So James, basically ever since World War II, the United States has been ruled by this expert class who are supposed to be more knowledgeable about how to run the government and how to run the world. And I feel like the culmination of that was COVID with this two weeks to stop the spread, and they just told us so many things that weren’t true. Fauci was claiming to be all about the science and then with the whole… This isn’t going to be a COVID podcast, is it? No, it’s not going to be a COVID podcast.
That’s just the example. That’s the culmination of the expert class, their big downfall. But there’s other things too.
What it is, I think, is the idea of there’s a false premise, something becomes axiomatic through repetition, something that gets repeated over and over and over again until everybody believes it. It becomes true because it’s repeated so many times, and then national policy becomes based on this thing. And they might have had a nice idea.
It might have been well-intended, but it ends up having really, really disastrous consequences. And that’s the thing we were talking about before. Yeah, sure, COVID is a great example of that.
It was a nice idea. The premise was, this is the most horrible thing to ever happen in the history of the world, and we have to save lives. Saving lives, nice premise.
It’s a nice intention, right? Nobody’s against saving lives. But then it becomes this matter of national policy. They repeat this thing over and over and over again, that two weeks to stop the spread, worst thing in the world.
Everybody’s got to do this. Everybody’s got to… Lockdowns are effective. Closing schools is the right thing to do.
People repeated these things over and over again until they became true. And it was just repeated so many times by so many figures of authority, people just started to believe it. I know another big one.
You were involved in the war in Iraq, right? Iraq has weapons of mass destruction, right? We have to save the world from Saddam Hussein. Iraq has weapons of mass destruction. They’ll greet us as liberators.
People make an argument that some of those were not actually well-intended. Let’s give human decency the benefit of the doubt and say that they’re well-intended. They’ll say, oh yeah, we’re making the world safe from this horrible guy in Iraq, et cetera.
Fine. But again, these things get repeated so many times. Nobody questioned anything about COVID.
Nobody questioned anything about Iraq has weapons of mass destruction. A lot of these things that become axiomatic through repetition, that become national policy, end up having, in retrospect, very, very disastrous consequences. If you look at that one false premise, Iraq has weapons of mass destruction.
It cost the US economy trillions of dollars. Two weeks to stop the spread, COVID is the worst thing to ever happen in the history of the world, cost the US economy trillions of dollars. Both of those happen to be wrong.
They were dead flat wrong. Iraq did not have weapons of mass destruction. And sure, yeah, COVID was bad.
It was bad, but was it worth trillions and trillions of dollars? Was it worth closing the schools and causing so many millions and millions, tens of millions of kids to regress in their education and social development, all these things, the anxiety, the drug abuse, the alcoholism, the cancer screenings that didn’t happen, all those things. Was it really worth it? The cost and benefit analysis never really takes place in real time. It’s that you have people that become very emphatic, very passionate about a certain view that ends up being a false premise after the fact, and that false premise is so incredibly costly.
They actually say whatever the cost. They say that they don’t care. When somebody says whatever the cost, that’s usually the warning sign that you have to run away as quickly as possible.
Whatever they’re saying, whatever the cost, we have to do this, no matter what the cost. That’s the key. You should always consider the cost.
That’s the red flashing warning sign to go, okay, no, we definitely need to stop and think about this. And they’ve said this a lot of times. They’ve said this a lot of times.
They said this during COVID. In many respects, they said this when some of the banks are going under in 2023, when Silicon Valley, we’re going to stop or run on the bank system, no matter what it takes. When inflation was going up and the federal reserve said, whatever it takes, we’re going to bring inflation.
What did it take? It was pretending that 80 cents of bonds was worth a dollar, right? That’s what it took. Right, exactly. The bank term funding program, BTFP, you had to buy the effing papers is what it was, or buy the effing propaganda.
That’s another one we’ll have to talk about another time. It’s like the Fed shenanigans and the things that the Fed does, they just make up entirely new systems of currency and money. They go, oh, we’ll just do this.
