Europe because of this conflict. Anyways, the. So that's what's been driving it and what could reverse that is simple. It's a break in the Fed's resolve to not pivot. Okay. It could be a rejection of the dollar as a reserve currency. As we've seen some people scratch their heads recently, think, well, you know, maybe we should have a different reserve. The dollar seems to be a little bit troublesome. Don't forget that like the more the dollar rises, the, like this, especially with higher interest rates, it's also going to make it less appealing as a, as a for borrowers.

Right.

One of the things that made it appealing was that, was that, you know, it hadn't been rising so strongly and it had such low interest rates compared to the alternatives. What's going to sustain that dollar demand when the US markets really turned down? Because so far they haven't, they've turned down, but they haven't really turned down.

Yeah, I remember the chart you showed up for King Dollar that I think the US has some 18 trillion in owed liabilities abroad, which is almost about the same as US dollar denominated debt.

Which it has, it has 50 something trillion in claims against US assets. The 18 trillion was the net figure.

Gotcha. Yeah. Yeah. So there's plenty of dollars moving outside the US as much as, you know, coming in. The second question is about the milkshake theory which says that the US dollar and US equities are going to continue to benefit from capital flows from foreign governments as they run into debt problems before the United States. We're starting to see some cracks with Credit Suisse and the UK pension funds. But this, I guess theory really rests on the idea that the US inflates less than the rest of the world and therefore the rest of the world is going to pay for it before we do. What are your thoughts on that?

As far as the milkshake theory goes, it seems to kind of fall on the fence of what I would call the global fruit fallacy. If what it means is that it takes all of the inflation from everybody else and adds it all together and says, wow, there's a lot of inflation offshore, you know, compared to how much the Fed inflates. Well, then I would call that a very fallacious argument. Right. You can't really add different money supplies together and, and, and so on because these things all work themselves out in the cr, in the various crosses. And the other point is that the, the U.S. is the largest header by far. If anybody's going to run into trouble with their debt situation, it's, you know, at 4 or 5% interest rates, at U.S. interest rates, it's going to be the U.S. they've got a larger debt to GDP ratio than everybody else, except other than Japan. I mean, the US economy is the land of malinvestment, the home of the biggest asset bubbles and of the most overpriced government debt in the world. So there's a lot of problems still to come there.

Well, you know, Warren Buffett is quoted as saying, I'm pretty sure, never bet against America. And despite a lot of the available data, the world seems to think that the US economy is the strongest, can hold out the longest. I mean, we deleted recession from the dictionary practically or on the the path towards Berdanki's dream as a world with no recessions. Do you think any of that is reasonable? I mean, like it's hard against the U.S. economy.

You know, it's all gobbledygook. First of all, absolutely the, you know, if you take a static view of everything, you know, the American economy is probably still well positioned. It's, you know, probably it's got the best, deepest markets. All of that stuff is true. But things, but this is not how currencies work. They don't work in a status freaking world.

Warren.

You know, the value of a currency has absolutely, you know, Mises has told us the value of a currency has nothing to do with the health of an economy. Only the supply and demand of the currency itself has to do, determines the value of the currency.

Right.

So that, you know, he said like, so that a strong economy can have a poor currency and a weak economy can still have a sound currency, even though, you know, whatever. But that's, but that was his point. It was that, you know, the value of money has nothing to do with the strength of the economy per se, just the demand and supply for holding cash, cash balances, period. Aside from that, let's say that. How can the economy be strong? How can anybody say that the US Economy is strong when they've had to have. When for the first time in its whole history, the central bank has had to keep interest rates at zero for 14 years? Most of 14 years. One time they tried to raise it to 2%, they chickened out. How can you say the economy was even growing? If it was growing, then the policy was not justified. They should have lifted it long ago. So just the existence of this stupid policy for so long should just. Anybody who says the economy is strong is a freaking idiot.

Okay, so any fighting words, you know.

They are, and I'm ready to fight with these guys. I mean, history is littered with pompous claims by pompous central planner bureaucrats imbued with the fatal conceit. Right?

Yeah, yeah. It's easy to be extra bullish at the top, too.

