4D Chess: Dollarizing the World by the Back Door I Michael Every
Summary
Geopolitical Tensions: The podcast discusses the complex geopolitical landscape, focusing on the Ukraine conflict and the involvement of key players like the US, Russia, and China, which could lead to significant market destabilization.
Global Economic Shifts: There is a growing divide between the BRICS nations and the West, with potential implications for the global order depending on the outcomes of peace talks and economic alliances.
US-China Relations: The ongoing tariff conflict between the US and China is highlighted, with tariffs being used as a strategic tool to reshape global trade and economic dependencies.
Market Implications: The discussion emphasizes the potential for stagflation in the US, with pockets of inflation and deflation affecting the economy, complicating the Federal Reserve's policy decisions.
Stable Coins and Financial Innovation: The introduction of US dollar-backed stable coins is seen as a strategic move to dollarize the global economy further, while China's potential yuan-backed stable coins aim to counterbalance US influence.
Investment Strategy: Investors are advised to be cautious and hedge their bets due to the uncertain geopolitical and economic environment, with a focus on safe assets like cash.
Transcript
Forget about what you know about investing in markets. The old playbook is dead. We need to look at a global picture. Geopolitics, tariffs, and much much more are shaping the markets. It's not just the Fed. It's not just the Fed funds, right? We've invited Michael Avery to the show. Again, he's been on the program before. He's a global strategist over at Rabo Bank and we are going to talk meta. Our stick is usually discussing the macro to understand the micro, but he constantly corrects me saying, "Kai, we need to discuss the meta before we can discuss the macro." So, we're going to do that again. We'll be focusing on what is happening in the Ukraine. What's the status of the peace talks? Interesting fact, China is being thrown into the mix now as well and what are those implications and we'll discuss that in a in a few short seconds. Before I switch over to my guest, hit that like and subscribe button. Helps us out tremendously bringing phenomenal guests like Michael Avery on the show and it's a free way to support us. Now, with that out of the way, let me switch over to Michael. It is great to have you back on the program. It's good to see you again. >> Yeah, likewise. Great to be here. Yeah, we we've got we'll have a blast here in next 30 minutes. We got a lot of serious topics to chew through and very little time to do so. Um I I don't even know where to start, but we need to maybe start in the Ukraine. Like what is the current status of the peace talks? Are they real peace talks? And what do you make of it? >> Well, nobody knows. Uh obviously, we're seeing all the key players in a smoke filled room and Europe is not in that room filled with smoke. uh and we will see going forward exactly what emerges. But it appears we're at a juncture here where on one hand you could have the US uh managing to get Russia and Ukraine to strike some kind of deal which Europe would end up paying for and and policing which would probably be a frozen conflict like North Korea and South Korea. That would probably be your best case scenario here. Or you could have everything collapsing at which point the US really it the suggestion is that they and Europe would have to put very heavy sanctions on both Russia and everyone buying Russian energy which would really destabilize global markets. So that's that's less likely but it's still there on the table. And there are even some dark whispers that the US and Russia possibly even China as you said now in the mix could all combine together and say well you know Europe that's your problem and strike deals between themselves. So remains to be seen. Lots and lots of smoke in that room and not everyone's in there. >> Yeah. Let's really work out the motivations for each side real quick as well. Where's everybody coming from? You have the US, Ukraine, and the EU sort of on one side of the table. Russia plus throwing in China as a potential guarantor of the peace here as well. Like what what are each side's motivations here, Michael? >> Well, I trying to be quick. That's that's a big question. Ukraine obviously just wants to survive, although likely to have to seed all the land. It's already lost. That's that's that's pretty clear. Now, Europe doesn't really know what it wants. It's it's taken a maximalist position on Ukraine. That's now been backtracked because of what the US has said about losing the land. It wants to try and maintain a European security order, but it's been one that it hasn't really paid for for a long time, and now it's going to have to. So, we'll see if it wants to maintain it now, it actually has to have boots on the ground and lots of dollars in the American hand in order to get it going. Russia wants to destabilize the European security order and take as much of Ukraine as possible, if not all of it. And it wants to reinsert itself back into, you know, continental politics and being taken seriously as a great power by Europe and which it is it is achieving by hook or by crook. And China, of course, is very happy for the war to continue because for as long as it's continuing, America can't do what it wants to do, which is walk away from it and pivot to Asia. So there you go. That's a 40 second answer, I hope. No, I appreciate that because the implications as you said are global like the US wants to look at uh or focus on different areas of the globe here. Um China being thrown in. Now let let's zoom out and try to understand the global picture here as well. The bricks versus the west more or less like what what are the implications of a potential peace deal here for the world order. >> Well again it all depends how it pans out what that peace deal looks like. So on one extreme you've got Russia again openly saying we want China involved which you know if you join the dots you could literally be talking about the PLA being based in Ukraine right on the border of the EU. That is such a staggering geopolitical turnaround from anything anybody thought they understood in Europe up until recently that you know one doesn't know quite where to begin. That's a possibility. You've also of course got Russia and India and China all trying to build bridges together at the same time. Now I'm skeptical how far some of those bridges can actually be built visav India but there's a lot of language talking about that again and even Brazil is joining in much more enthusiastically than it has up until recently and that of course leaves the US looking around for allies within the western block if anyone at all. Um but it really is a very chaotic picture where we will be a few months from now doesn't necessarily hold any relation to where we are right now today. Yeah, it's as you said like it's a complex topic like so many little fractions like the US looking for friends across the globe. Now China, South Korea and Japan are are moving closer to each other in terms of trade as well. We have the tariff conflict which adds an extra nuance to the whole discussion I guess. Um does that play a role in like I don't want to throw it into the peace talks but does it throw in or what do you call it? Is it like a piece in the in the whole global puzzle? Like I'm trying to figure out like shifts like is it being used as a tool in negotiating what is happening on the ground as well. >> Of course it is absolutely and in fact let me go to that meta because we were talking about meta before that I think is the best way to understand it because if you start at meta and come down you've got a much better view than if you start with micro then macro and try and go up. That gets confusing. I work with people all the time who try and do that. It doesn't get you anywhere. But if you start with a conceptual framework that this is the US versus China, that's the simplification of it. You can you can frame it in different ways if you want, but it's pretty much the US versus China for who is top dog in the 21st century and what constellation of countries uh and ge geographical choke points you need around you in order to make sure that you are top dog. and Ukraine being one of the borderline frictions between Russia as a a China ally and the West, you start to understand where this all sits. It's all part of that larger strategic puzzle. And as I said, the US really wants to be pivoting to Asia as much as it can be right now. And Ukraine, if anything, is a distraction. Whereas, of course, for Europe, it's existential. And yet, it's existential in a way it doesn't want it to be because it's very, very expensive and risky to actually try and maintain a European security order by yourself. and and China at the moment as it has been for quite some time is sitting pretty and really just uh watching all this unfold. Uh but the fact that its name is now being mentioned in headlines of being directly involved really really shows we're starting to move towards the next phase of where this is going. >> What is the next phase? Let's follow up on that, Michael. Like what what does it look like? What is the next phase? >> Well, look, everything's happening simultaneously. This is the key thing. So, you talked about Ukraine and let's leave that there for the