Oh, we’ll just pretend that this thing has value and we’ll just put it on our books and it’ll just be no big deal. And everybody in the media just goes, man, yeah, that makes sense. And then they tell it to Congress and Congress is like, well, you’re the expert.
Right, you’re the expert. Yeah. So the whole point of it today is that you’ve got to be aware of the very expensive false premises.
You have to be aware of the false premises because again, they can be extremely expensive. We’re seeing some of this now today. It’s early stages, but we’re seeing some of these things today where experts make certain assumptions that you can do certain things, you believe certain things and kind of build national policy around that.
And the consequences of those can be very, very, very extreme. And I know the one that you want to talk about is the Mar-a-Lago Accords. And this is something that a listener brought up a week ago and said, hey, what do you think about this? And we talked about a little bit in the last podcast and it’s been in the news all over the place just in the last couple of days, it’s starting to become a real thing.
So why don’t you kind of review what that is? So it’s a number of different proposals from a Trump official. He actually wrote it before the inauguration and it does involve things like tariffs and other economic policies. But what caught my eye is this idea that the debt can be taken care of by pressuring foreign governments into trading their current bonds, their US government debt, for zero interest, 100 year non-tradable bonds.
And the question is like, why would they want to sign me up? Where do I sign? And of course, it’s not like a terrible… So the idea is that the US pays for a lot of these countries’ defense. So shouldn’t the US get something back? So this would be a way for those other countries to rely on US defense, but still contribute to it in some way. So let’s take a step back and think about how this works.
So again, US government runs big budget deficits every single year. Last year was $1.8 trillion. This year, we’ll see.
If Elon’s able to shave some cash off, obviously, you wind up USAID, you wind up Department of Education, you do some of these things, you get rid of some of that Medicare fraud, you can definitely move the needle. But the US government overspends its tax revenue as a budget deficit, it has to go out and borrow that money from various investors. A lot of those investors, a lot of those investors are foreign governments, foreign central banks, foreign institutions, commercial banks, big banks overseas, and they buy these US government bonds.
And the reason they do that is because the US dollar is the world’s reserve currency. And that’s a really big deal. And we’ve talked about this a little bit before.
I mean, that’s a privilege, and that goes all the way back to Alexander the Great spreading the Greek drachma around in the Middle East and Eastern Europe and different places. You can look at the Romans and their coins and the Byzantine gold solidus. I mean, this was something that the Venetian ducat, the Florentine florin, the Spanish Real de Ocho, there’s always been sort of some currency in the world that was sort of used internationally for trade.
The idea was that you could take a Venetian ducat. I was actually just reading the story. Talk about a room in history that you would have want to been in, right? The day that Mozart and Beethoven met.
I mean, that’s a room you would want to be in. And I was reading the story that shortly thereafter, Beethoven managed to land a position where he got a couple of hundred ducats. And this is the Venetian ducat, but Beethoven wasn’t living in Venice.
And the idea is that this was sort of such a widely used currency that sort of across Europe, you would get this, you could still transact in this currency in the same way that somebody today, if you were in Germany and somebody offered you a salary of $150,000, that would be kind of a normal thing. You could transact in dollars, basically anywhere in the world in the same way that Beethoven could be offered a salary in ducats. And it was a couple of hundred ducats.
I actually did the math when I was reading this earlier. And it worked out to be, it was like $131,000. I want to say, don’t quote me on that exactly, but it was maybe up to $200,000, something like that.
I don’t remember exactly what it was. And I thought, yeah, that’s probably about right, because he was up and coming at the time. He wasn’t like this major superstar.
Maybe like a court pianist or a court composer or something. Yeah, he was basically, exactly. So he was kind of like, he was sort of up and coming and he got this.
And it was sort of the equivalent of a salary, which is like a pretty good salary today for somebody that was clearly talented, but not a superstar. I’m like, yeah, whatever, $150,000, $200,000. To be able to focus on composing and not have to worry about having to take it.
