Jeff Snider (00:03:31):
So, there are things like Euroyen, for example, which means yen outside of Japan, that’s in this offshore currency system or even something like the Euroeuro, which is offshore euros. So, essentially, after beginning sometime in the 1950s and spreading through the 1960s, we have a huge, very much comprehensive global monetary system that undertook the roles of the reserve currency, global reserve currency, but it’s not actual cash. It’s not actual currency. There’s no money in it. It’s a virtual ledger system, a distributed ledger system that the global banking system operates and therefore has undertaken the roles of a reserve currency because banks have been able to flexibly and dynamically respond to the world in which they live in.

Jeff Snider (00:04:18):
So, for the last 60 years, this Eurodollar system has been essentially the global monetary reserve. And because it’s offshore, it’s outside the jurisdictions, not just the US, but pretty much anywhere, which is kind of a strange concept because these banks are located and doing business someplace. They’re physically located somewhere. But they have located and they have been able to take advantage of various regulatory blank spots, regulatory boundaries. So, this currency system has been able to grow and expand basically outside the reach of national governments, national regulators, bank regulators, whatever it may be and operate throughout the rest of the world. Again, so the point being to create this global reserve currency arrangement that goes back a long, long time.

Trey Lockerbie (00:05:05):
That last point there, what I hear you describing would maybe otherwise be called something like shadow banking, right? Or is that correct? And if not, what is a shadow bank and what is the shadow economic system?

Jeff Snider (00:05:16):
Well, shadow banking is part of it. That’s more about some of the non-bank participants who actually in this global monetary arrangement. I like to use the term shadow money, because they’re actually monetary forms that they don’t show up in any of the statistics. They don’t show up in any regulatory discussions. They’re not involved in any of the mainstream policy framework, because, again, this is outside the United States, it’s outside of every regulatory regime on earth and regulators are not too keen about people knowing about this vast, huge monetary system existing outside of their reach when their entire monetary policy and really political existence, it relies upon the idea that they are very much in control of this system and this arrangement.

Jeff Snider (00:05:57):
So, it’s outside of everyone’s reach, but also the ways in which these banks operate monetarily as well as credit has evolved and changed so that you have monetary forms like currency swaps, for example, that function every bit the same as cash would, except a currency swap doesn’t fit into a monetary aggregate, it doesn’t fit into any sort of quantitative measure, nor qualitative understanding. It doesn’t even fit into the bank balance sheets in a intuitive way. In essence, this is a virtual ledger money system, that’s a shadow money system because of the way the banks operate on their balance sheet.

Trey Lockerbie (00:06:32):
We’re going to explore the significance of that in a minute, but let’s keep with the basics for a minute. So, let’s say the US, we were on a gold standard for a very long time. We had to pay for some wars and stuff and we had to kind of break our promise that was the dollar was backed by gold, we kept changing the money multiplier over time. And at some point, it was unfeasible to continue on with the gold standard. So, like 71-ish, Nixon says, “Hey, you know what, we’re going off the gold standard into this fiat system.” And a lot of people said, “Okay, well,” there was this meeting with Saudi Arabia and we developed this agreement with them to now produce something called the Petrodollar system. And that’s what a lot of people believe we’re operating on today. But is that correct, Jeff? What’s your opinion?

Jeff Snider (00:07:12):
The short answer is no. And it’s a common misperception, because you can understand why. The Bretton Woods system, which was a quasi-gold-backed system, a commodity-based monetary system that grew out of World War II, in the ashes of World War II, where Harry Dexter White and John Maynard Keynes in particular said, “We can’t just have an international currency arrangement because nobody will accept it. So we need to tie this international currency to some national reserve.” And historically speaking, people wanted to use gold, because gold for various reasons that we don’t need to get into here.

Jeff Snider (00:07:40):
So, you had the Bretton Woods system 1944, which always had this inherent flaw or inherent tendency in it as Robert Triffin called it in the late 1950s, eventually become called the Triffin’s paradox or Triffin’s dilemma, which was that in order to operate a global reserve currency, you need to have enough currency floating around the world to be effective. Because what is a global reserve currency? It’s a mediating currency where vastly different systems can connect to each other through this third-party mediating system or mediating currency so that trade, financial flows, all of the free market capitalism that we’ve come to love and honor, those things can happen in a very efficient fashion so that we can have a globalized, highly efficient economic system.

Jeff Snider (00:08:24):
The problem was by tying this international currency and using, for example, the US dollar or the British pound and backing that currency with national stores of physical bullion, there was always going to be the problem where there’d be too much currency needed outside the US, which would then lead to anyone ending up with that currency, redeeming the paper for national reserves. Eventually the national reserves of gold would be drained from the system and Triffin’s paradox would be that once those reserves were drained, the whole thing would just fall apart, which by the way, came close to happening in the late 1950s.

Jeff Snider (00:09:00):
So, we’re talking about not even really 15 years into Bretton Woods, it was already falling apart. So, this is where the Eurodollar steps into it, because it divorces the national currency from the national store of reserves. So, long before 1971, you had this global monetary arrangement, because it was reserveless, because it was ledger money that it began to undertake the roles of the former Bretton Woods system as it broke apart. So, by the time you get to August of 1971 and President Nixon closing the gold window, the Eurodollar had long undertaken all of those roles of the reserve currency before that.

Jeff Snider (00:09:36):
So, August of 1971 represented nothing more than the symbolic end of Bretton Woods when the functional end started a decade and a half before that. So, in terms of the Petrodollar, it wasn’t like we moved from a commodity goal-based monetary system to a oil-based system in the 1970s. We moved off of the commodity-based monetary system long before that. And it had superseded the Petrodollar, the stuff that happened in 1973, for example, and basically all of the functions of the Eurodollar were up and running for more than a decade by then. And even the Eurodollar system itself had become absolutely huge and immense by the early 1970s.

Jeff Snider (00:10:15):
So, the transition took place into something that was a ledger of ledger virtual currency system long before then. And it took place into this offshore bank-centered sort of blank canvas where banks could experiment in all different types of money, so that we transitioned long before from a commodity gold exchange system, the Bretton Woods, to this virtual reserveless currency system under the Eurodollar over a long period of time before we even get to 1973.

Trey Lockerbie (00:10:42):
So, as we’re walking through this and trying to understand exactly how money works today, because that’s a big theme of what we’re talking about here. I just have a lot of questions that come up. So, for one, a lot of people operate on narratives, and narratives get passed around, we’re human beings, we love stories, that’s how we kind of translate information to each other. So, this Petrodollar is really interesting, it seems. Is it purely symbolic in your opinion? Or is there some truth in it that has just been sort of misunderstood or misextrapolated over time?

Jeff Snider (00:11:12):
It’s a little bit of both, Trey, because you think about it, you’re right. As human beings, we’re not specialists, most of us, most of us don’t spend their life like I do digging through historical statements and doing all the research, you can’t. So, in one sense, you have to sort of take the word for other people about what’s going on in particular subjects, because you just don’t have the time to do the research yourself. So yeah, this idea of a Petrodollar starts from that very natural, very understandable illiteracy and ignorance, because it’s a complex world, this is a complex monetary system, a complex subject operated by hidden shadow forces, not conspiratorial, but forces that are operating outside of the global regulatory framework, outside of monetary definitions and everything else. So, it’s very understandable why people would say the Petrodollar took over from Bretton Woods because that seems to be what everybody says and that seems to be… It looks like that’s actually what happened.

