October 18, 2025 • 67 mins
Marty sits down with Luke Gromen to discuss China's rare earth leverage over the US, the structural shift from Treasury bonds to gold as the primary reserve asset, the challenges of reshoring American manufacturing, and why the dollar system must debase as these tectonic geopolitical and monetary changes unfold.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Look, I have to start by saying I can already tell that the comment section is going to be elated for this catch up because this is the first one where you actually have a mic.
(00:15):
Yeah, I got a lot of feedback on that.
And so, yeah, the Mrs. FFTT was finally she's she took care of me here.
So I've got I've got a very.
It's apparently a good one.
I wouldn't know if it's a good one.
It's the same one you've got.
So it must be good.
So, yeah, it's here.
So that's good.
(00:36):
The sound quality is impeccable.
And I think it's important that it's impeccable for this update
because, as you were just saying, the world is getting crazier.
And I think we had a stark reminder of how crazy and volatile it can get
at least in markets over the last 96 hours with Trump's Friday
(00:57):
true social posts that sent markets into a tizzy and then predictable. I recorded on Friday with
somebody right after the post went out and I said, okay, we can expect a post on Sunday morning or
afternoon sort of backing off from his statements. And that's exactly what happened for those who are
(01:17):
unaware. Trump came out and said that we're going to put a hundred percent tariffs on
China's rare earth metals because they weren't cooperating in negotiations.
And then Sunday said, hey, President Xi was was just not in a good state of mind.
We're back into a good spot.
What is what is this geopolitical volatility signal to you?
(01:41):
I think it I think it signals that that China has a lot more leverage than a lot of the Western commentators
are admitting. And maybe this might have been the first time where they finally admitted like,
oh, like reading between the lines. I think China retaliated for
(02:03):
the latest semiconductor, high-end semiconductor-related sanctions. And basically my view
was like, all right, well, you're not going to be allowed to have this stuff. That was the initial
read. And it's interesting. Trump came out with what they said, with what he said Friday,
(02:25):
right, which is 100 percent tariffs and markets through a fit. And then the Chinese came out and
clarified either a Saturday or Sunday. I don't remember exactly when it was, but.
And it was kind of like the most Chinese statement ever. It was like, you know, this is not a ban,
which, you know, in my experience is, you know, is it a ban or is it not a ban? You know,
(02:47):
So one of my best sources on China, a friend of mine goes, is it a ban or is it not a ban?
Yes, that's the answer.
That's how the Chinese negotiate.
But when you really read what they said, apparently it's about the weapons.
(03:08):
It's a ban on weapons.
We're not going to supply rare earths to the U.S. Defense Department to make weapons to point missiles at us and our friends anymore.
and you know the rest of and it was interesting because the u.s
spun it as hey they're shutting everybody off and the chinese said no no no and so then there was
you know trump taco'd china taco'd or china china backed or de-escalated
(03:30):
it spun as mutual de-escalation um which it was
and i think there is still not the recognition there was a moment of recognition in the west of
oh my gosh, they can shut down everything, which, yeah, we've known that all along,
(03:51):
if you were honest, you know, if people are honest about things.
And not that it wouldn't hurt them too, it would.
But I think the most important thing is they're done selling weapons to the U.S. Defense Department.
They're done selling rare earths into weapons systems for the U.S. Defense Department,
which is enormous and I think still not fully digested.
(04:14):
You know, it might be being digested by the gold market this morning, which is up $110 as we speak, over $4,100 on the futures.
But that's got a lot more to go, in my opinion, to properly digest that message.
So I think it's really important in terms of what just transpired because it's – they're basically saying we're done selling rare earths into Western defense systems.
(04:41):
You know, get your own rare earths.
Yeah, it seems like China feels like it is in a good position. It seems like there's been some
coordinating in the background to get to this point where they feel confident to plant these
flags in the ground and draw these lines in the sand, if you will. And it pertains to the gold
(05:04):
market, particularly what they've been doing with the Shanghai exchange, putting the gold on warrant.
And it seems like I had a conversation with Vince Lancey on Friday, and he made a really good point, is like they're essentially setting up this parallel settlement network that settles in gold.
And it seems like the last six, eight months have really been greasing, greasing the wheels, getting the slopes ready for that.
(05:33):
It's on. And now they can posture geopolitically from a position of strength.
Yeah, I think that's exactly right. And, you know, historically, if you messed with the monetary side of the rules-based global order, the U.S. would send the military over and kick your head in.
That's it. It has a big part of why Saddam was invaded, a big part of of of what Gaddafi was doing, as we know from Hillary's emails once upon a time.
(06:02):
And the Chinese have been doing this. And so they've they've seen the message, which is when we try to change, which they have to, because, again, they're not doing it because they hate us.
They're doing it because they will literally have a late 1990s Southeast Asia crisis where China collapses like you saw Southeast Asia do if they don't do this.
(06:25):
And so they have understood the order of operations, which is if we're going to do this, we need to make it impossible for the U.S. to come over here and kick our heads in.
And that's what this is about.
And to me, the rare earth card being played in April or May, whenever that was, and we wrote about it at the time, is essentially we're done selling rare earths to the U.S. military.
(06:52):
That was my interpretation of it then.
This institutionalized it.
This is basically it's now in black and white.
And if that's the case, then the window is wide open for the system to be reset.
And I think sort of, you know, number one A on the list of symptoms that you would see as the system is reset in a manner that China, Russia, the BRICS would like is I think you'll come in and you'll see the price of gold up on every day that ends in Y.
(07:20):
And that's what we've been seeing over the last month or so.
Today, no exception.
So, yeah, I think it's I think it's a huge deal.
You know, I do think that, you know, Trump with his tweets, when he's when he is when he tweets impulsively or posts impulsively, he usually gives you something that he probably shouldn't either or that, you know, that is incremental information.