Exactly. And you look at that and go, man, this was hundreds of years ago. And so this is the value of just sort of shows like gold holding its value over time with respect to talented workers and individuals.
Later on, when he became a superstar, Beethoven was later on offered this position where he had all these wealthy nobles pool their money together. They offer him thousands and thousands of ducats and florins. And I did the math on that.
It worked out to be a couple million bucks a year. And I go, there you go. There’s a superstar salary.
That’s a superstar salary. And it’s just like, isn’t that interesting how gold has held its value. But these are examples as well of reserve currencies.
He wasn’t living in these places and yet they were still passing these things around. And this is what the benefit of the reserve currency is, is that it’s used by other countries around the world. And this is what the dollars today, the example is like, I don’t know why when I think about a foreign country like Bangladesh is always the first one that comes to mind.
But I always use Bangladesh as an example. And I go, so if you’re a business in Bangladesh, you’re doing business with another company in like whatever Singapore or Columbia or something like that, they’ll settle that transaction in US dollars. They don’t settle the transaction in Colombian pesos.
They settle the transaction in US dollars. And so that basically means that both of those companies have to either hold dollars or certainly the banks that they deal with have to hold US dollars. And for the banks to hold US dollars, it means they have to have correspondent bank accounts in the United States with these big Wall Street banks, Bank of America, Goldman Sachs, Bank of New York.
Goldman doesn’t really do a lot of correspondent banking, but Citi will do it. JP Morgan will do it. Bank of America will do it.
Bank of New York will do it. So a lot of these big banks that provide these correspondent services. So it represents a ton of demand for not just the US dollar, but US financial system in general.
It creates demand for US dollars. It means that there’s more demand for US dollars than there would be for some other currency. Because there’s more demand for US dollars, more demand for dollars actually helps keep interest rates low.
So if you don’t have demand for your currency, you have to entice investors to own your currency by offering them a higher interest rate. And this is what actually somebody was telling me just yesterday, who put money in the Colombian bank account in a CD. And I said, that’s interesting, what are they paying? And she said, 8%.
And I said, there you go. You’re not going to get 8% on a CD in the US, certainly not right now. And that’s the perceived risk of holding money in Colombia.
Right. You have to entice people to hold that currency because it’s not a reserve. It’s not a currency that people would hold if they weren’t in Colombia or directly doing business in Colombia.
But if you’re not doing business directly in the US, businesses still have incentives to hold US dollars. They don’t have to go, oh, here, we’ll give you 8%. We’ll give you 10%.
They don’t have to do that. Because there’s this built-in demand for US dollars, simply because it’s the reserve currency. And it creates this kind of artificial demand for US dollars to use the US banking system.
And ultimately, what it all matriculates up the food chain to US government bonds. Because the easiest way, if you want to own, what’s the risk-free asset? Talk about a false premise. Talk about something, if you repeat it enough times, people believe it.
The US government securities are considered risk-free assets because it’s based on the full faith and credit of the US government. And so people go, oh, the US government is never going to default. And you know, they’ve been defaulting for decades.
They’ve been defaulting for decades. There used to be a gold standard. They took it off the gold standard.
They’ve been devaluing the US dollar. I mean, if you think about inflation from the 1970s till today, 50 years of the US government devaluing, they’ve defaulted on the obligation to maintain a sound currency. But all that stuff at the end of the day means that all this demand for US dollars ends up with banks that then they go, what are we going to do with all these dollars? Well, they go and they buy government bonds because you can buy a 28-day T-bill.
You can buy a 90-day T-bill. You can invest in US government bonds. You get a little rate of return, and it’s super, super, super liquid.
You know, we joked about this before, nobody holding a government, nobody holding like a 90-day T-bill is going, man, how am I going to get rid of this T-bill? How can I possibly get rid of this T-bill? Oh, I’m never going to be able to sell it. It’ll take you that long to sell a T-bill, that long, because there’s brokers everywhere. There’s bond traders.
Everybody will buy your T-bill. There’s no issues getting rid of T-bill. So it’s a super liquid security.