Jeff Snider (00:12:04):
There is a kernel of truth to the Petrodollar because it’s essentially the public or people who are paying somewhat attention to the monetary system understanding and seeing the tip of the iceberg. They can see that there’s some money, there’s some kind of monetary activity taking place outside the United States. I don’t know what it is. It seems to be pretty big. And I do know that there’s this relationship between oil-producing countries, somehow they’re ending up with US treasuries. We’ve heard about the conspiracy about the political, the hidden agreement in 1973. So, you’re looking at something you don’t really know what it is, this offshore system, and you’re kind of doing the best you can to put together an explanation for what you can see. And the Petrodollar in some ways is sort of the understandable way to make sense of what is really the Eurodollar system.

Jeff Snider (00:12:52):
So, in one sense, it’s like the tip of the iceberg. It’s the tip of the iceberg that you could see. Really, it’s the Eurodollar system part that you can see and make sense of. But when you actually look at underneath the surface of the water at the full iceberg, what you find out is, “Oh, there’s a lot more going on. And a lot more that was going on long before Saudi Arabia and the oil embargo of 1973. There’s this whole other monetary ecosphere, this whole other monetary arrangement that goes back into the 1950s that did all of the things that we assigned with the Petrodollar.”

Jeff Snider (00:13:24):
Countries that were buying and holding US treasuries and using them as reserves, that long predates 1973, that goes back to the early days of the Eurodollar system. So, the Petrodollar, you can understand why the public or some parts of the public have said, “There must be something to it, because I know there’s money. I know there’s something going on outside the United States. I know it involves countries buying and holding US treasuries, but there’s no answers other than that.” So, it makes perfect sense why people would say, “That’s a Petrodollar.” When what they’re really glimpsing is a very small section, a very small slice of the overall Eurodollar system.

Trey Lockerbie (00:13:59):
So, how much of the narrative that we’re currently operating on comes to us from our actual own Federal Reserve, or even say the media or education around the system that we’re currently in? Because as I understand it, your research has led you to study papers from internal employees at the Fed and elsewhere. And some of them know what’s going on. Some of them are discovering what’s going on through their work. And others just have no clue maybe because they’re in the system and they have that kind of myopic view. So, from the research you’ve done, what’s the takeaway of how informed the people within the system even understand how the global system is operating?

Jeff Snider (00:14:36):
The funny thing is, we always think scientific progress is linear. It always goes in one direction. But here’s an example of how monetary scholarship, academic scholarship about money actually move backwards. When you go back in time to do the historical research, you see there’s much more awareness, much more understanding, not the whole thing, but much more understanding about at least the basics of the Eurodollar system in contemporary time. So, back in the 1960s, for example, it took international authorities and national authorities about a decade after the Eurodollar system began to really start investigating it, because it had become that big of an issue even for national authorities like the Federal Reserve.

Jeff Snider (00:15:11):
But when they did, they were sort of putting bits and pieces of it together through… I mean, which makes sense because it’s a brand new development banks were doing things, they were not sharing the information with anybody, which is, again, why we call it shadow money. So, there was a huge, huge blind spot for even regulators and officials to try to deal with. But at that time, they did attempt to try to understand this Eurodollar system. But then they just, they stopped and they gave up, which begs the question, what is it the Fed did? What does the Fed actually do now? Which goes back to one of the initial quote that you said at the top, when I say the Fed isn’t a central bank, this is the reason why, because what happened was in the 1960s and 1970s, Federal Reserve officials, Treasury officials, government officials, officials at the BIS, or the IMF realized this monetary and banking evolution that was going on through the Eurodollar system made it almost impossible to define, let alone measure and regulate and keep on top of the monetary system.

Jeff Snider (00:16:08):
And if you’re a central bank, if you’re a legitimate central bank, whose job it is to regulate the monetary system, as we all believe, going back to Walter Bagehot in the 19th century, how do you do that when the monetary system has evolved, and it has evolved in these offshore, outside of regulation spaces that make it almost impossible for you to have much of an influence, let alone direct relationship with the banks operating there? So, what ended up happening was around the turn of the decade in the 1970s and 1980s, central bankers decided they just kind of threw up their hands and said, “Well, the monetary thing, it’s too complicated. It’s outside our jurisdiction. So, we can’t really do money anymore. Instead, we’re going to try to make it so that people believe we do money, this expectations-based policy, where we’ll communicate to the public that we’re doing something and hope that the public and banking system and business people all around the world or inside the United States will behave in ways that we want them to behave.”

Jeff Snider (00:17:02):
For example, it became commonplace that, Alan Greenspan, for example, would raise or lower the federal funds rate whenever he wanted to do something. So, if he wanted to “tighten credit” and tighten the monetary system, would he actually tighten the monetary system? Would he go into the monetary system and take money out? No, he raised the federal funds rate, which was nothing more than a signal to the economy at large and try to get the economy and try to get the markets to tighten conditions based on that signal, based on expectations. As he said, during that time, as his predecessors said before, “We just can’t keep track of the monetary system. Therefore, this is what we have left to be able to do to try to get some form of control over the economy and the marketplace.”

Jeff Snider (00:17:44):
So, it’s really about this evolution in money in banking that took place outside of their purview, which left official scrambling to try to do something else to at least attempt to maintain the role of what a central bank used to do, but it’s not a monetary role. It’s not involved in the monetary system itself. So, once that happened, monetary scholarship simply dried up. The term Eurodollar kind of disappeared, not just from internal discourse, but from public discourse as well. So, you have a wealth of scholarship up to around early 1980s and then just nothing. Because what happened was we were told, we were all told, we were taught this in school. “At that point, don’t fight the Fed, just whatever the Fed says, whatever the Fed, they must know what they’re talking about when it comes to money, you don’t need to know. Just trust Alan Greenspan and Ben Bernanke. They’ve got it all covered.” So, once there was a vibrant monetary or debate and argument, it just kind of disappeared and dried up and went away.

Trey Lockerbie (00:18:40):
But it’s not all an illusion, is it? Because if we fast forward to today, we’re seeing it happen and play out in real time, where inflation is now high again as it hasn’t been for decades and they’re raising interest rates. And now we’re starting to see things like mortgage rates go up and home prices get underwritten in a new way. We’re seeing real economic impact from these decisions or actions from the Fed. So, where does the detachment actually occur in your opinion?

Jeff Snider (00:19:05):
Well, because that isn’t actually inflation. This isn’t due to money printing. This is sort of the federal… I mean, that’s why you didn’t see consumer prices react to QE6 back in 2020. Consumer prices didn’t start to skyrocket until March and April of 2021, which was coincident to the US treasuries helicopter drops. So, this wasn’t money printing, this wasn’t the Fed creating money. This wasn’t the Fed being a central bank. It was essentially a supply shock, which was the US government redistributed borrowing through the Treasury and mostly Treasury bills actually, the US government essentially redistributing cash into the pockets of consumers. And then consumers wind up spending that cash at a time when the ability of the global economic system to supply goods and then transport goods in particular was at its lowest point. So you see inventories of goods actually crash during these periods because we had essentially a supply shock.

