Kind: captions
Language: en
talk to me about the three forces that
you see that are influencing this moment
we've got Banks collapsing US dollars
under attack looming recession what is
going on how do we step back and think
about this moment I look at three major
forces that are happening now
um haven't happened in our lifetimes
um but have happened many times in
history and those three major forces are
the creation of a lot of debt and the
printing of a lot of money to buy that
debt because particularly because the
government is running large deficits and
so they don't have enough money so that
government has to print that money
so that creation of all of that that
debt and its financial implications and
its economic implications is one force
the second force is the internal
conflict the amount of conflict that's
internally largely due to the largest
wealth gaps that we've had since the 30s
they
um
and that produces populism of the left
and the right particularly when there
are financial difficulties the third
Force
um is the rising uh Power the
um challenging the existing power
um largely in the form of uh China and
to some extent Russia
um so let's call it the great power
conflict because in 1945 you know
there's there's a cycle you have a war
then after a war you have winners and
the winners determine the rules of the
game and then there's this evolution of
others becoming more competitive and
then you have a conflict again
um for who's in control so we have that
Dynamic taking place so those three
influences the financial
the
internal conflict external conflict uh
influences or having a dominant
um influence I learned before that when
I was surprised
um often it was because of things that
hadn't happened in my lifetime before
but happened in history because of that
reason I went back and studied history
the last 500 years on these Cycles there
are big cycles that last about 75 years
give or take about 50 years and of Rises
and declines and I put that out because
I think it's so important people
understand that I put it out in a book
called The Changing World Order and in a
free video calling the changing world
order so when we look at each one of
those they're important I also learned
in studying history that there were two
other influences that were very big and
you could see them uh the first was Acts
of nature such as the droughts floods
and pandemics the changes over time in
uh the evolution over time of people's
learning and the Technologies they make
so I'd say there are the really five big
influences that drive everything and
they are the money and debt economic
influence the internal conflict the
external conflict the nature uh
influence
um and the let's call it the technology
influence so as we go now into this uh
it's important again
um I put it out as a free video on
YouTube so that people could see it
easily and when we get into whatever
we're going to talk about it'll be
certainly in the context of those things
and since they each affect each other it
produces what I call the big cycle the
animation that you put out
in conjunction with your book uh
principles for dealing with a changing
World Order have influenced my thinking
around this moment more than anyone or
anything else it it makes it seem so uh
predictable from a historical
perspective when you look at that big
cycle and you see how it repeats and so
as you went through the last 500 years
one thing that you make very clear in
the book is that the the rise and fall
of Empires the rise and fall of a
reserve currency they go in this six
cycle Trend and the uh the part that I
always find unnerving is phase six is
basically war and collapse and so you
have that previously dominant power
loses its position loses its status as a
reserve currency and it loses it for
pretty predictable reasons in the three
forces that you were talking about in
the beginning
discounting the the fourth Force which I
don't think in every cycle you always
had and you correct me if I'm wrong but
you didn't always have a pandemic or
anything like that but the fact that
we're living in a moment right now where
we have all of them and so we've got you
know not only is it a moment of massive
technological disruption right now good
and bad but we've got the money printing
uh the the meme on the Internet is
moneyprinter go Burr uh so we've got you
know printing because of covid we've got
printing uh coming off of printing
because of the 2008 collapse
um and now we're again seeing this cycle
repeat itself so I've heard you say that
it that we're in somewhere in Phase five
which is as the Empire begins to decline
as you have a rising superpower as the
debt bubble is getting out of control
with that perspective was
what happened with the svb bank collapse
was that something that you knew okay
something like that is coming or was
that a surprise to you no I it was it
was obvious
um look
um if just let's I want to talk about
the mechanics really I'm so eager to
pass along an understanding of the
mechanics so people themselves can do
the analysis
um so one man's stats are another man's
assets
um okay so what happened
the government had to sell a lot of debt
and when it sold a lot of debt there
were a lot of entities that bought a lot
of bonds government bonds
um and money was very easy which meant
that short-term interest rates were very
low
um and money was almost being it was
actually being given away because they
had interest only loans and interest
rates were less than one percent and you
didn't have to pay back principles so
you can go get money and so that created
um a lot of debt and it created
a lot of um buying of government bonds
so what happened to
um Silicon Valley Bank
um is uh what happened to what happened
to many many entities all around the
world not just Banks
they um what does a bank do a bank takes
in deposits typically
or dead in some way
and then it buys that
it can do that in the form of making a
loan or it could do that in the form of
buying a Government Bond buying debt and
then when interest rates went up
the value of that debt went down
