The rebel capitalist show all right guys. It gives me a great deal of pleasure to welcome someone back to the rebel capitalist show. She is one of my partners with rebel capitalist pro and she is a rock star on finn twit, i remember when i first interviewed her. This would have been at the beginning of 2020. She maybe had 10 000 followers on twitter, and i told her then that she was a rock star and a superstar and sure enough she blew up like i knew she would she’s the brightest or one of the brightest people out there for sure. Now. She has well over a hundred thousand followers on twitter. Her name is lynn. Alden lynn. Welcome back to the rebel capitalist show, hey thanks for having me back, so you just came out with a blog post uh, maybe a couple weeks ago about the petro dollar and a lot of people have heard about the petro dollar. But i don’t think they understand how vital it is to the dollar being the world reserve currency, and i don’t think they understand how that petro dollar system is starting to deteriorate and what that means for the dollar long term and how we should position our investment Portfolio accordingly, so i want to pull up or have the editors pull up your actual blog post and have us kind of go through that whole thing. You can walk us through it and give us your thoughts. Yeah absolutely – and you know so this. This has been a while in the making we’ve talked about this on, on other shows and and in uh. You know your pro service uh, but basically you know, but this takes, like a you know, a 50-year view of the current uh global monetary system. As it’s been structured, and so it starts off by going into some of the pre-history right, so everyone’s you know, most people familiar with your channel are familiar with the bretton woods system, which was that you know during the end of world war ii uh the united States, uh, you know, had their uh currency pegged to gold and other currencies agreed to peg themselves to the dollar, and that was because the united states was you know they were the dominant force. After the war they had most of the gold uh they had. You know the least harmed economy uh compared to many other allies and enemies, uh and so uh. They were in a position to basically be the axiom of the system and there were some competing forces back then. So there are some people that were advocating for something like a bank or which would have been essentially a basket of multiple currencies like a neutral reserve, asset uh. But then, of course, united states position was arguing, favor of making the dollar itself the center of the system right, and so the united states position won out. They had the most leverage in that in that particular conversation, and so we had the bretton woods system, and so the flaw over time. So there were some economists like robert triffin and others that warned that this would not be a permanent system, because eventually u.s liabilities in the form of of you know, treasuries and dollars overseas would eventually eclipse uh the amount of gold that they can support. Those with and make it redeemable and that’s exactly what happened. So if you look over time, they had a you know: a gradual reduction in gold, uh and uh. We had a continual increase in in the uh dollar liabilities abroad and eventually in 1971, they broke that system, but you can look at a chart running out of gold and the foreigners were saying. Okay, i don’t want these green pieces of paper anymore. Give me my my yellow metal yeah. They call the bluff, they ask for the physical, and so we all look at 1971 as the key moment. But if you look on on some of the data uh, there is several years leading up to that where it’s clearly becoming unsustainable, and so ever since 1971 uh we’ve been in a floating exchange rate, totally fiat global monetary system, which is that all these currencies are Just backed by nothing they’re not pegged anything uh and uh they’re, just they’re just uh, you know, backed by the you know the us government, or or in other countries their governments, which is that you know only that currency is acceptable for for tax payments and is Used as a unit of account and that’s how they kind of enforce the usage of that currency uh, but this of course opened a big can of worms in in the 1970s because all these countries had pieces of paper. So how do you do international trade? What you know, how is that going to work right? Because it’s literally all the currencies pegged by nothing is totally worthless and so starting in the early to mid 1970s, the united states made a deal with saudi arabia, which, which extended to the rest of opec, to only price their oil in dollars. Uh. So, no matter who uh saudi arabia sells or dollars, they’re oiled to whether it’s united states, france, uh another european country, japan, whatever the case may be, they only sell it in dollars, which means that other countries either need to earn dollars. So many of them will then price their goods and services that they export in dollars or they need to exchange their currency for dollars, and that makes it so that there’s a global demand for dollars, and so that actually was a very clever system at the time. Because they basically re reordered something out of chaos right, so it had all sorts of negative ramifications, but you can see their incentive at the time uh and of course, that was during the cold war. So united states wanted to have as much kind of hegemonic power as possible against the soviet union rather than being isolationist uh, and so we had the system where the united states was not. You know the dollar