Is the US Dollar Getting REPLACED?

PODCAST EPISODE – Is the US Dollar Getting REPLACED? (with George Gammon)

What’s happening to the US Dollar? With its value decreasing rapidly, what does the Fed have planned for us? Join Ken McElroy and fellow YouTuber, George Gammon, in a discussion about the Fed’s move toward a digital dollar and what that may mean for the rest of us.

Ken McElroy:
Hey, everybody it’s Ken, and as you guys know, I’ve had George Gammon on before. He’s got a massive YouTube presence. We just got done with his live event at rebel capitalist live, where he had Jeff Snyder, Brent Johnson, Mark Moss, Jason Hartman myself, obviously himself and a whole bunch of other great speakers talking about the economy. But most importantly, that this thing sold out fast. He’s got another one coming in January where you can just go to rebel ca– rebel capitalist live and, um, and sign up. Uh, George, welcome to the show again.

George Gammon:
Thanks for having me, Kenny, always pleasure to talk to you. So, all

Ken McElroy:
Right. So obviously we knew this was going to happen, but we’re going to talk about the digital currencies that are going on. Right? Cause I, I was, uh, my son graduated as you know, Kyle out of U of a, and of course, when you come out with zero experience, you know, the only thing everybody’s talking about are these digital dollars, right. You know, because it’s, it’s kind of the flavor of the moment. So why would the us want a digital dollar? Because obviously China came out with one, I know a couple other countries have come out with them and this isn’t an interesting thing that’s happening right now.

George Gammon:
Ken, it goes back to 1944 in 1944, we had Bretton woods. And that’s when we started this system that we have today. That’s when the system started to evolve into what we have today. And at Bretton woods, they decided that they were going to peg the dollar to gold. And then all of these other currencies would be pegged to the dollar. So we’d have kind of this defacto, uh, gold standard and they thought that was going to be great. You know, I think you had, I think there was actually 44 countries that were there that were involved in, in making this decision. But there were a couple of economists that said, well, wait a minute here, this is going to lead to some problems. One of them was a guy by the name of Triffin and most people recognize that name from Triffin dilemma. But what triptans dilemma is, or what it says is if you, the provider of the global currency that’s being used, they have to provide an excessive amount of dollars to the globe in order for the global economy to run at a hundred percent capacity, which means they have to have huge trade deficits, which means they have to hollow out their manufacturing sector.

George Gammon:
Okay. So people like Friedman and others understood it kind of started to understand what was going on here. And in the late sixties, they started to notice that, uh, well, a little even earlier than that, they started to notice that somehow this problem of dollars getting out into the global economy to facilitate that growth was happening without the United States running large enough trade deficits to get enough dollars outside of the U S and into the global economy, right? Because when you run a trade deficit, obviously we’re importing goods, but we’re exporting dollars green pieces of paper. And when we export those dollars, if it let’s say the trade balance is, uh, or the trade deficit is a hundred billion. So on net balance, a hundred billion dollars are going into the economy, the global economy circulating, and then it’s a supply and demand type of equation, but that’s giving, that’s creating the bank deposits that allow those banks to lend dollars to corporations.

George Gammon:
Let’s say in Colombia, in France, in, uh, Saudi Arabia that may need dollars to actually conduct business. And then of course you have oil being denominated in dollars as well. So this all plays into one kind of formula, right? So if you’ve got this system, well, how are these dollars getting out? They kind of, the economists would scratch their head and say, well, I guess the free market just took care of the problem. And that’s exactly what happened. And we had a system sprout out from Bretton woods and the necessity for dollars to get outside of the United States called the Euro dollar system. Okay. Basically what that is, is banks outside of the United States that initially may have had some dollar denominated deposits creating dollar denominated loans. You see, we think today that as, as, as Snyder, our good buddy, Jeff Snyder says, you know, people think the central bank is central, but it’s not.

George Gammon:
It ain’t, it ain’t central. It’s the commercial banks. They’re the ones that are central. If you’re talking about the dollar, you see the fed doesn’t control, the dollar Jerome Powell does not control the dollar. Jamie diamond controls the dollar. You see the banksters control the amount of dollars in the system prior to what we’ve seen in 2020. And I’ll get into that in a moment. So what ha what happened basically is this Euro dollar system started to take over and supply the globe with the, the quiddity it needed to grow. Well, this system came collapsing down in 2008. That’s pretty much what, why we, everyone thinks it was a housing crisis. Housing crisis was kind of just, uh, a sideshow. What was really going on behind the scenes, the tsunami under the water was the actual crumbling or deterioration of this Euro dollar system. All right.