The US has led this boom both up and down. It's. It's an unsound boom.

Right.

It's not growth. It's an unsound investment boom. It's unsound because it's unstable, unsustainable because it's you. It's been created by the manipulation of incentives in an. In an unsustainable way with an unsustainable policy.

Yeah. Okay, well, we brought up interest rates there and 14 years at essentially zero percent. Well, interest rates are going up. And there is a belief that the strong US Economy can take higher rates than foreign economies, which, ironically, I see a lot of much higher rates in foreign economies. But let's talk about kind of the major trading partners. Do you think that if rates continue to rise and if US Rates continue to be above those of the other larger economies, can that keep going? You know, is that going to break things here or is it going to break things abroad first?

Well, the direct answer is I still think the US Is going to destabilize first and most. And I think that's going to happen soon. You know, having higher rates does not actually reflect a strong economy. You know, an economy that's actually strong is going to have lower rates, it's going to reflect low time preferences for individuals. It's gonna be lots of savings in the economy, lots of capital. You know, the economists have shown that the, that in an evenly rotating economy over the long run interest rates are just going to fall. Okay. Like the, if you, if you look around the world, even the countries with the higher rate, highest rates are countries who inflate too much or countries where there's some sort of a huge risk premium that are undeveloped, emerging, etc, so higher interest rates don't reflect any economic strength. And, and as I said, the, the, the boom is on very unsound footing. There's no way that an economy can strengthen, improve as a result of the kind of monetary policy they've had for 14 years. That, that beats on capital, that beats on growth, it taxes growth. There's no way to just, you know, raise interest rates and say, okay, now we're going to have growth. Right?

Yeah, first you got liquidation phase first the mal investments have to get washed out.

If the US maintains higher rates than others on a real basis, I'd be really surprised. But it, if it does, what it really means is that this, the savings, it's, it's a signal means the savings pool needs to be replenished. Right. Replenish it, save people. That's what it's saying, right?

Yeah.

Anyways, whatever you say, Ed. You know, the Keynesians say that, you know, we can raise interest rates and the economy is going to be able to withstand it. How are artificial rate hikes any different than artificial rate lowerings? How does the economist know, how does the central planner know the right interest rate to push up to on that?

If rates continue to rise in the United States and it starts to cause economic problems, don't you think? I mean, I, I feel like we've just been seeing bailout after bailout since 2008. If it's not this company, it's another company. Do you think they'll be able to plug all the holes, you know, as rates go up?

Historically, bailouts have meant money printing. So money printing kind of lowers rates. I think that, that, what's, what's the word I'm looking for? Neutralizes the rate hikes, right?

Yeah.

So there's limits, there's limits to, to these, to how high interest rates can go. Okay.

How high do you think they will go here on this, on this run or in the next couple years?

To be honest, they're higher than I thought they could go without causing a bigger crisis in capital markets already if you know, because I mean, you know we're, we're at 4% on the treasury bond and, and, and the Dow dividend Yield is at 1.7%. So with risk volatility, I mean, I don't even understand why, why, you know, why there's not an on mass run to Treasuries right now such a good deal, you know, compared to what you're going to get in stocks.

I think everyone's still in the, I don't know what the opposite of the word honeymoon is, but everyone's still in this kind of belief that this inflation and rates is transitory. It'll come down. The Fed talks about the long term inflate inflation expectations are still intact and that's, that's the main thing they want you to know. Do you think that those long term inflation expectations are that important and, and what do you think will happen or what, what could cause them to change and what will be the result?