the money they had to give to depositors
became more and more expensive and also
depositors wanting them to be
competitive
looked at money market rates or other
rates and withdrew money from the bank
to because they have better uses okay so
what that that leave them with it's a
banking problem that has happened
literally for thousands of years
that um that what they do is the the
positors you know want their money back
and they're holding assets that are in
this case have gone down in value so
they're broke let me let me put a fine
point on that sorry before you move on I
don't know that people really understand
this is is this a um
it seems to be a necessary result of
fractional Reserve banking meaning that
if you deposit ten dollars to me I only
need to keep and I think this is
actually accurate I only need to keep a
dollar and so the other nine dollars I
can actually put to work in terms of
loans to other people or Investments and
that puts us in a position where okay
you gave technically you're giving the
bank a loan a deposit isn't just oh my
money isn't a vault somewhere I've given
the bank a loan the bank is going to go
do things without of varying degrees of
risk in the case of svb they thought I'm
doing the least risky thing which is I'm
buying government debt the government is
going to back it the government
especially the US government can
actually print money if they had to to
cover that which they did in this case
but if a lot of people go to the bank at
the same time known as a bank run and
say I want all of my money the bank goes
whoa whoa I don't have that money and so
I have all these assets and as long as
those assets sets remain liquid and I
can liquidate them in a timely fashion
then sure as long as the requests for
people's deposits back are coming at a
reasonable rate
all is well but when you get a lot of
people coming at once and you have the
the
Investments that they've made have gone
down in value now you get a perfect
storm exactly I think you said it very
well
um you're allowed to be in the business
let's call it 110. it's actually less
than one-tenth is your money whoa uh but
let's call it one tenth
um you have a certain amount of money up
they give you the deposits you invest
the money within these General
guidelines so for example government
bonds are safe from default so you buy
the government bonds you think you're
making a spread and then what happens is
the government bonds go down in value at
the same time as the People Say Hey I
want to go take my money and put it
someplace else so you don't have enough
money
and Central Banking works like that
except the government can print the
money so the risk and when it's a
government is not that you won't get the
money back in lesson like in this
particular case for a bank it goes down
in value so you ain't going to get that
back you're going to sell it but anyway
you described it very well you what what
happens for the economy as a whole is
then they print the money
because they don't want the faults
there's a tolerable amount of defaults
and then you get past a tolerable amount
of defaults and it just crushes
everything and so they print the money
okay and so this thing with the bank is
not a Silicon Valley Bank is a loan
issue it's not a banking issue it is a
global issue in terms of all around the
world all sorts of entities
Pension funds
um
um insurance companies
um all around the world uh there was a
lot of the buying of these government
bonds which have gone down in value and
if you then take it and you say What's
the value of those those have gone down
and the cost of money is high and so the
world is leverage law okay long meaning
they own stuff
and they borrowed money to own it and
it's going down in value how nightmarish
does that scenario become so you've got
your money locked up in something for a
long time but it's declining in value is
this like a classic moment where we can
look at this big cycle and go oh we know
where this goes like the the music has
stopped everybody or no it's a bit
harder to judge than that I think it's
pretty easy to judge on a um
you know an intermediate or longer term
basis because there's a choice right
um the the predominant the big issue is
you know okay the government can come in
and print the money and give money to
anybody they want to give money to
but when they do that
that typically devalues the money
so if think about it if you're holding a
bond you know you got a claim on money
um but the claims are too much
so
um
so one way or another
you're either not going to get back that
money in full
or you're going to get back money that's
worth less because they print them
right I've never heard anybody say it
like that so let me just make sure that
I understood that uh the government has
effectively issued too many bonds so
people have they're holding a lot of
companies and a lot of other things too
okay very good point so we're not just
buying the bonds from the government
we're buying corporate bonds municipal
bonds like anybody that wants to put
some debt out into the market uh
government of course in fact I'm
actually curious uh what's the ratio
roughly if you know this between
corporate debt and government debt well
right now I I couldn't give you the uh
you know number exact number of them on
top of my head but there's
um
um household that
um
corporate debt and government debt yeah
that that's terrifying so uh even if you
took every dollar that our entire
country makes I think it's true globally
if you took every dollar that we made
globally and tried to pay off the debt
you wouldn't be able to do it
well that's right but it's not expected
to pay it off in a year sure I want to
go back to my main point to make this
clear
if you're holding that debt
um you are holding
something that will
money will come back
uh let's say if the and the government
can print the money
but if the money's hard if that's going
to be good money
that's coming back
it's going to be hard for those entities
to pay back
because it's a lot relative to their
income and cash flows to pay it
and that means that the default risk
Rises
however because
