Ep 52 – Jeff Snider: Solving the Eurodollar Puzzle

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Jeff Snider, Headmaster of Eurodollar University, joins the podcast to talk about the perverse complexities of the Eurodollar system. What even is a Eurodollar? Why was the system created?

Keith and Jeff discuss the Eurodollar market and then give their hot takes in a hilarious lightning round. We hope you enjoy this insightful, whirlwind of an episode!

Follow Jeff on Twitter and his website.

Connect with Keith Weiner and Monetary Metals on Twitter: @RealKeithWeiner @Monetary_Metals

Additional Resources

Eurodollar University

BIS 80 Trillion Eurdollar Crisis 

Why Can’t We All Just Net Along

Theory of Interest and Prices

The Myth of Paul Volcker

Heat Death of the Economic Universe

Podcast Chapters

00:00–00:41 Intro

00:41–01:21 Jeff Snider

01:21–02:37 What is a Eurodollar?

02:37–04:33 Quantifying Credit

04:33–10:55 Money vs Credit

10:55–14:45 Netting Along

14:45–19:28 The Open Fissures of 2007

19:28–24:14 Monetary Layering and Fault Lines

24:14–30:38 Cantillon Complexity

30:38–31:24 Lighting Round

31:24–31:56 Gold Outlook for 2023

31:56–32:43 Future of US Economy

32:43–34:20 Triffen’s Dilemma

34:20–36:44 DXY Strength

36:44–37:57 Volker vs Bernanake

37:57–38:56 Kelton and Yellen vs Fed And Bitcoin

38:46–39:51 Jeff’s Question

39:51–40:15 Eurodollar University

40:15–40:34 Jeff Snider Part 2

40:34–41:13 Outro

Transcript:

Ben Nadelstein:

Welcome back to the Gold Exchange Podcast. My name is Ben Nadelstein. I’m joined as always by founder and CEO of Monetary Metals, Keith Weiner. Today we are honored to be joined by a very special guest, the headmaster of Euro Dollar University, Jeff Snyder. Jeff, how are you doing today?

Jeff Snider:

Hi Ben, thank you for having me. Really looking forward to this.

Ben Nadelstein:

Yeah, I’m really excited. Obviously, I’ve been studying a bunch for the Euro Dollar University exams. In this episode, we’re going to take a crash course on the fascinating complexity of the Eurodollar system. And of course, we’ve got the world’s foremost expert in Jeff. So I thought, let’s dive right in. Jeff, what is a Eurodollar? Let’s start there.

Jeff Snider:

There is no Euro Dollar. That’s the thing. A Eurodollar technically is a US dollar that’s on deposit somewhere else outside of the United States. And that’s really where the Eurodollar system began, with actual US dollars floating around Europe in the early postwar era. But very quickly, banks decided that it was much more efficient, much easier, more profitable if they began to trade in US dollar liabilities that weren’t actual physical currency. So essentially a Eurodollar is a claim on a US dollar whether it’s inside or outside the United States. And over time, many decades, this bank-centered ledger money approach basically took over. So that now we have this massive Euro dollar currency system that operates throughout the world where there isn’t actually any US dollars in it. So it’s a ledger money system, a virtual currency system, electronic bank centered, all that stuff. But the thing is, it’s all denominated in US dollars. They’re called US dollars simply because there’s that ancient connection to convertibility into US dollars.

Ben Nadelstein:

Right. And this idea of kind of trying to calculate money supply, I think that’s a big thing. A lot of people say, well, we got to calculate M1, that’s the real money supply, or there’s M2, or there’s the Austrian money supply. So obviously it’s very easy to calculate these different money supplies and everyone agrees on what’s the most important one. But how much Eurodollar credit is out there? Can it actually be quantified at all?

Jeff Snider:

No. The BIS made a little bit of a noise just recently when they belatedly admitted there’s all these currency swap derivatives that are out there, they figured it was about 80 trillion. It’s probably a little bit more than that that don’t appear on any of these M statistics. But here’s the thing. These currency swaps act as if transactional balances. So in actual real economy, they’re every bit as good and useful as what’s in M One. And this is something that the Federal Reserve and economists have struggled with for many, many decades. You see discussions at the FOMC going back to the 1970s where they say companies and banks around the world are using different monetary formats for transaction types of behavior that they had never used before. I was thinking something simple to us today, but back then was radical, was a repo transaction, a repo balance. Companies were using repo back in the 60s as transactions that didn’t show up in M one, didn’t really show up in M2. M2 that got developed later, didn’t really incorporate all the repo that’s out there. Then there’s these Eurodollar balances and repo balances and derivative balances that exist outside the United States.