(07:42):
So last week, there's a very serious people saying, hey, we're hearing she had a stroke.
We're hearing she's being deposed.
Well, Trump just told you that she had a bad day and made a mistake.
So she didn't have a stroke and did not get deposed per the president of the United States and his post.
And then the other thing is we have heard chapter and verse from Trump, Besant, Lutnik, over and over about how we have all the leverage.
(08:11):
That post just told us, no, we don't.
Now, again, that's not a surprise per se, but that takes us from denial of the denial
stage of grief about who actually has what level of relative leverage into somewhere
between anger and bargaining, right?
It's, you know, he threw his fit.
Then he's like, well, it'll be, you know, we're not, we don't want to put China into
(08:33):
depression and we don't want to put ourselves into depression.
That's exactly right.
We put them both into depression.
So, you know, let's deescalate.
But again, I think it masks the number one key thing, which is we've got to find our own rare earths for our own weapons systems.
Yeah.
It's either that or – because I had somebody who's very well-versed on China has lived over there for 30 years, an American.
(09:01):
And I asked him, like, what is the solution to this?
And the U.S. and China gets to the table.
The U.S. basically acknowledges that China is an equal, apparently from a social perspective, from a cultural perspective.
That's what China wants most, just to be viewed as an equal.
And I think with the leverage you just described that China has over us, that may be sort of the necessary pride swallowing that needs to happen to try to figure this out moving forward.
(09:30):
yeah i think it ends up being a really good thing for the world if if you know the two big powers
stop fighting um and you know there's a version of this that can go really well a version that
can go really badly um but i i you know and again it's all it's it's not to say china won't be hurt
(09:53):
by this china would be hurt by by that as well the challenge is that like we know the treasury
market will blow up in five to seven days, trading days, if there's a hard divorce, whereas China
probably would be able to hunker down and be all right for five to seven months.
(10:14):
And we know that empirically because we saw it happen in April. Treasury market after Liberation
Day went exactly seven trading days, and then that led to the first Trump taco. So it's all about
that sort of relative dynamic. We also know from May and June, after 11 days of medium-intensity
combat, the U.S. chewed through 15% of its high-end air defense missiles, defending Israel
(10:38):
from Iranian drones. And we've also heard that the Chinese can produce 4,000 cruise missile
motors a week, which compares to 6,000 roughly, reportedly, Tomahawk cruise missiles and inventory
total. So they can produce our entire inventory every week and a half in a very automated fashion.
(11:03):
So with rare earth, those supplies would be run, you know, would be run down even faster. So there
is a, all supply chain bottlenecks are not equal, right? You can look at, you know, what's our GDP,
what's their GDP, whatever. Those metrics are interesting, but in the end, in things like this,
it's all about the marginal metric, right? Think about this. There was a headline NFT
(11:27):
yesterday saying the U.S. Defense Department is out buying a billion dollars worth of critical
minerals. People are like, wow, that's like four times what we use every year. We're good,
but I think it misses a message. One billion of critical minerals, 250 million a year of critical
minerals of inputs, which the removal of that shuts down a trillion dollar a year military,
(11:51):
most powerful military in the world, right?
It's like the old poem, you know, for lack of a, for lack, for want of a nail, right?
For want of a nail.
And that's the nail in this case is the critical minerals.
Yeah.
Well, moving this back to gold with the price going up to, it was another interesting thing
that Vince Lancey brought up during our conversation on Friday
(12:15):
was that there's a lot of people in the Western pundit space,
particularly FinTwit, that believes in the dollar milkshake theory
that everything will fail up into the dollar in the U.S. Treasury market.
But this situation in the gold market,
particularly creating this parallel settlement network
via Shanghai Gold Exchange and other BRICS nations
(12:36):
spinning up their bolts, really throws a wrench
in that thesis, which is that can potentially not happen
if you have this alternative settlement network
that people can leverage.
And do you think the price going up, up $110 today,
many people are focusing on China specifically,
(12:59):
but I think everybody in the geopolitical landscape
is looking at what's happening right now and saying,
okay, I got to get some gold.
I got to get some silver.
There's apparently a silver shortage going on right now.
I don't know how legitimate that is, but at least the narrative's out there.
(13:19):
Yeah, I think Brent's milkshake theory is absolutely correct around initially gold going up with the dollar.
Something I posted a long time ago on X and people familiar with the FOFOA blog and the readings of monetary theorist another and friend of another will recall that in the late 1990s,
(13:42):
90s, another friend of another said that when the dollar system is coming to the end of its life,
you will see the dollar and gold rise together. That will be the sign that the dollars,
(14:02):
because people will be getting squeezed into the dollar at one hand, but they'll also be getting
out and going into gold. And so when those two things are rising together, that's the symptom
of the end of the dollar system.
That was said 30 years ago, almost 25 years ago.
And so, yes, the milkshake theory will see the dollar squeeze higher.
I get it.
(14:23):
And gold as well.
And gold, once it hits critical tipping point of price, and I don't know where that price
is, but you can see hints of it.
Albert Marco on X has said, hey, above $3,000 on gold, it starts to create a problem for the
dollar. He was right. The dollar went down to 96. It says above $5,000 on gold, it creates a problem
(14:48):
for the dollar and for the treasury market. He's probably going to be right. And the point here,
or what he's saying when he says that is ultimately,
yes, there is this, you know, we've talked about this, you know, $13 trillion dollar
denominated liability out there, right? In terms of foreign borrowed dollar debt,
(15:11):
that when the dollar goes up it squeezes people into that It forces them to sell treasuries It forces them to sell U equities to raise the dollars to get that Well once the price of gold gets high enough it starts to fully collateralize their
dollar liability on the other side. And suddenly, it starts to provide the liquidity. It starts to be
(15:34):
the sink. And that is how you circumvent. Gold is how you get out of the dollar system. And that's
why another or a friend of another said all those years ago, when you see them go up together,
that means the dollar is coming to its end of life. This present form of this dollar system
(15:54):
is coming to the end of life. Now, does it mean the dollar is going to die? No. I'll be using
dollars and you're and my grandkids and great grandkids will still be using dollars. They're
just going to buy us a lot less. And certainly in gold terms. De facto, we can see gold with
today's price move has overtaken treasuries in global central bank reserves, right? So there are
(16:18):
now, there's now more gold in global central bank reserves than there are U.S. treasuries.