Jeff Snider (00:19:59):
So, it isn’t inflation as much as it was consumer prices reacting to small E economics. Whenever you have a demand curve shift out to the right, especially when supply isn’t as any elastic as it was during that time, consumer prices have to react. I know most people are saying, “Who cares? Consumer prices went way up. What does it matter if it’s inflation? Or what does it matter if we call it inflation or not?” The issue is how it ends, because if it’s nothing more than a supply shock, it’s always going to be temporary and transitory rather than something like the 1970s, where you ignite the monetary spark of excessive currency, that leads to all sorts of, well, great inflation type of problems. So, how do we tell one from the other?

Jeff Snider (00:20:40):
And one of the things that consistent with excessive currency and money printing would’ve been destruction of the US dollar has been long proclaimed, long predicted, and long forecasted. But what you see ever since last year is the US dollars exchange value going up against almost every currency, because it wasn’t money that was printed. It was simply a supply shock. And because it wasn’t money printing, the way this is likely to end is in another bad way, which is a recession. That’s really what markets have been predicting over the last more than a year, actually, because the yield curve has been flattening. So, even as interest rates have been rising, the yield curve has been flattening. The Eurodollar futures curves have been flattening. All of the signals from the monetary system itself have been sending, “Hey, there’s no money here. This is not money printing. This is a supply shock and this is going to end predictably in something like a contraction or recession.” So, it was never inflation to begin with. It was simply small E economics of a supply issue.

Trey Lockerbie (00:21:36):
Very interesting. You mentioned the Fed tightening or not actually tightening earlier, but they are now on record saying not only they’re raising interest rates, but they’re going to be tightening literally by taking money out of the system again. So, how does that actually play into all of this? Is that a new tool in their tool belt that we haven’t seen before?

Jeff Snider (00:21:54):
No, we’ve seen quantitative tightening just a couple years ago and the thing is, okay, it gets back to the original problem that we started with, which is what is money? What the Fed creates are bank reserve. Again, it’s understandable why people will get this wrong, because we’re told, bank reserves, the Fed, it’s printing money, bank reserves are base money, some people say, is that actually true? You have to actually stop and think about what is it the Federal Reserve does? What is the role these bank reserves have, if any, in the actual monetary system? And it goes back to expectations.

Jeff Snider (00:22:24):
Without thinking anything about it, the Fed expands its balance sheet by buying assets, creating these bank reserves as an offset. And if you don’t think anymore about it, you think, “Well, the Fed printed money, I better act as if inflation’s coming because the Fed just printed a bunch of money.” That’s what the Fed is actually counting on. They’re counting on people looking at their balance sheet and only their balance sheet, not thinking about what bank reserves actually do, and acting as if that is money printing, that’s expectations-based policy.

Jeff Snider (00:22:51):
But when you actually stop and look at what quantitative easing is, first of all, it’s not really quantitative if you got to do it more than once. And is it actually easing? From the perspective of the commercial banking system, bank reserves are not money. It’s nothing more than another asset that’s created that banks actually hold. And what quantitative easing actually amounts to for the commercial banking system is an asset swap. So, it isn’t actually money printing and it can’t be money printing. Just think about it this way. Have you or I ever been able to use a bank reserve and go to the grocery store or the gasoline station and buy goods or service with it? You can’t. A bank reserve is nothing more than an interbank token.

Jeff Snider (00:23:27):
It’s only one form of interbank token alongside many other forms of interbank settlement tokens that the private system, the private Eurodollar system had used and invented for decades before that. So, we have to stop and think about what the Federal Reserve actually does in terms of bank reserves, as well as quantitative easing, what do all these transactions do? And if quantitative easing isn’t actually money printing, and spoiler alert, it’s not, then quantitative tightening isn’t actually monetary tightening. It’s nothing more than expectations-based policy to get people to act in a specific way that policymakers have designed.

Jeff Snider (00:24:02):
So, it makes sense why the Fed would raise rates and do quantitative tightening, because if everybody believes that’s what’s actually happening, then they’re going to act as if the Fed is tightening. But see, that’s not actually how it works and that’s not actually an effective form of policy, which is why in 2022, 15 years after the first financial crisis, we’re still dealing with the aftermath of the first financial crisis, because QE, creation of bank reserves didn’t actually solve the original problem, which the other quote that you picked out, 2008 was not about housing, it wasn’t about subprime mortgages. It was a global dollar shortage. And the worst part about it was, it wasn’t a temporary one-off, it represented a paradigm shift in this global Eurodollar system. So, the Federal Reserve, like the ECB or the Bank of Japan, they’re going to continue to do QE. They’re going to raise and lower interest rates as they see fit or raise or lower their benchmark rates. Market rates are a different story. But that doesn’t necessarily mean they’re doing exactly what they claim to be doing or what everybody says they’re actually doing.

Trey Lockerbie (00:25:03):
Now, did all the speculation around the GFC, the global financial crisis, add to this dollar shortage? I mean, break it down for us as far as where the dollar shortage at that time actually came from.

Jeff Snider (00:25:14):
Oh, it came from any number of places. You had a collateral shortage, you had a collateral breakdown, you had balance sheets constraints that became unworkable. When you have a ledger system that operates outside the United States, you have all sorts of these shadow money conduits, shadow money forms that take place, there was any number of possible fault lines. And part of it was, yes, participants in that Eurodollar system came to believe that if push came to shove somehow some way Alan Greenspan or Ben Bernanke would be able to bail everybody out. So, risk taking was paramount at certainly in the last parts of the housing bubble. The housing bubble being nothing more than a symptom of what was a global money and credit expansion that happened over decades, especially from 1995 forward.

Jeff Snider (00:25:55):
As all of those things began to contract, especially collateral, as collateral became hard to source and hard to get, there was really no way for any authority, whether it be the United States or the Federal Reserve or not to deal with a collateral type shortfall, to deal with balance sheet constraints that limited the ability of dealers to act in all of these various markets to maintain liquid markets, so that everything could price in a predictable fashion. And when all of those capacities started to disappear in the financial crisis, it wasn’t just, “Okay, we went through this, it was bad. We had a great recession that transmitted globally.” Everybody understood that the risks that they thought that weren’t there in the pre-crisis period actually were pretty severe.

Jeff Snider (00:26:37):
Think about it in terms of just Bear Stearns. Bear Stearns is sold as some kind of success story that the Fed didn’t bail out Bear Stearns, but they got JPMorgan to buy it at the last minute to save it from a insolvency and bankruptcy and worse. But if you’re a Wall Street proprietor, you’re a money dealer not just in Wall Street, but outside the United States, you look at Bear Stearns and think, “All of that risky stuff that we’ve been doing for decades. I could be the next Bear Stearns. And it doesn’t matter if we get bought out for,” what was it, “A dollar or a share by JPMorgan, we’re out of business, we’re wiped out.” So, this is the worst of the worst case for the money dealers operating this global shadow money system. They looked at the failures in 2008 as, “We could be next.”