was not pegged to oil, but it was essentially backed by oil instead of being backed by gold uh, and so, instead of being redeemable for nothing, it was the only currency in the world that was pretty much. You know redeemable for oil yeah lynn, i’m sorry to cut you off there. How big of a percentage back then was the was saudi arabia’s production of oil as far as global oil production, was it like 99 or was it like 50 uh? No, it wasn’t 99. I don’t have the exact number uh, you know the united states was still a significant producer, but they started uh. You know holding it back after that. Saudi arabia and the rest of opec was a very large producer and of course russia was a very large producer. So we have, we had a similar dynamic as to now uh, but i don’t have the exact percentages, but with that agreement with saudi arabia, where they said, okay, you’ve got to price it in dollars. I’M just trying to think through how much of global production at that point in time was specifically done in dollars. You see what i’m saying like russia was still probably selling their oil in rubles, let’s say uh, so you know was it 95 or any idea on that number? I don’t know the exact percentage. I know today. You know there may be 10, and then you have rest of opec. It was a pretty. It was basically a chunk that they could. They could control a large portion of the of the global energy market, especially when you also add the u.s share, which of course, that you know any any amount that they were dealing with. It was in dollar base as well and so uh. It basically had a critical mass of dollar support, got it okay, uh, and so from there. You know we had a really interesting system develop because you know we often think of this as the u.s having an extraordinary privilege right. So we are the only country in the world pretty much that, could that, could you know print money to buy commodities? Essentially, uh that are our you know, quote-unquote worthless pieces of paper could be converted to real goods and, by extension of the system, because the way network effects work most other commodities. Were you know priced you know mostly in dollars uh and we started to see a lot of global financing happening in dollars, meaning that you know if a company or government in an emerging market needed to raise money. You know a lot of investors. Of course wary about raising money and you know lending money and getting paid back in the local currency uh, so they would do it in dollars. Uh often so we started to develop the the infamous you know: offshore dollar denominate debts. Of course we already had that before then, but it it began. You know kind of rapidly accelerating as the dollar further entrenches network status and so uh over uh. You know several decades. A problem that we’ve seen is that, in order to run the system, the united states pretty much has to run persistent trade deficits because there’s only a handful of ways that they can get dollars out there. So if you enforce a mechanism where every country in the world needs dollars in order to buy oil and other commodities, then there has to be enough dollars out there right. It has to be a global currency and so we’re in a situation where, at the beginning of the system, the united states was something like 35 percent of global gdp. But over time we’ve gone down to something like 20 percent of global gdp uh and a little bit higher a little bit lower depending on exactly what metric you use to measure it right, and so that’s been an issue because you know something like you know: uh, You know close to 60 percent of reserves are held in u.s dollars, uh and a very big percentage of global trade is in dollars, even though we’re only about a fifth of global gdp yeah, and so i’m sorry and i’m looking at your report right now and You’Ve got a chart here, that’s from the bis or maybe the international monetary fund, and it’s going over the percentage of global payments in specific currencies, international loans and foreign exchange reserves – and you see exactly kind of how dominant the dollar is right now. But then the chart right below that is showing our trade deficit, which is just staggering uh, where it is now where it was at the early 2000s. But then comparing that to where it was when this petrodollar system actually began unbelievable yeah. And it’s brought us down to we used to be what one of the world’s largest creditor nations. In fact, we used to be the single you know biggest credit nation in the world, which means that we owned more foreign assets than foreign of our assets, right uh, but then over time, because you’ve been running persistent trade deficits, uh uh over time. Uh. Now we’re a net credit, a debtor nation, meaning that you know: foreigners own, more u.s assets than americans own of foreign assets uh, and so it’s created a very interesting, dynamic uh, because you know we we basically outsourced so in the bretton wood system. We basically chipped away at our gold stash to maintain the system. We we kept kind of you know: dismantling our gold reserves over time and reassembling that overseas. We kind of did that with our manufacturing base in this system, and so instead of instead of our dwindling gold reserves, we have a dwindling manufacturing base and what’s important to realize is that you know you know northern europe and japan. They didn’t have that problem, so it wasn’t like all developed countries had their industrial base brought down and kind of put in emerging markets uh. You know that of course happened to an extent, especially for cheap products uh, but the united states