Jeff Snider:

So there’s a lot of transaction-type money that isn’t even I mean, it can’t be captured in any of these M statistics. So quantifying how much Eurodollars there are out there is probably impossible, especially when you get into the realm of derivatives and things like that. You only find them on the footnotes of bank balance sheets.

Keith Weiner:

Depends on the definition of the dollar. One of my sardonic observations of all this, I think Ben was being sarcastic about, everybody agrees on the right measure of the money supply. Even the Austrians don’t agree because there’s TMS AMS, as MDM, they’re all credit. What’s the difference between a dollar and a 30-year treasury bond? Well, basically duration. So what’s the difference between a dollar T bill of short maturity and a repo? Well, they’re like different stripes. It’s a zebra, but it’s a horse, but it’s a giraffe. They’re all four legged mammals that eat plants. And the neck grow longer on this one. And the zebras are, I guess, impossible to domesticate. The instinct is different, but they’re very similar. And in a lot of cases, these animals can actually interbreed. I don’t know zebras and horses, but donkeys and horses can interbreed, and you get mules. And what’s really the difference between these things? Well, they’re different flavors of credit. And this one is used for transactions. This 1 may not be as commonly used for transactions, but can be, in theory, used for transactions. If you have the right bank as a trip party counterparty, then you can use it in certain kinds of transactions.

And it’s like, where do you really draw the hard line?

Jeff Snider:

You really can’t.

Keith Weiner:

I’m obviously pulling for the gold standard, where there’s a hard line between a gold coin, of which I have one over here that I love to show off, versus a piece of paper that says, I will pay you a gold coin. There’s a hard line between those two things. The difference between various pieces of paper.

Jeff Snider:

Is it’s not just an academic issue is either it keith, there’s legalities involved here. There’s functional. You’re exactly right. One of the reasons why the euro dollar system took off is because it is so damn fungible. This can be money. This can be money. And it really depends upon the counterparties that are transacting. They get to agree. And so in one sense, there’s an elegance to it. There’s an elegance in the fact that it becomes very flexible to meet the needs of a growing world. So there’s some positive attributes to it. But as you’re where your discussion is leading here is that yeah, eventually there’s a lot of inherent dangers there’s a lot of inherent downside to that type of monetary system as we saw in 2007 and 2008. Which wasn’t the only instance, but that was one of the sharpest instances where if you allow these ledger keepers to basically breed their own animals the monsters that come out of that zoo are going to come back to bite. You end up with Frankenstein’s that nobody has any ability to monitor, let alone even pretend to control.

Keith Weiner:

I’m supposed to even understand exactly.

Jeff Snider:

Exactly, yes.

Keith Weiner:

You read the mainstream theory on this stuff, and it’s like, to me, it’s medieval. When you study Galileo, before Galileo, they thought if you throw a rock, the rock will fly straight until it runs out of force. And then we’ll go down and for lack of observation, go out in the field, find a farm boy and say, Boy, throw a rock, and then you see it’s the stars. There’s no straight and down. So they whatever they imagine they were doing when they use the word I’m not contributing the word science, but what we would call science today wasn’t even beginning with observation. And the mainstream folks, they’re not beginning with observation. I don’t know if you ever took an art class in college, but the average non-artist who takes one of those classes, they put a human model in front of the room, and they say, draw this person. The average person draws a circle for the face and a line for the neck and a rectangle for the body. You’re not drawing what you see. You might as well have your eyes closed. And if you’re actually looking at it now, once you get that and I was the same thing in that art class, once you get that, like, now you’re trying to draw the line.

Keith Weiner:

You see, it may not be very good or very well executed, but at least you’re looking at reality, and then you might actually make some progress that way. If you’re trying to look at reality of it versus mainstream theory, or for that matter.