Jeff Snider (00:27:17):
The Fed can’t really stop it. We see how powerless the Fed is. Doesn’t matter what the Fed does, there were overseas dollar swaps. There were the TAF, the term auction facility, there was a primary dealer credit facility, one after another, after another, these initialisms all failed, they didn’t keep the crisis from happening. So, money dealers looked at the 2008 crisis and said, “We need to change the entire way we manage our balance sheet. We need to change the entire way we do money.” So everything has been different since then because there really is no way to go back to the way it was before. And there’s nothing that the quantitative easing or the Fed or any central bank is going to be able to do about it.

Trey Lockerbie (00:27:54):
Now, the shadow money system that you’re describing, the Eurodollar system, and that’s become this huge global thing, could it actually be rebranded as a free market, the way you’re describing it? I mean, if we’re not in the central bank-controlled global economy, are we actually in a free market that we just don’t know about?

Jeff Snider (00:28:13):
Yeah. I would say that, in one sense, it was the free market solving Triffin’s dilemma way back when in the 1950s, because governments could not solve Triffin’s paradox without changing the Bretton Woods rules, which they tried to do with the London Gold Pool in 1960 and the two-tier price of gold later in the 1960s. So, governments attempted to deal with this natural and tendency, this inherent flaw in the Bretton Woods system, but found that they could not solve the issue. Where the banking system stepped in and said, “There’s opportunity here.” As we all know, the free market loves opportunity. So, the Eurodollar system solved Triffin’s dilemma and Triffin’s paradox for governments. And as I said, governments were aware that this was happening and they were only too happy to let the banking system solve a problem that they couldn’t possibly solve by looking the other way.

Jeff Snider (00:28:58):
Economist Paul Samuelson even called it benign neglect, which was the government’s looking at it and saying, “This banking system, they’re doing the job for us. So let’s just let it happen because we don’t have to get involved and get blamed for when everything falls apart.” Or, “If it doesn’t work the right way,” or whatever. And in one sense, it was the free market. But in another sense, was it really a free market? Because it’s more like a global banking cartel that has shown up and thrown up all sorts of barriers to entry. So, it’s not necessarily completely and fully competitive either.

Jeff Snider (00:29:29):
So, it’s sort of a quasi-free market in response to a real monetary issue. Then, because it was cartelized, I think that’s where you ended up getting into the excesses of… Especially the 1990s and middle 2000s, because there was no way to stop it once it got loose and once it really started to produce excesses of money and credit all over the rest of the world. There was no way for regulators to step in. They couldn’t do anything about it. They couldn’t even admit it existed. And because the cartels were really enjoying themselves, partying it up as it were, they were not going to stop it either.

Jeff Snider (00:30:00):
So, yeah, it’s sort of a quasi, partial free market response to an issue, but I don’t think it was a fully, when we certainly think about capitalism, free markets, to me, competition always comes… That’s immediately part of it. But because this was basically a global banking cartel, it wasn’t fully free market.

Trey Lockerbie (00:30:18):
I’m going to throw another rebrand option at you. So, basically, would you say the central banks globally are sort of enacting this placebo effect, meaning like, that’s where I get a little bit caught up here, because there’s placebo studies that show even placebo surgeries actually healing the underlying condition, which is just mind boggling. So, placebo can work. So, if the Fed and their actions or the effect is taking place, even though if not technically speaking the actions you’re describing are taking place. Is there such a difference? I guess my question to you.

Jeff Snider (00:30:51):
Well, I mean, certainly there’s a reason why central banks have undertaken this expectations-based policy, because they think this might work, it might be effective. If you use the lookback period to quantify the potential effect, as you described, placebo effect is the perfect description here. If you want to quantify the placebo effect of monetary policy that has no money in it, going back to the 1980s, you’re going to use the great moderation. So, it’s going to look like this works really well.

Jeff Snider (00:31:17):
Alan Greenspan, the maestro, he was a genius. All he had to do was move the federal funds rate a quarter point here or there, and it produced this massive wave of global globalization, global trade, global financial flows, prosperity all over the world. It looked like, “Hell, this was really good. This worked really well.” And then you get into the global financial crisis and suddenly everything that Ben Bernanke’s Fed tried to do, none of it works. So, in one sense, policymakers allowed themselves to be fooled into their own placebo effect.

Jeff Snider (00:31:47):
They thought, “Hey, we did a really good job through the 1990s and 2000s, which is really nothing more than the Eurodollar system going forward and taking over the global reserve currency and then going the next step beyond it, it was the Eurodollar system and policymakers taking credit for what was going on in the shadows that led everybody to believe this expectations policy could actually work and started to break down. We found out, “Oh, no, this doesn’t work at all.” Because you can’t have a placebo effect when you have a massive, sustained global… World-spanning monetary, a real money breakdown in the monetary system. It doesn’t do… Fairy tales, and nice stories, and soothing words don’t amount to a hill of beans when you have a real issue in the real economy.

Jeff Snider (00:32:32):
I mean, but after 2008, what are you going to do? Are you going to admit that you’ve been doing this expectations-based policy, which is really kind of just fairy tales for decades? No, you’re going to keep at it with the expectations-based policy and hope that, as you said, Trey, the placebo effect actually works post crisis when it didn’t really work out all that well. Because, again, we have a real money problem, we have a real breakdown in the bank balance sheet construction globally, and there’s no way you can fix it with just sentiment.

Jeff Snider (00:32:59):
There have been pockets of where you can see some kind of relationship between the placebo effect and, say, for example, the stock market. The stock market loves the placebo effect. The stock market love. Fund managers and people of financial services industry love to say, “The Fed is printing money, buy stocks. Jay Powell’s got your back. Don’t worry about a thing. Just buy shares, buy, buy, buy, buy, buy.” Because we don’t know if it’s true or not. At least there’s a sentimental and psychological reaction from the financial services industry in particular buying stock with whatever the Federal Reserve is doing.

Jeff Snider (00:33:31):
So, the placebo effect does have an effect in certain places, but does it have a powerful enough effect to offset what are really these drastic paradigm shifting breakdowns in the monetary system? Obviously, policymakers hope and expect that their sentimental offsets or those offsets in sentiment really are enough to overcome the real money deficits that are out there. But you look at the last 15 years and it’s conclusively shows, no, that’s not the case.

Trey Lockerbie (00:34:00):
So, what we’re trying to do right now is stress test our global framework, because a lot of things happening recently are leaving a lot of people scratching their heads, myself included. So, for example, if the narrative is that all this money printing that’s been done is going to depreciate the dollar and we’re going to lose reserve currency status, and inflation’s going to run rampant. I mean, we’re seeing the dollar strengthen to 20-year highs. Then similarly, we use our SWIFT system or we cut Russia off the SWIFT system and we say, “Okay, they’re going to go into financial ruin.” But yet the Ruble, while it did dip a little bit, is now climbing back and it’s higher than it’s been in pre-COVID even. So, these are all things that you actually look at in reality and say, “Well, wait a second, this isn’t adding up.” Maybe talk to us about Russia and what’s happening with their Ruble in particular.