How do you sit there and argue and say, you know, it's not overtaken the dollar in the system?
To me, that's crazy. Now, will people still use dollars? Of course. That's just Gresham's law,
right? I hear people say, well, it's still dominant. 90% of currency usage, that's dollar
(16:40):
dominance. Great. So you're spending, you know, you're telling me it's the bad currency, right?
I will, I'll spend dollars all day long because there's a terrible store of value. But if the
whole change of structure we've been talking about for years, and I mean, if you watch all my posts,
all my pockets, everything I've ever said, I've never said end of dollar reserve status. It's
(17:00):
end of the post 71 structure of dollar reserve status, which is dollar as primary reserve currency
treasury bond as primary reserve asset. It happened. It's happened. The dollar is still
primary reserve currency, but gold is now primary reserve asset as of probably this morning with the
(17:23):
$100 move. And I don't think it's ever going back unless she suddenly decides to be Yeltsin
and sell off his country for pennies on the dollar to American corporate and Washington
interests and Putin decides to do the same thing because we can't go to war to stop him.
(17:47):
The rare earth thing ensures it.
Yeah, that doesn't seem very likely.
And I guess, I mean, that begs the question, like, what does the U.S. do in reaction to
this?
I mean, there was many that were surmising in the beginning of the year we're calling
gold in kind back where we were calling gold from vaults internationally into the U.S.,
(18:09):
seeing what China was doing and others in preparation.
Obviously, there was the Genius Act getting passed here in the United States and the Trump
administration and the advisors around the administration are saying this is how we're
going to save the treasury market.
We're going to take advantage of the fact that the U.S. dollar is the preferred currency
globally and try to flood markets with it with this new technology.
(18:34):
in stable coins and stable coin issuers will have to buy treasuries. But it seems like we've
got to also at the same time expedite this reshoring of manufacturing if we want to
sort of inoculate ourselves from these external factors.
Yeah. And, you know, I think the stable coin thing can work.
(18:57):
But let's call it what it is, right? This is this is like, you know,
Operation Iraqi Freedom, right? Well, you know, or, you know, the Affordable Care Act, right?
Or, you know, whenever the government names something, you should sort of, like, assume
it's the opposite of what it is. And you're usually closer to the truth. And so let's call
(19:22):
the stablecoin gambit for what it is. They should have called it, we can't issue bonds
at the long end of the curve in sufficient amounts at prices that don't blow up our debt anymore.
So we are issuing and refinancing all of our debt in near cash markets. And that's what the
(19:44):
stablecoin thing's about. But of course, that doesn't roll off the tongue quite as nicely as
the Genius Act does it. But that's what they're doing. They are issuing, they're going to finance,
And you can see hints of it when you see Besant get sworn in and immediately double the pace of Treasury buybacks that Yellen was doing, which only started in May of last year, April of last year.
(20:07):
He doubles the pace of Treasury buybacks immediately relative to what she was doing.
And it is heavily skewed.
I won't say almost always, but it's heavily skewed towards issuing short-term paper to replace longer-term paper.
So he's bringing in duration.
And then I hear credible rumblings that, you know, the plan will eventually be once if you can get enough.
(20:33):
If you can get stable coins big enough, right, if you can if this can work, then you will do some form of of of what the U.S. did in the 50s, which is make them not make the T-bills that go into stable coins non marketable.
And say, yeah, they're not four percent.
all stablecoin T-bills yield 50 basis points, 30 basis points, whatever.
(20:57):
Powell will have taken control of the short end of the curve from, or excuse me,
Besson will have taken control of the short end of the curve from Powell,
completely disintermediated him.
But we will be financing massive deficits and the cost of reshoring in near cash markets.
Now, what would I want to own if Besson came out and said,
(21:19):
we are going to reshore and I'm just going to straight print the money to pay it.
What would we see? We'd see gold up. We'd see Bitcoin up. We'd see stocks up.
And we might not see the long end of the curve go up because if he's not issuing any bonds at
the long end, there's a mindless bid for duration. I don't know if it's 400, 500,
(21:39):
600 billion dollars a year from pensions and liability matching like they have to buy no matter
what. And as long as he keeps issuance out there below that number, long end can be relatively well
behaved as we've seen. It doesn't make me want to own it. They're getting killed on a real basis.
But if we saw that, that's how we'd react. If he said that, that's what we'd react. Well,
(22:00):
stable coins to finance large amounts of the deficit, it's just like the kissing cousin of
printing cash to pay for the deficit. Why is it happening? Because it has to.
And that's where we are in this. Like, there's no mystery. You go through the history books
and these great powers that get into debt and have these big seconds.
You start at the long end and you, you know, foreigners, and then you stay at the long end
(22:21):
and you plug domestic.
And then when you run out of that, eventually you end up basically printing money to finance
your deficits.
And we're not quite there yet, but we're, you know, that's what the stable coin gambit
is.
Now, what else can they do?
Look, if he can get the price of gold up a lot, you know, at $20,000 an ounce, if,
(22:43):
If they can do things that make the market bid gold to 20,000, and people used to think
that was insane, but I got to tell you, at 100 bucks a day, it's looking less insane.
50 to 100 bucks a day moves on the upside is looking a lot less insane than it was, say,
six months ago.