Jeff Snider:

Modern Monetary Theory, they criticize the issue, and arrogance and ignorance and illiteracy about how the monetary system works is just off the chart. You’re right. Everybody just says things that everybody else says. We all just repeat these mantras and cliches because nobody has really looked at the system. It’s much easier to think, well, it’s very simple. Money is easy. It’s a really simple thing. And maybe it used to be, and I don’t think it ever really was, but it was certainly much simpler way back when. But then you introduce this monetary system that crosses boundaries, geographic boundaries, definitional, boundaries, everything so easy simply because it is so fungible. It just obliterates all of our previous definitions. You made an observation earlier, Keith, that I think is really important. In this modern monetary system, there is no difference between money and credit. I know there should be. I mean, money is something else. But the way that the monetary system works, it’s all credit based. Fungible, tools, instruments, whatever anybody comes up with that they can get somebody else to accept, that becomes money.

Keith Weiner:

And there’s no way. I mean, the key feature of the gold standard is that there is a way for the saver to pull the money out. Give me my gold coin back, please. I don’t like the risk. I don’t like the interest rate or whatever. And by making everything credit, you’ve disenfranchised the saver.

Jeff Snider:

Put everything in the box, right?

Keith Weiner:

There’s no pressure relief album anymore. And the system grows unbounded. Of course there is bound, but there’s no bound that the savers have any power set so the interest rates can fall pathologically for four decades. The quantity of credit, I mean, you mentioned 80 trillion. And I think people are so jaded or cynical to the idea of trillions or tens of trillions. I don’t think anybody has any freaking idea. 80 trillion, and that’s only one piece of the system. There’s other pieces that are obviously unfunded liability.

Jeff Snider:

There’s hundreds of trillions of interest rates swaps out there. What’s really mind blowing about all this is you say nobody really has an idea that includes the banks who operate the system. There’s something called compression trading, and it’s something that banks got interested in over the last decade or so as they’ve been trying to manage their balance sheet efficiency and capacity. What compression trading is is using sophisticated statistical models and probably advanced AI models too, where they go into a bank’s balance sheet and find two offsetting positions and derivatives and cancel them out. So you have banks that have hundreds of billions of position, probably trillions of positions of opposing in the same damn bank, and they don’t know they have them because banks are not what everybody thinks they are. When you think of a bank, you think of a warehouse with a vault and actual credit, actual physical money in it. That’s what we’re all taught in school. And it makes fractional reserve. It creates paper claims on vault money. Banks are these massive complex systems of keeping track of who owes what? To everybody else. And they’ve gotten so big and so complex that they don’t even know what the hell they’ve got on their own books half the time, which is why they don’t want to report to the government or to the public, because if they did, assuming they even could, the public would be like, what the hell is this?

This isn’t a bank. This is something else entirely. So the monetary system, the banking system, we all need to catch up, as you’re saying, the analogy of Galileo and Copernicus, we really do need a leap forward in monetary understanding, because the way the public is led to think about money, it is medieval, it’s primitive.

Keith Weiner:

I was going to say, to your point about they have these offsetting positions, so let’s just cancel them. I think most of the I assume from your tongue you would agree with us and most of our listeners would agree there’s something not quite right about, let’s just cancel and pretend it isn’t there. I wrote an article probably a decade ago saying, why can’t we just all net along about this idea of that everything is just netted and therefore it’s basically a sleight of hand of the illusionist. Oh, don’t worry about that’s. Just the notional value is the derivatives tower at that time was approaching a quadrillion dollars. I think it was shrunk, obviously, after 2008, and I don’t know how much I don’t follow that closely, but how much it’s grown since then, or shrunk or whatever. But even if it’s a mere 100 trillion, there’s such a stupefying amount of money to be involved in it that, first of all, nobody has a grasp of what $100 trillion actually means or actually is. The picture that in your mind is difficult, but then you have these so called offsetting positions. But that all assumes that, first of all, there’s no bid off or spread on all these instruments, which there is in the real world, so they’re not exactly perfectly offset.

Keith Weiner:

And then, number two, that assumes that spreads can’t blow out. The problem is that while there’s a crisis, the offer doesn’t necessarily collapse, but the bid collapses or goes to zero. And then suddenly the thing that you’re long that you might have to sell, there’s no bid, the thing you’re short to buy back while the offer is still quite robust, but the bid is gone. And so they don’t offset in times of crisis, which is precisely the time when you need that to rely on that offsetting. And so I write a lot about the spread in the gold market, spot versus future. And most of the time they trade so closely together. If you plot a graph of gold futures in gold spot, because the gold price is $1,900, you wouldn’t even see the difference between those two lines. But if you zoom in and just look at the spread, the spread moves up and down, and it can invert, and all kinds of things happen. And actually, it kind of leads me to a question I wanted to ask. When you’re talking about the eurdollar system and there isn’t any actual dollars in it.