Jeff Snider (00:34:46):
Well, yeah, what you’re missing is the Eurodollar system. Because like you said, like we said before, you think the Fed is printing money, debasing the currency. Ever since 2009, we’ve been hearing about how the dollar’s going to crash and everything else is going to go along with it, but it never happens. The dollar goes the opposite way and nobody ever says why. The Fed is printing money, the Fed is printing money, but the dollar keeps going higher. The dollar going higher is consistent with the breakdown in the monetary… A dollar shortage that isn’t a one-off. So, what it is, you see the Fed’s balance sheet go up, like I said before, quantitative easing is nothing more than an asset swap. But if all you look at is the Fed’s balance sheet, you think money was printed.

Jeff Snider (00:35:22):
What you don’t see, which is vastly more important, is the monetary destruction that must have been taking place in the shadow money system. So, every time the Fed creates bank reserves and quantitative easing, it’s in response to this other much larger, much bigger, much more relevant monetary destruction that you don’t see. So, the dollar going up tells you monetary destruction, to oversimplify quite a bit here, but the dollar going up is consistent with global dollar shortage. So, you see the Fed doing something, when something else in reality is taking place outside of your worldview or outside of your visible spectrum. It’s not just that, there’s any number of other things too. You see the yield curve flattening, interest rates falling. You can see in swaps markets, in the various derivative markets around the world, in the US dollar system, outside the US dollar system.

Jeff Snider (00:36:05):
And they’re all telling you the same thing, over the last 15 years, dollar shortage. Don’t pay attention to what the Fed does. Pay attention to what these markets are telling you about what’s going on in the real money system. Now, where it comes in with Russia and the SWIFT and everything else is that, remember what we said at the beginning, this is a bank-centered, offshore monetary arrangement that has been developing over many decades.

Jeff Snider (00:36:31):
So, when the government says, the US government Treasury gets together and says, “We’re going to kick Russian banks out of the SWIFT system,” for example, they can’t, it isn’t operated by the US government or the US Treasury. It is operated by a consortium of these Eurodollar banks that have been operating for decades. Even if these Eurodollar banks agree to kick Russian banks outside of SWIFT, SWIFT is nothing more than a messaging system. They can still operate. They can still transact with Russian banks through chips or something, or even just basic correspondent relationships that go back more than a century.

Jeff Snider (00:37:02):
So, because we have this offshore, bank-centered monetary system, it’s not up to anybody to kick anybody out of it. As long as banks are going to transact with certain countries or certain banks or companies in those countries, it doesn’t matter what authorities say, because this is a bank-centered money system. And really this is one reason why it grew to be such a dominant force in the global world to begin with, because it can respond to basically commercial interest rather than specifically political interest.

Jeff Snider (00:37:30):
In fact, that’s one reason, one of the origin stories, we don’t really know where the Eurodollar came from. And one of the origin stories was, believe it or not, the Soviet Union fearing confiscation of their US dollars in the 1950s began to hold them in banks outside the United States so that they wouldn’t be confiscated or wouldn’t be able to be confiscated by especially the increasingly hostile Eisenhower then Kennedy administration. So, that goes back to the very early days of the Eurodollar. These banks created all of these interbank network that would be able to respond to these commercial pressures regardless of political issues. So, it’s money that operates free from these political influences and free from political discretions. And it was built and its entire design was to make sure that it would continue to operate regardless of those factors.

Trey Lockerbie (00:38:19):
So, you and Brent Johnson, who we just had on episode 449, share the opinion or have a similar framework in that you’re expecting this dollar to climb higher, but he would say, and I think a lot of people would actually put this as the “why,” as you mentioned, no one’s saying is every central bank around the world is operating on a fiat currency standard at this point and they have to stay competitive. So, they have to continually debase even faster than we do. So, while the dollar is climbing, it’s somewhat of an illusion more or less, it’s just all the other currencies are failing quicker than the dollar is. Right? So, basically the dollar is the best of all of the worst things out there. So, what do you say to that as far as just the competitiveness, the debasement of other global currencies?

Jeff Snider (00:39:03):
I think it’s the other way around. That other currencies are reacting to the shortage in the dollar system. So, the Eurodollar system comes harder to roll over funding. It becomes much harder to source collateral, participate in repo. It’s much harder to redistribute through Japanese banks and currency swaps and things like that. All the shadow money stuff that becomes very hard to roll over and hard to source, the dollar goes up. As my podcast cohost Emil Kalinowski likes to say, “The cover charge for participating in this Eurodollar system rises when the system itself becomes that much harder to operate.” So the US dollar going up obviously has nothing to do with the Fed, because the Fed has been “printing money” since 2009 in excess of pretty much every other central bank outside maybe Japan. And yet the dollar goes up and up and up, again, because the cover charge goes up for participating in it as the dollar system becomes much harder to continue to operate by the bank’s operating in it.

Jeff Snider (00:39:53):
So, the other side of that is other currencies are falling, not because of their central banks responding by debasing their own currency. What we’re actually saying is there’s no debasement at all. It’s simply dollar shortage. For the example, the Chinese yuan, the Chinese are not debasing their currency whatsoever. In fact, they’re doing the exact opposite. They’re restraining their RMB, because they have a Eurodollar problem. The People’s Bank of China, for example, has the biggest dollar problem on the planet and it shows. So, what happens is the US dollar exchange value goes up against the Chinese yuan, which crashes.

Jeff Snider (00:40:27):
I think that’s why you hear these stories about the dollar is going to be replaced and this beggar-thy-neighbor currency war. It never works out that way because you’re missing the Eurodollar part of it. You’re missing the Eurodollar story, which is the only story. Again, China’s a very good example of this, because they’re not debasing their currency. They’re trying to stabilize their currency. There’s a direct relationship between dollar supply and RMB conditions internally that shows that the dollar goes up, that’s dollar shortage. And it has all of these various consequences to all the counterpart currencies around the world. So, I would say there’s no debasement of Eurodollar sufficiency, or in most cases, Eurodollar insufficiency.

Trey Lockerbie (00:41:06):
Fascinating. Well, I mentioned earlier, you study a lot of insiders and sometimes point out how they’re dead wrong. And one I wanted to speak about here is Zoltan Pozsar, which I’m terrible with names. So, excuse the pronunciation there, but he’s obviously spent a lot of time at the Treasury Department. He has a very pedigreed resume and he comes out with this paper that is talking about Bretton Woods III. So, we talked a little bit about Bretton Woods I a minute ago. What was Bretton Woods II? And what is he talking about with Bretton Woods III? And then, most importantly, why is it dead wrong?