uh drew down its industrial base at a far faster rate than most other developed countries, because we were the axiom of the system and there and that’s how this this System is structured, yeah, so lynn, can you kind of walk us through just from a to z how that process works? Because i know a lot of people hear that? Well, we just outsourced our manufacturing or we we send all of those jobs overseas. But what’s the rationale there, if you’re xyz corporation in the united states uh what what’s going through your head? Are you just producing goods overseas? Because it’s a lot cheaper and we can continue to do that without having any downside, because the dollar there’s so much artificial demand from it being the global currency in this petrodollar system. Or is there something else that i’m missing? There are a few factors, but the main one is is related to currency differentials, and so because the entire world needs dollars. There’S a lot of persistent demand for dollars, and so, if you look at most countries, if they start to run persistent trade deficits for a while, then the next time they have a recession or some sort of a financial event. Uh, usually, what happens is their currency ends up getting pretty weakened all right, there’s kind of you know the international market realizes there’s a problem there and you end up having you know so much outflows that you, you have a currency weakening event and what that does Is it’s painful when it happens, but when it happens, it makes their export competitiveness stronger and it reduces their import capability, and so it ends up, realigning their trade deficit back towards a more balanced state, but the united states. We never go through that process. When we have recessions, you know often our dollar gets stronger, and so we never are in a position where our currency kind of makes sense relative to our balance of trade. We don’t have that corrective mechanism that most other countries have and that’s kind of. That’S that’s the core issue, then there’s some other factors like uh. You know just fiscal policy and kind of geopolitical policy uh, and so a lot of these other countries have rather mercantilist policies where they they try to purposely maximize exports. Uh you know and keep their import power uh. You know somewhat tight, so a lot of them will purposely weaken their their currencies as much as possible uh compared to the us dollar and, for example, switzerland, will just print a lot of their currency, uh and then buy. You know american assets, for example, exactly even apple stock yeah, so it started, of course, with treasuries right. You print money, buy treasuries. You build up your foreign exchange reserves uh, but they’ve also moved into even just outright buying uh u.s equities, and so what that does – and you know switzerland’s like they probably do – that more egregiously than any other country. But there are a bunch of countries that do that and whereas the us, we purposely never really built ford exchange reserves, we we we don’t go through these processes of of you know, purposely weakening our currency. Unless you know there are a handful of times, we got really bad like in the plaza court. You know 1985 uh, you know, but so we generally don’t engage in that kind of uh currency weakening. We also have other things like, for example, united states has the most expensive health care per capita in the world, and and that, of course, is often that burden is often supported by employers right so uh. You know it’s it’s much more expensive to hire someone when health care is twice as expensive if you’re, if you’re obligated to you, know, uh, basically pay for that employee’s health care compared to if you were operating in another country, and so there are a variety of Factors related to tariffs related to monetary policy, all sorts of reasons uh, and it revolves around the fact that the united states has to get dollars out into the system if, if those dollars are gon na be able to be purchasable for for commodities for countries around The world yeah and and an environment domestically that allows us or uh incentivizes us to get that manufacturing overseas. So it’s not just about prices, but what you’re saying, but i also want to focus or just mention – that’s a lot to do with regulations as well. When, when i mean you touched on it there with the health care, but if the government imposes heavier and stricter and stricter regulations, it doesn’t make a lot of sense for someone to take that billion dollars out of their back pocket and take 10 years to build A manufacturing plant in – let’s say california, when you have no idea what the political environment is going to be. You have no idea what the taxes are going to be the regulatory environment. It’S just it’s, not a good risk reward. So i think that’s one thing that people overlook and from a macro standpoint we don’t really focus on, but as a former entrepreneur, i know that that’s extremely extremely important. Local and domestic regulations yeah, so the net result over time was we had a financialization of our economy, and so we we stopped making real things. We started financializing things so we’re providing financial services uh. You know becoming the financial hub of the world more and more uh. We also have, of course, had a very big healthcare industry. Uh big uh military-industrial complex uh, and then you know the one of the benefits of it. We did have a pretty strong technical sector. Uh, which most people know a lot of that, was centered around software right, because that doesn’t really rely on making things