Welcome to another episode of the show where we talk about things related to money
and finance and the economy and all things related to the financial world. And
there's no one better to do that with than Zach Abraham, who is the
chief investment officer at Bulwark Capital Management and also friend and sponsor of the show.
And so today, Zach, we wanted to get your expertise about a
topic that we admittedly understand very little, and that is this whole. This
whole. There's been a lot of news lately about the US dollar and other
countries that are not particularly friendly with the United States dropping the dollar as its
reserve currency, and like high level we get that that sounds bad, but
at a layman's level, we have no idea what that means, and we
were hoping you can help. Yeah, well, it's it's a it's a
it's a hot topic and it's one that we focus on a lot because I
think in the world that I don't think I know. In the world of
investing, currency movements and interest rate movements get looked past all the time,
and at the end of the day, if you know, if you don't
understand what's happening in currency and rate markets, you have absolutely no idea what's
going to happen because that that that influences everything, right, Um. And
for instance, one of the reasons that we don't buy the stock market rally
that's currently happening and all these why is that just because interest rates You can't
have interest rates is zero and raise them to five and think things that bad
things aren't gonna happen. Right, It's gonna happen. Um. Same is
true on the currency side of it. You know, if you get everything
right and get the currency side of things wrong, you're in trouble. Right.
So it's something that we focus on actually more than most other firms.
But I think the I the conversation is very multifaceted, and it's called complicated.
So first of all, people need to have an understanding, and I'll
try to keep it and not try to dig too deep in here to blow
everybody out, but people need to understand. You know, if you look
at last year, we had the highest rate of inflation that we'd had in
forty years, and yet the dollar made a twenty three year high? Right,
why is that? And I think it shocked a lot of people.
It didn't to us that's what we were expecting. But the reason why is
because we understand the way that the financial or the monetary the global monetary system
works post World War Two. The current monetary system was specifically designed to let
the United States run essentially unlimited deficits without hurting its currency. Okay, And
the reason it was, the reason it was designed that way has to do
with Hitler taking over Germany and ushering US into World War two. Ironically,
so, after World War One, the global economy, especially in Europe,
was knud right. It was just it was decimated. Yeah, and they
took which seemed fair at the time. They took the entire cost of that
war and levied it against the German people. Well, the problem was is
that their economy was decimated, so they couldn't produce things, they couldn't write,
they couldn't sell cars and get tax revenue off of that and use that
money to pay back their bills. So a guy by the name of Rudy
Havenstein, who ran the reichs Bank or the German Central Bank at that time,
he did really the only thing that they could do, which was he
printed money, and that's how he was paying the debt and then that led
to the hyper inflation that happened. We refer to it as the Weimar Republic.
You know the old stories about people the wheelbarrows full of cash and they
go back outside and they dumped the cash out and take the wheelbarrow. That
actually happened, right, And that's because you know, and to explain to
people what it was. So you'd get paid at the end of the day
and you'd race to the grocery store because if you waited till the next morning,
the cost of the goods would be up. Right, That's how crazy
the inflation was. So that led directly to Hitler taking overpower, right,
So because of the unrest and all that kind of stuff. So at the
end of World War Two is actually one of the smartest things that I think
the Globe has done over the last hundred years is they said, Okay,
let's not make the same mistake. We're going to have the only remaining economy
that is intact, the United States come into Europe and rebuild Europe via the
Marshall Plan, and we're going to do it on the back of the US
dollar. And to keep the US dollar from getting hit from all that spending
we're going to mandate that every country in the world, in order to buy
any type of good, whether it's timber, any type of commodity material,
you have to make those purchases in US dollars. Right. So what they
basically did was, regardless of what was happening here in the United States,
every country in the world had to own US dollars if they wanted to purchase
oil or natural gas or wood. Now they've made tweaks to that system,
but that system is still in place, right, and so could that system
end? Yes, But people need to understand the reason that these other countries
are doing these things. It's not because they think the dollar is going to
plummet. If the dollar plummeted forty percent in value, you would see parties
in the streets of Beijing. Right, it's like a massive tax cut.
If you have to use dollars to buy wood and uh, you know rock,
and you know oil and all these other things. That means that the
import costs for all your raw materials just dropped by forty percent. Right.