And so with all that demand for US dollars around the world, because the dollar is the reserve currency, basically means that there’s this artificial demand for US government debt. But the US has been abusing that demand for some time. It’s kind of been abusing its power.
And it’s in the amount of debt, so $36 trillion in debt, 125% of the entire GDP. And the things that it’s spending that money on are also stupid. You always mentioned during COVID, paying people to stay home and not work, but- Going into debt to pay people to stay home and not work.
Yeah. Trillions of dollars for that. But then all the woke DEI stuff at the Department of Education, that’s a billion dollars, a billion here, a billion there.
But it eventually adds up to real money. Yeah. Yeah.
It wasn’t just that though. It was also the Patriot Act. That’s where it started.
That’s where it started. So they didn’t used to do this in the 90s. And after 9-11, they realized, oh my God, we have this incredible amount of power.
And the USA Patriot Act that they passed created this apparatus and this legal authority for the executive branch to go around and start putting foreign countries, foreign businesses in a headlock and say, you better do what we want. Otherwise we’re going to cut off your access to US dollars. And that became this big threat.
They realized one of the things they wanted to do was in some respects, follow some of the money. They didn’t want to follow all the money. If you read the 9-11 report and I read it cover to cover, there’s some weird things where they decided that following the money trail to its entirety of how the operation was funded and so forth, well, it wasn’t really that important.
And you’re like, how is it not important? Why is it not important who funded this? This is insane. But there were some questions they wanted to unearth. Some questions there, but that’s a whole other discussion.
That’s a whole other discussion. And anyways, why they would decide that it wasn’t really a matter of importance to follow the funding for how hijackers and terrorists are actually funded, that’s a little bit bizarre. But again, we’ll save that for another time.
The point of the moral of the story is they did create authority for the Treasury Department to go out and say, because again, you have all these foreign companies, all these foreign commercial banks, etc., that have to have access to US dollars. They have to have these correspondent bank accounts or these big Wall Street banks. And so the Treasury Department would say, we want to know this.
We want you to give us that. Tell us this, tell us that. And if you don’t do it, we’re going to cut off your access to the US dollars.
We’re going to cut off your access to these Wall Street banks. So you won’t have dollars anymore. And then you’re out of business.
You’re finished. And so they said, oh, geez. Okay.
And then they realized, oh, wow, I can’t believe that worked. And so 10 years later, they passed something. It was 2010 or 2011.
Yeah, it was 2010, the Foreign Account Tax Compliance Act, FATCA. FATCA, FATCA. And FATCA was, I was on the record saying, easily one of the dumbest laws in the history of US legislature, because this was the one where they said, they took it to the next level.
And they said, all right, we want, not only do we want you to tell us what we need to know on demand, now we want you to preemptively just send us information. So they went to all the banks on the planet and said, we want to know every one of your customers. We want to know who they are, how much money they got, where they’re from, what their transactions are, and you have to provide us all this information.
And this actually violated the law in Switzerland, right? A lot of countries, a lot of countries. There’s a lot of countries. Switzerland was famous for its banking privacy, but a lot of countries that have banking privacy laws.
Banking privacy is not that, I mean, number one, it shouldn’t be controversial. I mean, what somebody does with his or her money is none of anybody’s freaking business is number one. Number two, it’s not that uncommon.
People act like it’s some exotic thing. It’s not at all. It’s not uncommon.
I mean, the US has certain banking privacy laws as well. I mean, there’s confidential information. There’s all these things.
I mean, there’s the Fourth Amendment. You’re not supposed to have your paper searched and seized without probable cause. There’s that too.
Wow. That’s so quaint, Joe. Yeah, I know.
I know. You’re so old fashioned. But look, I mean, the Foreign Account Tax Compliance Act, not only did it violate national law in a lot of other countries, but it was just such an egregious overreach of US government authority.