Keith Weiner:

Neatly made me think whenever you have two things that are trading in normal times, quote unquote, trading at essentially par, like I wrote about money in the in the Cyprus banking system traded at par with money in the German banking system until one day, suddenly, catastrophically, it didn’t. And a giant fisher opened up between the two. And if you had money in a bank in Berlin, it was still good at par. If you had money in a bank in Cyprus, they said €600 a day is all you can get out. And if you starve, well, it’s too bad. Is there a risk that there will be a fisher opening between a euro dollar and a US. Banking system dollar? Is that a risk? Did that happen?

Jeff Snider:

No, I don’t think a qualified yes, that’s what it’s that way, because in some sense, that’s kind of what happened in 2008. If you were to break the 2008 crisis down, it wasn’t really about subprime mortgages. It was about all these fungible parts of the monetary system that used to operate, as you’re alluding to here, Keith, they used to operate in what looked like a seamless hole. Everything. You had various different parts of money markets that everybody thought was a singular money market because it operated so efficiently, it operated with very narrow spreads, and it did so because banks were willing to enter these markets on a moment’s notice until suddenly they weren’t. Right. And the way in which these dealers work in these to integrate monetary markets all over the world is essentially on balance sheet capacity. And balance sheet capacity really comes down to mathematical operations. And what dealers realize, as you were just pointing out, is that their mathematically modeled risk parameters were always way too optimistic. Bar is a simple one. V AR probably models most say 99.9% of outcomes, but it’s that .1% that is so far out of your, out of your range that when it actually does happen, and you think, well, .01%, that’s not going to happen often, but when you’re doing hundreds of millions of transactions, it’s going to happen repeatedly.

But when it does happen, it’s not like it’s a, it’s a mine. It’s it’s it’s a jump between what you thought was a minor issue to all of a sudden the holy crap, we can’t handle it. And you spread that out over a bunch of dealers, and pretty soon what happens is you have these formally seamlessly integrated monetary markets that were really separate markets, became separate markets. For example, in 2007, you saw Libor blow out, which is the euro dollar rate, the main euro dollar rate. At the same time, the federal funds rate dropped. The federal funds rate dropped, not because the fed was printing money was because banks were taking money out of where they had them in their offshore subsidiaries and parking it with fewer and fewer counterparties in New York. So you had fragmentation across these monetary, what used to be nobody knew they were boundaries, but they really were boundaries. And all of a sudden, once you see them, you can’t unsee them. So over the 15 years since, a lot of these fragmentations and figures that opened up in 2007, they’re still there. And so we really could have a situation where they get worse again and you have a breakdown.

It doesn’t necessarily mean between the euro dollar and domestic dollar because it really isn’t that much of a distinction. But it could be like we saw in September where all of a sudden the UK pound in the gilt market don’t work like they used to because the euro dollar system fragmented and cleaved off the UK for various reasons. And suddenly the UK finds itself in a world of hurt that nobody thought was possible. I mean, just a couple of months before then, the UK gilt market was one of the best in the world. Rates were exceptionally low. All of a sudden it gets hit with a eurodollar wave and next thing you know it looks like the pound is going to crash and the gilt market is going to be nonoperable. So there are all of these hidden fault lines in the euro dollar system that depend upon dealers to actively police them and maintain spreads. But we’ve seen repeatedly over the last 15 years is that there are times when dealers don’t want to do that. And so liquidity dries up money, dries up this fungible concept of money just kind of disappears and it leads to a lot of unpredictable consequences.

Keith Weiner:

Reminds me of a concept in software development, and that is you build software and layers. Each layer is attempting to not only obscure the details of the architecture beneath it, but just to present a nice uniform abstraction layer, which makes it so much easier to build the next layer on top of that. But the problem is, in software it happens over and over and over again. Sometimes the details of what’s hidden beneath the extraction layer actually lead through and then when they do, you get either highly counterintuitive behaviors or very bizarre bugs, which obviously sometimes seems very severe. And it’s simple things like, okay, you think you’re writing a piece of software that says, okay, read this input and write this output. And if the thing underneath it is actually a network connection, you’re just assuming that my computer can talk to your computer. I think you’re on the East Coast somewhere. I’m obviously in Arizona, 2500 miles apart most of the time that can be done in 20 or 30 milliseconds. But occasionally you get some sort of analogy to a monetary system euro dollar wave in the internet and suddenly there’s a five or ten second delay between us.