George Gammon:
So at the time, Ben Bernanki, they realize that, okay, now we get it. We do not control the dollar. Now we can never tell people that, but we, we understand that that’s the way it works. That’s why whenever we have a crisis, the very first thing that the global elite, the central planners will do is bail out the banks, boom, their bail, that they never have to worry about getting bailed out. Why? Because they know they control the dollar. And if they let the banks go bust, so does the dollar, therefore, so does the entire global economy, right? So this is the predicament they’re in right now. Now, recently what we’ve had is this kind of hybrid system where the banks aren’t completely in control of new dollar supply through additional lending. Uh, the government is spending so much money into the economy, through stimulus, this deficit spending, which would normally be extracted from the economy and then just read distributed, right?

George Gammon:
It let’s just say that the treasury has an auction and they’re, they’re auctioning off treasuries because they need money for, uh, you know, infrastructure spending. Let’s say, so you and I go to that auction and say, okay, well, I’ll take a 30 year treasury or a 10 year treasury. Here’s my dollars. And then they take those dollars out of the economy. They take them out of the banking system and then they put them back in. So on that balance, there’s no additional dollars, right? But what happens when the government spends this and the fed monetizes, it they’re buying those, those bonds with bank reserves, therefore on net balance, the dollars increase. That’s why you hear Powell always saying, we need fiscal fiscal, fiscal, fiscal, right? They understand that they have to get around the commercial banking system because the commercial banking system isn’t creating the liquidity needed to avoid a deflationary collapse in asset prices.

George Gammon:
What’s the solution, a central bank digital currency. Because then if we all have accounts with the fed, every entity in every individual, then the fed can start issuing debt directly into the real economy, which, oh, by the way, was Alexander Hamilton’s original vision for the first central bank we had here in the United States, the fed was actually the third central bank. So you see if we all have accounts there, then the fed can take those bankers that they can create. They get around the commercial banking system, they create more dollar denominated loan, increasing money supply that gives them the asset price inflation and the consumer price inflation. They need to bail out the government. That’s why we’re going to give you this. That’s why we are going to get most likely a central bank, digital currency.

Ken McElroy:
Okay guys. So I think you probably all need to listen to that a few times. There’s a lot of wisdom right there. Oh my gosh.

George Gammon:
I tried to get that in there as fast as I could. It

Ken McElroy:
Makes a lot of sense though. Essentially, they’re bypassing the states, right?

George Gammon:
Right. And they’re bypassing the commercial banking system. Yeah. They understand. Yeah. They get it. So you get it. Now, our money is going away directly with the fed. Again, we’re talking about probabilities. There are no certainties. This, this could, you know, might not happen. But I think if you look at the way, our economy is structured right now, and the dependency that we have on asset prices, continuing, continuing to grow. And if you look at the debt burden of not only the federal government, but the state governments, the, uh, the consumer, the corporations that debt has to delever somehow, and the easiest solution quote unquote, is for them to create inflation. Well, what is inflation? It’s more currency units chasing the same amount or fewer amount of goods and services. So if you’re reliant upon the commercial banking system to create those currency units, and they’re not creating enough, because why, because everyone’s balance sheet is levered to the hilt.

George Gammon:
There’s the banks are only going to lend. If there’s, if there’s good prospects to lend, to the reason they lend the money to Ken McElroy for his apartment project is because they know there’s a very good chance that they’re going to get paid back with interest. Well, if Ken, if there’s not a good chance that they get paid back, they’re not going to lend money to Ken McElroy. Why? Because they’re constrained by a profit and loss. And by having positive equity, you know, they can’t go insolvent. You see the fed doesn’t have those constraints, the fed isn’t motivated by a P and L a profit and loss. The fed isn’t motivated by the size or the imbalances that they have in their balance sheet. Can they be, can they have negative equity? I don’t know. I would assume so. I don’t know why they, they couldn’t right.

George Gammon:
I don’t think they could really go bust. You see? So what that takes us is into a world where they can not issue credit, therefore create new dollars based on, uh, credit worthiness or people’s ability, or a bit of ability to pay them back, but they can create enough debt or dollars create new loans. In other words, based on how much inflation we need to see. And that’s where I think this kind of story ends. And that’s in my opinion, the end game. Now, if, when, you know, do we get there in five years, 10 years? I don’t know. And again, we’re just talking about probabilities, but I don’t see how they get out. And the reason I don’t see how they get out is because we’ve built our economy around this need for ever increasing amounts of inflation, whether it’s consumer price inflation or asset inflation.