as well as engineering designs that we would then you know, you know, have have people make that in other countries and so basically anything that’s really High margin we’re able to do, but anything that involves physically making things is where we’re increasingly weak at, and so this this lasted for several decades. It’S you know, there’s trade-offs there, and so we’ve seen some areas. For example, like the the you know, the rust belt that you know the the midwest that’s really suffered because that’s where a lot of our manufacturing base was where as you’ve seen, for example, the coasts flourish, because that’s where a lot of the financialization is or or The the software or the healthcare, and so we basically hollowed out the center of our country, hollowed out kind of the blue collar sort of work, uh and really double down on the coasts on the wake collar work, uh, yeah and things like that. So what does that do to wages? Well that yeah? Definitely it it deeply suppresses wages because, in addition to hiring fewer, you know domestic manufacturing workers, the ones that remain have a lot more foreign competition uh, because you know they’re always at risk of having their plant outsourced to mexico or china wherever the case may be, And so that puts a lot of downward pressure on wages, especially for again people that that work in in you know skilled manufacturing, uh or or routine tasks, uh and or even even rather, you know technical uh. You know because, for example, if you look at some of the high-end manufacturing areas like like japan or germany right, a lot of that is, you know. Advanced technicians. Uh in the united states is even outsourcing a lot of those types of people. Just because we’re not we’re not making the physical goods here, nearly to the extent that we used to or compared to many of our kind of advanced industrial peers, yeah, and it seems to me what has happened, is we’ve turned into an economy that really revolves around Financialization to your point, but also just domestic services, like that you go around the block and look at what all the businesses are and i did a video. The other day we talked about uber. We talked about door dash or topgolf for restaurants, bars, cafes, accountants, lawyers. That’S it’s like 90 of the businesses, you see revolve around just selling domestic services to one another and if you really think about it, you’re like okay, well, where’s all the stuff coming from it’s like yeah and then one more thing. I’D like you to touch on. It’S fascinating. I was actually listening to a jordan peterson video the other day, believe it or not, one of his uh classroom lectures and he started talking a little bit about macro and you can tell that he’s read some books on it. I know he’s not an expert, but you can definitely tell he’s, read some books and he started talking about the demographic shift or more women coming into the workforce during this exact same period in the 1970s and how you basically doubled the competition for jobs, and that Might have had an impact on suppressing real wages as well. Do you think that was a factor or do you think it was really more about the the petrodollar system and outsourcing these jobs to uh foreign countries? I think it’s one of those things there’s always multiple variables. One one thing is: if you look at uh most other developed countries, they had a similar demographic shift right because we had more women coming into the workforce uh but, for example, those countries uh almost uh. You know exclusively have less wealth concentration than the united states uh, so their their overall. You know: middle class generally has uh. You know a better standard of living in some ways compared to u.s middle class, even though you know our say, top 10 percent are far far wealthier than their top 10 on average, and so a lot of this was based on uh specific policies. The united states did right, although of course, there’s always multiple factors involved, and there is more competition for jobs now both internationally and it’s. Actually, you know if you look at it’s interesting. If you look at japan uh japan has been slower than most other countries to bring women into the workforce uh, but that’s actually uh. You know they’ve increasingly turned towards that. Because of you know, most people know they have a shrinking population now, so they have some of the the most age and slowest growing demographics in the world and one way that they uh, you know handled that over the past decade or so is that they they’ve Seen a sharp rise in women in the workforce and it’s actually it’s actually kind of crazy, because even though their country’s 10 years older on average, like their median age, is 10 years older than the united states in 2020, they actually have a higher labor labor participation Rate than the united states uh, because we had women overall age 15 and over yeah. Now is that because japan, i don’t want to go off on too much of a tangent here. But is that? Because japan is really propping up a lot of these zombie companies, because i talked to snyder about that and he’s like japan is already doing mmt and they basically already have a jobs guarantee program. Well, i think part of it also is that they don’t have that trade imbalance right so their their trade balance is pretty much settled, and so they have a healthier blend of making things, as well as some of the more financial services and as far as mmt Goes you know, for example, they have been running smaller uh, you know sovereign deficits as a percentage of gdp than the united states has, and so we