And now this layer that was assuming that it’s just reading inputs as if they were local completely chokes and then suddenly it crashes and it says connection loss which actually is the best case scenario or other count. It gets back a bogus value because it can’t wait anymore and now it treats the bogus value as if it was real data that could cause corruption in the database. Who knows what can happen as a result of that? And the same thing here is you treat all these different things equivalently or fungibly and then when it suddenly matters that they’re not fungible, well, that non-fungibility suddenly impacts depending on who the counterparty is in different ways. Probably all of them bad.

Jeff Snider:

Yeah, that’s why the last 15 years have been so different from the first 15 years because the banking system has realized these fault lines, realized that their math and modeling is probably unrealistic. Not probably, it is. We all know it is. And so why have derivatives fallen in gross notional value over the 15 years? Because banks don’t trust their own models, they don’t trust their own math. And that makes it even more difficult because, you know, monetary exchange is all about trust. And if you don’t trust the other person on the other side of the transaction in a fungible monetary system it makes things a hell of a lot more difficult. Right. Because under a very simple monetary system we’re exchanging a piece of gold. Trust doesn’t matter. All you got to trust is the guy can show up with a piece of gold, we’re done. But in this type of ledger money system it trusted everything which is putting so much more important and strain on those, especially collateral because now we have to collateralize everything because we don’t trust these markets, these markets to operate in seamless fashion. And these errors you’re right, the software analogy is really a good one because these errors that are embedded way deep down in previous layers, they do have a way of seeping upward and they accumulate and sometimes they accumulate very quickly.

And as they do, the way that we need dealers to respond to that is to add more money to the system, more fungible money to the system. But what they’ve done recently is they’ll see these errors pop up like in September of 2019 in repo and they pull out. So now we have these errors that become procyclical. They gold become march of 2020 is a perfect example. They become really bad, really fast which creates even more mistrust over the system that everybody uses which puts enormous strain on other parts of the system that were never designed to handle that load. I’m thinking specifically about collateral. We have a problem and I know this blows a lot of people’s mind. We don’t have enough us. Treasuries in the world. It’s not an issue about government debt it’s an issue about these fungible securities that work in this particular way that we need them in order for this fungible monetary system to maintain working order. And unfortunately, and I hate this, people think I’m a show for the government because I say Treasuries are not going to go down in value. It’s not because of the government’s, not a reckless spender, it’s because they have this apex need in the monetary system and there’s just not enough of these safe assets out there to service this need, this desire, this breakdown in trust to collateralize, not just repo but all these massive derivatives.

There’s collateral for that. There’s collateral now for pretty much everything because of the lack of trust. Everybody knows the system doesn’t really work like it is and it creates these other layers of strain that keep popping up.

Keith Weiner:

I just have to add one thing to that which is of course exacerbating that procyclicality are the regulators, the so called macro prudential. They’re like General Magino leading up to World War II, so obsessed with fighting World War I think he’s going to stop the Panther division going through the Alps by, you know, putting these trenches in, he’s fighting the last war. And of course the regulators that are making things more rigid and whispering in the bank’s ears and by whispering in command at gunpoint. Ultimately you have to get more collateral in this. Do you have to do this?

Jeff Snider:

And it’s completely arbitrary too. You know, these Basil three HQLA requirements, they just pick a number out of a hat and say this is the amount you got to have on your balance sheet. This is what you got to do. And you’re right, we will not have another subprime mortgage prices. That’s what you’re saying. We were never going to have another one anyway because history doesn’t work that way. What happened in 2008 would never happen again anyway. Regulators have rewritten their banking rules based on a pre 2008 understanding what their understanding was. So yeah, they’re looking backwards while we’re all looking ahead, trying to figure out where all these problems are. And they do make it worse as balance sheet constrained, as dealers have become, just from their own realization that their models no longer work for them. Here comes the regular saying we’re going to make them even more constrained because now we’re going to have to make you fill out paperwork, monitoring and we’re going to come into your balance sheet and define and slice off particular specific parts of it just so that we can tell the public we’re doing something. It doesn’t actually help.