Jeff Snider (00:41:39):
What is Bretton Woods II? He gets Bretton Woods II wrong. His thing is that Bretton Woods II was something that happened in the 2000s or after the 1997-98 Asian financial crisis, which was essentially a regional dollar shortage in the Eurodollar system. So, he gets that wrong too. Where it basically says that the countries around the world, national systems around the world basically responded to the Asian financial crisis by deciding, “Well, to protect ourself from this dollar shortage outside the US, wink, wink, we need to hold lots of reserve assets so that we have insurance against the type of development in the future.” So, he connects that with foreigners holding US treasuries in the same way that, for example, Ben Bernanke did in the middle 2000s, when he called it a global savings glut, which was utterly preposterous and ridiculous, but still.

Jeff Snider (00:42:23):
So, Bretton Woods II in Zoltan’s view is this, foreigners are going to hold lots of US treasuries because they think they need insurance against dollar shortage. Didn’t really work all that well in 2008, didn’t work all that well, especially again, in 2013, 2014, 2015, when we had another episode of dollar shortage that hit China, particularly, very hard, but also all the emerging markets. But he doesn’t really factor those things and what he says is that there’s this emerging Bretton Woods III consensus where, because the Fed has become more and more present in his mind, in his worldview, that these countries around the world won’t need to hold liquid US Treasury assets. They can just depend on the Fed’s overseas dollar swaps or FIMA, which is F-I-M-A, which is a way to liquidize US Treasury securities that they’re holding and all sorts of other programs that the Fed could possibly implement so that they can ditch their US treasuries and do this global settlement on a commodity-based system, which is the way he sees it.

Jeff Snider (00:43:19):
Where I think he’s very wrong is that he gets obviously Bretton Woods II wrong. I think he doesn’t see the entire system as it actually is. Including how the fact, how he never factors how collateral is such an important part of, not just settlement, but the basic redistribution of liquidity throughout the entire global monetary system. So, commodities don’t work well as an instantaneous settlement mechanism. So, that’s not really going to work either. What I think he’s really said, to be fair to Zoltan’s view is that he doesn’t expect this to happen tomorrow, but he expects it over time we’re going to migrate away from the Eurodollar system towards this commodity-based system, where I think that’s just nuts, because the system itself is telling you, no, we want to stick with treasuries, because, again, long story short, we don’t believe the Fed is capable of making the system and keeping the system liquid.

Jeff Snider (00:44:08):
So, we’re going to need our insurance policies over time. We’re going to need these massive stores of reserve assets, number one, because of collateral, but number two, because we don’t really trust the Fed to maintain a orderly liquid marketplace. So, long story short, I think Zoltan looks at… He’s only looking at a small part of the overall Eurodollar system, which again is understandable, when we talked about that before, and concluding that the level of bank reserves plus all these Federal Reserve programs mean that we can move into somewhat of a different system. When, to me, the system is absolutely rejecting that and moving even further in the direction of holding liquid asset.

Trey Lockerbie (00:44:45):
Is Zoltan’s view at all based in this idea that we’re going to deglobalize over time as well and everyone’s going to get back to less import, export globally and putting our own oxygen mask on first, if you will, as a country, is that part of this whole thing or is that totally separate?

Jeff Snider (00:45:00):
No, I think that’s part of it. And I would agree with that part of it too, because historically speaking, globalization is nothing more… I mean, this is not the first time we’ve seen the world globalize. And it usually isn’t a lasting process. It usually is based on oversupply of money. You have a wave of [inaudible 00:45:16] down. And usually the cleanup from it takes as long as the globalization itself. So, it’s not unusual to see the world globalize and then something happens and it deglobalizes over time and it essentially devolves into everybody for themselves, which is, I think, what Zoltan is trying to put together is what does this everybody for themselves actually look like? And concluding that, commodity-based settlement would be one way to deal with everybody for themselves kind of an arrangement. When I think that’s probably not the way that’s going to go.

Jeff Snider (00:45:45):
In fact, I think the system has already evolved. It has already told you that’s continuing to move in the other direction. As we discussed, the US dollars exchange value continue to just go up rather than down. US Treasury prices are hanging in there, despite the… Yes, the bond yields are up over the last couple of months, but with the yield curve flattening and everything else, [inaudible 00:46:03] rates starting to fall, there is tremendous demand for these safe and liquid assets, because safety and liquidity is on the minds of everybody participating in the monetary system for reasons of the short run, as well as the long run. So, part of that long run reason is how do you protect yourself to operate in a deglobalizing fragmenting type of world? I think we’ll see more demand for things like US treasuries rather than less, because, let’s face it, uncertainty and unpredictability are a huge part of what is driving demand and safety and liquidity.

Trey Lockerbie (00:46:35):
Well, what we’re doing right now is trying to just keep an eye on indicators to inform us as investors of how to either flock to safety, as you’re kind of putting it, or know when to participate and go bigger on bets. So, one thing you mentioned there is the dollar going higher, that’s happening. And it’s important to know that that’s putting a lot of stress on the rest of the world. It’s creating the debt around the world to be more expensive for a lot of these companies holding US denominated debt. And it starts to create sometimes these margin calls around the world, where people have to liquidate in order to just cover their debt. So that’s why you sometimes see the markets correct because of that. So is what I’m describing still accurate? Because it’s part of my initial framework here. Or is there something else to this that I’m missing?

Jeff Snider (00:47:14):
I think that’s an accurate framework and I think it’s a simplified framework, but it’s largely, that is the correlation you’ll see. When the dollar goes up, it’s like a wrecking ball. It’s a wrecking ball for financial markets and financial participants, as much as it is for real economy participants that are global trade merchants, for example, that have a difficulty in paying off trade debts when the dollar is going up. The reason the dollar is going up is because it’s much harder to borrow in US dollars, which means it’s much harder to maintain the levels of leverage and money and credit that you had beforehand. Because everybody operates on a short-term lending relationship.

Jeff Snider (00:47:48):
So, if you’re trying to roll over short-term funding, interbank funding, for example, one day you’ve got X terms that are reasonable, you think they’re great. And then the next day, your dollar counterparty says, “I need you to put up more collateral. I need you to put up more margin. I need you to put up something else because I view you as risky, your exchange value is going down,” whatever it happens to be, it becomes that much harder to just do what you did yesterday, just to do the same amount of stuff that you did yesterday.

Jeff Snider (00:48:13):
So, as the dollar goes up, and that signals all of these problems in the Eurodollar system, fundings deficits, funding shortfalls, increased costs just to maintain the same things that you’re doing before. That’s where you can see these correlations, as you described, Trey, that dollar goes up and then all sorts of these other problems that are very real, they’re not just theoretical or on somebody’s piece of paper. There are actual collateral calls going out. And we know that, because of the price of T-bills, for example. So, we can see these things happening in real time.

Jeff Snider (00:48:40):
I think what you just said is really what we’re trying to do here, because we’re talking about a shadow money system that nobody has really been investigated, nobody has been monitoring. There are certainly no quantitative measures to go in there and say, “How many Eurodollars are there?” Because there’s no such thing as a Eurodollar really. All we have to go on is the Eurodollar system telling us what must be happening in the shadows. And that’s where we look to these various market prices and saying, “What are the market prices actually telling us about what must be happening in this system?” So, the dollars exchange value is an oversimplified one, but is a very good one that tells us what must be happening in the shadow money system out there in this vast offshore space.