moment. We've got massive developments in the Middle East. We've got other developments in South Asia. uh you know always rumblings in East Asia uh and even in Latin America at the moment where there's an American flatillaa setting sail for Venezuela for those who are keeping track. All of these things are happening simultaneously as are trade negotiations between the US and others which have largely been thrashed out. China hasn't got that deal everyone but it's got a rolling 90-day deal where it's already paying higher tariffs than just about everyone else. And while there are questions about those deals, as you were saying, and they're not legal FTAs in the way that people would expect them to be, people are paying those tariffs. Global trade will start to reshape itself and reorder itself around the US if that happens. At the same time as that, that's already a lot. And you know, you you alluded to the fact that the two are linked. They are. The US is holding up the US security order and saying, "Who wants to be defended by us? Pay up." And they're now saying they want what is effectively a reverse Marshall plan where Europe and other allies who they rebuilt post World War II and who supported during the Cold War are now being told we want hundreds of billions of dollars if not trillions of dollars to be reinvested back in the US behind these tariff barriers we've now raised to build factories to make the weapons that we're going to sell you so that you can defend yourself under our defense umbrella. So that's happening on the capital front and then alongside that you've additionally got the US playing around and moving closer towards launching new versions of the monetary system such as US dollar stable coins which China is also talking about just this week which would of course restructure the financial economy at the same time as they're talking about having capital inflows for this reverse Marshall plan and reordering global trade and reordering global security and doing that on the ground in places like Ukraine and the Middle East. So, it's all live, all happening at once, and all threads come together. >> Yeah, it sounds like 40 chess, and that's uh that's out of my league to be quite honest. 40 chess, it's it's it's intense. Um, I want to say on the geopolitical side for a second. You've been saying a couple of times the US is trying to pivot to to Asia. And I think we need to just uh explain what you mean by that. As you said, there were some conflicts. I've noticed I was traveling. I was in the Philippines. There was something about the Shaw Water Shore, I think it was called. um where the two Chinese destroyers and the US uh uh I was a US destroyer the USS Hamilton were involved in a in a conflict with the Philippine Coast Guard there as well. Can you can you elaborate on what what you mean by pivoting to Asia? >> Well, I mean that's one u long burning flash point we are talking about of many >> but again getting meta from a US perspective you know Russia is not a threat to it globally. It's no longer the Soviet Union. The US doesn't have a problem really recognizing that Russia is a great power again because in a way that forces Europe to rearm buying American weapons and it actually suits them to have that particular arrangement. China is seen as you know an equal to the US and in some respects it may even be already it superior certainly in terms of productive capacity and things like steel. So the US basically wants to make sure it doesn't have any security commitments which are going to be a drag on it in other parts of the world so it can focus purely on just one front rather than two. So that's where of course we're uh you know Russia Ukraine can keep the US pinned down to China's benefit and why the US wants to get out. But that pivot is just to make sure that all of US energy and of course allies like Japan and South Korea and the Philippines and Australia and New Zealand etc etc are all focused on that together. And in order to get them to do it, that's when you had the tariffs. That's when you have the reverse marshall plan. That's when you have stable coins. That's when you have carrots and sticks to make people who trade with the US and with China understand, listen, the elephants are about to fight. You're the grass. And the Southeast Asian motto is the gr grass gets flattened when the elephants fight. So, you know, come over here and maybe you won't get flattened. And that's all part of what we see going on. >> Yeah. There as as you said, so many nuances. We might have to talk about more of the tools that are being deployed. tariffs one stable coins I want to touch on next but tariffs first we're still waiting for a tariff deal between the US and China like what's the status there do do you see that ever being resolved it constantly just gets extended um any any thoughts >> that is the game again no offense because it's good that you asked the question people are expecting that and look I could be wrong I could be surprised something can suddenly come along and change change the entire framework that I'm looking at but at the moment as I said China is being tar much more heavily than anyone else apart from Brazil or India. Both of them for geopolitical reasons which are one step or two steps removed from this entire process but still part of the overall picture. Uh but China is being tariffed most heavily. So they're already suffering more than everybody else. Um and this is with an extension of 90 days. If it ever goes back up again, then suddenly we're at, you know, tripledigit tariffs and things get really, really bad. They can't do that until China no longer has a monopoly on rare earth production. As long as China controls rare earths, China de facto controls what the US can make in its industrial and military-industrial supply chains. It may sound odd, but it's true. So until then, there's going to have to be some kind of quid proquo, and that is China suffers a high tariff, but not an absolute nosebleleed tariff. Um, and it's enough to disincentivize trade with China, but not completely kill it. But I don't think we're going to get a deal where suddenly China gets low tariffs again because how does that work as part of this strategy? No, you can say my strategy is wrong and everything is just about the macro. Fine, then we're just seeing the world differently. You go trade that. But if you're looking at conceptually the way I am, it will guide you to whether you should continually expect a 90-day rollover until the US has got its own rare earths and other supply chains, at which point suddenly those 90 days don't get extended and we go back up to 100% tariff or more. It's uh it's it's fascinating just to follow the headlines quite honestly what is happening in in that regard and as you said it's difficult to see a solution. Um the only solution is that there won't be any embargos because that'll hurt both countries. China is already looking at massive deflation which probably keeps the west US sort of in balance which I'm curious I was going to ask you as well like the US inflation about 3% is that being a result of the deflation in China do you do you think it's correlated? Well, look, if you look at Chinese import prices into the US, they're still negative year on year, but that's been a fairly consistent pattern. But then if you put a tariff on top, which isn't captured in those data, of course, you get inflation on the ground. There are pockets of serious inflation starting to pick up in the US now. And there are already work pockets pre-tariff that we're seeing it in areas like meat, for example. Uh, and we've had those supply chain issues in different pockets on and off for a while. It's whack-a-ole. You sort one out and another one comes back. That doesn't mean there aren't pockets of deflation too. For example, lumber prices are down very very sharply. There are there are weaknesses in the economy. We're seeing some prices go down. But I think the important meta again level argument to make here is that while tariffs may be inflationary in some areas short term conceptually, which economists don't get because economists don't think like this, tariffs are supposed to prompt a supply side response in the tariffing economy, not the tariff economy. So in other words, you put tariffs in place so you build more at home. And if you build more at home, eventually you get economies of scale and eventually prices can start to at least level out, if not start to go back down again. So that does that mean you get inflation near-term? Yeah, sure, in some areas, but that doesn't mean permanently you get it. It depends how you manage it. Um, and again, this is a much more fluid process than a very simplistic static model that most economists use can generate. >> It's it's it's extremely complex. It's like I'm looking at it cuz now I'm throwing in like my mind is going to the Fed. Okay, the Fed is trying to manage inflation having a very very difficult job. I don't want to be in Jerome Powell's shoes cuz he he keeps telling us he's data dependent but the data is telling me that he should actually raise uh interest rates just purely on data right so more of a conflicting interest but everybody else wants lower interest rates. Um just just for you humor us Michael here like what is your take on that whole discussion? Well, first of all, you know, having weaker growth, which you have in some areas and higher inflation is called stagflation