It’s all public relations to say we fixed 2008, don’t worry about it.

Keith Weiner:

I remember back in my previous company was a software company. We built this architecture to do real time voice communications, like very large numbers of people, like 10,000 people. To do that you had to put together a cluster of, you know, computers and then how do you, you know, load share across that anyway? So it was a pretty complicated thing. We had three quarters of a million lines of code. It was kind of a big deal. And I remember just thinking about the engineering meetings and the challenges we had. Somebody walks in a 3D world, they walk from here to here and they cross the boundary of a server tessellation where you’ve tessellated the world. Now that person has to migrate and seamlessly switch over to another server on a ten millisecond boundary. Otherwise you get audio drop out, which people hate. And I remember thinking the problems are complicated. There’s a lot of engineers in the room and each engineer is looking at a different part of the software. I remember thinking, imagine if you had a regulator in the room. You had some politicians and you had your competitors are lobbying to muck up your system and then you had politicians that are just seeing how they can play it.

For what it’s worth, you have regulators that are the people that weren’t good enough to become the architects and the engineers are now the regulators. And you have this giant argument about how this thing is going to be architected. Is it any wonder you never end up with durable solutions that actually work? At best you end up with patching something or symptom masking or I don’t know what the analogy? Gold be, but you end up with all these very perverse things and the solution to one problem is causing another problem. If you just say, okay, you have to treat that as you need an 80% net stable funding ratio for this. Well, suddenly that’s sucking capital out of whatever the marginal area is and that could be the repo market. Who knows where that margin might be at any given time? And suddenly you’re seeing a scene of fisheries opening up over here and then the regulators are jumping over there saying, well now we’re going to say banks have to do this and then that causes something else. And they create this collude of all these different all you want is a floor with no cracks in it, but you end up piling the lumber at every which angle.

Jeff Snider:

What I was hoping was one of the lessons people might have learned from 2008 was that the monetary system got to be too complicated. And the answer to that was instead, let’s make it more complicated. Exactly. We should be moving toward a more simple solution to money because it had gotten way too complicated. I mean, the reason people hate Wall Street to begin with, most people do is because they’re giving a privilege. And most of that privilege is information asymmetry. And the more complicated the system gets, the more valuable that information asymmetry becomes. And it’s a form of rent-seeking. It’s not adding any productivity to the system. It’s not like intermediation at all. It’s just complicated. And an overly complicated monetary system that became overly complicated because it is so damn fungible. How do you keep track of all these various parts and then as it breaks down, nobody stops and says, well, let’s go back a step. Let’s take a couple of steps back and maybe simplify some of these things instead. You’re right, Keith. The regulators come in and say we don’t know what the hell we’re doing. Obviously, we didn’t know what was happening beforehand because there was a crisis that we didn’t even know was even possible.

And so we’re going to come in and just write a bunch of arbitrary rules which just make everything even more complicated. So in a big picture sense, that big picture sense, we’ve moved in the wrong direction. We’ve moved away from where we should be going, which I know probably to you I don’t want to put words in your mouth, but to me, money should be simple. The rules of money should be something that every layperson immediately understands. And that’s why most people look at the monetary system very simplistically, because they’ve been told that’s what it is, even though it isn’t. So I would like, I think, the best answer to most of our problems, these monetary breakdowns and frequent issues, spasm, whatever you want to call them, I call them your dollar squeezes. In one sense, a big picture sense is let’s simplify a lot of these things. And in doing so, hopefully we reduce the information asymmetry privilege for some of these big banks and then we can spread out the benefits to the real economy instead of having them always accrue mainly to the financial sector more than anything else. I think that much the Austrians got right, the quintillion effects where money creators privileged themselves before anybody else.

LIGHTING ROUND

Ben Nadelstein:

Jeff, I want to jump in real quick because first, money should be simple. We definitely agree with that at monetary Metals, and I think his whole brand, the whole ethos of why he created monetary metals and what he wanted to do about the monetary system, obviously we’re all about that, but I know we have to go soon, which is incredible because I’m learning so much. And we’re going to have to have you back on to just explain all of this more to me. But I wanted to do a lightning round. Not complex, not 1000 words, not a tone, just a very quick well, you’re asking right between you and Keith. We’re going to keep it short and sweet. I’m going to ask you both, and I’ll decide who gets to answer first. But it’s going to be a lightning round and you just kind of give kind of your quick idea, yes or no, underrated, overrated. And so, Jeff, I’ll start with you. Gold. In 2023, are you bullish, bearish or neutral with what you’re seeing in the market landscape?