you don't you're holding that it means
that the debt will be bad one way or
another
it's either bad because they don't pay
it it needs a haircut for them to pay it
or because they do pay it with money
that is going to be printed to come back
so when you look at that you're
um and that problem occurs
when there's a lot of debt assets and a
lot of debt liabilities so think of it
this way just want to make this clear
when there was the position that
interest rates
got a lot below the inflation rate
you're losing buying power
there's no good reason to own that
um and there's a change in psychology
because
um before there was
um
I own bonds
the bonds go up in value as interest
rates go down
so I'm getting a price appreciation even
though I'm getting you know let's say a
low interest rate but inflation isn't a
problem
until it's a problem
then when it's a problem because they
print so much money and they put it out
then inflation goes up and a light bulb
goes off
that light bulb used to be okay how much
am I earning
okay I'm not earning much but it's okay
the price of the bond or whatever's gone
up and but anyway I'm holding it and
it's safe and then people realize it's
not safe
because I'm losing money to inflation so
now you have the Central Bank wanting to
rectify that imbalance
by you know real interest rates were
minus 1.7 percent
meaning that inflation was chipping away
at your buying power yes if I look at
inflation index bonds as an indicator
um or other indicators I'm losing
percentage points to inflation by
holding that Bond and then when they and
people realize that well you don't want
to do that and then the other side of it
was you want to buy buy and borrow and
buy stuff
because
you know money's free so companies
borrow and buy stuff and individuals
bombed by houses because it interest
only loans on the houses I mean like
okay I could buy a house I can buy an
apartment
and so but that creates the imbalance
where it's terrible to be a lender
um and a creditor and it's good to be a
borrower
and and do that so that imbalance takes
place it produces inflation and then
when it produces inflation and so on and
then you you I then you say I don't want
to own these things anymore and then and
also
um the Federal Reserve says I better
fight inflation they change things and
so by raising interest rates to levels
in which it goes from minus 1.7 percent
in inflation index bonds to plus 1.7
percent
and it makes it
um and it raises
um the short-term interest rates
you know real interest rates much higher
then
lo and behold all the people who did all
those things
get hurt
okay they borrowed they bought bought
the bonds they bought all of those
things and all of those debt instruments
um and also companies look at the
companies that are affected
because yields got so low
um
tech companies and others Those Who Have
a Dream
I'm going they don't have to necessarily
make profits
they're selling a dream and the money's
got to be invested and so
you see
all of that change radically
when those that tightening of monetary
policy so now you sit there in Avalos so
when you're looking at the big picture
you look at you've got it's think of it
as all like banking
you're holding all these Financial
assets
what is the value of a financial asset
it has no intrinsic value its only value
is what it can buy
but there are many many more financial
assets out there
the most Financial assets out there
that there's ever been
relative to the value of stuff to buy
there's too many claims out there it's
it's like
um musical chairs
okay if everybody says oh wait a second
let get let me get my stuff
let me convert my debt assets
you know I want to I want to get my
stuff I want to get real stuff
um that's that's a real problem
and so that's the global picture on on
the first of those five
influences right the fact that it's
happening with the other influences
is very important because they affect
each other
so this financials picture by the way is
the same as in the 1930 to 45 period
and the same as they were throughout
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yeah for people that don't know that's
World War II just uh uh that started
with a financial crisis
that then caused internal conflict what
do we do about the financial crisis the
populism of the left and populism of the
right in this internal fighting and four
countries that were democracies chose
not to be democracies
because of the conflicts that were
existing the poll
um and those countries were uh
um Germany uh Italy uh Spain and Japan
because there's a lot of internal
conflict over wealth
and when you have that and so that
creates a lot of internal disorder a lot
of fighting okay in in some ways almost
Civil Wars forms everywhere some form of
Civil War who wins the Eternal War
and of course that happens also at the
same time as there's the external
conflict sir first of all everybody's
fighting over resources you have
populists come to power and the populace
are not
compromises the way democracies work
yeah let's fight I'm gonna fight for you
this is don't worry I'm not in the
middle I'm not going to compromise and
you've got to pick a side
and so the moderates
um there's no place for moderates you've
got to pick a side
and the sides are
um let's say internally in the country
the left and the right
and externally you know
um I don't know the Americans and the
Chinese or the Americans okay and you
gotta pick a side and fight
and so that becomes the dynamic that is
these periods of time and these periods
of time have typically lasted about 10
to 15 years
and you and they have various symptoms
to it so in the book I I write out yeah
there's like a disease like a cancer
um you see stage one two three four if
you have these things you can look at it
and you could diagnose and you see it
moving from stage one to two to three to
four to five and to six you could see
that taking place and each time you come
closer to
um a bad set of circumstances bad
financial circumstances and bad fighting
over things
yeah so this is where
um this gets really breathtaking so
you've talked a lot about this idea that
