Transcript
Brent Johnson, Jeff Deist, and Keith Weiner discuss the fate of the US Dollar at the 2023 New Orleans Investment Conference. Is there a debt level that will sink the dollar’s value? Can the BRICS countries offer a better currency? Where does gold fit in?
Additional Resources
Earn a yield on gold, paid in gold
The Dollar Cancer and the Gold Cure
The Case for Gold Yield in Investment Portfolios
Podcast Chapters
00:00 Intro
00:19 Jeff Deist
08:11 Brent Johnson
16:10 Keith Weiner
34:44 Dubai Question
35:16 Jeff on Debt Levels
36:25 Brent on Dollar Value
39:15 Keith on Gold Backwardation
44:19 Monetary Metals
Transcript:
Ben Nadelstein:
We’ll start with an opening 5-10 minute talk of each of the panelists, starting with Jeff Deist, going to Brent Johnson, and ending with CEO Keith Weiner. Their predictions, their thoughts, and their analysis on the future of the US dollar. We’ll start with Jeff Deist.
Jeff Deist:
Hey, everybody. How are you tonight? Thank you for coming. Great to see you. And of course, we thank you for your interest in Monetary Metals. Great company, in my opinion. I just joined earlier this year and would not have joined if I didn’t think it was a great company and a great concept. I was watching a video presentation earlier today. The New Orleans Investment Conference is pretty venerable as investment conferences go. It’s been around since the 1980s. Some of the speakers over the years, people like Milton Friedman, some big names like Jim Grant, Ayn Rand has spoken here. She came down on a train. But one thing that really struck me watching that is just this idea that nobody knows. In other words, I’m a macroeconomics denier. I think macroeconomics is nonsense. I think the idea of what seven billion people get up every morning and do is unpredictable. They’re not atoms or molecules. So when it comes to economics and our understanding of how society works, and of course, what people at this conference are interested in is how to make money or at least how to preserve it.
The short answer is that nobody knows for sure. So we have to go with what we do know. And I think that’s understanding that humans act and they respond to incentives. And There are certain things we can know axiomatically about humans. I have a great friend in Vienna, Austria named Rahim Takhezadeh, and I might be butchering his last name. He’s of Iranian descent. And he gave a talk a couple of years ago where he said, The currency is really the calling card of a nation. And I thought that was pretty poignant. For many, many decades, the Swiss Frank was an impressive currency. Now, in the last, let’s say, decade, the Swiss Central Bank has gone a bit off the rails. But the idea of your currency as being your calling card, as I assume most of us in this room are Americans, what does our currency say about us? What What is the US dollar? I would argue it’s a great and wonderful tool in many ways. You can use it almost anywhere in the world. It has held its value. It’s been a wonderful, exorbitant privilege for us for many, many many decades, and we’ve been able to export a lot of inflation and fund a lot of wars and fund a lot of entitlements and other things using that dollar.
And so the question on so many people’s minds now is, how and when does that come to an end? Well, people who think like us were saying it was going to come to an end 50 years ago in 1971. People like Doug Casey were saying it was going to come to an end. I’ve learned a lot listening to Brent. I tend to ascribe to his idea of the dollar is certainly the least dirty shirt in the laundry. But as a calling card, I think our dollar doesn’t serve us well as we to go abroad. So a couple of things that I would mention is that if we look back on the last time interest rates were high, the late ’70s and early ’80s, US federal debt was roughly $1 trillion. So no matter how high interest rates went, that wasn’t much of a problem for Congress to service every year in its annual budget. Today, that debt is $33 trillion. We can fast forward to There was that feeling of a roller coaster going over the hill, and it starts over slowly because the tail is still on the other side, but when it goes, it goes quickly.
I remember those months in 2008 around the layman crash, and I remember that I think a lot of us in this room probably had a real pit in our stomachs. I was working in the M&A world at that time, and I was very fortunate, frankly, to keep my job. I had young family at the time. If we look at 2008 In fact, versus today, I mean, what have we done? The total worldwide debt at all levels, sovereign corporate household individual was about $140 trillion in 2008. Today, it’s over 300. So we haven’t dealt with it. We’ve used monetary policy to kick the can down the road. And maybe that’s a rational thing, but nonetheless, I think that we have reached a tipping point in the sense that That inflation, in my view, will be a permanent or at least near permanent feature of the American landscape for the next decade. We will all experience that in a way that we haven’t in the past. And that’s going to mean that it’s about keeping up with that as much as it is about becoming wealthy. That’s going to hit the poorest folks, the hardest, the less affluent folks amongst us, the people who make less money, they spend obviously a much higher percentage of the money they make on basics like rent and food and gasoline.