But if you can get it to $20,000 an ounce, which, by the way, would only put it back
to 1989, excuse me, it would only put it slightly above the long-term average of gold's price
(23:11):
relative to the foreign portion of our debt.
the gold, the market value of U.S. official gold relative to foreign debt.
$20,000 an ounce would deposit roughly $5 trillion into the Treasury General account,
free and clear.
It's just straight money creation using gold.
It's an accounting entry.
Wouldn't have to sell any gold, whatever.
And then you could buy down a pretty big chunk of debt.
(23:32):
You go out into the market and say, I'm going to, you know,
either he can finance the U.S., you know, the long end needs,
with that $5 trillion for five years at least, probably more like eight years.
Or he could just go in and immediately say, hey, I'm going to buy back $5 trillion worth of the
$29 trillion out. That's going to take down 20% of the market. So debt to GDP is under 100 right
(23:56):
away. Assuming a money multiplier, nominal GDP is probably going to run frigging 15, 20% for a
couple of years. Debt to GDP will be back to 50, 60% in a very short period of time over the backs
of the purchasing power of stablecoin holders around the world.
So they could do that, but boy, they've got to hurry
because, you know, Treasury, interest doesn't sleep.
(24:20):
No, it doesn't. And I was telling you, I've been watching some of your
FFTT videos over the last few days, and
you were mentioning a book, I forget the name of the book,
author's first name is Tobias, talking about 1931, Germany,
and the parallels that exist between today and then.
(24:41):
No, that's exactly right.
Yeah.
Yeah.
Yeah.
And so I think you said it in the video,
like history doesn't repeat, but it certainly rhymes.
And it looks like we have maybe not a playbook,
but some history from 100 years ago that we could look at and say,
hey, this is what's happening.
Yeah, absolutely.
And, you know, it's fascinating.
(25:03):
Between that book and the book Raven of Zurich, the memoirs of Felix Somery, which I own, which is great.
You know, there's a great passage from like 1912.
Somery's writing, a lot of it is his, you know, it's his diary as the world was completely changing, right?
(25:24):
Like you came into 1914 with four empires.
And by 1908, and those four empires had run the world for like 300 years prior.
And within four years, three of the four were gone entirely.
The fourth was wounded and the British Empire had lost 6% of its working age men in the war, had lost its power.
(25:47):
Basically, at that point, it was a debt vassal of the United States.
And so we overtook them as global reserve currency, as global – it was the first step in sort of becoming the global empire.
But it's fascinating. There's this passage where Solmary says, Europe, which was in 1912 full of optimism and pride and power, looked at the Chinese in European capitals with curiosity because they always weighed their money, the silver and the gold.
(26:24):
they would weigh it. They didn't go by denomination, they went by weighing it.
And they thought the Chinese were five generations behind the Europeans. They thought they were,
but in reality, they were a generation ahead. They had the experience and the historical memory
of inflation under Mongol emperors who'd printed a bunch of paper billions and had to suffer through
(26:47):
the consequences. And so that's why the Chinese weighed their silver and gold money in 1912.
and the Europeans thought they were, you know, they were, they were hillbillies, thought they
were behind when they were actually ahead. Now, stop me when this all starts to sound familiar,
right? Like, how often for the last 15 years have we heard how backwards the Chinese are and how
they'll never catch up and this and that? Like, like, here we are, the Chinese have been buying
(27:09):
gold hand over fist for 15 plus years, 18 years. And what have the American, what is the American,
you know wall street financiers power washington laughed at them they're not laughing now are they
they're not laughing at all i think something similar is going to happen yeah and i mean the
(27:32):
i think the only thing you can call it is hubris too that's right that's exactly what it is yeah
but it's like not only from a monetary and economic perspective but from the military
perspective we've been beating our chests like we're the biggest strongest military that's ever
existed on the planet china will never be able to catch up but you threw that stout stat out earlier
they're able to to build uh what is the 4 000 tomahawks per week and that was well not tomahawks
(27:59):
but that's uh from david p goldman who's a very good source on this stuff at asia times he wrote
uh two or three years ago he said that you know that they can reportedly make a 4 000 cruise
missile motors a week cruise missile motors but that then you look at the advancements that they've
had technologically with automation. I think many people in the United States are looking at the
(28:22):
drone technology specifically and saying, oh, that's pretty scary. And you go back to they own
the rare earth, which is the raw input of everything we need. And it's very perplexing that we are
still beating our chest in this way and not showing a bit of humility, like, okay, we messed up. And
It does seem like the Trump administration has recognized, holy crap, we're behind in a lot of ways to China.
(28:48):
But I think they're focused on energy in AI specifically, which rightly so.
I think they should be.
But militarily, things aren't looking relatively good for the U.S. right now either as it pertains to China.
And it's just like, all right, when are we going to swallow our pride?
(29:10):
take the hard medicine and recognize like, Hey, we need to show these, these Chinese some respect
because, uh, you do not want to go to the kinetic warfare route with them. I don't think because
Andrew's CEO was on a podcast with, um, the 16 Z guys last week. And he was saying,
uh, and I think he referenced this into the, some of the missiles we supplied
(29:34):
Israel earlier this year.
Like we can, if five days worth of depleting missiles into war takes two years to build
back that supply, which is astonishing to me.
Yeah, there's a great quote from U.S. Marine Corps General Barrow, you know, amateurs study
tactics, professionals study logistics.
(29:55):
And we've been more focused on tactics and they've been arguably more focused on logistics,
which we can say because two and a half years ago, the CEO of Raytheon was quoted in the Financial
Times saying, we literally can't go to war without Chinese components. And it will be many,
many years to try to replace that. They know it. Who let that happen? Why did that decision happen?
(30:21):
You start pulling on that thread, I think you're going to get some really unpleasant conversations.