and central banks don't know what to do during stagflation, particularly if it's supply side. We've had that experience recently, of course, you know, during COVID in the inflation that followed. Uh, and you know, people will be unpicking that for years. But, you know, quite clearly central banks got it wrong disastrously. I think they want to be careful not to get it wrong again. And yet, the problem is I don't think there is a right answer. The way central banking is set up with a very again very simplistic static models that think they understand a very complex world as we're describing it um is basically assuming you have a very simple cyclical economy like a macroecon 101 machine in which you just tweak couple of basis points higher a couple of you know couple of basis points lower from time to time and everything just kind of normalizes well that's not at all what we face at the moment we're actually seeing as I said pockets of deflation pockets of high inflation and a global backdrop where the entire structure is being and remade in real time. And here's the punch. I had one more point here. The Fed is part of it. So we have central banks which in most places in the west are independent and their remit is to fight inflation. Sometimes also to look at unemployment, sometimes also to keep, you know, financial market stability. Some combination of that three. Well, we know that within 12 months JPAL will be gone. We know that within a couple of weeks his replacement may be named and we know that potentially it will be someone who works for him now. So the Fed will be meeting sitting around a board and you're the boss and you know you're about to be replaced by the guy on the other side of the table. One of which also alongside that guy is Steven Miran who you know you know works for the White House. So there's nothing new about politics being injected into the Fed. Anyone who thinks there is has never read their Fed history which is most people covering the Fed. But it's really happening very very front and center at the moment. So much so that you can't hide it politely which is how it's often been done in the past. But if you're going to remake the global system as the way the US is, if you're talking about changing the security order, the trading order, uh you know, a reverse Marshall plan where loads of money is going to come in but has to go to the right places, not the wrong places, and you're talking about reinventing the monetary system via stable coins. How do you think you end up with an independent central bank? So, I'm not making a forecast. I want to make that abundantly clear, right? I don't make forecasts like that. I raise logical hypotheses based on certain assumptions and structures at the meta level. And this one here is historically we didn't have independent central banks. Right now, you know, the Fed is being leaned on even if other central banks aren't to anywhere near the same extent. But it wouldn't be a surprise if given the macro problems we've got and the structural issues that we're seeing addressed, at some point central banks are made to understand that they have a larger role to play than just worrying about 2% CPI. No, it stable coins like tough to find a segue now, but the the changing of financial structure like it's is interesting and you said the Fed plays a role in it like I'm saying Scott Besson is trying to find new pockets of money. Uh personally when we look at the US cuz stable coins backed by treasuries is for me uh seems like an act of desperation a little bit as well but that's my personal opinion on that matter. Um but you touched on China as well like introducing stable coins. I've read that about this morning uh randomly as well in a Reuters article that China might be actually voting. Uh what what does it say here? Sources familiar with the matter said in a major reversal in a stance towards digital assets, they might vote um that stable coins could become yuanbacked in the future, which is an interesting development and uh because it pushes stable coins and the yuanbacked stable coins more into the international limelight as well. like frame the stable coin what it environment for us and what does it mean and how could it really have a big impact. >> Well, okay, let me start with the US side if I may before doing the Chinese one because they're definitely doing it. So, from the US perspective, you said it's an act of desperation. Um, I can understand that point of view and from a traditional perspective it would come across that way, but I think it's an act of revolution and reinvention at the same time. And if it's done right, and there's no guarantee of any of this, but if it's done right, potentially it could be a gamecher to really help reinforce the structural change that the US is trying to push through because effectively what you're going to do as the legislation is passed now, uh, is when you issue a T bill, so short-term government debt, which they're using more and more and more because they're issuing so much government debt because their fiscal situation is so poor, you issue a stable coin matching one to one backed by it. Now you can get into the long grass on this and actually we've been doing a lot of that this week trying to discuss what is the moneyiness of it because you've got a T bill is or it is it or isn't it money depending on how it's counted where you're putting on different balance sheets. It's certainly spent into the economy. I mean those tea bills are used. They don't not exist and you're creating an asset on the back of that which people are recognized or will recognize as money because because they back each other. They support each other. So you will support buying for tea bills if people adopt stable coins. So there's a certain additional liquidity that comes in there although exactly how much depending on where it comes from remains to be seen but it's it's notable. There's a talk of two trillion that's the estimate by the end of 2028 which is around 600 billion a year from where we are now which is a good chunk of the US budget potentially if you're going to get new if you get new money coming in if you do. So then that pivots to would you get new money? Well that depends if you can create demand for them. Now, are you going to get demand just because it's a speculative asset? They don't pay interest, but you can put them in an anonymous crypto wallet, money market fund at some point, a stable coin, MMF. And the key point here is hypothetically the US will tell the entire world you can use them. So you and I in any country we're in on an app rather than in a bank account, we could have a US dollar stable coin money market fund paying whatever interest rate the Fed is paying at that particular point which we could use to buy things online or through various different websites and potentially even at uh you know retailers locally within the economy we're in if they accept it over the app on their phone too. So you could dollarize the global economy via the back door even more than it has been. And you can encourage that if and this is purely hypothetical but if the US were to say okay we're going to start linking the issuance of stable coins much more concretely to trade. So for example if you sell something to us we're going to pay you in a stable coin which means you have to buy a T bill or if they were to lean on Saudi Arabia and say if you want to buy oil from Saudi Arabia we expect the Saudis to take stable coins not dollars. then everyone in the world has to accumulate stable coins which means they have to buy tea bills. So if you can get that network effect you create final demand and you dollarize the economy literally in the pockets of people you know in in other economies and at a much higher level for weaker economies. So, I'm not saying it will happen, but I think that's more of a game plan that people realize. >> And it's cunning and it's very hard to fight against if you're another economy. And a Chinese stable coin, I don't think it's going to it's not going to cut the mustard. Why would anyone hold them? >> Let me jump in real quick before we talk about Chinese motivation for stable coins because I think it's very different than the US's motivation. Um, I've seen a question below one of our videos and the question was like, what's the difference between a stable coin and actually a CBDC? like if you were to separate those um because the way you've sort of been mentioning it, it's stable coin is backed by T- bills for example, but can you maybe explain that to us because it was a question from one of our audience members here. >> Sure. And let me be really blunt. There are much smarter crypto people than me. I always used to call it crapto and I I used to argue it didn't have any point. There was no need for crypto and erggo it was a problem because the government couldn't see what it was for and therefore it would regulate it away. And we came very close to that happening under Biden, of course. Well, Trump can see clearly that there's a geopolitical usage for it, which I've just described. Erggo, it's been adopted very aggressively. But in the simplest possible terms, a CBDC is basically just a legal tender of country A, B, C, or D, just in digital format. So you, you know, you can you can keep that whatever format you want on a hard drive or whatever, but it's effectively a dollar or a euro or whatever. It's just not physical. Uh, of course you