I think, I think that launch the long term inflation expectations are, are a, a byproduct that they don't like. I don't know, you know, this, I know that we track the surveys that try to measure these things, but I don't know how much confidence to put in those things. I, you know, in the end I look at interest rates themselves as, as giving us a, the right survey response to questions like that. So inflation expectations, you know, we, we said that they would be stubbornly high where they would remain stubborn. We thought that inflation would remain a tougher problem than the Fed could imagine. But the market still believes that the Fed can bring down the inflation problem without hurting the economy. And I see lots of data that points to why that is wrong. I see a lot of data supporting our case that the economy is falling apart faster than the inflation narrative. But the market is being conditioned by, by these guys, right. You know, the Federal Reserve comes out and hikes interest rate 75% and then it comes out afterwards to prevent everybody from speculating that that's the last rate hike. But in the statement it says, well, you know, we're kind of judging whether it's going to be the right hate. Right. I'm paraphrasing so that you know, they, they're leaving a lot to the, to the interpretation of the mark, whatever interpretation the market wants. You know, some people say oh that means there's a pivot tomorrow. Others are going to say well it looks like they're going to keep raising and that's how the Fed wants it it doesn't want it. It pretends to be transparent, but it's not. It doesn't want to be transparent. It can't be. If it was truly transparent, it have zero value even to its own captors.

All right, I think that sums up most of the dollar short and treasury questions. I think Mike has a couple more questions, so I'll pass the torch to you.

All right, Ed, the first thing I want to talk to you about is the mindset that people have that the dollar is king, you know, and it's always going to be king, you know, it's the world reserve currency. It's central to the global financial system. It's backed by force, a strong US Economy, a strong consumer. In times of uncertainty and crisis, like we're seeing right now, people seek it out as a safe haven with deflationary pressures like we see right now, people are selling assets for US Dollars. With that, my first question is, given everything I just said, how would it be possible for the US Dollar to lose value in this environment, especially when it's compared to all of these less sound currencies, how does it lose value?

Lose value in this Last bear market, 2001-2008, how did it lose value in the bear market it had before in the 80s and late 80s, early 90s or in the 70s, all these bear markets were against currencies that were less sound as well as some currencies that were more sound. How did it lose value in those times is capital flows. Capital flows back and forth. There are times when the American markets are really the only game in town and outperform all the other markets and everybody chases them. And there are times when other markets, like during 2001-2008, I remember many people are buying the European shares and the commodity currencies because we had a commodity bull market. They were buying China, they were buying India. So that's the reason that the dollar's value can fall is cyclically, because as the world's largest net debtor. You can see a graph of what I mean here. The net international investment position is basically a balance sheet. And the balance sheet shows the difference between claims that Americans have investments they have overseas and the amount of investments that foreigners have in America or claims on American assets. So what this graph shows is that the stream of dividend payments and interest payments is increasingly going it not favoring the dollar? Is it increasingly going the other way? We've seen the dollar lose value to less sound currencies before, just on a cyclical basis.

Yeah, no, I think that's a great point. I think many people forget that, that the US Dollar hasn't always been king and that it is cyclical with bull and bear markets for the reasons you just outlined. However, I think many would argue that this time it's different. And as the dollar collapses, or as the fiat system collapses, I should say, people are going to be wanting to hold king dollar at the very end. So do you not agree that as other currencies collapse, the king dollar will be king?

No, of course not. If we want to talk about in terms of its circulation, it is king. It has the most circulation in the world. But as you can see in this graph of the reserve, of its share of global reserves in the whole spectrum, it's been dwindling for decades, even through the bull market. In the foreign exchange value of the dollar of the last 12 years, both its investment position and its reserve position have been declining. A rejection of the dollar system can occur either in reaction to it being too strong or too weak. And ultimately when the system is rejected, that's when you're going to see when users reject this system, ultimately when they one by one say, which has been happening gradually. Right? And you can see that in the chart of the it's for share of reserves. So far it's been going on gradually. But the thing about this is that the rejection of the dollar as a reserve currency will wash up a lot of currency onshore. So it will reflect in the foreign exchange value of the market. So the system, when it collapses, if it collapses, any kind of rejection, whether it's because the foreign exchange value of the dollar is strong or because it's too weak, either way, that causes stress, that causes people to rethink, well, do we need the dollar as a reserve currency either way? So the authorities want the status quo. They don't really want that kind of volatility because that is what's going to reject the dollar as a reserve currency. And the more that happens, the more dollars there are sloshing around out there outside of the economy compared to other currencies.