And that gets into politics that, quite frankly, I don't want to be involved in because
I yeah I just leave it at that But the hints have been there You really said the right word which is hubris There was an author a guy named Andrei Martianov who was a former Soviet engineer I believe
(30:52):
I believe he was in the Soviet military when the Soviet Union collapsed.
He came here and he advised the U.S. military on all sorts of missile technology, etc.
And he began writing some books a few years back, The Real Revolution in Military Affairs.
And most recently, he wrote one a year and a half ago that was published called America's
(31:14):
Final War.
And the overall thrust of these books was, number one, there is very much a science to
military.
Military sciences, I believe, is a thing.
And, you know, you can run a calculation of, OK, how much growth, how much steel can you produce? How much iron ore can you produce? How much copper can you produce? What is your aggregate BTU output of your energy electrical grid? How many engineers are you graduating a year? What's your manpower?
(31:45):
All of these things can be put together into a calculation that gives you some level of understanding of the ability to prosecute war.
It's a measure of power, hard power.
And in the first book, he laid out like the Russians were so far ahead of the US in that already that it wasn't even close.
(32:10):
And I think people, number one, I don't even think he could get it published in the Western press.
So he went with an independent publisher. You can buy it on Amazon to America's credit, right? It's not censored.
But you read that, you go, huh, interesting.
And then we got a test of that in places like Ukraine, in places like Iran and Israel.
(32:34):
And what you find then is what he lays out in America's final war, which is America doesn't have enough of an industrial base to prosecute a major war.
And the industrial base and installed capacity it has is all in the wrong things because the nature of war has changed.
Think about what technology and AI do.
(32:56):
They allow smaller, less well-capitalized participants to do things just as good with just as broad a reach as big capital.
You and I are sitting here talking.
I was laughing, the whole Jimmy Kimmel thing.
I was looking at his numbers.
(33:17):
I have podcasts that have better numbers than he was getting every night.
I'm like, look at the commercial, the new Apple iPhone commercial.
right? What do they have? They have an iPhone and a case with real filmmakers using it to film.
This is what technology, and this is what Andrei Martianov was saying. It's like,
(33:39):
the Americans have all of this sunk cost into these weapons platforms that aren't the right
weapons platforms. They're not going to fare well in war. Eric Prince, a former CEO of Blackwater,
said it back in February in a speech. He said, if we sailed a carrier, a carrier group over to
Taiwan to try to blockade it, we would see it on the news, smoking or worse, because it has changed.
(34:06):
The nature of warfare has changed drones, hypersonic missiles, etc. And they've known this
for at least, first time I heard about it was in 2018 at a private conference, which means they've
known about this for at least 10 years, at least, and probably more. But the political reality,
right? Like the Philadelphia shipyards, right? Historically, a big naval shipyard.
(34:29):
There's a bunch of ships being built there, or that in theory could be built there that
aren't the right things to build anymore, right? But you're going to go to the senator from,
you know, from Pennsylvania and go, we're going to shut down the Philly shipyards and
turn it into some sort of missile works or drone works? Come on. That's not how this country works.
And that's the challenge is there's this inertia around the installed base where the incumbent has a disadvantage.
(34:55):
And that's what we've been watching.
Yeah, the Philadelphia Navy is the headquarters of anthropology now, which is one of the favorite stores of upper middle class white women in the United States.
But it's a far cry from where it was.
That might be the perfect metaphor for why we can't go to war.
(35:19):
We used to make destroyers there and now we outfit.
Cute dresses.
It's cute dresses now.
Well, with this in mind, I think there has been a recognition.
A lot of people have their thoughts about the sort of Silicon Valley tech elite.
(35:40):
But I think if you look at companies like Andrel and there there is a big focus on providing startup capital to industrial base focus companies there was a company named base that just spun up a factory in the center of Austin in the old Austin.
(36:00):
in, I forget, the Austin Times factory right on Congress Ave.
That shut down.
Obviously, Andrew is focused on drone technology and anti-drone technology.
There's a sort of metal fabricating startup that's based out of Michigan.
So it seems like at least some part of the investment class here in the United States
(36:26):
recognizes that we have this weakness in the private markets,
trying to solve these problems.
On that note, what, if anything, are we doing right right now?
And where do you think we should be focusing in sort of deploying capital
to fix these problems?
Well, it's just, I think those things are the right thing to do.
(36:51):
And I think we also need to be subsidizing in a major way metallurgy trades, metallurgy degrees, rare earth refining degrees, which doesn't even really exist in America.
I'm told 33 different Chinese universities have them.
America has zero.
(37:12):
Engineering degrees, skilled trades should all be being subsidized majorly.
In other words, like you don't pay to go to school and, you know, you come out and you're going to be making, I don't know, more than a first year, more than a third year Wall Street banker, something like that.
Right. Guaranteed by the U.S. government because you've got to get the labor there.
(37:33):
There's, you know. As an American, why would I go like study really hard, not get to drink a bunch of beer when I could go into finance and come out and trade crypto and make way more money than someone who's actually helped build stuff?
And I say this with being one of those guys that went to college and made the choice in 1993 to drink a bunch of beer and not have to study as hard as engineering guys and make more money.
(37:57):
Like that's that's that's what the dollar system as structure does.
That is 100 percent.
Everybody else makes stuff and then they send the money here and we move the money around.
And like that's that system is at the it's well beyond the end of its useful life.
And I say that because like we are doing some things right.
But now, again, go back to the first part we talked about.
(38:19):
If the Chinese aren't sending rare earth stuff here.
That's like that's the hardest part.
That's the hardest part.
And it takes a long time to sort of build the infrastructure for that.