I don’t know how some of these single parent families and such, I don’t know how they’re making it right now. Any one of us just walk into Costco and look at T-Bones versus even a year ago, but certainly two or three years ago. So I think that inflation is a new thing, and I I think we all have to adjust our thinking to that. And we haven’t had to do that. Again, we’ve enjoyed that exorbitant privilege, and we have probably, as a country, lived beyond our means for many, many decades. And there’s certainly a chance that that could continue on. But I think part of what Monetary Metals tries to do is say, We can’t predict the future, but we can offer a very novel idea that Keith came up with, and we can do so in a way that you don’t have to worry about what gold is doing relative to the dollar or any other currency. You don’t have to think that there’s going to be hyperinflation in America. You don’t have to think that there is going to be a big government cracked down on Bitcoin. We can just offer a slow, steady yield so you have more ounces than you started with.
We can’t know the future, but we can know the past, and gold is never gone to zero. There’s never been a time where someone’s grandpa passed away with a bunch of gold, and it was worthless. That time has never come. So I think these are reasons that we should understand that gold is going to continue to It’s going to have some moneyness to it. It’s going to have some element as a financial asset above and beyond just a commodity. And if it were just a commodity, it would be priced simply for its value in jewelry or industrial uses. And the fact that it’s priced in whatever currency higher than that, I think, is the market’s way, which is to say humanity’s way of saying, You know what? Gold still has a moneyness, even if we don’t use it as money day to day, or we’re frankly not allowed to use it as money day to day. So uncertain times, and I think gold is a certain asset in uncertain times. Thanks.
Ben Nadelstein:
Thank you, Jeff. We’ll now turn to Brent Johnson of Santiago Capital to give his view on the future of the US dollar.
Brent Johnson:
Hi. Thanks for everybody coming tonight. And thanks to Keith for inviting me. It’s very nice of you to do. When I first met Keith, gosh, I don’t know, maybe 10 years ago, I read a report he had written and I said, wow, this guy sounds pretty smart. And the more I read from him, part of the reason I liked him so much is he wasn’t a sensationalist, and he wasn’t calling for hyperinflation, and he wasn’t overly dramatic about gold. He just laid it out how it was very thoughtfully and logically, and I related to that pretty well. It’s been fun keeping in touch with him over the years on that stuff. As far as the US dollar, did a lot of people here hear my earlier today? Yes. Okay. All right. Thank you. I had a real turning point in my journey on this, probably about seven or eight years ago. It was the 2015. And part of the journey was that I was very angry and very upset after 2008. I thought the way that the government responded to the crisis was very unfair. I thought the way the government bailed out the wealthy at the expense of the less fortunate was wrong.
And it just really stood in contrast to my view of the United States as the bright, shining city on a hill. I just didn’t think that was right. And for the next five or six years, I fought against it. And it was in 2014, a friend of mine, a very smart guy, very successful investor, who was also a big fan of gold, said, said that the dollar was going to get a lot stronger, and I thought he was crazy. And I couldn’t figure out how he could say that gold was an important asset to own, but that the dollar was going to get a lot stronger. And sure enough, in the second half of 2014, the dollar went on like a 10 % run higher. And I started asking other people in the gold world, why is this happening? And they all said, well, it won’t last. It can’t last. And then I would ask somebody else. They’d give me the same answer. But nobody ever wanted to actually figure out why it going higher. And it made me mad. And so in 2015, I said, well, I’m clearly wrong. I got it wrong. My friend got it right.
How did he get this right? What does he know that I don’t? And that’s when I really went back in and looking at the monetary system. And I realized one of the mistakes that I made was that, number one, I was very emotional about it, and I wasn’t looking at things clearly. I thought that I was, but I wasn’t because I I was very mad. And once I… Maybe there’s a little bit of the time heals all wounds. We are now six or seven years past the financial crisis. I was able to step back and look at things a little bit more rationally, a little bit less emotionally. And I started to realize that what I had been doing was projecting my own wants and desires on a system that didn’t care what I thought. And that’s when I came to realize that if I’m going to… And I was managing other people’s money, but I was managing other people’s money with my own belief system. And that’s, for me as a money manager, that’s breaching my fiduciary duty, because my fiduciary duty was not to use their money to make my world better. My duty was to make their money bigger.