can control it much more concretely because you've got that electronic pathway to know exactly where it's going at all times, which by the way also exists with stable coins. They are programmable. So the US could at a push, doesn't do it yet, even program them so it knows which parts of the world they're being used in and say these are for our allies and they're not for countries we don't want to do business with. So you create a closed loop, which is kind of what they're trying to do already. uh a stable coin as I said it they have different forms but these ones are collateralized on the blockchain and the collateral happens to be fiat US bills so you're just backing something you're backing them with something else again they are a crypto asset backed by something else rather than actually being national currency >> okay no I appreciate that because a lot of people mix them together and um stable coin or CBDC uh see I'm mixing them as well stable coin backed by dollars like sort of isn't that a >> cryptocurrency? Yeah, it is is a cryptocurrency as an umbrella. As an umbrella, they all are, but it's a US dollar stable coin is the one we've just described. Um, the interesting thing is Trump also passed an executive order months ago, which I noticed like a hawk at the time didn't get much play anywhere else, banning CBDC's. >> Yeah, >> not just US CBDC's, but I think if you interpret it correctly, any CBDC. If you have a country saying, "Well, we're going to have a national currency like an e remn or an euro or whatever like digital euro as to push back against US dollar stable coins." Trump will just say no one can use them. >> No network effect. >> Yeah. No, I I noticed that because they they decided we're going the CBDC uh sorry, the stable coin route in the US and they they said like nope, we're we're done with the Fedcoin. Like I think even parliament or Congress like said okay yeah, voted on it and moved on. Right. So I thought that was interesting. Um let's touch on China because we're running out of time here unfortunately like Michael I could chat with you for hours but what's China's motivation of issuing a stable coin that's remi backed or yanbacked here. >> Well it depends how it works. Um for the longest time they wanted to internationalize the rem which isn't working because obviously um the pool of assets behind it is a variable quality. If you look at what's happened to the stock market etc etc even though bonds are doing well because interest rates have come down so far but you know how liquid they are is a different question and property of course is deflated and isn't probably going to come back um but the capital account is closed so you can't move things in and out the country so if it's going to be a stable coin backed by re mimi is it really going to be tradable wherever you want at any point because at which point the capital account is now open which changes things rather dramatically China's stability is to its credit by the part of the fact that they have a massive increase in money supply domestically which the government then guides to key sectors but because they've got capital controls it can't flood abroad which means that they can you know just target the money where it needs to go and they target it to the supply side so they produce more stuff than anybody else and in fact the US will be copying parts of that strategy so why China may be doing it now I don't think it's to try and ape what the US is doing I think it's a gradual process and I think with an unclear traveled path to try and create some kind of new bricks infrastructure now that India is talking to China again. Russia is talking about much greater collaboration. Brazil of course is furious with the US over a 50% tariff uh to try and create some kind of network financial network which will allow them to integrate their economies and financial systems much more closely as a counterweight to the US. And let me tell you that is very very hard to do because trade between them is so unbalanced. That's the problem. Does China have actually any chance of succeeding if it's not backed by something solid like a real asset like gold for example to have like sort of that trust and credibility? >> Well, that's one question and I'm not going to answer it, but that's a very valid question. But the the more important one is the one I just raised. How do you have any kind of financial system and a clearing system for coins, whatever they are, if China runs a vast trade surplus with everyone else within the grouping? See, the US runs a vast deficit with everybody. So therefore those coins can come out via the deficit and everyone likes working with the US. If it's the other way round, if the net flow is to China, you get more and more in debt using them because you're always having to flow to them and borrow from them and then pay back more with interest. So the system isn't stable. How do you stabilize it? That has to come from the real economy. So supply and demand for goods between Brazil, Russia, China, etc. have to equalize. And I can tell you they're not equalized. H yeah I think this is one of the pushes like Donald Trump has been pushing as well on China is like you need to incentivize global domestic demand demand growth as well I think demand in China has been declining actually >> well no it's been rising in nominal terms but there's a share of GDP it's been flat or going down um and that's a structural issue which every government in every country has been talking about forever and you know to quickly pivot to one point for 10 20 seconds the guardians of the status quo anti who are obviously infuriated by everything Trump's trying to do like the IMF and the World Bank. They've been mumbling about this for decades whilst insisting China not not insisting China does anything to change it. It's it's one of the largest imbalances and if not the largest in the entire global system and it's just not mentioned in polite company or there's no proposal to seriously change it. Whereas of course everyone will say to the US as a deficit country you need to change but not to the surplus country but both have to change otherwise nothing happens. >> Yeah. I remember Donald Trump saying they need to buy more of our goods. They they need to stimulate demand so that we can sell more to them as well. So it's more of a balanced agree arrangement. >> It's a that's a simplistic take to be honest because it's not bilateral. It's universal. If you if you sort it out with one country but you don't change your structure, you'll just send that imbalance to somebody else. For example, the US can narrow their deficit. Europe will pick it up. And Europe's already seeing that by the way. >> Yeah. No, it's it's Michael, I could chat with you for hours. Like there's so many topics. We haven't even touched on India's role in all of it cuz the US is ter putting tariffs on India and the oil embargos and all that. That's a whole different uh meta discussion we could have here but I want to leave our audience with a maybe some parting advice. Like last time I had you on you were saying you just invest in safe assets cash was one of them. Um has that changed at all and what should investors do let's say until the end of the year here maybe short-term and medium term here? uh just be very careful really be careful because I I don't give financial advice but what I can say is if you are looking down at the micro and individuals from the meta I cannot think of a more uncertain time period I I think I fleshed out what could happen and I would leave it to listeners to make their own decisions of what they do or don't do on that basis but all I can say is that if there's any question or shadow of doubt in your mind about whether this will work or that will work or the very starkly binary geopolitical scenarios that I'm suggesting to you just be cautious, hedge your bets, be, you know, make sure that you're covered if A happens, if B happens, if C happens, etc. And and let me just conclude, by the way, by saying I've thoroughly enjoyed this, but this is by far the most exhausting podcast I've ever done because I've had to compact like two hours of ideas into 30 minutes. So, congratulations to you for getting there, but I'm going to need to lie down for a minute afterwards. >> No, my head is spinning as well, Michael. Like so much. And if you might have noticed, my questions were so complex. Like, I felt like I threw in so much. So, yes, it is. It's not easy to squeeze everything into 30 minutes, but much much appreciated. We'll send everybody to your X feed to follow more of your content. You put out daily commentary. >> Uh I do. Yeah. I mean, obviously there's always something to see, always something to comment on. Um and uh you know, please join the conversation just because the more interaction you have with people, the more you understand what's going on in every corner of the world. And as I said, you need to have a view on every corner of the world at the moment. >> Absolutely. And travel, travel educates. So, please do that. Fantastic. Michael, thank you so much for joining us. Really, really appreciate the conversation. We'll have to get you back maybe at the end of October to see where we stand on the whole tariff debate on the on the whole meta level. There's so much going on as you said, it's 40 chess and uh I still need to educate myself so I can keep up. So, really appreciate it, Michael. And uh everybody else, thanks so much for tuning in. What do you see happening on the meta? Like who what what do you see the new world order going to be like? How do you see stable coins? It's an interesting development that we're just starting to understand and starting to learn about. So, we'll do a lot more on that topic in the coming weeks and months here on Soore Financially. So, don't forget to hit that like and subscribe button. It's a free way to support us. It's a free way to educate yourself. It's really, really important. Thanks so much for your support. We'll be back with lots more. Take care out there. [Music]