And the example I always said was, imagine the outrage if the king of Saudi Arabia decreed that no Muslim anywhere in the world, including in the United States, was allowed to go into a grocery store buying pork products, and that every grocery store in America had to send a report to the government of Saudi Arabia detailing who’s buying pork. It doesn’t matter if they’re Muslim or non-Muslim. They want to know everybody who’s buying pork in the United States, and they have to send a report to the kingdom of Saudi Arabia.
People would be outraged. People would be outraged. But that’s what FATCA did.
FATCA said, hey, you—I’m going to say Bangladesh again—hey, you bank in Bangladesh, I know you might have even never seen a US citizen, but we still demand that you provide us all this information and send it to us all the time. And if you don’t do it, we’re going to cut off your access to US dollars, and you’re finished. And they can only get away with that because it’s the world reserve currency, and these countries are desperate to hold US dollars.
Because if it was Costa Rica who went out and said, hey, you better tell us this information, people would go, Costa Rica, what are you going to do? What are you going to do? They would cut Costa Rica off, right? It would be a joke, right? The first thing, the rest of the world would go, those people are crazy. And people would stop buying Costa Rican bonds, and the Costa Rican economy would plummet if they even suggested such a thing. But Barack Obama stood up in 2010 and said, everybody’s got to give me their information.
And he signed this FATCA into law. And man, people were pissed. I remember the blowback.
I was talking to bankers in Singapore, and they’re like, man, this is bullshit. What are these people thinking? And it was a big deal, and they had to enter, and there was all this diplomacy, foreign governments got together and tried to figure out what do we do? And they created intergovernmental sharing arrangements. They call them IGA, Model A, Model B. But at least they eliminated money laundering.
Oh, yeah, of course, the money laundering went away. Tax evasion went away. Money laundering went away.
All financial proceeds of crime, it all went away. There’s never any problems in the financial system ever again. No such thing as bank fraud.
And this is the thing that nobody ever looks at. Nobody ever really considers. I think we talked about this before.
They never pass a law, and then look back five years later and go, hey, geez, did that actually work out? Did that have the desired effect? No, they don’t. They pass a law, and it stays on the books forever. But the US kept doing this.
So even in 2022, that was another big case of the US just saying we’re going to throw our weight around with the dollar to dictate to other countries. There were a few instances, right? So you start in 2001 with the USA Patriot Act. You continue in 2010 with the Foreign Account Tax Compliance Act.
So now you went from, hey, we have this weapon we can use against you, to we’re using this weapon against you actively. And if you don’t violate your own sovereign national laws and send us this information, we’re going to put you out of business. And this actually happened.
This actually happened. There were a couple of instances. I remember there was a bank in Andorra, which was another place that was famous for banking privacy.
And the Treasury Department just put them out of business. I mean, this was a bank that had been around forever. They even rescinded the lawsuits or the cases against them.
And we’re like, too late. Yeah, too late. Too late.
Yeah. I mean, so it got really bad. And then there are a few other instances of that level of weaponizing.
That’s kind of the term, be weaponizing the dollar. So the weaponization of the dollar began in 2001 with the Patriot Act. It went on really on steroids in 2010 with the Foreign Account Tax Compliance Act, where they’re actively threatening foreign countries, foreign businesses.
But it really went to the next level in 2022. After Russia invaded Ukraine, the United States Congress and the President of the United States at the time, sanctioned Russia and all these things. And again, not making a moral judgment on that at all.
Again, Russia was clearly wrong, and that’s that. But there are consequences to these things. And those consequences are usually never really explored and studied.
And Congress passed a law, and they said, at the end of the day, the law said, if we don’t like you, we can seize your assets. And we said, okay, hold on, wait a minute now. This is now the evolution of how they weaponize the dollar.
2001 USA Patriot Act is that, hey, we have this power. 2010 Foreign Account Tax Compliance Act, we’re using this power against businesses. Give us the information we want.
Otherwise, we’re going to cut off your access to the dollar. And this was mostly against businesses. Now in 2022, now it’s the full blown graduation.