all we all know of japan as like, their their their central bank balance sheet going vertical uh, but the actual Growth of the money supply and the sovereign deficits as a percentage of gdp has been have been lower than the united states, so they actually have far slower m2 growth over the past 10 and 20 years, and so i would somewhat not quite call that mmt in In the same way, it’s it’s, of course, there’s a lot of similarity. There’S a lot of financialization, it’s a little bit different than you know the idea. For example, you know running a three-trillion three trillion dollar stimulus and just injecting that into the economy. They haven’t really been doing that to quite to the same degree that we have yeah okay, so we understand the system. We understand some of the negative unintended consequences, but now you’re saying that this petrodollar system is starting to deteriorate. So i’m specifically at your subtitle in the post, where you’re talking about the fraying of the petro dollar system, so kind of take us through what you see playing out in the future yeah. So there are a couple big forces happening. One is that you know even within the system. We generally have these big, like 15-year dollar cycles, and so every every 15 years ago, or so we tend to have a big shift in fiscal monetary policy. We start to get a much stronger dollar uh and then usually what happens? Is foreigners uh buy fewer treasuries? We end up having to you, know finance more of our deficits. Uh and we end up. You know trade slows uh. The dollar becomes very strong. It makes our exports even less competitive and we generally get you know, kind of a flat line of corporate profits uh and we usually then see a shift. We see you know more devilish monetary policy or recession, whatever the case may be, and that you know, as that kind of resolves, we generally see a weaker dollar, and so we’ve had really three really big dollar cycles. Within this past you know 50-year uh monetary system and of course, just because you have a bear market in the dollar does not mean that the dollar is losing uh global reserve status right. So i think you know one thing i try to point out in that post is a dollar bear. Market is not the same thing as losing uh dollar reserve status, so we’ve had three major bear markets in the dollar without losing any any degree of uh. You know that status, so a couple structural shifts are happening. Uh currently that are different from what happened in those cycles and so uh one is that uh. You know we we don’t have as much foreign demand for treasures as we used to and there’s a couple. It’S it’s largely centered on china, but there’s a couple reasons for it and so uh. You know in the early stages of this europe was one of our biggest trading partners. So you know we would run persistent trade deficits with europe. They would get all these dollars and they would reinvest those dollars into treasuries and hold them. As you know, foreign exchange reserves, and then you know japan. We had the big you know rise of japan in the 70s and the 80s, and so we started they started to run really big trade deficits with us. They would get all these dollars and they would invest those dollars in treasuries and hold them as their foreign exchange reserves. And so that’s why you know, even though the us is running uh, persistent trade deficits, we’re still benefiting in some ways, because foreigners are financing our deficits more so than most other developed countries right and the interest rate’s low. That that’s that’s key, because going back to what you’re saying, although real wages have really plateaued, we haven’t had too much of a squeeze because we’ve been able to you know, asset prices have gone up and the cost of buying a home has gone down. Even though prices go up because the mortgage payment goes down because interest rates go down and then so debt in our system becomes a lot cheaper as a result of this foreign demand for treasuries yeah – and it’s also i mean it’s not just industry, because, for example, If you look at japan, they’ve actually they’ve had lower interest rates than us. A lot of it has to do with with the quantity of capital. So, for example, uh. You know, if you don’t have foreign demand you’re, not doing qe, then if the federal government were to run deficits. That means that you know someone else in the domestic economy is buying those treasury. So they’re, you know we’re sucking capital out of one part of the system, injecting into another part of the system. But if foreigners are are you know, buying our treasuries uh that we’re not sucking dollars out of anywhere in the domestic economy, uh at least on net? And instead we’re getting this kind of you know our trade deficits being recycled back into our deficits right yeah domestic dollars can be reinvested where, if it was just all domestic demand for treasuries, then they wouldn’t be able to be reinvested by the producers who are earning In the first place, yeah got it yeah, so we’ve been able to run bigger, bigger deficits, we’ve been able to uh, you know get away with get kind of more kind of a looser fiscal policy, uh and uh. So then, in the past 20 years we’ve seen the rise of china and you know for the first 15 years, or so they were on the same course where they would run persistent trade deficits, take all those dollars and reinvestment and hold a ton of treasury. They accumulated well over a trillion dollars worth of treasuries uh, but then in 2013 they said it’s really no longer in our best interest to keep buying treasuries uh and instead they launched the belt and