there are things you even mentioned at
the beginning of this episode there are
things that have not happened in our
lifetime but they happen over and over
and over and so it is very easy for me
as somebody born in the 70s to think oh
War isn't the thing that happens in the
U.S that's something that happens
elsewhere populism isn't something that
happens in the U.S it's something that
happens elsewhere but it does happen uh
we're seeing it ratchet up right now
because of that
um I heard you once say and I think this
is really important for people to
understand about the the internal
conflict in fact you and I bumped into
each other in Dubai and I was saying you
know Ray as given everything that's
going on how do I think how do I think
about where to live whatever and you
said Tom the only thing that matters is
how people are with each other and for
whatever reason it really hit me that
time what you meant by that and I
understood
the the importance of this conflict and
what I heard you say previously is that
in the French Revolution it was the
moderates that got the guillotine it's
like you you are forced because I
consider myself very Centrist in nature
and you find yourself
as things escalate being forced to take
aside which the French Revolution one
gave me pause I was like ah not not how
I would want to end up as a moderate
um really fast going back to the that
this is a global moment it's a
predictable part of the process that
stage five the debt is too much interest
rates are now going up to keep inflation
from running away we printed money like
crazy
you've got the rise in conflict is is
the when we printed money when the FED
printed money to backstop uh the what
looked like it was going to be a
potential contagion from svb obviously I
think there were five banks that ended
up failing
um
is this now contained or is is what the
FED did just going to forestall
something that's inevitable
um The Dominoes are uh beginning to fall
I mean okay you know
you know what the next dominoes are and
you can imagine the other Anonymous so
for example
um
they're not going to buy the debt and a
lot of them they're not those who are
who bought the debt and have too much
debt and have debt losses
um on government debt are not going to
buy that buy more of that debt for
example and therefore when the
government uh sells more of the debt
um there's not going to be an adequate
number of buyers for that debt
uh you know that
um those who are hurting because they
have those losses
um won't make loans and a lot of those
loan loans went to real estate
particularly commercial real estate and
you know that for various reasons in
commercial real estate
that you're
um
we don't use it the same way and so on
so you're going to have problems in
commercial real estate
you know that this kind of money was
also financing
um venture capital and private Equity
um entities that also have cash flow
problems challenges and so you know that
that funding is not going to be there in
the same way
you know as a result of these things
that a number of entities will cut costs
and in their various ways and so
depending on the on that the job market
is changing and you know you see it for
example in tech jobs and and other you
know if you're in some of those areas
that are getting squeezed and you see
the same thing by and large you know
happening internationally
so you can see also that if you said
what is the value of those assets that
are being held
that that value has gone down a lot and
because it was bought on Leverage as you
described because it is brought on
Leverage there are bad
um losses in different places
and then the question is what are you
going to do with those losses
in most cases quite often they're um you
know don't mark them to the market
I'm meaning don't account for them and
recognize those losses which is kind of
let's say hiding those losses and hoping
in time that they'll just over time you
know it'll be fine but that'll produce a
squeeze that'll produce a problem
so I think we know those things
we know those things and um and that's
happening at the same time
as we have
um an internal conflict taking place
such as the presidential election so
we're going to come into the
presidential and and it's not just
presidential election of course it's a
number of
um
Senators congressmen and so on
um and who are at each other's throats
about this and who are going to fight
with each other okay and and
fight to win
um not probably respect the rules as
much
um and but fight to win for their side
and that's happening
at the same time as we have
um the
situation with China
most importantly China and Russia in
terms of the issues in terms of their
things to fight over you know for
example even there's going to be an
election in Taiwan that'll also have a
big bearing on this whole thing so
there's you know there we know I think
pretty much that we're going to have
financial problems at and economic
problems at the same time as we have
this internal fighting and this and
external risky situation
you're at a stage in your life where you
really want to help people understand
the mechanisms how to think through this
stuff from a framework perspective so
that we can apply it
you know God forbid in the the post Ray
dalio era
um
let me run you through how I'm thinking
about this moment the questions that I'm
asking myself and then if you don't mind
help me correct the the approach that
I'm taking to this so
I whenever we get in a moment where
there's really
[Music]
um
we're at the what I see is the end of
stage five I don't know if you would
agree with that uh so this is where just
again to reiterate so we've gotten over
our skis on debt uh the FED is going to
try to print their way out of this all
that does is create inflation they try
to break the back of inflation with high
interest rates but so many people got
themselves into debt in the good times
on variable interest rates or that they
bought a they bought long on something
like a bond where it devalues uh based
on what happens with the interest rate
so as the interest rates go up either