We say, now we’re weaponizing the dollar against foreign governments. If we don’t like you, if we don’t like what your government’s doing, we’re going to cut off your access to the dollar. We’re going to seize your assets.
You loaned us money. You bought U.S. government bonds. You helped loan us money to pay people to stay home and not work during the pandemic.
And so now you have these U.S. government bonds. We’re going to freeze those bonds. We’re going to default on those bonds.
We’re going to not pay you back. We’re going to seize them. And now all of a sudden, this is where foreign countries go, okay, wait a minute, wait a minute.
These guys, if there’s anything the U.S. has proven, the U.S. government has proven over the past couple of years, it’s very fickle. It’s very fickle. It moves this way, then that way, then this way.
Then one president comes into power, reverses everything the previous guy did. The next guy comes in, he reverses everything that guy did. It’s the my cousin Vinny approach.
Everything that guy just said is bullshit. And then we reverse it all and it becomes a whole new thing. And if you’re a foreign government, you’re going like, wait a minute, what exactly do these people stand for? And I don’t know.
How do I get on their bad side? How do I remain on their good side? I have no idea. It also pushed Putin and Russia to come up with alternatives to the U.S. dollar and the U.S. banking system so that they could do cross-border trade without the U.S. dollar, so that they didn’t have to rely so much on those dollar reserves. The origins of the BRICS dollar began long ago.
The origins of the BRICS dollar really began in 2015. And it was the Chinese creating basically their own version of SWIFT and a Wall Street banking system. It was called SIPS, Chinese China International Payment System, C-I-P-S.
And people, they created it and they said, oh yeah, come and use our Chinese system. People go, that’s cute, but we don’t trust you. You’re a bunch of communist thugs.
And at the same time, if Russia would have done it, if Putin would have done it, people said, Putin, you’re a horrible guy. We don’t trust you with our money either. But after people saw this, 2001, 2010, 2022, and by 2022, the weaponization of the dollar had graduated all the way up to governments.
And now the Congress passes a law. It’s not now even just the president. You got 435 people in Congress and a hundred people in the Senate, plus the president of the United States said, if we don’t like you, we’re going to seize your assets.
If we don’t like your government, we’re going to seize your assets. And that’s all the information that they needed to know where foreign governments and central banks said, okay, we need another system. Is it a coincidence that gold has basically doubled in price since then? Is it doubled? I would have thought it’d be more than that even.
But yeah, I mean, it’s not a coincidence. And that’s kind of part of the reason why. So you had all these people get together.
And it’s sort of like a who’s who of like, who do you trust the least? Is it Russia? Do you trust Russia the least? Or is it China? Or is it Venezuela? Or is it South Africa? You got this idiot in South Africa who’s going around having rallies talking about killing all the white people. Yeah, that’s where we want to put our money. I mean, nobody trusts these guys either.
It’s this very nascent project. Its origins kind of go back at least a decade. But it’s a fairly nascent project that popped up in 2022.
And they decided, look, look at what the US is doing. We can’t trust the US anymore, because they might just go and seize our assets. And so we need to have another system.
And so rather than trading US dollars, they said, well, let’s start trading with one another in our own currencies. But man, at the end of the day, nobody wants to hold the South African rand. Nobody really wants to hold rubles either.
Some people are starting to hold Chinese renminbi. Some people are starting to hold maybe some other currencies. But this was sort of the whole point behind gold is that they’re looking for something.
So what can I actually rely on? What can I trust? And not to sound cliche, but gold is something they go, well, man, this has got a 5,000 year history of value and marketability. So I’m going to buy that. And wouldn’t you know it, the rise of gold, the excess central bank purchases of gold, of physical bars of gold, skyrocketed after this 2022 law was passed, where the United States government said, if we don’t like what your government does, we’re going to seize your assets.
And to get back to this false premise, it’s that America is still the dominant superpower that can do whatever it wants. That’s what the Mar-a-Lago Accords kind of says. The idea is like, hey, we’re providing a very valuable service.
And it is. Global security is a valuable service. And it’s an interesting idea.
