Anthony Pompliano 0:00
Pretty crazy to think through this stuff. You mentioned currencies. And, you know, obviously we’ve got the situation in Lebanon going on right now where the protesters are seeing currency being devalued way. food prices are getting more expensive. And literally people are just going into the street and fighting and go.
Peter Zeihan 0:16
It’s pretty straightforward. If you import half your food, your currency drops by half.
Anthony Pompliano 0:21
Yeah, and we’ll need to take it a step further, right. I’m literally going and attacking banks because the banks won’t allow the withdrawals and they won’t let them withdrawn. other currencies, you have to do the Lebanese pound. And then even being smart enough to understand like this is happening at the Central Bank level.
And actually going to to that point, maybe just talk a little bit about on a on a global basis. As these economic situations transpire. Obviously, the central banks and governments will say, well, we have a couple of tools, other than the strategic moves of food production and things like that.
We can manipulate interest rates, we can participate in quantitative easing that has a lot of different effects on economies both globally and on the national level. Like how do you think about those central bank actions kind of overlaid on all of this? I’d actually argue that most central banks don’t have those options anymore.
Peter Zeihan 1:08
Okay. Most of the world never recovered from the 2007 financial crisis. The Europeans in the Japanese, for example, never got their interest rates back above zero. So when we went into this crisis, there were only a handful of countries that only had some moderate monetary flexibility, the United States having more than everybody else put together.
So, I mean, if, if after 10 years of recovery, you never had monetary recovery, when you went to the next crisis, I’m sorry, that’s, that’s it. That’s the end of your currency as a functional currency, especially if it was a hard one. The demographic situation most countries don’t have consumption.
The demographic situation most countries don’t have long range investment capacity. So what we’ve seen is the United States was able to put out more stimulus and everybody else put together combined The US Federal Reserve because it is the only hard currency that matters was able to do more than everybody else combined.
And now countries are coming to the US fed for swap lines, which is basically dollar rising the global system. And the more that happens, regardless of whether those actions are successful or not, the more the United States has the flexibility to do whatever it wants with monetary and fiscal policy.
So that $3 trillion. No foreigners bought up most of the debt, most of it the Fed didn’t have to do. So we still have the option and take advantage of this later in the year to do another couple of $2 trillion stimulus is over the course of the summer.
In order to keep our system moving, most countries can’t even pretend to do things like that. So we haven’t honestly really even started a significant QE in this environment. The Fed has gone in and you know, supported bond markets here and there. And I don’t mean to suggest that’s insignificant. But it’s nothing on the scale that would need to be done in the rest of the world and the Fed just isn’t interested.
Anthony Pompliano 3:07
Yeah, it feels very much. I think 5 trillion is kind of a base number that I see thrown around a lot and tends to feel like there’s a lot more room to go. In this world, though, as the US continues to do this. Is this a world where the US dollar just continues to strengthen and we see one currency output, you know, just fail, or be devalued materially against that dollar? Well, remember, there’s only eight hard currencies in the world right now.
Peter Zeihan 3:32
So this honestly, in my opinion, this is not all that bold of a forecast. But yeah, the US currency has nowhere to go but up for at least a couple of decades, probably five. Let’s go through the contenders. China wanted to open it system up. They did so about three years ago, and a trillion and a half dollars of Chinese assets fled within six months.
So they slam that shut they will not Never open it again, they realize that that’s never going to happen you want will never be a global currency. And that assumes China holds, which I don’t think it will. Next, the yen. The yen tried to do something similar to the Chinese back from the 80s. It had a similar outcome. They’re not interested.
So they print more currency than we do on a regular basis despite the fact that our economy is less than one third the size of Bureau. Wow, it’s not that they’ve mismanaged it. It’s just they failed to take advantage of what time they’ve had in order to reform their system and to prepare for what a world without favorable demographics is.
They failed to do that. So we are probably looking at the unwinding of the euro over the course of the next few years. I hope that’s not front loaded. I’m losing hope on that when I look at European news these days, and that is the second greatest store of value in the world.
And so as that unwinds, even if the Deutsche Mark proves to be a rock solid currency, everyone from the periphery is going to be going Willy million, most of that’s going to come to the US dollar. So that’s a big search after that’s the pound, if there’s anything that everyone in the world can agree on is that the Brits should never be in charge of anything ever again.
And the way they handle the Brexit negotiations, absolutely underlying that. So they’re going to get gutted in the United States with the trade talks. And that will probably merely end the presence of the British Pound in most people’s currency baskets.
They’re basically be folded into the NAFTA system. compared to how the rest of the world is going to look, that’s not a bad position to be in, you’ll be part of the largest market largest investment pool, blah, blah, blah, blah. But that doesn’t mean they lose monetary autonomy. After that, you’re down to Canada.
And don’t get me wrong, but Canadians run a tight ship in terms of monetary policy, but a country of 35 million people cannot direct how the world is going to work. After that. We’re talking Australia, Sweden, Denmark, New Zealand. That’s everyone. So you know to say that the US dollar is just going to be the only currency of size and that it’s only going to go up.