people just can't make their interest
rates payments or the debt that they
were holding goes down in value okay so
you've got this moment where a lot of
people are about to lose money and a lot
of people are going to be very uneasy
and you've got the the political divide
that's continuing to Escalade escalate
we saw the last election cycle here in
the U.S where people stormed the capital
it was a very sort of unnerving moment
and now it's like well things weren't
nearly as bad then as they are coming
into the 2024 election so I start
thinking okay what is the safe move and
if I'm honest ray
I start looking at
where do I live so is there a move to be
made within the US and so I start
looking at places that feel more secure
for the way that I think about the world
or I start thinking do I become a more
globally mobile citizen is there uh
something that I should be thinking
about there I've got a lot of my money
in cash and then one thing that we
didn't talk about which we probably
should you you mentioned the word hard
money
and so hard money I'll give my
laypersons definition and then if any of
this is inaccurate please let me know
but uh hard money being something that
has intrinsic value so uh gold precious
metals become something that I start
thinking more seriously about now I'm uh
what I'll call a digital native so I
think about uh Bitcoin is something on
my radar I know that you're maybe not a
fan but anyway that's how I'm thinking
about the world I'm trying to be in cash
I'm not trying to be in anything long
I'm I have Ray dalio I have zero
Leverage I don't play with leverage even
when the money was free I would
basically I didn't take on any leverage
because that's the one thing that scares
me
um so safety safety safety is how I'm
thinking about things now I don't
exactly know how to diversify well but
that becomes another part of how I look
at this and you've got the all-weather
strategy that I know you've tried to
articulate for people
so safety first if I had to to sum up my
stance everything you said is beautiful
and very similar to the way I think and
I'm I'll add a couple of things to it
but when we think about safety we have
to think about that as purchasing power
because a lot of people think if I put
my money into a treasury bill I get
safety well those look at whether that's
giving you a return that's compensating
for inflation so I just wanted to tweak
what you said that's that's very
important tweak and now you're getting
into where I
feel under educated so how do we then
think through that before I go there I
want to say
um and also take here's the other advice
and and maybe we're all wrong maybe
there's nothing to worry about
um
okay so how do I deal with that
like I like what this guy dalio is
saying is very crazy in it and and you
know who knows he's whether he's right
or wrong and you know he's been wrong in
the past and who knows if it's right and
I okay and simultaneously
so okay that's the exactly what you said
is the way pretty much I look at it but
you said and if I was to paint the world
I painted the world the way I did okay
and I have those questions and then
beyond that I say
um you as an individual should think
about the Total Safety including maybe
that terrible scenario doesn't happen
Okay that's what I'd like you to do
that's what I'd like you to do and if
you do that you will come to a better
balanced better balanced position I want
you to get balance okay I want you to do
certain things I want you to have enough
um savings whatever you know that okay
to have security to build
the first level
of
I think investing in investing which is
the same as savings
that comes in tears
tier one tier two tier two three on risk
and the first tier
is
if everything goes wrong
I'm okay
and everything could be inflation
depression anything whatever it is I
lose my job I I I you know whatever it
is I got that thing covered
then your next level is okay what am I
going to get the highest Returns what is
my best bet
okay but but start at that level and
then you said the other thing too
that it's it's not just the investment
it's
where am I
am I in the middle of a fight
like I don't want to be in the middle of
a fight
okay what's it gonna be like
so it it does have Geographic
implications you know I don't know maybe
it's the state or the the state you go
to or the city you go to or the country
you go to or whatever it is
you know like
um and there are certain things you can
do to say this one's going to be better
than that one
um let me give you an example of that
there are three things you could do on
based on these three influences
are you going to be in a place and
around
people and circumstances
that are financially strong in other
words the the income better that is the
are they earning more than their
spending and they have a good uh balance
sheet because that means stability if
you can go through that and you have
stability
places that are like that are better off
number two
do they have internal conflict
um
Country Place
and is you know and is it a hospitable
environment for me
okay that's the second
and then third
are they in the risk of an international
War
um like I don't want to be where the
fighting is I really don't
um
you know I don't want to be safe and
stable and so on so this is a time for
looking for such things
yeah okay uh while deeply unnerving I
think incredibly important to think
through that
let's talk about diversification doing
that well you talk about uncorrelated
assets
and I don't know how much you talk about
this publicly but I'd love to understand
it seemed like the for for people that
that don't know your background uh you
have a meteoric rise you're in your 30s
on top of the world unbelievable success
you make a huge bet on something to your
point earlier about have the humility to
know that you may be wrong you made a
huge bet on the collapse
um and it didn't play out and it ended
up that the market went up and you lost
a lot of money uh almost lose
Bridgewater managed to keep it together
you come up with a new strategy that I
believe is known as pure Alpha uh it