I mean, I remember under the Clinton administration, I was at the academy at the time and talking a lot about it. I mean, when I was at West Point, we were preparing for, I mean, this is like before 9-11. This is in the late 90s.
And we were preparing for peacekeeping missions. That’s what we trained for. We were preparing to go to Kosovo and all these sorts of things, because it seemed like, well, the Soviet Union’s dead.
What could possibly go wrong? I mean, nobody saw terrorism. Nobody saw any of that instability. Nobody’s thinking about China.
Russia was on its knees. I mean, they just defaulted on the ruble and their external debt. I mean, it was the ruble tanked in 98.
I mean, it was just a totally different world. And Bill Clinton as commander in chief, they were doing peacekeeping missions in Liberia, in Somalia, in Haiti, and all these different places. That’s what we were training for as future army officers at the time.
And when you think about it, that is a valuable service. And so why wouldn’t you charge for that? Why give it away for free? There’s a cost to U.S. taxpayers. There’s a huge benefit for whatever, Liberia or Somalia, whatever, wherever it is you’re going, why wouldn’t you charge for that? And so that does seem like a valuable service.
What is the price tag for that? What’s the price tag for sending the United States Marine Corps to your country to make sure that you don’t get invaded? I don’t know. And who’s going to pay for that? Sometimes when the U.S. does this, it’s not exactly at the request of the country that it’s going to. I think the Europeans would be delighted to keep U.S. forces on the European continent, on European soil.
And when push comes to shove, I think that they’re willing to do it. I think they’re willing to pay for it. And I think that’s a key difference between this president and previous ones is that he’s willing to, he’s willing, you know, we say when push comes to shove, he’s willing to push and shove.
And he’s willing to say, you know, you need to pay us, otherwise we’re out. I’m not defending your country anymore. And in the last administration, he started going after that 3%.
They’re supposed to spend 3% of their GDP to NATO members. Yeah, I mean, frankly, he had a very valid point, which was, why am I spending all this taxpayer money to defend Germany against Russia when you do business with her? You buy Russian natural gas. Why am I spending U.S. taxpayer money to defend you against the guy that you do business with on a daily basis? It doesn’t make any sense.
That’s a valid point. That’s a valid point. Why is elbowing them into this 100-year zero interest bond the way to get that paid for? No, it’s a terrible idea.
It’s a terrible idea. Because when you think about it, the reason why foreign governments and central banks are so concerned about the U.S. dollar is because of that overbearing, threatening, I’m going to take away your access to the dollar. I’m going to take away this.
I’m going to sanction you. I’m going to impose tariffs. I’m going to do all these things.
And they’re concerned. They’re kind of sick of it. So what these Mar-a-Lago Accords constitute is a saying, we’re going to force you.
We’re going to cajole you. We’re going to lean on you very heavily, coerce you, whatever we’ve got to do to get you to trade out. You might have $2 trillion of U.S. government bonds right now.
Let’s say in aggregate, there’s a whole bunch of countries together. Say all you guys together is like $5 trillion in U.S. government bonds. So we’re going to force you to trade those government bonds, which those government bonds, U.S. government bonds right now, they pay interest.
And frankly, they probably mature over the next couple of years. And so instead, we’re going to trade out those bonds. Instead of paying you interest, we’re going to trade those bonds for zero interest, zero coupon bonds that don’t mature in two years or five years, even 10 years.
They don’t mature for like 100 years. So zero coupon bonds for 100 years, which means at a minimum, you’re losing money every year just to inflation. You’ll lose money with respect to inflation.
So the opportunity cost on that is pretty high, right? If people are getting right now, whatever, 4% on $5 trillion, it’s a couple hundred billion dollars a year, plus the opportunity cost, the inflation cost, all those sorts of things. Is it realistic to assume that all these different foreign countries would just gladly sign up for that cost? I don’t think that’s a foregone conclusion. And to presume that you can force them to do that will only make their anxiety even worse, right? Because this is the thing we’ve talked about, like these governments, again, if you had a banker, I use this example plenty of times, you had a banker phoning you up every day saying, hey, Joe, I’m going to freeze your account.