That helped a lot. What I’ve done a lot over the last seven or eight years was my best to explain to people that while the US has committed many fiscal sins, and we will eventually pay for them, everybody else is doing the same thing. Just because we want something to happen doesn’t mean it’s going to happen. I think when you’re putting your own money on the line, which means your future is on the line, you got to be as unemotional and as rational as possible. That brings me back to the dollar. I think a lot of people have a hard time thinking of the dollar and gold positively at the same time, because a lot of times they’re seen as competitors. I don’t think they necessarily need to be seen that way. I think if you look back over the last couple of years, gold has gone up a lot, but so has the dollar. That’s just a fact. I think we’ll get into a situation where the dollar and gold go up together versus everything else. When I say everything else, all the other currencies. I think all of the fears that people have about what will eventually happen to the dollar will happen to all the other currencies He’s first.
That’s the other thing. Jeff said he doesn’t like macroeconomics. I got to disagree with you because I love it. I think it’s amazing. The other mistake that I had made, at least for me, the mistake that I had made when I was thinking the dollar was going to go lower, is I was trying to analyze the United States in a vacuum, in just a silo. Just look at the United States and look at it fundamentally and what shape is it in. When you do that, the only possible conclusion you can come to is that it’s in horrible shape and it’s all going to go downhill. But the problem is when you analyze something in isolation, you’re missing everything that’s going wrong around it. The reality is to do that same analysis on Canada. If you were to do the same analysis on Europe, the same analysis on South Africa, China, Japan, they’re all in the same situation, and they don’t have near the advantages that the United States does. When you realize that currencies trade relative to each other, and that’s not an absolute game, then you can figure out how the dollar isn’t going to fall the way many people predict it is going to.
At least that’s the conclusion I have come to. I started referring to it as Machiavelian money when I talk about the dollar. And the reason I say that is Machiaveli said, Is it better to be loved or feared? And the reality is that for the dollar, it’s both. I mean, people around the world love it, and they’re fearful of it because they’ve seen it save and they’ve seen it wipe them out. And what I mean by that is if you ever travel, talk to the locals, especially if you travel to a less fortunate country. I was in Argentina earlier this year, and I talked to a bunch of different people. And the first thing they do when they get paid is they go buy dollars. They exchange it for dollars. They don’t rush out and buy silver. They don’t rush out and buy gold. They go buy dollars, and they consider the dollar hard money. I have a client from Lebanon. The first thing they do when they get paid is buy dollars. They do own gold, and they’re not against gold, but they think of the dollar as a very safe savings tool. And so I think when you broaden your horizons and think about things from a bigger perspective rather than just analyzing it as an American, you realize that it’s a big world, and what everybody else does outside the United States does matter.
And they don’t view the dollar as negatively as many Americans do. And so I think for me, that’s the important thing to keep in mind. It is a relative world. And when you’re investing your money, you got to be as cutthroat and rational and a mercenary, for lack of a better way of saying it, as possible, because the market does not care about your emotions. In fact, a lot of times, it’ll do the exact opposite of what you want it to do. Let’s leave with that.
Ben Nadelstein:
Thank you, Brent Johnson. Last but not least, CEO of Monetary Metals, Keith Weiner on the future of the US dollar.
Keith Weiner:
It almost seems like you guys set me up. There’s the thesis and the antithesis that macro is terrible and macro is great. I’m going to try to synthesize that if I can. I think that most of what passes for economics or macroeconomics today is rubbish. My favorite punching bag is MV equals PQ, which is, I call it the monetarist equation. It looks like physics, MV. It looks like PV equals NRT. It, the ideal gas law, except it’s not a real equation and has a fudge factor built in so they can cheat and always balances. But I do think there absolutely are iron laws of economics, and things work in a certain way. We’re all familiar with… Are you familiar with Gresem’s law? If the government fixes the value of two things, whichever one is given an artificially higher price by government edict versus its actual market value, that thing will come into the market and be traded, perhaps with high velocity. And whatever is undervalued by government, but actually higher value in reality, people will hide it and hoard it and it disappears. So there absolutely are certain things that are predictable because they are cause and defect.