ends up getting tested multiple times in
the market and you guys Crush when other
people struggle
which leads you to be for people that
don't know the largest hedge fund we
made money and 28 of the last 32 years
we uh
um uh never had a really bad year
um you know it made um I think it was uh
during my time there uh running it
um 11.8 percent a year with no with the
worst year being I think was down I
don't know 10 or 12 sort of thing and
and that and the next worth year being
like down one percent and
um
um and we did that by
um
simultaneously looking for opportunities
and looking for good returning assets
that were not correlated
diversification of good you know and
just as you point out what happened was
um and by the way those returns are not
correlated with the stock market or
whatever so they were a fan stock market
bond market they're uncorrelated so they
were a fact effective diversifiers in
portfolios which almost all go up and
down together and this would
diversification and so it was loved by
investors institutional investors and so
on and the thing and as you point out
what I learned
from uh you know basically this punch in
the face mistake okay this painful
mistake
um is I learned how to make good money
without having a big loss I knew I
learned how to improve my return
relative to my risk and I learned that
the Holy Grail of investing
is 10 or 15 good uncorrelated return
streams like okay you get that and you
will
I don't know have a similar path to the
path I've been fortunate enough to have
and so that's what I want to pass along
to people you know like uh you go into
the Cove video the one year that I that
we lost I don't know it's 10 to 13 or
something but was 2022 because coven
came along I I didn't have covet in our
system we had out other things that so
that was it and um and so
um there's uh you know something comes
along all the time for anything there
everything has its time
and so you put your money in any one
thing you know you could think oh okay
movie theaters are good and then you get
coveted or you cruise lines are good and
then you get covid and you know oh
whatever it is is good well it's good
sometimes but there's always something
that always is gonna mess up the one
things so you don't want like in my
opinion you don't want more than 10
percent of your money in anything and
you wanna you know probably you don't
want more than seven and a half percent
of your money in anything and they want
to be good different things and that's
the message I'm trying to convey right
now one of the things that has me
um the most unnerved is the attack on
the dollar uh so you've got the brics
Nations uh for people that haven't heard
that acronym before Brazil Russia India
China and South Africa uh are getting
together and I know this has been going
on for quite some time so I don't know
if I should be overly paranoid about
that in this moment or not but again
going back to those indicators that
point to a trans position from phase
five to phase six
um do you think there's anything
that we can prepare for as we look at
the big cycle as we see this particular
moment with the assault on the dollar is
is there anything in the big cycle that
can educate us on how to deal with this
moment just all happens over and over
the decline of the British pound as a
reserve currency and before that the
decline of the Dutch Guild or as a as a
reserve currency all happen for the same
reasons
which is
um you know two things are going on
first of all they're holding all of this
dollars and the stuff that we talked
about is going on and then also there's
the weaponization through sanctions of
uh the uh Dollar in other words
um the United States is greatest
weapon to use as distinct from its
military weapon is his sanctions and so
sanctions mean you freeze other assets
you freeze assets those assets are the
bonds and
um so
um that happened with
Russia and there are threats of it with
other countries China and so on and
there's kind of the thinking well if I
hold the bonds can I uh be can that
happen to me
and and then why am I transacting
in this other third currency rather than
transacting
directly so for example
um
the United States
uh share of World Trade has declined and
China's share of World Trade has
increased to become greater
and
um so
um if two countries are trading let's
say Saudi Arabia is trading with
um
vagina
um
why do they buy why do they go to the
dollars in order to do that
um you know uh no good reason to go to
the dollars and you know they don't know
that then they're worried about holding
the dollars because they might get
sanctioned and so you see more of those
transactions taking place in other
currencies
and then the usefulness of the dollar as
a storehold of wealth changes it's like
think about it in
um you know the the most fundamental way
um everybody wants uh a medium of
exchange and a storehold of wealth so in
other words if everybody's using
the dollar and World Trade
then you want to save in dollars because
you say okay now that's the thing I
spend in and I and I save in the dollars
um but over time
as the share of World Trade goes down
why aren't they
denominating in who well like China has
a larger share of World Trade
traditionally the countries that have
the world's Reserve currency have the
largest share of World Trade and the
largest share of world Capital flows
and because the United States has
declined and also there's a worry about
that
um holding it because of sanctions I
mean just imagine how the Chinese must
feel about having a lot of money in
treasury bonds
you know like I would be worried that I
would like be treated like Russia would
be treated it's not something I would
want to hold uh as you know a safe asset
and what other countries like who might
feel that they can get sanctioned and
for all those reasons
uh they're less inclined to hold
and when we when we call dollars what
we're really calling is dollar debt
because you don't hold you hold dollar
debt and that's a pro what is a debt
it's a promise to really receive
currency
so okay so now getting out of those
things and transacting in other