So, you know, we need to we need to go to like Manhattan Project Speed on that in terms of because, you know,
(38:39):
it would be a good question for someone to ask Palmer Lucky to Anderil the next time he's doing
an interview is, hey, if the Chinese cut off all batteries and all magnets and all rare earth
inputs to what you're doing, how many things can you produce a year? And I think he's gonna,
I don't think people are gonna like the answer. And I say that because we've seen stories over the
last six to nine months of like, hey, we tried to build our own batteries for these drones,
(39:04):
not from Anderil specifically, but from other people in that supply chain in that world.
they said we couldn't do it we had to buy them from China they weren't as good and so it's not
there I think there needs to be some reality around you know this right that right now I'm
still seeing the bargain like well fine we'll just do it ourselves you know we're America we'll just
(39:24):
do it ourselves yes but no one everyone's like we'll just take a year or two I'm like so the
Chinese did this, you know, China launched, you know, we wrote on Friday, like China launched
China 2025 and 2015. And most of Wall Street laughed at them. They're not laughing now.
(39:46):
But it took the Chinese with all of the sort of things that they do that we have a hard time
doing, right? Centrally planned, some level of, you know, forcing competition, massive subsidies,
closed capital account, all the things you have to do to do that. And it took them 10 years.
And we're trying to do something orders of magnitude bigger with less engineers, less workforce.
(40:14):
And oh, by the way, an engineering and skilled trades workforce that is like a declining option.
In other words, it's a decaying asset because, you know, we got another six to eight years.
And the last generation that was really an engineering and skilled trades, they're going to be aging out every year.
so like we're on the clock and we so what else can we do we we have recognized the problem
(40:36):
and we are taking some steps we aren't nearly aggressive enough we need you know i will say we
are on the right path when i'm seeing stories in the wall street journal about welders making 500
600 000 a year coming out of welding school and being able and you know what it's gonna be
inflationary to so inflationary, which means guess what?
(41:00):
The Fed's going to have to put the entire bond market on their books.
Great. You know, that's, that's, that's how this has to go.
That's what they have to do. And you know,
what's that going to do to the dollar going to get waylaid.
Guess what? We offshored this stuff to support the dollar.
Why do people think that bringing it back can be done without waylaying the
(41:20):
dollar? It's astonishing to me. It's the most like,
when you put it that way, it's very simple.
It's very simple. It's very simple.
And it's I mean, as you're describing that, I'm just thinking in my mind of how polarized political landscape in the United States is here domestically.
(41:42):
And anything Trump tries, even if Trump woke up, he's like, all right, Luke, I hear you.
We're going to go do it. The amount of backlash you would get.
And he calls for calling him like an authoritarian fascist.
That is.
That's the challenge, I think, too, right?
Because this is like an this is an orthogonal multidisciplinary problem.
(42:02):
And that's that's we, you know, the politics of it, right?
Like half of this, you know, without getting into it, like we can't agree on certain scientific facts.
Half the country thinks, you know, you know, Dr. What's-his-name is a national treasure and half think he's not.
(42:23):
Half, you know, half people, you know, the immigration situation is there's no, we are so polarized.
You know, and if you get, you know, if Trump and the Republicans lose the next election, it's still going to be polarized.
It's just going to be in the opposite direction.
And so that's the other thing, too, right? Like people say we just need to do what we did in 1940. 1940? You had like, number one, we didn't really have a bunch of foreign engagements. We didn't have a bunch of foreign influence running Washington.
(43:00):
We had been basically like we had just kind of come on the national stage, number one.
So we didn't have a bunch of like, hey, you can't take that money away from the war you're supporting over here to build a factory base.
Right. There was no such thing. It was all focused here.
Number two, you had a huge skilled trade base.
(43:21):
And oh, by the way, 20 percent of them were unemployed and had been for 10 years.
So like if like they just needed the rallying cause and we were sort of a very much more unified country, you go, oh, yeah, let's go.
We can build this now. It's like apples and zebras.
How different all of that is on every angle, politically, domestically.
(43:43):
So, you know, again, I think step one is, you know, OK, we admit the problem, but now you've got to be realistic.
Right. It's like, OK, well, I'm 500 pounds and I'm smoking and I have a heart condition.
and, you know, people like, well, we're America.
We're just going to go, you know, we're going to run an Ironman next week.
You're like, what are you talking about?
What are you talking about?
(44:05):
Like the first step is like get off the couch, stop smoking, like walk to the sink,
make yourself something healthy and walk back.
And then next week, if you don't die of a heart attack,
then you walk to the mailbox and you come back.
And I mean, there's just a time aspect to this that, you know, again,
If we don't have a time machine, the time aspect has to be paid.
(44:30):
It almost feels like there needs to be a propaganda campaign, a good propaganda campaign to really introduce the concept of low time preference.
I think that's very disconcerting about the current state of America is that we live in a high-velocity trash economy where everything is, what did you do for me yesterday?
(44:52):
What are you doing for me today?
What's your quarterly financial stay saying and basically reacting and then gets even more distilled to the 24 hour news cycle?
Yeah, I thought that what Besson announced about what was a six month reporting versus quarterly, like a lot of people on Wall Street.
Oh, here comes more fraud. And I actually thought that was a really good.
That's a really good idea. Like report every six months, report every like the amount of effort.
(45:18):
Having been on the sell side for 15 years investment research, the amount of effort alone that is wasted on quarterly reporting is like mind boggling.
You have like the most brilliant minds in America, like reading the release, getting on the call, asking the comment, hey, good quarter, guys.
And like rather than, hey, here's an idea for raising capital.
(45:38):
Here's an idea for building a factory.
Here's like it's insane.
So I thought like that's a good like that's a good little baby down payment.
But like, you know, it's like, let's keep that going.
Yeah.
No as somebody sits on the board of a publicly traded company like the amount of sunk cost or opportunity costs that spent focusing on quarterly financials is like you finish the financials for Q1 and then three weeks later
(46:05):
it's like all right let's start let's start getting the books ready for Q2 earnings.