One of the things I’ve written about is R is greater than I, that the return on capital must be greater than the cost of capital, or to put it in very tangible, concrete terms, if you’re running a hamburger restaurant, you cannot be borrowing at 10% to fund and finance a business that’s generating 8% return on capital. You will destroy yourself. You will go out of business. You will find yourself in bankruptcy court and receivership. There absolutely are economic laws. I think one of them, and this is, I guess, arguably more micro, is people look for solutions. The problem is, especially when it comes to money, the solution is daunting and nobody has the solution. I’ll use the example. If anybody ever has known anybody who’s had cancer, there’s certainly a very strong desire to find a solution. It doesn’t mean that there is one. Then people with cancer, obviously, can die from it. My father passed away from cancer many years ago. It’s the same thing with money. You go around the rest of the world, and I think I said this in my bullet, I feel very privileged to have the chance to not only travel around the world, but spend a lot of time much more than tourist would, and really talking to people, talking to businesses, which is obviously my job, and getting to hear their views and their positions and showing them, Look, I’m not an American jingoist.
I’m not here to just excite the party lines. Yeah, America great, the dollar great. I try to listen more than I talk. I’m trying to hear what they think. I’m happy to share my views. Obviously, I have videos and essays out there, and usually they know what I think anyway, but I want to hear what they think. There’s a very curious love-hate relationship with the dollar. There’s a lot of places in the world where… I’m not visiting places that are enemies of the US. I’m not going to the places where they’re chanting death to America, where the state propaganda media is constantly saying, kill America, kill Americans. I’m not visiting those places. I’m visiting places where people are left to think what they think. And as Brent said, maybe the dollar saves them, but the dollar is also killing them. And I have a chance to see that, and I have a chance to hear what they think. And they’re not fans of US foreign policy, certainly, and a lot of places in the world are not fans of our monetary policy. They get that America is doing things that aren’t good for them. And yet the dollar keeps going on being what it is.
Cancer goes on, and I usually have a thesis that I call the dollar cancer and the Gold Cure. The dollar is a cancer. It goes on being cancerous. And just because you wish to get rid of it doesn’t mean that there’s a means to do so or that you’re capable of finding one anyways. And so meeting with some folks, a family office in the Middle East, we’re talking about their local currency currency, which is pegged to the dollar. And unlike certain pegs, the rubble, the yuan, this particular peg is table flat, and you go back in a 20 plus years, it’s absolutely flat. And so they’re saying it’s safe and it’s this and it’s that. And I said, I get it’s pegged, and the peg has been good so far. But there’s always a risk with a currency peg or any other peg, for that matter, that pegs fail every once in a while. And then when they fail, they fail violently. When the Swiss National Bank was pegging their currency, by the way, They were trying to keep it down, not up. They were the opposite as a banana Republic. They weren’t trying to say our peso was worth one peso to the dollar.
They were trying to keep it no higher than 1.3 franc to the Euro. They didn’t want it to go up anymore, and it was going up, and they tried to peg it. It failed violently, and the Swiss National Bank lost something like 20% of annual GDP in a millisecond. So when these things break, it’s nasty. I said, There’s always a risk that the peg snaps. And so your currency is a proxy for dollars, and it’s been a good proxy for the last 20, 30 years. But if that snaps, why would anybody want to hold? Why would you want to hold a proxy for dollars? If you want dollar exposure, you might as well hold real dollars. So the head of the family office and the attorney both looked at each other and then looked back at me and said, That’s our strategy exactly. They don’t hold their local currency except for what they need for immediate liquidity over the next one every month. Everything else is dollars. And they have some gold, which is why I’m talking to them, but it’s dollars. This is how it is in the rest of the world. You could talk to a pension fund in Malaysia.
The balance sheet is denominated in dollars. You talk to insurers, you talk to everybody, and it’s a dollar world. So I argue that all the other currencies are actually derivatives of the dollar. They couldn’t survive if the dollar were to collapse first, which it won’t be for 100 reasons. They couldn’t survive that collapse in the same way that a call option on Apple couldn’t survive Apple’s bankruptcy. You can’t say, Well, let’s dump Apple and buy Apple call options. It’s a losing deal. So there is absolutely- I started using that, by the way. You like that analogy? Yes. There is absolutely a desire in many parts of the world, let’s just say the Middle East, but let’s add India and let’s add other places around that whole region where people get gold. I think as an American, I get to say, and having traveled the way I have, I get to say that Americans understand gold the least. By far, it’s not even close. In Europe, they’ve had hyperinflation in living memory. In most of the rest of the world, they have ongoing and regular periodic inflations If Americans were to say, Well, we’ve had a currency crisis, too, and they’re going to go, What do you mean?