You make the point that there's a trend of the US Dollar not being a reserve currency, but that trend has been happening for a little while. And so I guess I don't understand why you think we're any closer now to users rejecting the US Dollar than we were, let's say, a year ago or five years ago. So my last question for you is what is it going to take for US Dollar users around the world to actually reject it.

What would it take to happen is in my opinion when the dollar is very, very weak and it, and it creates a different incentive, it creates an incentive for all the other central banks to inflate more. And you have. That's when the system to me is much more destructive. But it could be gradual, it could be gradual, can continue gradually. I can't rule that possibility out. But what I've noticed is that the floating rate system has done a lot to manage a lot of the imbalances and extend the life of this system. But it has also created a few cancers. One cancer is the debt and the other cancer is the size of government. And in each case, because that's what inflation taxes funds, we can see right now how the debt situation is playing out for the Japanese because one of the reasons they can't afford to let the market raise the rate or Yield on the 10 year bond is because they can't afford to issue debt at higher interest rates given their 250% debt to GDP ratio right now. So the US is at half of that, but the US is the second behind Japan in terms of that ratio. But worse in terms of total dollar number, it is bigger than anybody. As you saw with the net international investment position, Japan at least is a creditor nation and it doesn't inflate nearly as much as the US dollar.

And so if I understand you, if the whole system is to collapse, it'll probably start with a US dollar bear market it and then it'll which will eventually result in a rejection of the system by its users. And then maybe one day we wake up to see things priced in gold or bitcoin.

Can I interject? The bear market in the US dollar doesn't need to be the thing that starts off the rejection. It could be this current situation could start off a rejection, but once users reject it, then the foreign exchange value of the dollar will reflect that because there will be a lot of surplus in the foreign exchange market.

All right, Ed, I want to talk about a very common belief out there that the US can prevent the dollar collapse from happening just by use of military force. It's well known that it has the largest military budget in the world by far. I think if you add up to the second third nations, it's bigger than those ones combined, which has allowed the US to amass an absolutely huge arsenal of weapons and military technology that's arguably unparalleled in the world. And you could also argue that many nations have already attempted to bypass the US dollar In global trade, whether we talk about alternatives to the swift system or countries looking to bypass the petrodollar. However, for, for, for some, these efforts really didn't pan out very well. Right. Like think about Iraq or Libya. Okay, so my first question is, you know, should there be any serious attempt by any other nation to dethrone the US Dollar? Those efforts are going to be met with the full force of the US Military, and they're going to be. And they're going to fail. Right. Like, do you not agree with that?

The historical example probably would support that statement to some extent. Yeah, they could pro the military in that way. But might doesn't create, it destroys force can't be used to create a currency. It can only destroy it.

Right.

No, that's true. I mean, that's true. No amount of force is going to create a currency out of thin air. But that's not what we're talking about here. We're talking about the US dollar and it already is a currency. And so the military in this case isn't going to create it out of thin air. It's going to be used to squash the competition. So how could any currency challenge the US dollar without meeting that fate?

I have a number of responses to that. But let's point out that every empire sort of dies when it is stretched to the limits of its finance. Right. Of its finances. Okay. Can we agree on that?

Yeah.

Eventually empires spend and inflate too much, and that sort of sows the seeds of its own demise. The more they destroy the currency, the less effective that can be. In most cases, the dollar's reserve status doesn't even require any sort of military because the dollar became a reserve currency on an economic foundation. It didn't become a reserve currency by force.

Okay.

It's the other. Governments accepted the fiat dollar as it left gold because of a mutual beneficial situation. Sort of a symbiosis there. But the other thing is, the other thing the military doesn't have to worry too much about is that most governments inherently don't want to go to a gold standard. It's very rare that you get a government that wants to have a gold standard unless it's a bit of a phony gold standard and they just want to intimidate the empire. The whole point I'm trying to make here is that the reserve currency system that the dollar is at the center of is very mutually beneficial. You don't need to enforce it with force. There are incentives on both sides of the cross that want to extend its Life further?