road initiative. So they were still running these big dollar surpluses. Uh. You know it kind of flatlined over time, they’re still having a you know strongly uh. You know dollar positive position uh, but instead of buying more treasuries, they actually slowly reduce their treasuries uh and instead they invested in dollar based loans uh around the world. You know developing countries in africa, eastern europe uh, you know the rest of asia, latin america, uh and a lot of them were commodity, related yeah, and you know, because china, of course, is a very large commodity importer, including oil, and so you know part of this Was was infrastructure and commodities centered around? You know basically exporting chinese know-how right because they’re pretty good at infrastructure, so the combination of financing and uh technical, you know infrastructure development and then in return they get all this. You know these trade partnerships they get these uh. You know commodity rights, things like that, and so we’ve been in a situation where, where foreigners are not really buying our treasuries, to the extent that they used to right and that doesn’t even include all the private chinese investment, i remember – i think i i tweeted something About uh your article and uh, i think i tweeted one of your charts that shows all of the the loans that have been made. The dollar denominated loans by the chinese and someone said well yeah, but there’s nothing in vancouver, canada. I said yeah. These are just dollar loans. These aren’t uh private investments. If it had the private investments on there, it would be even more sobering than it is just looking at the dollar denominated loans, they’ve extended yeah, yeah and yeah, the the ones in coover, because they’re not they’re, not loans, they’re buying assets, they’re buying uh. You know properties and so yeah that chart only so as a subset, as you mentioned, uh and uh. So that’s the one structural thing we’ve been seeing is that we’re not seeing this kind of newfound source of demand for treasuries, like we did after europe, with japan and after japan with china? There’S really kind of no one? No one left here. A second thing we’re seeing is that, because the united states has decreased as a percentage of global gdp over time, mainly because of the rise of china and other emerging markets, there’s just not a lot of dollars in the system, and i know you often you’ve had Uh jeff snyder on a number of times, and we’re always talking about this dollar shortage right. So what are some talk to brent, too yeah exactly, and so it’s like what is what are the reasons for this dollar shortage and a lot of it has to do with how much dollar dominant debts there are how how the euro dollar system structure there’s all You know we all have different expertises. We focus on different areas. A lot of it also has to do with it with uh. You know the shale oil boom in the u.s uh, because that that somewhat controlled our uh trade deficits over the past decade, uh, and so you know – we’ve had kind of a flatlining trade. In other words, in other words, it reduced them because we were exporting so much oil. Is that correct, uh we’re like we yeah, we exported some, but we also were able to import less than we than we would otherwise have had to okay and so uh. That’S persistent, so the combination of of the us is shrinking. As a percentage of global gdp, we became a little bit more energy self-sufficient and that’s not really good for the the offshore dollar market uh and, in addition, uh. You know now that we’ve seen the rise of china as kind of an economic competitor. You know they’re actually importing more commodities than we are and yet they’re still off, they’re still generally doing it in dollars, and so that’s not a very advantageous position for them, and so we’ve seen. For example, uh russia has been very persistent in wanting to price their oil in euros rather than dollars and uh over the past two or three years, they’ve been very successful in that they they de-dollarized their foreign exchange reserves right, so they sold most of their treasuries. They started putting it most of it into gold and they’ve, been selling uh, their oil and gas to europe and china uh largely in euros, and so we’ve seen a rapid rise in euro pricing uh and a decrease in dollar pricing uh for their energy uh. Russia has also been successful in doing that with india uh, and so, if you just look at you know russia, with europe, russia, with china, russia with india, we’re seeing detailerization, and so all these kind of energy importers are. You know we’re starting to see around the edges that the petrodollar systems no longer has that complete lock on the on the global energy market that it once had again. I’M looking at a chart. That’S basically outlining what you’re talking about from your report and just to be clear when you’re talking about china as an example paying for russian exports and euros instead of dollars just to give people some context, an editor you can throw this up, but six years ago, 98 of the transactions were done in dollars and as of 2020, only 33 percent are done in dollars between china and russia just wanted to throw that in there. So people understand the magnitude of what you’re talking about yeah. It’S been a very large shift and uh and of course, now uh. That was that was really before that the you know the chinese digital currency was launched, and so we’re gon na have to see over the next couple years, uh if that might further accelerate it. In addition on that chart, even though the euro has kind of become uh