Jeff Snider:

If I only get one word, and I’ve already used more than one word, I’m going to say bullish.

Ben Nadelstein:

Okay, Keith, I’m going to same question. Gold bullish bearish or neutral?

Keith Weiner:

I think I’m going to have to hold off until the Outlook 2023 report and put the answer there.

Ben Nadelstein:

Sorry, I had a feeling he was going to say that. I don’t know if I’m going to allow that, but he is my boss, so I don’t really get a choice. All right, next one. US future, the US economy. Jeff, are we heading towards hyperinflation like Weimar Germany? There’s money printing everywhere, chickens coming home to roost? Or are we going to stagnate to death like Japan? Have a lost decade or so?

Jeff Snider:

What do you think, probability-wise, is much more probable than Japan scenario. I mean, we’ve been living it for 15 years already. Just briefly, we do everything the Japanese do, so why would we expect different results?

Ben Nadelstein:

Keith, same question to you. US future, hyperinflation or stagnates to death?

Keith Weiner:

Yeah, Heat Death of the Economic Universe. It’s the cold, lonely, drowning in the dark that took off of oxygen, not the bright flash of a thermonuclear 15 million degree explosion.

Ben Nadelstein:

All right, next one, Triffen’s Dilemma. Jeff, I’m going to give you about a minute to explain it, and then if you think it is overrated or underrated for understanding what is coming for our future.

Jeff Snider:

Triffen’s Dilemma briefly was the flaw in Bretton Woods, where we had need for expanding monetary supply for globalization, which meant an international currency. But Bretton Woods linked the US gold reserve to that international currency, which was supposed to be the US dollar of the British pound. So, simply put, there was not enough gold reserves in the US to back all of these dollars, which started to include this Eurodollar expansion. What most people get wrong is that the Eurodollar solved Triffen’s Dilemma long before 1971 and took over the roles of the reserve currency. And so in many ways, we’re living in the shadow of Triffen’s Dilemma because the Eurodollar became that solution. And now we have another problem, which is sort of the Eurodollar dilemma, where we don’t have enough Eurodollars to service global economic growth. So we have to solve that one again.

Ben Nadelstein:

Keith, Triffen’s Dilemma, overrated or underrated for understanding what’s going on?

Keith Weiner:

I think it’s underrated just because I almost never see anybody even mention it. This idea that the domestic policy in the US, whatever you might think of what J Powell is doing, at least it’s directing his attention towards attempting to address the domestic issue and then squeezing or, you know, precipitating and squeezing the rest of the world as the unintended consequence of it. So I think Triffen’s Dilemma is still making a modified form, still very much a lot of the kicking and underappreciated as hell.

Ben Nadelstein:

All right, next one. DXY. In the short to medium term, Jeff, does the DXY continue to roll over or does it gain in strength?

Jeff Snider:

I think it continues to roll over in the short run because of some alleviation and collateral issues, that kind of thing. Lower demand as the economy heads toward recession, there’s less demand for dollars globally. But I think that turns around at some point, probably pretty soon, especially if we get something like a financial squeeze to go along with the recession.

Ben Nadelstein:

Keith, same question your way. The DXY short term continue to roll over or gain in strength.

Keith Weiner:

I think I basically agree with Jeff. I think in the short term it continues to roll as risk assets are finding a bid, which means thousand dollars, to get into other things longer term. There’s no question that jeff, a key part of my theory is that all the other currencies are dollar derivatives, or you might say euro dollar derivatives. So the idea of comparing is this dirty shirt, the US dollar is the least dirty shirt. They’re not actually on equal footing. All the other dirty shirts are actually derivatives of the one dirty shirt and could never compete to replace it. And in fact, as the system eventually goes off the rails will be all the other currencies that go off the rails first. The US dollar would go off the rails, yes, but last. So longer term, we’re going to see absolutely ridiculous heights on the DXY until the DXY ceases to be quoted or ceases to be useful for anything. Obviously, if there was a collapse in the euro or the British pound were to be destroyed at some point you don’t quote the DX line anymore.