I’m going to freeze your account. I swear to God, I’m going to do it. You probably wouldn’t continue banking there.
And this is just another example. You had 2001, again, Patriot Act, you had the 2010 foreign account tax compliance, you had the law in 2022. And now this, even just floating the idea of the Mar-a-Lago Accords to say, hey, we’re going to force you to trade out your current US government bonds for this zero coupon, a hundred-year bond, people are going to go, dude, I’m sick of it.
I’m sick of it. And they’re going to look around and go, what are my options? What are my options? Oh, oh, the BRICS dollar? The BRICS dollar that I can go give to the guy who wants to kill all the white people and the communists and the guy that invaded his neighbor and the people that are experiencing hyperinflation with the dictator in Latin America. No thanks, buddy.
No thanks. What are my other options? Well, I guess I go by euros, right? So I can get in bed with a group of people that has no real leadership. I can get in the Italians and all these sort of bankrupt nations.
He’s like, no, I don’t think I want to do that either. So what’s really my alternative? Maybe some of these guys end up getting into crypto. I mean, that would be enormous for crypto prices, but I don’t know that that’s going to happen.
I mean, there’s some central banks that kind of talk about crypto, but the easiest asset, the most traditional asset, most of these central banks already have it on their books is gold. And I don’t want to be a broken record here talking about gold, but we just keep saying, this is the opportunity. I mean, it is kind of in the here and now, central banks are going to go out and buy gold because the more turned off from the dollar they get, the more likely it is they’re going to continue buying lots and lots and lots of gold.
And there may be some other things too. I think platinum is probably something they get into because it is still a precious metal. It’s a way to move a lot of wealth.
If you think about the amount of money sort of per cubic foot in platinum, it’s similar to gold. Gold is a lot more expensive than platinum now, but you can move a lot of wealth. You can take a few hundred billion dollars off the table with platinum in the platinum market.
That’s possible. It’s a lot harder to do with silver. It’s kind of hard to do with oil.
But you can do it with gold and you can do it with platinum and you can do it with a couple of other things. I think the other thing- I think platinum has a lot of that upside in the industrial markets as well. Platinum has a lot of industrial upside.
I think the other thing that you find is people just find ways to spend it. And this is one of the things that, to be frank, the Chinese have done, and they’ve been pretty effective, is they stockpiled a whole bunch of US dollars. And what have they been doing with those dollars? They’ve been buying land.
They bought up freaking half of Africa already. They buy gold mines. They buy oil reserves.
They invest that money in things. And I think that’s probably what you’ll be seeing as well, is that when foreign governments and central banks are sitting on dollar stockpiles going, what am I going to do with this big pile of US dollars? I don’t really want to trade it for euros. I’m sure as hell not going to go into a BRICS dollar.
I don’t really want to buy Chinese renminbi. I can buy gold. I can do that.
But what else am I going to do with it? I think they’re going to go and buy strategic assets. I think they’re going to buy strategic assets. And what are these? Well, it’s probably not Amazon stock.
It’s real assets. It’s real assets is what they’re going to buy. And they’re going to really focus on the more critical commodities and resources that might include land.
It might include some of these other things. But this is what I think central banks are probably going to get into. And the whole point is it ends up becoming counterproductive for the US dollar.
Not even we can say in the long term. I think this is something, if they actually follow through with this, I think this could have actually pretty rapid negative consequence for the US dollar and by extension for the US economy. So overall, the Mar-a-Lago Accords, it’s a bad idea.
It’s one of these bad premises that the US dollar, the US government, we can still get away with these sorts of things. That’s a bad premise. And it’s one just like Iraq has weapons of mass destruction or two weeks to stop the spread.
It’s a very, very expensive premise that in the long run can end up costing trillions of dollars because it’s just overall a really bad idea. And again, based on a false premise. Thanks for your insights, James.
Okay, bud.