4D Chess: Dollarizing the World by the Back Door I Michael Every
Summary
Transcript
Forget about what you know about investing in markets. The old playbook is dead. We need to look at a global picture. Geopolitics, tariffs, and much much more are shaping the markets. It's not just the Fed. It's not just the Fed funds, right? We've invited Michael Avery to the show. Again, he's been on the program before. He's a global strategist over at Rabo Bank and we are going to talk meta. Our stick is usually discussing the macro to understand the micro, but he constantly corrects me saying, "Kai, we need to discuss the meta before we can discuss the macro." So, we're going to do that again. We'll be focusing on what is happening in the Ukraine. What's the status of the peace talks? Interesting fact, China is being thrown into the mix now as well and what are those implications and we'll discuss that in a in a few short seconds. Before I switch over to my guest, hit that like and subscribe button. Helps us out tremendously bringing phenomenal guests like Michael Avery on the show and it's a free way to support us. Now, with that out of the way, let me switch over to Michael. It is great to have you back on the program. It's good to see you again. >> Yeah, likewise. Great to be here. Yeah, we we've got we'll have a blast here in next 30 minutes. We got a lot of serious topics to chew through and very little time to do so. Um I I don't even know where to start, but we need to maybe start in the Ukraine. Like what is the current status of the peace talks? Are they real peace talks? And what do you make of it? >> Well, nobody knows. Uh obviously, we're seeing all the key players in a smoke filled room and Europe is not in that room filled with smoke. uh and we will see going forward exactly what emerges. But it appears we're at a juncture here where on one hand you could have the US uh managing to get Russia and Ukraine to strike some kind of deal which Europe would end up paying for and and policing which would probably be a frozen conflict like North Korea and South Korea. That would probably be your best case scenario here. Or you could have everything collapsing at which point the US really it the suggestion is that they and Europe would have to put very heavy sanctions on both Russia and everyone buying Russian energy which would really destabilize global markets. So that's that's less likely but it's still there on the table. And there are even some dark whispers that the US and Russia possibly even China as you said now in the mix could all combine together and say well you know Europe that's your problem and strike deals between themselves. So remains to be seen. Lots and lots of smoke in that room and not everyone's in there. >> Yeah. Let's really work out the motivations for each side real quick as well. Where's everybody coming from? You have the US, Ukraine, and the EU sort of on one side of the table. Russia plus throwing in China as a potential guarantor of the peace here as well. Like what what are each side's motivations here, Michael? >> Well, I trying to be quick. That's that's a big question. Ukraine obviously just wants to survive, although likely to have to seed all the land. It's already lost. That's that's that's pretty clear. Now, Europe doesn't really know what it wants. It's it's taken a maximalist position on Ukraine. That's now been backtracked because of what the US has said about losing the land. It wants to try and maintain a European security order, but it's been one that it hasn't really paid for for a long time, and now it's going to have to. So, we'll see if it wants to maintain it now, it actually has to have boots on the ground and lots of dollars in the American hand in order to get it going. Russia wants to destabilize the European security order and take as much of Ukraine as possible, if not all of it. And it wants to reinsert itself back into, you know, continental politics and being taken seriously as a great power by Europe and which it is it is achieving by hook or by crook. And China, of course, is very happy for the war to continue because for as long as it's continuing, America can't do what it wants to do, which is walk away from it and pivot to Asia. So there you go. That's a 40 second answer, I hope. No, I appreciate that because the implications as you said are global like the US wants to look at uh or focus on different areas of the globe here. Um China being thrown in. Now let let's zoom out and try to understand the global picture here as well. The bricks versus the west more or less like what what are the implications of a potential peace deal here for the world order. >> Well again it all depends how it pans out what that peace deal looks like. So on one extreme you've got Russia again openly saying we want China involved which you know if you join the dots you could literally be talking about the PLA being based in Ukraine right on the border of the EU. That is such a staggering geopolitical turnaround from anything anybody thought they understood in Europe up until recently that you know one doesn't know quite where to begin. That's a possibility. You've also of course got Russia and India and China all trying to build bridges together at the same time. Now I'm skeptical how far some of those bridges can actually be built visav India but there's a lot of language talking about that again and even Brazil is joining in much more enthusiastically than it has up until recently and that of course leaves the US looking around for allies within the western block if anyone at all. Um but it really is a very chaotic picture where we will be a few months from now doesn't necessarily hold any relation to where we are right now today. Yeah, it's as you said like it's a complex topic like so many little fractions like the US looking for friends across the globe. Now China, South Korea and Japan are are moving closer to each other in terms of trade as well. We have the tariff conflict which adds an extra nuance to the whole discussion I guess. Um does that play a role in like I don't want to throw it into the peace talks but does it throw in or what do you call it? Is it like a piece in the in the whole global puzzle? Like I'm trying to figure out like shifts like is it being used as a tool in negotiating what is happening on the ground as well. >> Of course it is absolutely and in fact let me go to that meta because we were talking about meta before that I think is the best way to understand it because if you start at meta and come down you've got a much better view than if you start with micro then macro and try and go up. That gets confusing. I work with people all the time who try and do that. It doesn't get you anywhere. But if you start with a conceptual framework that this is the US versus China, that's the simplification of it. You can you can frame it in different ways if you want, but it's pretty much the US versus China for who is top dog in the 21st century and what constellation of countries uh and ge geographical choke points you need around you in order to make sure that you are top dog. and Ukraine being one of the borderline frictions between Russia as a a China ally and the West, you start to understand where this all sits. It's all part of that larger strategic puzzle. And as I said, the US really wants to be pivoting to Asia as much as it can be right now. And Ukraine, if anything, is a distraction. Whereas, of course, for Europe, it's existential. And yet, it's existential in a way it doesn't want it to be because it's very, very expensive and risky to actually try and maintain a European security order by yourself. and and China at the moment as it has been for quite some time is sitting pretty and really just uh watching all this unfold. Uh but the fact that its name is now being mentioned in headlines of being directly involved really really shows we're starting to move towards the next phase of where this is going. >> What is the next phase? Let's follow up on that, Michael. Like what what does it look like? What is the next phase? >> Well, look, everything's happening simultaneously. This is the key thing. So, you talked about Ukraine and let's leave that there for the moment. We've got massive developments in the Middle East. We've got other developments in South Asia. uh you know always rumblings in East Asia uh and even in Latin America at the moment where there's an American flatillaa setting sail for Venezuela for those who are keeping track. All of these things are happening simultaneously as are trade negotiations between the US and others which have largely been thrashed out. China hasn't got that deal everyone but it's got a rolling 90-day deal where it's already paying higher tariffs than just about everyone else. And while there are questions about those deals, as you were