Jeff Snider:

Just to add, I think that’s a hugely underappreciated part. There is that there is not different currencies. Other currencies are simply the other side of the US dollar. It’s absolutely the case in swaps markets and derivatives where you have these trillions of dollars that are traded every day. The US dollar is on the other side of 96% of all those trades, so there isn’t other currencies. And the US dollar, it’s not like the US dollar is the best of the bunch. It’s really all the same system in looking at them from different angles. So I agree with you, Keith, there.

Keith Weiner:

Yeah, it’s a good data point.

Ben Nadelstein:

Yeah, we’re definitely going to have to have you back on to discuss the kind of dollar derivatives and I’m actually holding. I have a peso here, which is a dollar derivative from Argentina. All right, two more for the lightning rounds. Most overrated Federal Reserve chairman. You have either Paul Volcker or Ben Bernanke. Who do you go with?

Jeff Snider:

Jeff? This one would be close, but I would say most overrated is Paul Volcker because I put most of our problems, including Ben Bernanke from Paul Volcker.

Ben Nadelstein:

Keith, same question your way. Most overrated Fed Chair. Paul Volker or Ben Bernanke.

Keith Weiner:

I would say Volker for the reason that Jeff said, but also just because everybody hates Bernanke. So it’s hard for him to be overrated when his base rating is basically zero to begin with.

Jeff Snider:

I don’t know, Keith. He’s got a Nobel Prize now, so somebody loves him.

Keith Weiner:

Yeah, but that’s a cabal sort of rewarding one of their own.

Jeff Snider:

But such a slap in the face.

Keith Weiner:

Volker is revered as a hero who fixed the world, and that is totally not true. Not justified, not fair, not just if there’s justice in the world. Something like that.

Jeff Snider:

It’s like for the kids Volker is a hero. Gas lighting. It’s pure gas lighting.

Ben Nadelstein:

All right. The myth of Paul Volker completely destroyed by you two. I’d love to hear that one. Okay, final one. What is more likely, Jeff, Stephanie Kelton from MMT fame will replace Janet Yellen as the Treasury Secretary or the Federal Reserve adds bitcoin to their balance sheet? What’s more likely?

Jeff Snider:

Both of those are highly improbable, but the first one is less improbable than the second one. So I would say Stephanie Kelton becoming Treasury Secretary is probably more likely, though I don’t think it’s all that likely.

Ben Nadelstein:

All right, Keith, same question your way. Either Stephanie Kelton replaces Janet Yellen or the Fed add bitcoin to their balance sheet.

Keith Weiner:

One is the propagation of a monetary myth based on misunderstandings, failure to observe, and lies, and the other is a cryptocurrency. So I guess I have to go with Jeff’s answer that. I think both of them have a 0% probability, but if one of them had an even lower probability, it’s the Fed buying bitcoin.

Ben Nadelstein:

All right, Jeff, I want to say thank you so much for coming on. I’ve got one last question for you. What is a question that you think I, as the host of the Gold Exchange podcast, should ask all of the other guests who come onto the show?

Jeff Snider:

That’s a tough one. I think it would have to do with thinking about the monetary system more deeply and not just willing to take a lot of what we take for granted, to continue to take it for granted. So really it’s about will you think more deeply about the monetary system, about how the plumbing actually works, the international nature of it? As Keith said, the dollar is really everything. It’s not a national currency. It’s an international currency. So thinking about how that impacts not just individual domestic economies and systems, but how that can impact everybody, that’s great.

Ben Nadelstein:

And I’m going to have to ask everyone that question. Jeff, where can people connect with you, find more of your work and become a Eurodollar University student?

Jeff Snider:

Well, the website is Eurodollar University. I do a podcast and YouTube show. You can find that at Eurodollar University on YouTube. I also write a column at Real Clear Markets. I’m on Twitter. Everything else. So if you search for Eurodale University, chances are you’re going to find me pretty easily.

Ben Nadelstein:

Jeff, I want to thank you so much for coming on to the podcast. And we’re definitely going to have to have you back on as the eurodollar system continues to implode. And I want to thank you again for coming on.

Jeff Snider:

Hey, thank you very much for having me, Keith. It was great to meet you and see you here, and I absolutely look forward to doing it again.

Keith Weiner:

Yeah, I believe we got to do it.

Ben Nadelstein:

All right. Thanks, guys. See you.

Additional Resources for Earning Interest on Gold

If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:

The New Way to Hold Gold

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.