Well, the white 1970s, 1970s, we had inflation that was running at 13%, and ShadowStats said it was 18% or whatever. They’d be like, Oh, 13 or 18%. Do you mean per month? Oh, per year? Oh, that’s cute. Why do you think that’s bad? Their currencies, they lop off four or five zeros every eight years. We haven’t had that, thankfully. Americans are pretty complacent about it. They don’t get that it’s a multi-currency world, but in a certain sense, it isn’t a multi-currency world. It really is a dollar world. The other currencies are like local… In a coal mining town in West Virginia, they issued this paper script, the companies that ran those towns. Perhaps some of those people had such a narrow horizon that they thought their script was competing against the dollar, might even beat it. My company, my coal mining town is so big and so important. It’s going to outrun the dollar, outlast the dollar or something. Maybe some people thought that. I don’t know. But if you’re looking at it objectively, that’s preposterous. So we’re trying to go with all this. I gave a five-minute bullet yesterday morning. How many people saw that?
Okay, so good part of the room. I don’t want to try to repeat it, but I’m going to touch on the point that there are a lot of people that are looking for an alternative, and then particularly, if you look at the BRICS nations, there’s definitely a real need, a real driver for an alternative. So what are they going to do? So they’re trying bilateral trade, which means each is going to pay the other in their own local currency. And so India was buying oil from Russia, and then some Russian minister eventually stood up and said, We’re taking Indian Rupees for our oil. We’re not doing that anymore because we’ve accumulated a pile of useless Rupees. He used the word pile and he used the word useless in what he said publicly. This is their friend that he was saying this. This is their partner in the bricks. This is their partner, right? One of the two bricks. Another two pairs of the bricks, India and China, their soldiers are actually killing each other with bullets at the border. So they’re not necessarily that friendly to each other. I think I relayed the anecdote meeting with somebody of Indian origin in the Middle East, very patriotic, very nationalistic to India, very loyal to Modi, very much not…
I’m not heatred of America, but definitely not a fan of America or the dollar. And when the concept of a bricks currency came up, he just laughed. He said, Have you seen a chart of the Rupee? Have you seen a chart of the Ruble? Have you seen a chart of the Yuan? Have you seen a chart of the Brazilian riyal? And he had the statistics of how much each one had fallen in how many years. He said, You’re going to take four small falling currencies. And he used the word small for the Chinese by the way. And you’re going to combine them into one big falling currency. He said it’s a joke. He was just laughing. This guy is not a fan of the dollar, and yet everything he’s doing is dollars. So this part of the world needs a solution. These countries, especially Russia, is locked out of the dollar system. They don’t have a choice. So they’re like the fox, looking up at the grape, saying, Oh, they’re probably sour anyway. Dollar sucks. Biden is destroying it. It’s going to fail. That’s the fox muttering because he can’t get at it. And the rest of the countries in the world are birds, and they’re eating those grapes.
Yeah, you’re right. It’s terrible. It’s sour. So there’s some ironies in the world anyways. But The point being that… And I think Russia was buying something from China. They’re buying electronics, and they want to tender rubels. I don’t think China wanted the rubels. They’re trying to tender Taiwan, but where did they get Taiwan? Taiwan doesn’t trade globally. I mean, there’s capital controls. It’s completely controlled by an authoritarian and brutal dictatorship, becoming more brutal and more authoritarian as we go. So they can’t use each other’s currencies. They don’t really want to use the dollar. Russia can’t use the dollar anyway? So if you want to trade with Russia, it really can’t be dollars. What are you going to do? So the obvious thing is, let’s say India exports, I’m just going to be very stereotyping here, India exports spices to Russia, and Russia exports oil to India. I’m going to presume that the value of the oil is greater than the value of the spices. They only have to settle the difference between the two. So if you trade equal values on both sides, you don’t really have to ship any money back and forth. But assuming the oil is worth more, India has to pay something to China for that oil.