saying, and they're not legal FTAs in the way that people would expect them to be, people are paying those tariffs. Global trade will start to reshape itself and reorder itself around the US if that happens. At the same time as that, that's already a lot. And you know, you you alluded to the fact that the two are linked. They are. The US is holding up the US security order and saying, "Who wants to be defended by us? Pay up." And they're now saying they want what is effectively a reverse Marshall plan where Europe and other allies who they rebuilt post World War II and who supported during the Cold War are now being told we want hundreds of billions of dollars if not trillions of dollars to be reinvested back in the US behind these tariff barriers we've now raised to build factories to make the weapons that we're going to sell you so that you can defend yourself under our defense umbrella. So that's happening on the capital front and then alongside that you've additionally got the US playing around and moving closer towards launching new versions of the monetary system such as US dollar stable coins which China is also talking about just this week which would of course restructure the financial economy at the same time as they're talking about having capital inflows for this reverse Marshall plan and reordering global trade and reordering global security and doing that on the ground in places like Ukraine and the Middle East. So, it's all live, all happening at once, and all threads come together. >> Yeah, it sounds like 40 chess, and that's uh that's out of my league to be quite honest. 40 chess, it's it's it's intense. Um, I want to say on the geopolitical side for a second. You've been saying a couple of times the US is trying to pivot to to Asia. And I think we need to just uh explain what you mean by that. As you said, there were some conflicts. I've noticed I was traveling. I was in the Philippines. There was something about the Shaw Water Shore, I think it was called. um where the two Chinese destroyers and the US uh uh I was a US destroyer the USS Hamilton were involved in a in a conflict with the Philippine Coast Guard there as well. Can you can you elaborate on what what you mean by pivoting to Asia? >> Well, I mean that's one u long burning flash point we are talking about of many >> but again getting meta from a US perspective you know Russia is not a threat to it globally. It's no longer the Soviet Union. The US doesn't have a problem really recognizing that Russia is a great power again because in a way that forces Europe to rearm buying American weapons and it actually suits them to have that particular arrangement. China is seen as you know an equal to the US and in some respects it may even be already it superior certainly in terms of productive capacity and things like steel. So the US basically wants to make sure it doesn't have any security commitments which are going to be a drag on it in other parts of the world so it can focus purely on just one front rather than two. So that's where of course we're uh you know Russia Ukraine can keep the US pinned down to China's benefit and why the US wants to get out. But that pivot is just to make sure that all of US energy and of course allies like Japan and South Korea and the Philippines and Australia and New Zealand etc etc are all focused on that together. And in order to get them to do it, that's when you had the tariffs. That's when you have the reverse marshall plan. That's when you have stable coins. That's when you have carrots and sticks to make people who trade with the US and with China understand, listen, the elephants are about to fight. You're the grass. And the Southeast Asian motto is the gr grass gets flattened when the elephants fight. So, you know, come over here and maybe you won't get flattened. And that's all part of what we see going on. >> Yeah. There as as you said, so many nuances. We might have to talk about more of the tools that are being deployed. tariffs one stable coins I want to touch on next but tariffs first we're still waiting for a tariff deal between the US and China like what's the status there do do you see that ever being resolved it constantly just gets extended um any any thoughts >> that is the game again no offense because it's good that you asked the question people are expecting that and look I could be wrong I could be surprised something can suddenly come along and change change the entire framework that I'm looking at but at the moment as I said China is being tar much more heavily than anyone else apart from Brazil or India. Both of them for geopolitical reasons which are one step or two steps removed from this entire process but still part of the overall picture. Uh but China is being tariffed most heavily. So they're already suffering more than everybody else. Um and this is with an extension of 90 days. If it ever goes back up again, then suddenly we're at, you know, tripledigit tariffs and things get really, really bad. They can't do that until China no longer has a monopoly on rare earth production. As long as China controls rare earths, China de facto controls what the US can make in its industrial and military-industrial supply chains. It may sound odd, but it's true. So until then, there's going to have to be some kind of quid proquo, and that is China suffers a high tariff, but not an absolute nosebleleed tariff. Um, and it's enough to disincentivize trade with China, but not completely kill it. But I don't think we're going to get a deal where suddenly China gets low tariffs again because how does that work as part of this strategy? No, you can say my strategy is wrong and everything is just about the macro. Fine, then we're just seeing the world differently. You go trade that. But if you're looking at conceptually the way I am, it will guide you to whether you should continually expect a 90-day rollover until the US has got its own rare earths and other supply chains, at which point suddenly those 90 days don't get extended and we go back up to 100% tariff or more. It's uh it's it's fascinating just to follow the headlines quite honestly what is happening in in that regard and as you said it's difficult to see a solution. Um the only solution is that there won't be any embargos because that'll hurt both countries. China is already looking at massive deflation which probably keeps the west US sort of in balance which I'm curious I was going to ask you as well like the US inflation about 3% is that being a result of the deflation in China do you do you think it's correlated? Well, look, if you look at Chinese import prices into the US, they're still negative year on year, but that's been a fairly consistent pattern. But then if you put a tariff on top, which isn't captured in those data, of course, you get inflation on the ground. There are pockets of serious inflation starting to pick up in the US now. And there are already work pockets pre-tariff that we're seeing it in areas like meat, for example. Uh, and we've had those supply chain issues in different pockets on and off for a while. It's whack-a-ole. You sort one out and another one comes back. That doesn't mean there aren't pockets of deflation too. For example, lumber prices are down very very sharply. There are there are weaknesses in the economy. We're seeing some prices go down. But I think the important meta again level argument to make here is that while tariffs may be inflationary in some areas short term conceptually, which economists don't get because economists don't think like this, tariffs are supposed to prompt a supply side response in the tariffing economy, not the tariff economy. So in other words, you put tariffs in place so you build more at home. And if you build more at home, eventually you get economies of scale and eventually prices can start to at least level out, if not start to go back down again. So that does that mean you get inflation near-term? Yeah, sure, in some areas, but that doesn't mean permanently you get it. It depends how you manage it. Um, and again, this is a much more fluid process than a very simplistic static model that most economists use can generate. >> It's it's it's extremely complex. It's like I'm looking at it cuz now I'm throwing in like my mind is going to the Fed. Okay, the Fed is trying to manage inflation having a very very difficult job. I don't want to be in Jerome Powell's shoes cuz he he keeps telling us he's data dependent but the data is telling me that he should actually raise uh interest rates just purely on data right so more of a conflicting interest but everybody else wants lower interest rates. Um just just for you humor us Michael here like what is your take on that whole discussion? Well, first of all, you know, having weaker growth, which you have in some areas and higher inflation is called stagflation and central banks don't know what to do during stagflation, particularly if it's supply side. We've had that experience recently, of course, you know, during COVID in the inflation that followed. Uh, and you know, people will be unpicking that for years. But, you know, quite clearly central banks got it wrong disastrously. I think they want to be careful not to get it wrong again. And yet, the problem is I don't think there is a right answer. The way central banking is set up with a very again very simplistic static models that think they understand a very complex world as we're describing it um is basically