Well, yeah, I guess what you're saying is none of these other nations really actually want to dethrone the dollar. It's another advantage to still have it there. So perhaps what replaces the US Dollar isn't even a government currency. Maybe it's something that the market provides. But do you not still think though that no matter where the competition comes from and that the military strength will at least be able to delay adoption of this new currency or even the emergence of new currencies, maybe just for a few years or maybe even for a whole decade? Can our whole dollar collapse theory really just be extended into the future, you know, by a decade?

By a decade? Well, I mean, I don't, I don't really know. I don't have an honest answer for that because with the military, I don't think so, because I think the milk, the whole idea of empire is starting to contract already. They have very, it's very hard to justify the use of military these days, although some of that's come back lately with the Ukraine conflict. But it is, it's, it is one of the ways they've extended the system. Okay. And you know what? I ultimately agree that ultimately the challenge to the system has to come from the market. It can't be overturned by force either. The users of this system have to reject it. And to that extent, the more imperialistic the military is, the more it encourages the rejection of the system as well. So it can't, it can't be, it can't be, it can't use force, it can't rely on force too much, especially when at the same time the authorities are destroying the currency internally.

Yeah, that's a good point.

They've already destroyed the system and you know, with, with, with the cancer that's built on top of it, you know, and, but I mean the debt and the size of government, the size of empire, the size of the military that it all has to finance, so they've stretched those finances quite a bit already.

So. Well, the US dollar or the US military, I should say, has benefited from the dollar being reserve currency and vice versa. I mean, really, the military is not what created money or gave the US dollar at status in the beginning. So yeah, no amount of force is going to be able, going to be able to maintain that going forward either.