So everybody's like, oh, they're they're pivoting away from the dollar because it's
about to crash. And you're like no, no, no, no,
they're pivoting away from the dollar because the nuclear because of the current set up,
if we want to starve an economy of dollars, we can collapse it
instantly, you know, Like you look at Venezuela. Venezuela is a victim
of their own practices, there's no question. But what really put them in
a tough pinch is when we sanction them and took them, took their access
of US dollars away from them, Right, That's where things really got nasty
for Venezuela. So these guys, and this is kind of one of the
fears about what we're doing with Russia. When we wield that type of currency
power against other sovereign nations, they have to, as a matter of national
security, entertain ulterior strategies, right, because if if somebody Knew gets elected
in the United States and just decides, hey, arbitrarily, we're going to
freeze you out of the US dollar system, then we're going to force other
countries to go other directions. And that's kind of one of the things that
I think that we should use it as a cudgel to make other countries come
along. But we need to use it gently because at some point they'll just
look at you and say, you know what, We're going to form a
new currency union. Now that is a much more complicated thing than people are
saying. We are not on the verge of a dollar collapse. Like I
said, if the dollar quote unquote collapsed, everything would go up in value,
right, So it's not this thing. You know. I heard Glenbeck
recently, who I've got a ton of respect for, and I know that
Glenn, in my opinion at least, I think he's an honest operator that's
trying to get it right. But he was talking about the collapse of the
dollar, and I'm just sitting there going no, not until the monetary system
changes, it's not possible. And if it did happen, it would be
a massive tax cut for the world. You would see more manufacturing get imported
into the United States because the cost of labor would go down by de facto.
Right. So would it be a good thing for the US consumer.
No, but it would be offset by the benefit that it caused the rest
of the world. And then it would also make US goods far cheaper to
purchase for the rest of the world. So it's not this doomsday scenario.
Yet with the current now, it's some point you outrun your runway, right
And I was gonna say, I was gonna say, because is that good
long term? It probably want to be good long term? Right. No,
No, it's not. It's it's some point you outrun your runway and
you reached this saturation point. Where is that? Nobody really knows because we've
never had a monetary system set up like this. But but it's not the
way. You know, I've been hearing people talk about the collapse of the
dollars since the time I was a child, and back then it was we
hit a trillion dollars in debt, the dollars going to collapse. We hit
five trillion dollars in debt, the dollars going to collapse. Right now you're
at thirty two, thirty four and climbing right, So there it will happen
at some point. Every fiat currency in the history of mankind has gone under.
But you know, it's the old adage of you know, just because
something is inevitable doesn't mean it's imminent. And what I would say is for
people that are concerned about that, don't be the threat to the global economy
at this point, is the dollar going substantial higher that that is like a
new if the dollar index, which is currently like a one to two,
if the dollar index got to one twenty five, it'd be like a nuclear
bomb going off from the global economy. It would just crush everything. Right,
But that sounds bad too. You're so calm about I know, you're
just like a nuclear blast of the world. It's fine, it's fine.
Well, but see here here's but you got to understand, like everything else
in our government, nobody ever fixes a problem. So the Fed figured out
this whole dollar strength problem. So what they did is since going into O
eight oh nine, we had eight swap lines set up between the Federal Reserve
and other central banks. Now, the reason they have swap lines set up
is if the dollars soars, right, all these other countries still need dollars,
right, but in order to get dollars, they have to go into
the currency markets, sell their currency and buy us dollars. Well, if
the dollars soaring, if they go do that, they're just adding to the
problem, right, They're knocking the value of their own currency down. They're
pushing the value of the dollar up. So the federal reserves set up swap
lines with these other central banks where they can trade their currency off market and
not impact the markets. It's like a cheat, they're cheating. Okay,
Well, since OZ eight o nine, we now have thirty swap lines set
up with other central banks. So the Fed's answer to that problem is,
well, if that becomes a problem, we'll just print more money. Right.
So it's the answer for everything, right, We'll just print more money,
right. So that's really the interesting part of this is it now to
the fence credit. They need to try to keep a lid on the dollar
because the dollar going to one twenty six or one thirty, god forbid,
that would usher in a new currency, right because the world can't function with
the dollar at that level. So if you're worried about the dollar not being
the world reserve currency anymore, that will only happen if the dollar goes way
up. If the dollar goes down, there's no need for another currency,
that makes sense, I think, so I think, so, yeah,
what do you what do you make of the because like right now, because
I was looking at this before we got on this car, and the headlines
about this, if you just do a Google search on is you know,
is the dollar being dropped as reserve currency by these countries? What does that
mean? You know what's going on? And so you know, you've got
one website that says the Chinese you want is going to replace the US dollar
as the world's reserve currency. You've got another headline that says dollar dominance isn't
going anywhere. And here are five minutes about de dollarization. And it's like,
what is a regular person who just knows how to spend dollars to make
of this information? Like, how do we wrap our heads around all the
different opinions? Yeah, so I think the best way is to get back
to the facts. Right, So what people forget about is when you talk
about the dollar being in permanent decline as it relates to our purchasing power.