It's not conducive there it's not conducive to like yeah because oh by the way as an exec you
know you go to jail if you sign something that is that is fraudulent or wrong and so like your first
like, I need to make sure I don't go to jail. Okay. Well, if you're thinking, I don't want,
(46:28):
I got to make sure I don't go to jail. You're not thinking about how do I compete to Chinese?
How do I go into this market? How do I do better in Brazil? How do I like, these are the real
things you got to focus on. And like, we just haven't been for a long time. And it's all,
like you said, it's all high time preference society, which is all around the end of the day,
(46:50):
it's the currency. Why build a factory? Why plan out building a factory? And how do I allocate that
capital when the dollar is moving around like this and the cost of that capital? You can't,
you can't plan a factory. Come on. You've got to have some sort of a real, you know,
a better currency system. No, I think you did an incredible service to the world a few weeks ago,
(47:11):
really pulling on the debasement trade meme
and sharing that chart of equities, real estate,
and I believe it was S&P, NASDAQ,
and real estate priced in dollars, gold, and Bitcoin.
And I think if we were able to really distill that message
like you did and make it popular
(47:33):
and have company execs realize
you should be storing your company's profits
in these better currencies and Bitcoin and gold,
Oh, yeah, I replied to. So Senator Sanders, Bernie Sanders had something up probably about a month ago.
You can find it on my X feed about how, you know, like, I don't know, corporate greed and something else is, you know, the reason why, you know, since 1971, all of the profits, you know, all of the gains from productivity have accrued to the to the one percent and not to the bottom 50 percent.
(48:06):
And like I tagged him out. I'm like, with all due respect, Senator Sanders, in 1963, minimum wage in this country was five silver quarters.
It was $1.25. Minimum wage is $1.25. It's five silver quarters.
The melt value at $51 of those five silver quarters today is like eight bucks each.
(48:27):
so if minimum wage in real money terms was today what it was in 1963
minimum wage would be five times eight bucks would be forty dollars what is national minimum
wage actually seven and a quarter you want to know who stole the money senator sanders
(48:49):
it's you and the politicians you guys changed the currency system you've been there for however many
years he's been there. Change of currency system back. Nixon said it was temporary.
That's where it all went. You go from having to pay people 40 bucks. Imagine if minimum wage was
40 bucks. What would wealth inequality be? Corporate profit margins would be a lot lower.
(49:13):
Sure. But corporate profit dollars would be way higher because we would be running an economy
that would be essentially the version of what Henry Ford did initially, right? Which was pay
his workers more than the market so that they could buy the model T's coming off the line.
So like, that's, that's the fix that like, that's the fix. If they ultimately, unless you
(49:38):
fix the currency, you're not going to really be able to do a whole lot.
No, and it's, it's mind boggling how many people don't recognize this at all. I'm looking for
a tweet but there's a guy nikita beer he uh he just joined twitter or x as some he's working on
(49:58):
their their product i don't know exactly what he's doing but he tweeted out he's like oh wow
all these all these golden uh bitcoin guys are are preparing for hyperinflation when ai is extremely
deflationary i saw that i saw that post i i saw that post and it um the answer is very simple
I actually think I replied to him.
(50:20):
And I think I just said, deflation is the midwife of hyperinflation in highly leveraged societies.
You read the book 1931.
In 1931, Germany didn't hyperinflate again because they'd experienced the hyperinflation of 1922.
And so they're like, we're not doing that again.
But that was one of their choices.
It was either default or hyperinflate.
(50:40):
And I don't think the U.S. is going to nominally hyperinflate.
well like look the dollar collapsed 90 against oil in 2001 between 2001 and 2008 right oil went
from 15 bucks a barrel to 150 bucks a barrel that's that is simply the dollar collapsing 90
(51:00):
the dollar was worth one tenth as much against oil in eight years you know the chinese we say
we want to compete china can make the same or better stuff for us 85 cheaper than us including
things like, you know, Josh, Josh Crum, not Josh Crum, Josh Wolf testified to Congress three years
ago about nuclear power plants. So the Chinese can build a one gig, you know, one gig nuke plan
(51:26):
for 85% cheaper than the Americans. A gig's a gig. A gig of electricity is a gig of electricity.
It's not like there's some special yuan, you know, gig of electricity that gets them more or less
power. They are
by the same physics.
So if their gig of electricity
costs
85%
(51:47):
cheaper than ours, you know what that
tells me? Dollar's
85% overvalued against the yuan. It's that
simple. It's the same
and that's
where this movie's going.
Like some version of that. If we want to compete,
if we want to break, people
say, well, we need to split China. Great. The dollar's
(52:07):
got to go down 85%. That's it against C1. That's fine. Whatever. Good. We'll be able to compete.
Working class is going to get paid. Fed's going to have to buy a lot of bonds. But that's where
this, like some version of that is where this is going. It's just, it's math. It's double entry
bookkeeping. It's not like, it's not, you know, the only mystery is if we decide to split with
(52:28):
China and as everyone's saying, we're going to do, we're going to divorce China and redo this.
I don't know if it's 85% down or if it's 40% down or it's 60% down,
but it ain't frigging 10% down.
Like we've seen this year,
not even close.
No,
no.
And it's insane.
So going back to the Nikita tweets,
(52:48):
like text been deflationary.
Like we've had extreme tech deflation over the course of the last five,
six decades,
six decades specifically.
And it's like,
yes,
TVs are cheaper.
What we're doing right now is way cheaper than it would have been.
20 years ago. It gets good information out to people. And despite that, the cost of living
(53:11):
is rising. And there should there is just this disconnect between that fact and the ability of
people to recognize like, oh, if we pair this with a hard currency, we would actually reap
the benefits as a global power and economy if we were able to store our wealth in a hard currency
and we can let prices fall, but the purchasing power of our hard money is going up over time
(53:36):
as we're being more productive throughout the economy.
It's that simple, right?