assuming you have a very simple cyclical economy like a macroecon 101 machine in which you just tweak couple of basis points higher a couple of you know couple of basis points lower from time to time and everything just kind of normalizes well that's not at all what we face at the moment we're actually seeing as I said pockets of deflation pockets of high inflation and a global backdrop where the entire structure is being and remade in real time. And here's the punch. I had one more point here. The Fed is part of it. So we have central banks which in most places in the west are independent and their remit is to fight inflation. Sometimes also to look at unemployment, sometimes also to keep, you know, financial market stability. Some combination of that three. Well, we know that within 12 months JPAL will be gone. We know that within a couple of weeks his replacement may be named and we know that potentially it will be someone who works for him now. So the Fed will be meeting sitting around a board and you're the boss and you know you're about to be replaced by the guy on the other side of the table. One of which also alongside that guy is Steven Miran who you know you know works for the White House. So there's nothing new about politics being injected into the Fed. Anyone who thinks there is has never read their Fed history which is most people covering the Fed. But it's really happening very very front and center at the moment. So much so that you can't hide it politely which is how it's often been done in the past. But if you're going to remake the global system as the way the US is, if you're talking about changing the security order, the trading order, uh you know, a reverse Marshall plan where loads of money is going to come in but has to go to the right places, not the wrong places, and you're talking about reinventing the monetary system via stable coins. How do you think you end up with an independent central bank? So, I'm not making a forecast. I want to make that abundantly clear, right? I don't make forecasts like that. I raise logical hypotheses based on certain assumptions and structures at the meta level. And this one here is historically we didn't have independent central banks. Right now, you know, the Fed is being leaned on even if other central banks aren't to anywhere near the same extent. But it wouldn't be a surprise if given the macro problems we've got and the structural issues that we're seeing addressed, at some point central banks are made to understand that they have a larger role to play than just worrying about 2% CPI. No, it stable coins like tough to find a segue now, but the the changing of financial structure like it's is interesting and you said the Fed plays a role in it like I'm saying Scott Besson is trying to find new pockets of money. Uh personally when we look at the US cuz stable coins backed by treasuries is for me uh seems like an act of desperation a little bit as well but that's my personal opinion on that matter. Um but you touched on China as well like introducing stable coins. I've read that about this morning uh randomly as well in a Reuters article that China might be actually voting. Uh what what does it say here? Sources familiar with the matter said in a major reversal in a stance towards digital assets, they might vote um that stable coins could become yuanbacked in the future, which is an interesting development and uh because it pushes stable coins and the yuanbacked stable coins more into the international limelight as well. like frame the stable coin what it environment for us and what does it mean and how could it really have a big impact. >> Well, okay, let me start with the US side if I may before doing the Chinese one because they're definitely doing it. So, from the US perspective, you said it's an act of desperation. Um, I can understand that point of view and from a traditional perspective it would come across that way, but I think it's an act of revolution and reinvention at the same time. And if it's done right, and there's no guarantee of any of this, but if it's done right, potentially it could be a gamecher to really help reinforce the structural change that the US is trying to push through because effectively what you're going to do as the legislation is passed now, uh, is when you issue a T bill, so short-term government debt, which they're using more and more and more because they're issuing so much government debt because their fiscal situation is so poor, you issue a stable coin matching one to one backed by it. Now you can get into the long grass on this and actually we've been doing a lot of that this week trying to discuss what is the moneyiness of it because you've got a T bill is or it is it or isn't it money depending on how it's counted where you're putting on different balance sheets. It's certainly spent into the economy. I mean those tea bills are used. They don't not exist and you're creating an asset on the back of that which people are recognized or will recognize as money because because they back each other. They support each other. So you will support buying for tea bills if people adopt stable coins. So there's a certain additional liquidity that comes in there although exactly how much depending on where it comes from remains to be seen but it's it's notable. There's a talk of two trillion that's the estimate by the end of 2028 which is around 600 billion a year from where we are now which is a good chunk of the US budget potentially if you're going to get new if you get new money coming in if you do. So then that pivots to would you get new money? Well that depends if you can create demand for them. Now, are you going to get demand just because it's a speculative asset? They don't pay interest, but you can put them in an anonymous crypto wallet, money market fund at some point, a stable coin, MMF. And the key point here is hypothetically the US will tell the entire world you can use them. So you and I in any country we're in on an app rather than in a bank account, we could have a US dollar stable coin money market fund paying whatever interest rate the Fed is paying at that particular point which we could use to buy things online or through various different websites and potentially even at uh you know retailers locally within the economy we're in if they accept it over the app on their phone too. So you could dollarize the global economy via the back door even more than it has been. And you can encourage that if and this is purely hypothetical but if the US were to say okay we're going to start linking the issuance of stable coins much more concretely to trade. So for example if you sell something to us we're going to pay you in a stable coin which means you have to buy a T bill or if they were to lean on Saudi Arabia and say if you want to buy oil from Saudi Arabia we expect the Saudis to take stable coins not dollars. then everyone in the world has to accumulate stable coins which means they have to buy tea bills. So if you can get that network effect you create final demand and you dollarize the economy literally in the pockets of people you know in in other economies and at a much higher level for weaker economies. So, I'm not saying it will happen, but I think that's more of a game plan that people realize. >> And it's cunning and it's very hard to fight against if you're another economy. And a Chinese stable coin, I don't think it's going to it's not going to cut the mustard. Why would anyone hold them? >> Let me jump in real quick before we talk about Chinese motivation for stable coins because I think it's very different than the US's motivation. Um, I've seen a question below one of our videos and the question was like, what's the difference between a stable coin and actually a CBDC? like if you were to separate those um because the way you've sort of been mentioning it, it's stable coin is backed by T- bills for example, but can you maybe explain that to us because it was a question from one of our audience members here. >> Sure. And let me be really blunt. There are much smarter crypto people than me. I always used to call it crapto and I I used to argue it didn't have any point. There was no need for crypto and erggo it was a problem because the government couldn't see what it was for and therefore it would regulate it away. And we came very close to that happening under Biden, of course. Well, Trump can see clearly that there's a geopolitical usage for it, which I've just described. Erggo, it's been adopted very aggressively. But in the simplest possible terms, a CBDC is basically just a legal tender of country A, B, C, or D, just in digital format. So you, you know, you can you can keep that whatever format you want on a hard drive or whatever, but it's effectively a dollar or a euro or whatever. It's just not physical. Uh, of course you can control it much more concretely because you've got that electronic pathway to know exactly where it's going at all times, which by the way also exists with stable coins. They are programmable. So the US could at a push, doesn't do it yet, even program them so it knows which parts of the world they're being used in and say these are for our allies and they're not for countries we don't want to do business with. So you create a closed loop, which is kind of what they're trying to do already. uh a stable coin as I said it they have different forms but these ones are collateralized on the blockchain and the collateral