Thanks guys, great questions. Hope they shed some light on, on this whole complex matter. In closing, let me just say a couple things. If, if this system fails, it's not going to be because the, the dollar gobbles up all the other currencies share as a reserve currency and works towards dollar hegemony. We've seen that in the data. This doesn't even make sense. If this system fails, it's going to be because the users of the system reject it. Which actually has been the trend if you look at is what the reserve. The statistic about its share of reserve currencies tells us. Aside from its long lost connection with gold, the dollar's life has been extended through its through mutually beneficial relationships with many of the fiat crosses which it kind of which learned the who's which advantages were learned through the existence of a government gold standard called under Bretton woods which put the dollar at the center of the whole system and was sort of the beginning of the. The. The emergence of the politics, the interventionism in the force that started to build up around the. Around keeping the dollar system. Even though the dollar system evolved naturally and was built on the economic foundation and because it was always the soundest and the last soundest currency, at least in the early part of the last century, that's been slowly changing and increasingly fast after the 80s, especially since the floating rate standard has evolved. As long as the system works for the governments who use it on both sides of the dollar cross, this can last. For them it's a question of whether what global currency is reserve currency to use that is the most forgiving and the most useful and most elastic and that would not be gold. They would not want to answer to gold. So they do prefer the dollar and that's why it's, that's what makes it mutually beneficial. The factors that undermine the system though include just this giant amount of debt that has an imbalances and the volatility in the floating exchange rate markets that has emerged. And the system produces. This kind of system produces the, the. The debt and the imbalances and the volatility both domestically and internationally. There's a political trends also today that undermine the demand for the dollar as a reserve currency. And they probably guarantee that it has peaked in that regard. But the debt and the government buildup in the reserve currency countries in the US are especially hazardous because they trap the central banks into a inflationary paradigm where they have no choice. Like as in the case of Japan today, it has very little choice because its debt is so large that if it raises interest rates the government will have to either inflate or default. And it probably doesn't want to do either of those things. And as far as I'm concerned, the yen and the euro Today are being punished for their excursions into negative yield territory which many people mistake for them being more inflationary than the US Fed even though the U S Fed has inflated money supply way more than they have. I wrote about this in the last newsletter by the way, so if you want some light shed on that topic, just have a read through our through the October Dispatch which we just released last week. But in general though, for the yen and the euro, the monetary fundamentals are sounder than the dollars. They've inflated both, both of them inflated their currency less than the dollar has over 10, 20, 30 years. But this, this is, this is what's driving the dollar's rally. It's not an emerging market currency collapse, at least not so far. It might turn into that a little bit later. But most of those emerging market currencies, other than a couple for other reasons, haven't really fallen out of bed. And, and they definitely don't have any influence on the dxy, the trade weighted dollar index that we talk about, which is a basket of the basically the reserve currencies, not the other ones. There's no connection between them. There's no reason why somebody would sell yen because the, because one emerging market is blowing up unless happens to be that the Japanese are invested heavily in that emerging market. But that's not the case that these, that dollar polls are making today. So to be sure that this is the system is like it's way more destructive when the dollar is weak than when it is strong. Okay. Like you can see today, the incentives when it's strong is towards a sounder system towards a. It encourages the other central, the other central banks to stop inflating when the dollar is weak. On the other hand, the motive or the incentive is for, for more inflation. Which is why also you get commodity bull markets in dollar bear cycles because when the dollar is weak forces all the other central banks to inflate just like just the opposite of what today is when the dollar is strong forces the other ones to get stronger. But that's that incentive is works towards a standard system. When the dollar is weak it creates more inflation all around again which is why you get a commodity bull market. But whether the dollar is strong or whether it's too weak, either way, if it's too volatile for for most people the collapse of of a system like this ultimately means rejecting it, rejecting dollars, rejecting the reserve currencies which is basically the dollar. And in the dollar's case that means a lot of surplus dollars are going to end up washing ashore they're going to, they're going to see a surplus of dollars in the foreign exchange market if the dollar is rejected as a reserve currency, much greater, far greater than if any other currency was rejected either as a reserve or even in in general, I see no evidence of any new trends towards S$ hegemony towards the what the milkshake guys or the king dollar guys or any of them are saying. Even over the last 12 year bull market in the dollar has not even encouraged any increased share for the dollar in in this category. So in my view if collapse comes it'll be by the rejection of the dollar with the dollar falling through the center of the pool, ultimately taking all the water with it, not by soaking it all up. So any rejection of the dollar and the dollar standard is going to turn its foreign exchange rate down. So in summary, just let me summarize five problems that undermine the dollar's viability as a reserve currency. No longer the only consumer block and no longer the only game in town. There's a lot of consumer blocks that have risen and in the world over the last 20, 30 years. So the dollar's role is becoming obsolete. Also for also because better money is being created in the cryptocurrency area as well. Number two, the dollar is the US is less capital friendly and less open in terms of trade than it has historically ever been. These factors have worked to making the dollar establishing the dollar as a reserve currency. So the opposite is going to erode its appeal as a reserve currency. Right? Number three, in most global asset portfolios, investment portfolios, the dollar is probably overweighted. It's definitely over represented. Far more people own dollars and far more dollars can be thrown onto the foreign exchange market than in any other currency. As I said as I've made the case for the US Asset markets have been, have been the, have been a magnet for capital flight for 12 years and capital chases them when their relative allure is greater than investment opportunities elsewhere. Which has, which is a situation right now which nobody can see changing. But trust me, it can change and change just as it changes in every dollar bear market. Number four, the US is balance sheet is, is in terrible shape. It's a the world's largest net borrower. There's no dollar short argument, no argument that can in terms of trying, trying to establish that dollar liabilities outside of the US are growing in terms of share to the point where the repayment of these loans is going to generate a dollar demand any greater than the capital flows on a day to day basis, right? The, the bottom line is that way more interest payments and dividend payments leave the US that come into the US Way more so anyways. And number five, the dollar is increasingly unsound. It used to be way sounder than the Mexican and Canadian banking systems, but today it's about the same. All right, it's not as bad as say Turkey and all those other ones, but it's not, it's certainly not the least bad anymore. This, it's erode this position over the decades and shall continue to erode this, this position until its position until its currency is rejected as a reserve currency which won't happen until there's something better. And that won't mean a government currency. It's going to be a market currency. When they destroy this dollar, they finally destroy this dollar, there's going to be nothing that will replace it except gold or Bitcoin if it establishes itself far enough or whatever markets choose to adopt as money. It'll be the market's hands. It'll be in the market's hands where life started for money. Money is created by the market system for the market system, for the people, not for governments over note.