currencies seems to be the safer thing
to do for those countries and so that's
the dynamic that's taking place so it's
it's
um it's not an attack on the dollar
it's like I don't want to hold those
things and
um so very similar to on the British
pound
you know what happened is the British
had the war
and they were the most powerful empire
ever in the world
and then World War II and they came out
of World War II uh financially in debt a
lot of debt
and who hold who held the debt all these
countries held the debt because that was
the residual from that but they had a
problem they had a debt problem
and so they needed to print more money
because it was too much of a squeeze
and then you had so it deteriorated and
then they you know they sort of said
please hold my dad please hold my dad
they went to commonwealth countries the
part of those that were in the former
British Empire and then you had the Suez
Canal incident where
um there's sort of a a war and everybody
realizes well hey wait a second that
British Empire ain't the British Empire
and they're heavily in debt
and then they say I don't want to own
that debt and there went the British
pound
so that's just how the Mechanics Work
okay so looking at the U.S and
um I don't want to be cheeky and say
speaking directly to uh the you know the
US government but if I were to be so
bold so if this is that predictable
moment where okay there are actions that
we can take as a country that will
either help us
keep
um the world Reserve currency status and
there are actions that we can take that
will cause us to lose that status more
quickly it seems like
okay uh you've got the brics Nations
they are moving away from the dollar it
seems like that has already that card
has already been played I don't know if
you think there's anything that we can
do to to make that easier but certainly
speaking to printing so one thing that
I've I've heard recently and this is a
really fascinating concept that when you
have other nations that are holding your
currency holding debt as you said uh
they're not like hoarding cash but
they're they're holding a lot of debt if
we print money what we're essentially
doing is
um
externalizing inflation so we are
causing a devaluation of that debt for
all the countries that hold us now we're
in a moment with Rising interest rates
that's causing us to need to print uh
but creating this really weird difficult
moment where as we print then we have a
need to raise interest rates but the
reason we're having to print is because
we're raising interest rates so it's a
very difficult moment
um but if if we could going back to your
idea it's how we are with each other if
we could get people to come together in
the middle would one of the things we
would want to convince the US government
to do is to be very cautious about
devaluing the dollar is is that an
important idea
it's more basic than that and it's um
more simple but it's also more difficult
um
what the reason Cycles exist
is that the next stage has been
determined by what has already happened
in the prior stage so hmm
we are in debt a lot
you can't change that we got a lot of
debt
and if you say what could you do
I mean two things come to mind what you
could do is you could be financially
strong
and you can not use
um
Financial sanctions as a weapon
to scare the holders of those bonds
but to be financially strong
requires you to not spend more than you
earn
that means you either have to cut your
spending
or raise your earnings
okay that's okay that ain't easy
okay okay so are we going to cut our
spending
um uh uh okay now you look at it what
are you gonna
uh infrastructure programs I don't know
poverty transfers defense spending okay
what what are we going to cut
um the world
governments
have the same basic economics as
um people except for the fact that they
can take money from one person and shift
give it to another and they can print
money
that's it and so when you look at this
um
okay you have that Gap you can eliminate
the Gap by taking money from some and
eliminating another and not spending
much
okay
okay that's not easy right okay okay
what are you gonna
the most governments now don't think how
much money do I have to spend
and then how do I prioritize that
they think
I need to spend on this I need to spend
on that and I need to spend on that and
they spend on it
and then they either produce it they
produce a deficit
and then you either have to pay it back
with hard money or printed money and
that's situation so when you say what
could we do well you've got to get
financially strong
in a politically fragmented environment
in which everybody wants more
and you and you have to uh you know like
be a higher percentage of World Trade so
that everybody wants to use your
currency and
um the um
and not threaten the holders of that
bonds with freezing their assets
it is uh it's a tall order in this
moment
um I it has become so clear to me in the
last month since you and I uh saw each
other
how important the reason that you keep
coming back to it all comes down to how
people treat each other so in this
moment
um I don't want to be a Debbie Downer
but it does feel like the die is cast a
little bit I don't see how we pull
ourselves back from the precipice
because to your point about being
um fiscally responsible like we'd have
to get into a position where we're
making more than we spend I want to
circle around to something as you were
talking you mentioned infrastructure and
it got me thinking about okay what are
things that we would need to go right so
I think everybody is aware and I've
heard you say that there there are
changes that are going to need to be
made to capitalism in order to bring
back a thriving middle class and the
importance of the thriving middle class
and you've defined the things you know
again staying to the theme of principles
here of uh the three things that we need
to do to be strong as a country or for
any country to be strong uh and you said
two parents in the home uh great public
education and then equal opportunity
where where do you see us on those
are we moving in the right direction