What is that going to be? If it’s not the dollar, what is it going to be? It’s going to be gold because nothing else works. I love the quote from Winston Churchill, and it was a very back-handed compliment that he gave America. He said, God bless America, that’s Winston Churchill. Because after Americans have done everything else, they’ll do the right thing. In that spirit, I say, God bless the world, because after they’ve tried everything else monetarily, they’re going to end up using gold. What I think they’re going to do is they’re going to put gold bricks on an airplane and fly it to pay the bill for whatever it is they’re buying. That’s the obvious and logical. Not because everyone is thinking systemically and thinking, I want to make the world a better place. No, no, no. This is to solve an immediate and urgent need, which is India wants to import oil. If you want to import Russian oil, you got to pay them in something they can accept. They’re not taking groupies, they’re not taking UN, they’re not taking Real. You don’t have rubels. What are you going to pay them in? And they can’t take dollars.
They’re locked out of the system. What are you going to pay them in? Well, gold will work when nothing else works. So you’re going to put gold bricks on a plane and fly it over. And that’s going to happen for a while. And people are going to discover this is painful and it’s expensive, and most importantly, it’s slow. You don’t have liquidity while the gold bricks are flying around. And then it takes time to receive them, and the plane has to land and control in the conditions. You have to get the gold out of it. You’re going to have to ask it. All during that time, there’s no liquidity. You’re blocked. And so it’s a very huge step back from a monetary system perspective. Somebody wires you dollars today. It’s not weak weeks or even days before you have access to the funds. It’s the same day or next day, right? So eventually, they’re going to say, again, just to solve an immediate and urgent problem, hey, why don’t we all have some gold in a jurisdiction that was mutually acceptable to all of us. And that way, and we can all have it in the same vault, even.
Keith Weiner:
It wouldn’t be Brinks because Brinks is a US company, and obviously, Russia wouldn’t trust it, and Brinks wouldn’t onboard Russia as a client anyway. Nowadays, it would be illegal for an company to do that. But they’ll pick some company that’s domiciled in a neutral territory and say, Let’s put all of our gold there, and then we can just transfer it around by directing the vault to move the bar from or bars from one owner to another. That’s so much more efficient than putting gold on airplanes. Okay, that’s going to work for a while. And then the next thing is, Gee, while the gold’s sitting there, wouldn’t it be neat if we had some way generate a return? If you know that the weed harvest is coming up in six months, you know you’re going to have a big payment that you’re going to have to make when you take delivery. But in the meantime, wouldn’t it be neat if there was some six month instrument that you could invest that gold in to get a return? And then finally, certain commodities, take iron ore, for example, you put that on a boat. That’s weeks before that’s getting to the smelter.
Keith Weiner:
Let’s say it’s going from Australia to China, and then the refined steel is going from China to Europe or Central Asia or something like that. That needs to be financed. And so on one hand, you’ve got gold that’s looking for return. On the other hand, you’ve got goods that are going to be paid for in gold, looking for finance. So it’s logical that some gold-based financial system, not an official currency, mind you, not the bricks governments deciding that they’re going to impose a gold currency on their peoples or that they’re going to issue some gold currency that rest of the world is going to want. Nobody’s going to send their gold to Russia in exchange for a gold-backed ruble. That’s preposterous. But just the gold is there, and they’re going to look for some way to put it to work and get a return, and they’re going to look for some way to get financing. And so bit by bit, you can see how a financial system evolves. I think that jurisdiction is Dubai. It obviously can’t be London. London is not neutral. It can’t be Switzerland. Switzerland isn’t neutral anymore either. Dubai is.
And there’s an enormous volume of gold trading and gold activity and to hold liquidity in Dubai right now already. And Dubai has been pretty neutral, and they’ve managed to hold that line. The US hasn’t forced them to be anti Russia or anything else. Dubai is taking its own path, and they’re saying, We want to trade with everybody. And they have more trust to earn. But I think over time, this can become a trusted jurisdiction. And obviously, in the point being, the whole raison d’être of monetary metals is to help the world find a path to get to that gold standard. It’s fine to cure for that cancer that everybody wants that cure. But it’s very daunting to how to get there. And it’s about using gold to finance productive activities, including production itself, including the transport of the goods, including the trade of the goods, and including storage and distribution and everything else. And so we see an enormous opportunity to set up in Dubai in advance of this and help this happen and help the world move monetary system in which no country has this exorbitant privilege. I just want to end on one note.