I would agree one hundred percent okay that, and I don't think anything's going
to arrest that at this point. It is impermanent decline. But when you're
talking about the collapse of a currency, what you're talking about is the value
of that currency as it relates to other currencies. So when people say the
dollar is up, they're not talking about the dollar being up to a bag
of groceries. They're talking about the dollar as it relates to the Chinese juan,
or the yen, or the or the or the Brazilian reale or right,
all these other you know, the euro. Right, So when you
tell me, if somebody looks at me and says, and I've had these
debates and I've had them on mar radio show too, or yeah, the
yuan's gonna Chinese Juan's gonna take over the and they go, and I go,
why why do you say that? They go, Well, the US
spending And I go, you think US spending in debt is a problem.
And do you understand where the Chinese economy is? Right? And not to
mention the fact, but the Chinese jand is a closed currency, which meaning
they don't allow it to free flow. The government pins the product. It
is possible for the Chinese juan to be the world All you have to know
is this. So China is the second largest economy in the world. Right,
but about seventy percent of international monetary transactions happen in dollars, about six
percent happen in Chinese one. Wow, Okay, okay, So why is
that nobody trusts yuan? Nobody trusts it, not even their trading partners.
So the yuan is not taking over for the dollar. All the problems that
make dollar people all, the dollar is going to collapse the Chinese. Chinese
have that problem in space. It's exponentially worse there. They also have a
massive demographic problem and a shrinking population, which is another discussion. But yeah,
it's the one about the five myths of the dollarization that is much closer
to reality. At some point. The one complaint that a lot of these
other countries have that's fair, is that we, unlike any other country,
can be as recklessly as reckless as we want to be with fiscal spending and
monetary stimulus and it doesn't impact our currency. At some point, the political
outcry from that is going to demand another solution. But you're a ways away
from that. It takes a lot to rework the monetary system. And of
all the things that we're afraid about right now, the dollar collapsing isn't even
on the list, and it shouldn't be on the list of any serious investor.
Okay, that basically our right our media is full of crap that well,
it's like it's so much fearmongering right, and so yeah, totally okay,
yeah, and and and it's and it's because it's it's all of these
statements made in a vacuum is the way that we're handling our fiscal responsibility.
It's insane. I'm I'm not saying that what we're not doing is it's nuts,
all this debt and spending. Totally, but we're still the cleanest dirty
shirt. You love that. Oh my god, that's the greatest. We're
winning the ugly pageant. There you go. Well, you know what,
though, that really helped. I mean, I feel like that was a
really nice historical explanation to where we are today and like a way to kind
of calm everybody down a little bit. I needed the calming down. I'm
sure I'm not the old one, and I try. I well, you
want to make this as bite size and edible as you can for people.
But so I hope I didn't get you. But you got to kind of
know the history of it and realize, actually, the entire system was designed
to let us run massive deficits without the doc That was the whole design of
the system. So to be sitting there looking at the dollar wondering why it's
not going down. You just need to look at the design and the makeup
of the system and then you'll understand, Okay, they did it well,
they did it so they could they could be like crooks and thieves. Yeah
yeah, yeah, yeah, that's great. And like so many other things,
right, like the intention or the thought in the beginning was good,
right, yeah, yeah, they just should have undone it at some point.
And the other thing is is all the people worried about us not being
the world reserve currency. If you're a person that believes our government should be
held accountable and recklessly spends it may not be if we were no longer the
world reserve currency. I think that we would have a much better managed government.
I think it would be better for freedom. I think it would be
better for us getting involved in foreign wars. I mean, think about if
you don't have to adhere to a budget, right, you just print money,
You're gonna get a little involved in a lot more foreign conflicts. Yeah,
you can afford to right, the road to hell was paid with good
intentions. That's exactly right, Always is right, right, Zach? Where
can people learn more from you and find out more about Bulwark capital management?
Yeah? So first of all, our radio show. We do a weekly
show, Know Your Risk Radio. You can just google Know your Risk Radio
podcasts or Spotify or Apple iTunes or anything like that. And then also you
can just go to Bullwark Capital Management dot com or follow me on Twitter at
KYR radio and yeah, not too hard to fund. Awesome, you should
do it than we so appreciate the time today. Investment advisory services offered through
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