kind of a regional uh currency for for energy pricing among those countries, we’re also seeing increased uh trade with their local currencies, so increased uh, rubles and yuan, and so eventually to see if, If china can increase the usage of their uh digital currency uh with some of their trading partners yeah, how do you see that working out, i don’t want to go too far down that rabbit hole, but how would this uh belton road initiative and what we’re seeing With kind of the decentralization from the petro dollar system, how would that play into uh china advancing the digital one as potentially potentially the next global currency? And i’m not saying that’s happening tomorrow or next year, but maybe five years 10 years, maybe decades into the future? How does that it all play into that network effect to where people in africa, south america, uh eastern europe, india, would start choosing to use the digital one instead of the dollar or whatever other alternative? There is so, i think, it’ll mostly be restricted to international trade, but there are, of course, a couple different areas where they could use it. One thing i’ve been emphasizing is a lot of people ask if the dollar were to. You know over time lose its global reserve currency status. What would replace it right? Would it be the euro? Would it be the yuan, and my answer has always been no uh. There’S not you know. There’S no country large enough to be the the you know. The the axiom of the system like the us was in a post-world war, two environment. So there’s no country – that’s you, know, 35 to 45 of global gdp uh, and so the united states isn’t big enough to do it anymore. China is not big enough. Europe’S not big enough, and so my base case – is that we’re going to see more and more decentralization. So you know it makes sense, for example, russia to sell uh oil in the currencies of their peers rather than settlement in dollars to to places that you know that that are based in euros or you want, and so you know, we’ll see eurasia generally de-dollarized to Some extent uh, you know latin america is, you know somewhat more in the dollar sphere, so it kind of depends on you know: regional sources of power, but overall, with china being the the biggest importer of energy that gives them a lot of influence over some of Their energy partners and some of their commodity partners, for example, so they can, for example, try to have their yuan increasingly used for some of their imports and, of course, those countries. You know they like some of china’s exports. They like some of their technology. They like some of their manufactured goods uh, and so that basically there’s even if they might not want to hold that those as reserves. They know that they can cycle those back into buying uh goods and services from china and so uh. My base case over time is that we’ll see a little bit more usage of of of chinese currency uh, you know with uh, specifically with some of their commodity uh. You know import agreements uh, and so it’s not that really china wants to displace the dollar. Is that they want to de-dollarize their import costs yeah, i got it okay, so the bottom line, i think the takeaway there for for the viewer. Is you see dollars being used in the global monetary system less and less over time? It’S not happening as a percentage. Yeah as a percentage okay, so let’s go back for a moment to the another subtitle in your post called eating your own cooking – and i know we touched on this briefly because you were talking about how the foreigners aren’t buying as many treasuries as they used to And i think a lot of people are probably asking in there or asking themselves well well, who’s buying them and i’m looking at this chart showing how many treasuries are going on to the fed’s balance sheet uh in 2020 and of course it’s going parabolic. So i think that’s what you’re getting at when you talk about eating your own cooking. But can you describe that for us, so it we had a pretty uh kind of uh. Interesting crossover point here in 2020, which is that the fed now owns more treasuries than the entire foreign official sector. So all central banks in the world uh own fewer treasuries than the fed dust, and that’s never been the case uh in modern history. Now, there’s still uh foreign sectors still owns more treasuries total than the fed. If you include uh official and private sources uh, but we’ve kind of crossed over the point. Where the you know the biggest uh you know uh, you know the fed holds more treasuries than all the other central banks combined and that’s because we’ve not seen a lot of appetite from those countries so uh. You know, even though europe’s running persistent trade surpluses, even though japan’s uh you know they have a pretty balanced trade situation. Uh china still has uh. You know dollar surpluses, uh they’re, not really just uh cycling, that back more into more into treasuries. Now we still see some interest on the margins, for example japan. They tend to pay attention to fx heads treasury yields compared to their their local ones, and so you do see some buying around the margins. It’S not like they’re all rapidly dumping their treasuries, but they’re really just not keeping pace with the amount of treasuries that are being supplied. Okay. So now i want to go back just momentarily, because i i’ve noticed a couple more charts here about the concentration of wealth in the united states and then how this petro dollar system is affecting the average joe in the middle class. Because whether i’m on twitter or my the comments in my youtube channel, you just hear they’re in