George Gammon:
And if you go back to 2008, remember when they started QE, I’m sure you remember, Ben Bernanki coming out and announcing quantitative easing. He didn’t say that this was going to be QE one. You just said, it’s going to be QE II, right? Because if you would’ve said Q1, then that would have implied that we’re gonna have a 2, 3, 4. Now we’ve got QE infinity, right. What’s happened. And by the way, the size of the QEs have had to continually grow. So basically what you’re doing, it’s like a heroin addict that needs more and more of the drug to sustain a certain level of high, right. That’s what quantitative easing is. But we get to a point in 2020 where the economy and the market says, you know what? We can’t, we don’t want any more of the QE. We need a new drug because this heroin just isn’t cutting it.

George Gammon:
So what they do, they do deficit spending from the government. That’s monetized. That’s why you get the fiscal fiscal fiscal. Well, now what we’re doing is we’re just creating another more powerful addiction that the economy has to this monetary stimulus. And in that scenario where the amount of money printing, if you will, has to just go exponential in order to avoid complete collapse, then you, you kind of see how this most likely plays out. And the only way to get to that point is if the fed actually does control the dollar and the commercial banks do not.

Ken McElroy:
Right. Right. Wow. Okay. So we’re got to take a quick break, George, and I’d love to come back and talk about the reserve currency status, because I know you spoke a little bit about that. Uh, so, uh, right after the break stick around. Okay. So George, welcome back. So a while back, you talked about the U S dollar and I’ve, I’ve seen, you know, I talked to Peter Schiff, we had him on the podcast recently, and everybody’s kind of talking about, you know, is this is the dollar going to maintain this reserve status? And I think everybody’s not a lot of people really understand what that means, but also if, if it doesn’t, uh, if we don’t, uh, there’s a lot, that’s going to be very, very different for a lot of people, right?

George Gammon:
Absolutely. Yeah. The, the standard of living will have to decrease substantially because we’ve got to bring back the manufacturing of the goods that we do not produce right now. And people think that we can just flip a switch like we did in world war two. It ain’t that easy. Now it’s much, much different. So that would be, uh, you know, I, I don’t know how we get there. They would have to do things that at least this administration, there’s no way they do. They, they would have to reduce regulations. They would have to drop taxes. We would have to become far more competitive on a global level for these manufacturers to invest capital here, to create the plants needed, to produce the stuff. So that’s and see. So why is that? Okay, so right now, uh, I think going back to our earlier conversation, we were talking about the trade deficit and that trade deficit means that we’re importing a lot more goods or services, then we’re, we’re exporting.

George Gammon:
So if it weren’t for those imports coming in, then you wouldn’t see anything. The next time you go to Walmart, uh, you wouldn’t see anything the next time that you go to home Depot, there would be nothing there to buy, right? So what happens that means that the us, uh, businesses would have to bid higher and higher and higher and higher prices in order to get those goods because they’re still being produced. It’s just the, the countries are saying, well, we don’t really want to send them to the United States because all we get are these dollars and I don’t really want dollars anymore. Let’s go ahead and sell to Saudi Arabia. Let’s go ahead and sell to Russia or something where I’m, their currency is a little more stable. And keep in mind, this is assuming that we’ve had a dollar collapsed to the point where the dollar is no longer the world reserve currency.

George Gammon:
So that’s a question of probabilities as well. But assuming that happens then, and assuming it’s going down significantly, you know, I like to point out that on the DXY, which is a measurement of the dollar compared to a basket of other currencies, most, mostly the Euro we’re at about 90. Now we’ve gone down from a hundred. So it’s a significant decline about 10% when you look at currencies, but just going back to 2000, I believe 2011, 2012, we were at 70 on the DXY. So it’s not that we can’t go down to 70, 60, 50 and be in jeopardy of losing the reserve status. It’s a matter of how quickly we go there. So if we go from 90 to 50 in a month, that’s a big problem. And because then what happens is all these other countries and manufacturers that are producing the goods, they don’t want dollars anymore.

George Gammon:
They don’t want dollar denominated assets. So they start selling to other people, which means what, which means we have to bid higher and higher prices, which means less and less consumption, which means less and less economic. I don’t know. You want to say economic growth because we’d be in a massive economic depression. Our GDP would be contracting, uh, significantly, but what that would force us to do kind of the Phoenix rising up from the ashes, but it would force us to do is bring manufacturing back, be more competitive. And we would have, uh, uh, horrible five years or potentially a decade. But if our central planners do the right thing, then we can come out of that where we’re not the global reserve currency, but now we’ve got a better system as far as checks and balances. Right? You know, one of the things that I was talking to Snyder about one time is this, um, this, uh, privilege that exorbitant privilege, I think is what the economist has called it, that the United States has for being the global reserve currency in the sense that it’s allowed us to keep our interest rates artificially low, and we can run these trade sets.