A lot of Americans may think that US dollar system and its exorbitant privilege is good for America because it’s bad for the rest of the world. In other words, because they’re losing, therefore we must be winning, which is implicitly saying that economics is zero sum. If there’s a loser, the other side must be a winner. The current monetary system was dictated to the rest of the world at Bretton Woods by United States, the chief guy running the United States faction was one Harry Dexter-White, who was later criminally proven in court to be a tool working for the Soviet Union. His job and his intention was actually to undermine the United States, not to make the United States king of the world. And his devised system is undermining the United States. It just took a lot longer than he expected. He didn’t live to see it. It’s hollowing us out, it’s gutting us as an economic powerhouse. It’s not good for us either, although, boy, does it give us a lot of consumer goods, at least for the time being. So what we’re trying to do is find a path to an honest monetary system where nobody has the ability to cheat.
Nobody has the ability to put their sum either pushing down the scale or pushing up the scale. And if you want to trade value for value, you have to trade value that both parties feel that they’re getting win out of it. That’s how I see things evolving. Not any other currency replacing the dollar. The acronym is TINA. There is no alternative. But there is one thing that can replace the dollar. It’s not another paper currency. It’s not a dollar derivative. It’s gold.
Brent Johnson:
I like your idea about Dubai and have it a neutral place where they don’t have to ship the gold around. They can just move it in a vault. But my question is, why would the US ever agree to that?
Keith Weiner:
The US may not necessarily have I agree to that. I mean, if those other countries want to put some gold in Dubai, is the United States going to bomb Dubai? I mean, how is the US going to say no? I mean, maybe.
Ben Nadelstein:
Question from the audience. Let’s start with Jeff Deist. Move our way down. How big does the US debt need to get before citizens lose confidence in the dollar and it begins to collapse in value?
Jeff Deist:
I really have no idea because no one thought it would get to 33 trillion. When W entered office in 2001, it was five. So mathematically, structurally, we still could have fixed it at that point with some entitlement cuts, tax hikes, however. So it’s still mathematically possible, even if it was politically impossible. As recently as W, that’s 20 years ago. When Reagan entered office, it was one trillion. When he left, it was three. So I don’t know the answer to that question. But you have to think, yes, we have a Fed that’s an implicit, soon maybe explicit backstop to buy up treasury debt. But at some point, you just wonder why would anyone lend money to Uncle Sam with this profit at Congress at anything other than junk bond rates? I honestly don’t have an answer to that question.
Ben Nadelstein:
Brent Johnson, the question to you. Is there a US dollar debt amount where people start to lose faith in the currency and it loses value?
Brent Johnson:
It’s a very difficult question to answer, but I would say it’s going to be a lot higher than we have now. And part of the reason is there is so much external demand for the US dollar. If there was not so much demand for the dollar outside the United States, then they wouldn’t be able to have gotten away with what they’ve already gotten away with. I think the best way for me to explain this is I live in Puerto Rico, and we get a lot of rain there. The condo I live in, we have a drainage system to where when the rain comes and it hits the top of the building, it flows into the gutters and it rolls down. At the bottom of the condo, we have a drain, and it takes it into the sewer system, and it takes it away. But last Friday, we had so much rain that it filled up the drains, and it couldn’t couldn’t disperse it fast enough. So the water started bubbling up. It filled the garage. It covered the streets, and water was just… We had flash flooding. And that’s the way the monetary system works is…
What’s the right way for me to explain this? If the United States is the building and we have these pipes, the Euro dollar system outside the United States is the drain. And a lot of times when we print money, that’s the rain coming down. So we’re putting more liquidity in. But the reason we’re putting more liquidity in is because dollars are disappearing outside the United States and it’s draining into the outside of the United States. It’s the only way to get inflation is if they’re putting so much rain in that it’s overflowing what’s being destroyed. The point is, the government doesn’t just come out of the blue and start doing QE and printing money. The reason they do QE or print money, however you want to describe that, is because there’s a hole and it’s being drained out and all the current liquidity is getting sucked away. And so they’re trying to fill it back up. But the only way to get inflation… So As an example, what we had the last three years was when it rained so much, it wasn’t being drained away as fast. And so if that external demand for the dollar, if that drain were to disappear, then As they print money, it starts to lose value because it just starts spreading.
We have what we had the last couple of years. But I think as long as we have that huge Euro dollar demand for the dollar, it’s going to be a long time before the dollar goes away.