happens to be fiat US bills so you're just backing something you're backing them with something else again they are a crypto asset backed by something else rather than actually being national currency >> okay no I appreciate that because a lot of people mix them together and um stable coin or CBDC uh see I'm mixing them as well stable coin backed by dollars like sort of isn't that a >> cryptocurrency? Yeah, it is is a cryptocurrency as an umbrella. As an umbrella, they all are, but it's a US dollar stable coin is the one we've just described. Um, the interesting thing is Trump also passed an executive order months ago, which I noticed like a hawk at the time didn't get much play anywhere else, banning CBDC's. >> Yeah, >> not just US CBDC's, but I think if you interpret it correctly, any CBDC. If you have a country saying, "Well, we're going to have a national currency like an e remn or an euro or whatever like digital euro as to push back against US dollar stable coins." Trump will just say no one can use them. >> No network effect. >> Yeah. No, I I noticed that because they they decided we're going the CBDC uh sorry, the stable coin route in the US and they they said like nope, we're we're done with the Fedcoin. Like I think even parliament or Congress like said okay yeah, voted on it and moved on. Right. So I thought that was interesting. Um let's touch on China because we're running out of time here unfortunately like Michael I could chat with you for hours but what's China's motivation of issuing a stable coin that's remi backed or yanbacked here. >> Well it depends how it works. Um for the longest time they wanted to internationalize the rem which isn't working because obviously um the pool of assets behind it is a variable quality. If you look at what's happened to the stock market etc etc even though bonds are doing well because interest rates have come down so far but you know how liquid they are is a different question and property of course is deflated and isn't probably going to come back um but the capital account is closed so you can't move things in and out the country so if it's going to be a stable coin backed by re mimi is it really going to be tradable wherever you want at any point because at which point the capital account is now open which changes things rather dramatically China's stability is to its credit by the part of the fact that they have a massive increase in money supply domestically which the government then guides to key sectors but because they've got capital controls it can't flood abroad which means that they can you know just target the money where it needs to go and they target it to the supply side so they produce more stuff than anybody else and in fact the US will be copying parts of that strategy so why China may be doing it now I don't think it's to try and ape what the US is doing I think it's a gradual process and I think with an unclear traveled path to try and create some kind of new bricks infrastructure now that India is talking to China again. Russia is talking about much greater collaboration. Brazil of course is furious with the US over a 50% tariff uh to try and create some kind of network financial network which will allow them to integrate their economies and financial systems much more closely as a counterweight to the US. And let me tell you that is very very hard to do because trade between them is so unbalanced. That's the problem. Does China have actually any chance of succeeding if it's not backed by something solid like a real asset like gold for example to have like sort of that trust and credibility? >> Well, that's one question and I'm not going to answer it, but that's a very valid question. But the the more important one is the one I just raised. How do you have any kind of financial system and a clearing system for coins, whatever they are, if China runs a vast trade surplus with everyone else within the grouping? See, the US runs a vast deficit with everybody. So therefore those coins can come out via the deficit and everyone likes working with the US. If it's the other way round, if the net flow is to China, you get more and more in debt using them because you're always having to flow to them and borrow from them and then pay back more with interest. So the system isn't stable. How do you stabilize it? That has to come from the real economy. So supply and demand for goods between Brazil, Russia, China, etc. have to equalize. And I can tell you they're not equalized. H yeah I think this is one of the pushes like Donald Trump has been pushing as well on China is like you need to incentivize global domestic demand demand growth as well I think demand in China has been declining actually >> well no it's been rising in nominal terms but there's a share of GDP it's been flat or going down um and that's a structural issue which every government in every country has been talking about forever and you know to quickly pivot to one point for 10 20 seconds the guardians of the status quo anti who are obviously infuriated by everything Trump's trying to do like the IMF and the World Bank. They've been mumbling about this for decades whilst insisting China not not insisting China does anything to change it. It's it's one of the largest imbalances and if not the largest in the entire global system and it's just not mentioned in polite company or there's no proposal to seriously change it. Whereas of course everyone will say to the US as a deficit country you need to change but not to the surplus country but both have to change otherwise nothing happens. >> Yeah. I remember Donald Trump saying they need to buy more of our goods. They they need to stimulate demand so that we can sell more to them as well. So it's more of a balanced agree arrangement. >> It's a that's a simplistic take to be honest because it's not bilateral. It's universal. If you if you sort it out with one country but you don't change your structure, you'll just send that imbalance to somebody else. For example, the US can narrow their deficit. Europe will pick it up. And Europe's already seeing that by the way. >> Yeah. No, it's it's Michael, I could chat with you for hours. Like there's so many topics. We haven't even touched on India's role in all of it cuz the US is ter putting tariffs on India and the oil embargos and all that. That's a whole different uh meta discussion we could have here but I want to leave our audience with a maybe some parting advice. Like last time I had you on you were saying you just invest in safe assets cash was one of them. Um has that changed at all and what should investors do let's say until the end of the year here maybe short-term and medium term here? uh just be very careful really be careful because I I don't give financial advice but what I can say is if you are looking down at the micro and individuals from the meta I cannot think of a more uncertain time period I I think I fleshed out what could happen and I would leave it to listeners to make their own decisions of what they do or don't do on that basis but all I can say is that if there's any question or shadow of doubt in your mind about whether this will work or that will work or the very starkly binary geopolitical scenarios that I'm suggesting to you just be cautious, hedge your bets, be, you know, make sure that you're covered if A happens, if B happens, if C happens, etc. And and let me just conclude, by the way, by saying I've thoroughly enjoyed this, but this is by far the most exhausting podcast I've ever done because I've had to compact like two hours of ideas into 30 minutes. So, congratulations to you for getting there, but I'm going to need to lie down for a minute afterwards. >> No, my head is spinning as well, Michael. Like so much. And if you might have noticed, my questions were so complex. Like, I felt like I threw in so much. So, yes, it is. It's not easy to squeeze everything into 30 minutes, but much much appreciated. We'll send everybody to your X feed to follow more of your content. You put out daily commentary. >> Uh I do. Yeah. I mean, obviously there's always something to see, always something to comment on. Um and uh you know, please join the conversation just because the more interaction you have with people, the more you understand what's going on in every corner of the world. And as I said, you need to have a view on every corner of the world at the moment. >> Absolutely. And travel, travel educates. So, please do that. Fantastic. Michael, thank you so much for joining us. Really, really appreciate the conversation. We'll have to get you back maybe at the end of October to see where we stand on the whole tariff debate on the on the whole meta level. There's so much going on as you said, it's 40 chess and uh I still need to educate myself so I can keep up. So, really appreciate it, Michael. And uh everybody else, thanks so much for tuning in. What do you see happening on the meta? Like who what what do you see the new world order going to be like? How do you see stable coins? It's an interesting development that we're just starting to understand and starting to learn about. So, we'll do a lot more on that topic in the coming weeks and months here on Soore Financially. So, don't forget to hit that like and subscribe button. It's a free way to support us. It's a free way to educate yourself. It's really, really important. Thanks so much for your support. We'll be back with lots more. Take care out there. [Music]