moving in the wrong direction well again
uh you know maybe I aspired too much to
two parents in the home
um it's certainly better if you have two
loving parents raising a family that's
that's good but maybe that's too much to
ask for
um but in other words good Parental
Guidance you know okay you're raised
well you're educated well you can go to
a public school that educates you well
and you have good guidance so you're
well raised in a healthy environment and
not only do you learn
um you know skills and and all that but
you learn how to behave well to with
each other so you learn civility
and um
and
um so you come out capable and civil
um to a land of opportunity
in which you can you know work and and
and have a good environment
um
and really that's all you need if a
society does that right
um and I think you know where we you
know the things that are going on you
know
um
education in a lot of public education
is
um a it's deteriorating it's a real
problem
um
my wife works to help
um the poorest school districts the
poorest people uh in the state of
Connecticut
um and uh the state of Connecticut as
usually it's always one two or three in
terms of the highest per capita income
the truth is hitting your career goals
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free by clicking the link in today's
description all right my friend back to
today's episode
um and in the state of Connecticut
as of last survey 22 percent of the high
school students have either dropped out
of high school
whoa or or have uh absentee rates which
are greater than 25 in our failing
classes
So at their living
in
pob with they're living in areas that
don't have the things I'm talking about
about parents nutrition and so on
um and there's not adequate resources
for them for example during covid
um we um
we found that sixty thousand students
didn't have uh computers or
connectivities to take classes
and the government wasn't going to
provide it
so philanthropically we we bought 60 000
computers and give the kids in one but
we can't you know we can't do that you
know so our society
is
um when you look at this
um you see
[Music]
um
drugs drug problems
um you see
how the cities are changing
um
you know the cleanliness of the Cities
the education levels of the Cities
mental illness
um crimes
and so on
um
you're not seeing
you know
you're seeing people fighting with each
other a lot
um not all the time they're wonderful
places in the United States
you know
education some of the best universities
their pockets
some of them that you know their
neighborhoods but there is this
encroaching so you see infrastructure
breaking down
um
school shootings
you know like okay so you decide how we
do it
um I think we're doing pretty badly
um it I I don't know
I mean look it's not going to be a
popular thing but I think going back to
what you were saying about the parents
and maybe asking for two people is too
much look I get it I think everybody's
doing their best and and God knows for
any single parents out there you have my
love and respect that it just seems
Seems like a hard job when there's two
of you let alone one so I'm not I'm not
throwing shade but in terms of cultural
momentum when I look at people not uh
not getting married before they have
kids uh incentives that end up leading
people to where it's actually more
economically advantageous to have a
child when you're single
uh does not strike me as a great idea uh
and trying to reverse that Trend I think
is going to be really important really
putting a ton of time and energy into
making sure that we're we're looking at
ourselves on a global stage from an
educational standpoint and understanding
that we're competing against I mean just
to really make it Stark we're competing
against China now I have employees that
grew up in China actually have some
contractors that are in China currently
and when I see the the discrepancy of
what demands the educational system
places on them when they're young versus
the demands that we place on our our
students when they're young it creates a
ripple effect as they get into the
workforce in terms of just the the
expectations that they have of
themselves the drive uh the desire to
excel so these strike me as as really
really problematic things I'd love to
talk to you about Singapore so as we're
talking and I haven't studied Singapore
very closely but when I think about
um you know how they've created
something that seems really amazing very
recently and and sort of born up out of
nothing
[Music]
is it those three principles uh two
parents in the home quality education
equal opportunity I mean is that it or
is there something else
earn more than you know earn more than
you spend
be well educated to help you earn more
of the juice and then be civil with each
other
be productive
um you know when you come out equal
opportunity and
and
um it's not just um like in Singapore
but it's true in other countries there's
a level below which nobody should go
certainly children should not go
right how can you have
an environment that children
there's so there should be basics of
housing
um Health Care
certain basics
because otherwise you build a cycle
you you know I mean when they become
when the children become adults
you might say oh it's up to them to do
it
but if you mess up the children early
they become the adults who can't do it
and so you have the cycle
you know in which you have to
take care of people you know you walk
around and look at it you can see the
gaps the opportunity gaps you can see
the mental illness gaps you know walk
down the street and you know downtown
Manhattan or lots of places
and see the gaps okay and some that
adult who is
screaming uh you know and homeless and
whatever came from a place
a reason you know that was
that made them that way
and um you know so it's like the you
know why isn't the computer
given to the kid
who doesn't have a computer so we can
have learning think about how difficult
it is
for the for the kid who doesn't have
learning and they have one parent and
that parent might have in a poverty and
might have drug problems and all t