Trey Lockerbie (00:49:20):
So, obviously, a lot of this narrative that you’re putting forth, which, for lack of a better name, is flying directly in the face of a lot of narratives used around things like Bitcoin, where the expectation is that we’re losing reserve currency status, and the dollar is depreciating and people are going to flock to something that is finite and is going to be a better store of value. They’re going to build things on top of it to make it more of an interoperable currency. But am I wrong to suggest that you’re probably not as bullish on Bitcoin? Walk us through how this plays into your narrative and framework.

Jeff Snider (00:49:53):
I think it’s exactly what… The narrative that’s driving cryptocurrency interest and investment is that, it’s the wrong one. It’s the idea that the dollar’s going down in value. But as we said before, the dollar keeps going up, not down. So, every time we have these periods where the dollar sort of goes down for a little bit, like in 2017, for example, everybody says, “Okay, this is the dollar crash, here it comes.” And everybody piles into crypto, because they’ve been told, “You need to protect yourself against the dollar crash.” But then 2018, the dollar suddenly goes higher in the middle of 2018. And you think, “Well, wait a minute, the dollar didn’t crash, it’s going the other way. We’re not seeing interruption of currency. We’re seeing the exact opposite. We’re seeing deflationary money break out all over the global economy.” And everybody piles out of crypto.

Jeff Snider (00:50:34):
Repeat in 2020, 2021, everybody, “Oh, the dollar’s going to crash this time for sure. Have you seen what the Fed does? Have you seen what the federal government has been doing?” And everybody piles into the crypto assets, because the dollar’s going to crash, and this time for sure. “We’re telling you, it’s going to crash. Just wait and see.” But then it doesn’t. The dollar starts to level off and continue higher. Then, of course, later in 2021, and especially in 2022, the dollar starts to skyrocket and everybody says, “Well, wait a minute, we were told the dollar was going to crash. It’s not crashing. It’s doing the opposite. Oh, by the way, we just did this a couple years ago.” Suddenly not as many people are interested in cryptocurrency anymore. So, for my own personal view, a short run cryptocurrency, I think, again, they have the placebo effect in mind. They have this idea the federal government together have devalued the dollar, but you can never square that circle because the dollar never goes down. It only goes up over time.

Jeff Snider (00:51:27):
So, you have this influx of interest into crypto and then this outflow of interest into crypto. So, short run, you have this massive volatility in price, which is not what you want from a competing or an alternate currency system, which has kind of opened the door to other forms of crypto like stablecoins, which to me is really what’s going on in cryptocurrency and digital currencies and DeFi and everything else has nothing to do with store of value. It’s all about medium of exchange and elasticity.

Jeff Snider (00:51:55):
So, if the general thesis and the general condition of the monetary system, and I think I’m right about this, in fact, I’m really sure I’m right about this, since 2007 is we have a shortage of money. We have an inelastic currency system, historically speaking, whenever you have an inelastic currency system that doesn’t supply the money that the economy needs to grow and be efficient, competing currencies will evolve, because human beings are ingenious and digital currencies in the underlying basic fundamental capacities are ways to solve this inelasticity medium of exchange, and have nothing to do with store of value.

Jeff Snider (00:52:28):
Since you have these competing tensions where digital currencies are evolving toward a medium of exchange that’s useful in parallel or in competition to the Eurodollar system, but investors are taking the placebo and running with it and running wild with the cryptocurrency prices, which is sort of not what’s going on in actual… The development of technology and innovation in the crypto space. So, you have one thing that’s sort of a long-run trend, where digital currencies are trying to solve elasticity in the medium of exchange, where investors and speculators are running into cryptocurrency on the other side, because they wrongly conclude that crypto is about store of value when it’s really not. So long run, I think, there’s value there the long run, there’s potential there, even though the prices have been extremely volatile and wild. I think that current prices in crypto are way overvalued, because we don’t really know what that elasticity solution might look like when we get to the long run.

Trey Lockerbie (00:53:22):
Well, I want to be careful about lumping Bitcoin in with all crypto, because I do think there are a lot of differences there. Well, one of the billionaires we study a lot on this show is Ray Dalio and Ray Dalio was just in Davos, again, pontificating on the fact that cash is trash and he was even propping a Bitcoin or promoting it a little bit more that he’s become a big advocate seemingly over the last year or two. And he has also said that when you’re comparing the dollar, for example, you have to compare it to financial assets, not just other currencies. This is something that I think is sometimes left out of the debate. But if you look at this currency shortage that you’re talking about, how do you then explain asset prices going up? I mean, it seems like there’s more of an asset shortage, with the stocks even, or the housing or et cetera than there are seemingly a dollar shortage.

Jeff Snider (00:54:10):
Well, you have the placebo effect in markets, as I said, but you also have, again, small E economics too, especially in real estate in the United States, we haven’t been building houses. We haven’t been building enough apartments. So, wealthy people who tend to be more liquid have been piling into assets based on the placebo effect, including cryptocurrencies, including digital currencies, as well as real estate. Even though there’s nowhere near as much real estate being built, especially on a population adjusted basis, as there was in the 1990s, for example. Again, you have the demand curve shift to the right, supply inelastic, prices have to adjust.

Jeff Snider (00:54:41):
As you said, there’s an asset shortage, a liquid asset shortage that has spilled over into things like real estate. It’s no different than collateral and safe and liquid assets, because in a safe and liquid environment, those are the things that are in demand. Those are the assets that are in demand. What we don’t see is all the illiquid assets that don’t get markets anymore, that don’t get priced, that don’t get the same considerations that liquid markets do.

Jeff Snider (00:55:04):
So, I think it’s not necessarily the case. In fact, I know it’s not the case that there’s an oversupply of money propping up markets. There’s an undersupply of assets because of that same problem. We have a global monetary liquidity problem that is forcing essentially the system to restrain itself. And it’s sort of a self-reinforcing spiral. There’s really no way out of it, at least no way under the current framework, where the Fed’s not going to solve it. It’s not going to solve itself, I mean, it’s been 15 years, but it’s not going to just randomly fix itself one day or the other. So, you have this volatile system where we all run into one class or another over time based on mistaken identity, based on mistaken impressions, or as you said, Trey, based on nothing more than the placebo effect.

Trey Lockerbie (00:55:45):
All right. So, in wrapping up here a little bit, I want to talk about the end game. If I’m talking with Brent and his Milkshake Theory, he says, “This is a story that ends badly.” And you’ve kind of alluded to the same thing during this discussion. So, what are we as investors through your framework? What should we expect to come next based on what you know, and what you’re seeing happen in the markets?

Jeff Snider (00:56:06):
Number one question I get all the time too, is how does this all end? And I think the human mind, we immediately go to while the system just crashes and we have to reset from there when the Eurodollar itself provides us with another example. Because the Eurodollar system took over from a grossly malfunctioning system, hardly anybody knew it did. In fact, it did its job so well, we transitioned from the 1960s in Triffin’s paradox to the great inflation of the 1970s, which today people still don’t understand what the hell happened in the 1970s either. So, it isn’t necessarily the case that we should expect this dollar shortage to produce something like 2008 or worse. We’ll never see another 2008 again. I don’t even think we’ll see a rash of bank failures or any bank failures, because part of the problem here is that banks have been fortifying their own balance sheets, so that they don’t fail. They don’t end up becoming Bear Stearns, which is deprive the entire system of monetary resources.