the media. You just hear it over and over and over again that the united states is the richest country on earth. We should be able to afford to do xyz because we are the richest country on earth and when you look at that on an individual level, that’s not even close to accurate and i’m looking at a couple of these graphs or these data sets that you have Showing the not only the united states investment position as a percentage of gdp compared to other countries being negative 52, but then also the average or the the. I want to say this right. The median wealth for the average american is 61 000. Roughly at where i mean every other developed country is uh, has a higher median wealth other than looks like germany. So can you explain that to us and once we get done with that, then i want to go over what this means for our portfolios and how we can position ourselves from an investment standpoint to take advantage of this dollar kind of system, maybe gradually deteriorating over Time yeah, so there are a variety of reasons for it. Uh part of it has to do with you know the aforementioned problem of our blue-collar labor force being squeezed a little bit harder than many of our peers as well. As you know, things like the fact that we have the most expensive health care in the world uh. You know some of our tax policies, fiscal policies. The united states has a much uh more concentrated wealth than most other uh developed countries, pretty much the only countries that are more concentrated than us. We have to go into emerging markets to find examples of that, like russia or brazil, and things like that, and so, if you look at average wealth per capita uh, the united states is above uh most other countries, and so only you know a handful of them. Like switzerland are are as high as us, so we actually do have a ton of wealth per capita. However, that’s an average and a lot of that is concentrated in the top uh. You know one percent or five percent yeah, because it’s just those and elon musk. Exactly and so, if you then look at the median and for people that don’t know the difference, the median is represents the middle 50th percent person, so the actual typical person uh, the united states has a lower uh median wealth per capita than most other developed countries. Uh and that’s just because we’re more top heavy and that’s because you know: we’ve hollowed out our blue collar base more so, and we’ve done certain fiscal policies that we’ve really concentrated wealth more than many of our peers yeah. I wonder why germany is so low. Uh. There’S a couple reasons for that: one is uh, you know they had the integration of west and east germany and east germany uh went into that. You know that was only about three decades ago and east germany was was very impoverished. Uh. They also uh have a significant renting culture uh, but you know if you were to normalize that the germans get a lot of uh. You know pension benefits and things like that that aren’t really on their balance sheet right so that that’s the one on that chart. That’S kind of an outlier uh that doesn’t fully reflect their their uh. You know their status quite as well as the others yeah, and i think the main takeaway here is this chart that you use that i used in my videos several times and that’s the the uh a year of wages no longer covers a year of family expenses. I mean that really just sums everything up and it’s this chart of median male income going back to 1985 and they’re doing that, just to show kind of a one income family and taking that to a little almo. I don’t know if that’s 2018 or where the chart ends, but it just shows the major costs that a family of four has college vehicle healthcare housing and how that has gone up so dramatically that now it actually exceeds the median income of a one household family. Let’S call where back in 1985, there was a big gap between the two meaning, a lot more or disposable income period, there’s a lot of disposable income. Where now there’s basically none yeah and that’s you know, that’s kind of fueled, some demographic shifts because uh you know either a person needs to have a a notably above average income to comfortably support a household or you need to have a two-way income, household uh and So uh you know as before. That was an option uh and now it’s you, like you said you either need above average or both yeah or going to debt yeah, and that’s not a good option. Okay, lynn! Well! This has really just blown my mind. I i think, when i read through this just every single paragraph and every single chart, it was just kind of making my jaw drop. So i would encourage everyone to go to your website check out this blog post and all the other blog posts you have because they’re just um jam-packed with value and just knowledge, bombs, right and left, and so what’s uh. What’S your url, let’s start with that! Uh lyndalden.com – and this should be on the home page uh. This one is lynn, alden.com, slash, fraying dash, petro dollar dash system. You can find it right on the homepage and now what we’re gon na do is a kind of a part two for this video we’re gon na start discussing how people can set up their portfolio to take advantage of exactly what you’re saying and maybe the dollar Over time gradually losing its reserve currency status, so we’re going to record that right now for everyone and we’re going to put a link in the description below, so you can check it out free of charge so guys hit that link below, because trust me. This is a conversation that you cannot afford to miss: [, Music, ]
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