George Gammon:
We can, uh, you know, import all of these goods. We can consume on the dime basically of these foreigners. And then we can have all of our asset prices go up. We can print all these dollars and not turn into an Argentina, right? We don’t see hyperinflation when we make the same economic mistakes that those other countries make. Why? Because there’s so much demand outside of the U S for dollars, because it is the global reserve currency and oil is traded in dollars. So that’s why these economists say that it’s this exorbitant privilege, but Snyder says, well, is it because let’s just assume for a moment that the United States dollar has never been the global currency, and we wouldn’t have had to run these trade deficits via Triffin paradox or terpenes dilemma that we were talking about before. What would the United States manufacturing base look like?

George Gammon:
I don’t know. Maybe we’d be more like Germany or, or maybe like Japan, where there they have trade surpluses, right? That’s actually what props up their currency, because they’ve got so many fundamental problems that are acting as headwinds. That’s one tailwind that they have for the currency is the fact that they produce so much stuff. They produce, produce all the stuff that we use. Right. So Snyder says, I don’t know, maybe it’s not a privilege because would we have been in the same spot? But the bottom line is because we have built our entire system around the dollar, be the global reserve currency status, and therefore increasing overly inflating asset prices, uh, allowing us to borrow at incredibly low interest rates. There’s no way we would be able to borrow otherwise therefore consume more because, you know, let’s think about this most people’s, uh, number one asset or the majority of their net worth is in the equity of their home.

George Gammon:
Right. Well, what if home prices were 50% lower, right. Then how much consumption would we have? How much economic growth would we have? How, how would that affect the economy? And then you got to say, okay, well, where would housing prices be? If your, if your mortgage was 12%, well, just do the math on the payments and you can see how much housing prices would have to come down. And my point is, if we did not have the global reserve currency, you would not see a 3% mortgage. I can, I can promise you that the mortgage is, it would be closer to 10 or 12%. So that’s the flip side of the argument. And that’s why, you know, the United States is one of the only countries where we can create, I don’t want to say wealth. We can create additional purchasing power without having to produce anymore.

George Gammon:
Right? Think about this, Kenny, let’s say that you’re a school teacher and I got nothing wrong with, you know, nothing against school teachers, but because our good buddies Kiyosaki we’ll, we’ll, we’ll bash on them for a moment here. I know he would love that. Uh, so you’re a school teacher making about 50 grand a year and you’re in California. And you just happen to buy a house in, uh, 95 or in 2012 or something like that. Right? Well, you, you bought it cheap. You’re able to somehow get together a down payment of, let’s say a hundred thousand dollars. And let’s say you bought a house that was whatever, 500, 600 grand at the time. Okay. Well, now that house is worth, let’s say 2.5 million, but you still have your teaching job. You see how much, how much more productive are you now than you were in 2012, zero, but yet your purchasing power has gone from a hundred thousand to 2.5 million or whatever it is minus the debt you owe.

George Gammon:
Right? You see, that’s what Americans can get away with that other people can’t. So we, you know, we as Americans think we’re so rich and, oh my gosh. So we’d go to these countries. These, you know, they’re just these third world, uh, cesspools, and, you know, w where all the Mercedes, where all the BMWs and we don’t connect the dots. We like to think that’s because of us that we can drive a Mercedes, because we were smart enough to buy a house in 2012. Uh, maybe, but maybe not more so, because the dollar is the global reserve currency. So you can’t take all the credit, but see, that’s the flip side of the coin there. But, uh, I think the bottom line, you know, what CIF was probably saying is we’re going to have to go through some extreme economic pain to get out the other side, to where we can rebuild that manufacturing base, where that eventually we will have to, uh, we’ll have to build. Yeah,

Ken McElroy:
I completely agree. So, so now, George, we’re going to jump over to premium, and we’re going to, we’re going to ask you a couple of questions about where do you think people should invest based on everything that’s going on right now? So right when we get back.

George Gammon:
Fantastic.

Ken McElroy:
So George, hey, how can people go over to your channel? I know you’ve got a couple now I get, where w where do they go and subscribe to some of your stuff.

George Gammon:
They can just go to George Gammon, type that into YouTube. It’s G A M M O N. Or they can check out the rebel capitalist channel, which is just blowing my mind. It’s getting like 35, 40,000 views per day right now, which is just incredible because I mean, there’s no editing involved. There’s no thumbnails. It’s just me just hitting the record button going live. And there’s no professionalism. The audio is horrible. The video’s terrible. Someone sometimes with a white castle.

George Gammon:
Yeah, that’s right. Or, no, a white claw!

Ken McElroy:
Because I was like, you got your white claw sitting there. You’re doing your YouTube videos. They’ve been fun to watch, man, keep it up. And as always, I appreciate your knowledge and time and, um, and everything you’re doing on these live events. So let’s keep it going. Absolutely.

George Gammon:
Thanks for having me on.