Jeff Snider (00:56:58):
So, while banks are safe, we’re left scrambling with a shortfall of money. So that doesn’t necessarily mean we get into another banking crash or banking gross systems, or gross failure like that. It could just be, we continue on this Japanification trend for quite a lot longer. I mean, how long has Japan been on its current track, going back to the early 1990s, as frightening as that is, they’re more than 30 years into this and they’re still going. I know everybody says, “We’re not Japan, we’re not the same type of system. We can’t possibly be Japan.” But it’s 15 years already and we’ve basically replicated everything that Japan did as well as all the results in terms of financial, as well as real economy outcomes is too.

Jeff Snider (00:57:40):
So, it could be that we end up with another systemic rupture. I don’t think that’s the case. I think we continue along being squeezed by lack of economic growth, lack of liquidity, lack of money. Then there’s actually a number of potentially positive outcomes where we have one of these alternative cryptocurrencies or digital assets that actually does produce, evolves a couple more steps, a couple more orders of magnitude. It gets a couple orders of magnitude better. Then we have a competing currency that, just like the Eurodollar system does, slowly absorbs the roles of the monetary system over time so that we don’t even notice, “Hey, the Eurodollar system just kind of disappeared or now we’re doing this other thing.” That’s possible.

Jeff Snider (00:58:18):
It’s maybe not the most likely scenario, but there’s really a spectrum of potential outcomes in between the really positive and maybe the real, not necessarily the worst negative, but somewhere in between where we could continue on as we are, we go through these recessions, lack of recovery. It kind of gets worse slowly over time. We never seem to get out of it. I think eventually that leads to a bunch of bad consequences, not necessarily in the marketplace, but more dealing with social and political issues and anything else. And somehow, some way we actually do solve the Eurodollar system, even if nobody’s actually setting out to solve that particular problem, but it actually happens.

Jeff Snider (00:58:58):
And it’s really difficult to say what is the most likely scenario. Because in some ways this is unprecedented times, unprecedented problems, where we don’t really know. I’d like to be more long run optimistic than not, which is eventually we get our stuff together here and really do look at the problem and how it actually is, stop looking at central banks and governments to try to fix it, because they’re not going to be able to, and start looking at a realistic alternative, maybe digital currencies or something like that. I’d like to believe that we get to that scenario before something like 2008 happens again.

Trey Lockerbie (00:59:33):
So, that’s really interesting. So, what I’m hearing you say is we can kick the can on this for a lot longer than people expect. And just a fact there that Richard Duncan brought up on our show, we could currently create $10 trillion more of debt, and we’d only be at where Japan was, I think, 15 years ago or so. They are so much farther ahead and we could potentially do what we’re doing much longer in a vacuum, let’s say. But what I’ve also heard you say about the Eurodollar is that it’s not working as well as it used to. I want to ask why you think that? And then what you’re saying there is, do you think this crypto market, Bitcoin aside, has popped up almost like as a solution to why the Eurodollar is not working as well as it used to?

Jeff Snider (01:00:16):
Yeah. As I said, I think the crypto currency and digital currencies in general, and I will lump Bitcoin into that, even though Bitcoin has trended more towards store of value than medium of exchange. And my personal opinion is I don’t think Bitcoin is a usable global medium of exchange, because you have a fixed finite system or a fixed finite amount, which doesn’t really work well historically speaking, but that’s, overall, digital currency, yes, I think they came about as a potential answer and that’s really why they proliferated as a potential answer to the inelasticity in the Eurodollar system.

Jeff Snider (01:00:45):
I do think the Eurodollar has become more and more dysfunctional over time. Again, just look at the US dollars exchange value go up and up and up. It almost goes up, not all at once, not in a straight line, but over the last 15 years, it’s only gone in the one direction, because more and more malfunction, more and more dysfunction within the system, more and more attention only on safety and liquidity when money, real economy with sustainable economic growth as John Maynard Keynes said a long time ago, we need animal spirits, we need risk taking. And that’s just not going to take place in this malfunctioning currency system until we solve the any elasticity issue.

Jeff Snider (01:01:20):
So yeah, I think cryptocurrency, digital currencies have potential to solve that issue. They’re not anywhere close to there just yet, but potentially, if allowed to go further, if governments don’t come in and strangle them in the crib, then potentially there’s actually a solution there.

Trey Lockerbie (01:01:38):
Well, Jeff, a lot of this stuff is over my head and when I’m studying billionaires, as we do on the show, I’m constantly, I feel like after these discussions, retreating back to the Buffett in me or the philosophy, because all I want to do right now after exploring all this is just go buy Dairy Queen. That’s just, I’m like, “You know what? I can understand that much, at least.” But, Jeff, of all people putting up this argument and not many are, I really appreciate how articulately you did. And I really did learn a lot and I think our listeners will as well. So, before I let you go, I want to make sure I give you an opportunity handoff where people can follow you and learn more about you and the content you’re putting… Well, really research you’re putting out into the world and any other resources you want to share.

Jeff Snider (01:02:18):
Sure. What I tell people is that you don’t have to take my word for it. Maybe I’m just the guy bringing up the issues and raising these possible questions and connecting some of these dots that maybe have bothered people, like the rising dollar versus all these other kinds of things. But you really don’t have to take my word for it. You can just do a little bit of research, a little bit of scholarship, uncover the same things that I have over time. You can see the Eurodollar emerge. You can even see central bankers like Alan Greenspan and Ben Bernanke admit that they’re not really central bankers and the Fed isn’t actually a central bank. They don’t like to say these things in public, but the quotes are out there and there are a lot of them. So, you don’t have to take my word for it.

Jeff Snider (01:02:53):
But in case you want to, you can find me at, like I said, I do a podcast with my co-host Emil Kalinowski, it’s called Eurodollar University. You can find it on YouTube. You can find it at Spotify, iTunes, at wherever you get your podcasts from. I also publish a lot of stuff on the blogs. I do weekly column at a place called RealClearMarkets. I have a weekly column at The Epoch Times. There’s lots of research on the Eurodollar system and the macro and financial consequences of it that are all over the internet. So, it’s pretty easy to find if you are interested in taking my word for it.

Trey Lockerbie (01:03:24):
Well, Jeff, I’m really excited to have you back on the show and let’s keep monitoring the situation as it unfolds and get the evidence in place to make a decision once and for all what is really happening with our global monetary system. So, Jeff, thank you so much for your time. I really appreciate. And all the wisdom you share with us today.

Jeff Snider (01:03:40):
My pleasure, Trey, and thanks for having me on.

Trey Lockerbie (01:03:43):
All right. That’s all we had for you guys today. If you’re loving the show, don’t forget to follow us on your favorite podcast app. And lastly, we always love hearing from you, so either leave a review or reach out to me on Twitter, @treylockerbie. And with that, we will see you again next time.

Outro (01:03:56):
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