Ben Nadelstein:
CEO Keith Wiener, question to you. What is the total number of US debt outstanding before people start to lose faith in the currency and it starts to devalue?
Keith Weiner:
I have no idea what the number is. I like to say you don’t have to be a PhD in economics to realize that no good can possibly come out of what they’re doing. We can debate the exact failure mode. My particular thesis is that it’s twofold. One, you have to understand that behind every dollar there’s a debtor. And the deeper that, let’s say you’re a farmer and you owe a million dollars, the deeper you get into debt, the more frantically you have to produce, let’s say, wheat, the more desperately, urgently, you must produce more and more wheat to bring to market and dump on the dollar bid price for wheat in order to raise enough cash, the net of expenses, you have enough to service your debt. And the deeper everyone goes into debt, the more they have to do this. So every dollar of supply creates a dollar of demand or several dollars of demand for the debt service. So if you’re that farmer and you’re in that debt, if you ever miss a payment, the creditors come take your farm and your house and you’re ruined. So there is not ever a point at which the debtor repudiates it because he doesn’t have that choice.
At the same time, obviously, something’s going to fail. So I argue that one should not think of gold as priced in dollars. One should think of the dollar as priced in gold. So back in 1913, before the creation of the Fed, the dollar was 1,500 and something milligrams of gold, 1.5 grams. And now it’s about 16 milligrams of gold. So the dollar has fallen almost 100 to one. When it goes to 15 milligrams, then that’s 100 to one since 1913. So the dollar continues to go down in gold terms, but consumer prices in dollar terms, not necessarily so. And since most people measure the currency by its purchasing power, it can hold surprisingly stable for a long, long, long time, because the more debt that’s out there, the more demand there is for the dollars to service the debt. However, the owners of the gold are really the ones supporting the dollar. They’re bidding on the dollar, and that bid can go away. When that happens, when gold is no longer bidding on the dollar, and I want to explain this by using an analogy, whenever there’s a crisis, a real stress in the market, it’s always the bid that’s withdrawn, never the offer.
Imagine if the US Geological survey were to say that there’s going to be an earthquake on the San Andreas Fault, 15 on the Richter scale. Nothing taller than a doll house will be less standing. You would see plenty of offers to sell real estate. Some people try to get coy, 20% off or whatever. What you would not see as a bid, probably from Santiago, Chile, all the way up to British Columbia, and probably as far east, at least as the Mississippi River, there would not be a bid on real estate as everyone is just waiting, holding their breath for this event. After the event, the bid will come back in, and perhaps at a lower price, if the property is destroyed. It’s a bid that disappears. But people say that the offer to sell gold will disappear because they’re looking at it from a dollar-centric… It’s like before Copernicus, they thought that everything circled around the Earth. So they had a geo-centric model, which is just wrong. And so things become more complicated and harder to understand the solar system. Same thing is true here. It’s gold betting on the dollar. What happens when gold withdraws its bid?
You can’t trade dollars for gold anymore. Now, There’s always going to be demand on the part of dollars to buy gold. It’s just that there’s no demand anymore for gold to buy dollars because the quality of the credit has declined past that magic line, whatever that might be, 60 trillion, 100 trillion. Who knows what the number is. There is that line, and gold no longer wants to bid on the dollar, but dollars are bidding on gold, but they can’t get it anymore. What are they going to do? And I posit that if gold will bid on commodities, and if it’s possible to trade your dollar for If you’re going to buy a commodity, let’s say crude oil, people are going to say, Oh, well, that’s a backdoor to get gold. I trade my dollars for crude, I get some crude, I sell the crude for gold, and now I have the gold I really wanted. That will cause two things to happen to the price of oil simultaneously. The price of oil we bid up to literally infinity in dollar terms and push down to near zero in gold terms. And so all commodities will go to infinity until people say, stick a fork in the dollar.
It’s hyperinflated. It’s done. People will call it hyperinflation. It’ll have nothing to do with quantity. It will have to do with the quality having declined sufficiently that gold no longer bids on it. And then the dollar no longer has value because it’s actually gold’s bid that gives the dollar its value. When gold withdraws that bid, the dollar is done. That’s my answer.
Ben Nadelstein:
Thank you so much, CEO, Keith Wiener, Brent Johnson, and Jeff Deist!
Additional Resources for Earning Interest in Gold
If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:
In this paper, we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.
The Case for Gold Yield in Investment Portfolios
Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.