People are like, oh, well, gold wasn't so bad for America from 1860 to 1929.
America had a pretty good frigging run.
You had this huge productivity, huge technology, right?
Technology is not just electric stuff, right?
You had trains, you had planes, you had cars, you had all this technology,
(53:56):
you had washing machines, consumer goods, massive deflation,
And it was highly, highly productive and good for America, good for Americans.
We were on a gold standard and some of it a blended gold, silver standard.
But that's the challenge.
Like people say this tech is deflationary and it is.
(54:18):
But in the presence of a country with, you know, 7% fiscal deficits at the peak of the economic cycle and 120% at the GDP and hollowed out factory base, you know.
I've said multiple times, there's nothing more inflationary than an insolvent sovereign
that is printing money to keep the nominal value of its sovereign debt high, to keep it nominally
(54:44):
money good. And that's why inflation is where it is, despite all this inflationary, deflationary
tech, excuse me. It's just, they have to keep growing money units because otherwise, the debt
implodes. And oh, by the way, the debt imploding is very hyperinflationary because the debt backs
the currency. So if the debt, if the backing of the currency goes to zero or is impaired,
(55:06):
guess what happens? That's when you really get a hyperinflation of some description as people
basically dump currency to just get me something that isn't backed by bonds. So yeah, Bitcoin
actually does fix this. A gold standard would actually fix this. And you can make the case
Bitcoin is able to be, you know, all the things in Bitcoin,
(55:26):
start portable and verifiable and et cetera, et cetera, et cetera.
Yeah.
You need a deflationary currency or else, you know,
we're going to kind of continue down this path we're on.
Agreed.
And to wrap up, I'll say, like, I think the free market,
Bitcoin is a creation of the free market is beginning to solve this.
But I think even any Americans listening to this,
(55:50):
you look at things like Square announced last week, where anybody who's running a Square point
of sale systems throughout the United States will be able to automatically convert a portion
of their revenues into Bitcoin right away. And when I think about actually solving this problem,
what is the walk to the mailbox for the 500 pound smoker with heart problems? It's like, okay,
(56:12):
just if you run a small business and you're using Square, maybe you start by funneling 5%
of your revenues in the Bitcoin and building a Bitcoin treasury position for your small business.
And you see what that does for you over the course of a year, two years, five years.
And then you go, huh, this is this is better money. And you turn the dial up. And
(56:34):
eventually, when I think about ways in which you solve this problem, it's like, all right,
let's not depend on the government officials and central bankers who sort of pushed us down this
road to think that they're going to solve it themselves or feel the pressure to solve it
without any external pressure is a bit wishful, a bit of wishful thinking in my books. We need
(56:55):
individual American citizens and businesses to adopt this better money and opt into it.
And I think that's how we get through this at the end of the day.
Yeah, I think that's exactly what's going to happen. I think it's really encouraging to hear
things like that square. I mean, it is, it is quickly becoming a matter of utmost importance.
(57:16):
I won't go all the way to life and death, but, you know, depending on events, it could become a
matter of life and death for businesses to do exactly what you just described, which is just
put a little, and individuals, put a little bit into, into Bitcoin, because you can see what,
you know, the corollary to the Genius Act and the stable coin gambit to support the treasury market
(57:37):
that we talked about earlier is you're not going to support the stablecoin market.
The stablecoin market's not going to be big enough to support the treasury market
with Bitcoin at $200,000 or $500,000.
He needs a million-dollar Bitcoin, $2 million Bitcoin
to pull along the number of stablecoins, to pull along the T-bill issuance.
(58:01):
Basically, we wrote it as the U.S., the treasury,
seems to be standing up Bitcoin de facto as a competing reserve asset to gold.
And then they can duke it out.
Gold and Bitcoin can duke it out.
We'll see.
But that's exactly what has.
And that will rebalance things.
(58:24):
That will take things away from the financialized guys.
That will take power away from the Fed.
That will do all the kind of things that you need.
To your point, it's a market.
it will be a market driven incentive system um that we really it will narrow wealth inequality
it will but again the only way it narrows wealth inequality is if people start buying some every
(58:49):
week and self-custody it because otherwise if you don't self-custody it you they're just going
to rug pull you like they rug pull like you know you custody with you know you just you just have
to custody it yourself. You just, you know, it's so easy to do. There's very good services that'll
help you do it. Like, just do it. Like, because otherwise you're just re-centralizing it elsewhere
(59:11):
and, you know, it opens up the risk for rug pull down the road. Yeah. I don't want to glaze them
too much, but that's why I'm extremely happy that Square exists and they have the sort of mentality
that they do. Obviously, Jack's been very vocal about this. Bitcoin is everyday money.
We need to use it. And they're supporting many different areas of the industry with
(59:38):
the BitKey, which is a hardware wallet. They have Proto, which is mining. Spiral,
which is open source development, obviously. Square and Cash App. And I believe Miles
Suter is the product lead over a block. A product lead over there said that you'll
automatically be able to sweep funds that you accumulate via your square point of sale terminal
(59:59):
to self custody using BitKey and other wallets. So we need more examples of that, of industry
people leading and doing things the right way, because like you said, it is not that hard.
And it is important that we do it the right way, because that's how we actually
structurally fix these problems. Yeah. Oh, yeah. Like I'm a tech moron. And so like,
(01:00:19):
if I can do it, anybody can do it. Like I'm like, you know, whatever the tech abduction
curve, I'm usually way past the big wave. Like I'm, I'm a, I'm literally a tech idiot. So like
if it's easy enough for me to do it, just about anybody can do it. Yeah. And Luke, I appreciate
your time. This is a great catch up. Uh, I think you've been completely valid. We've been talking
(01:00:42):
on this show, I think for probably five years now, uh, you've just been beating the drum
consistently and it feels like we're hitting an inflection point that you've been, uh, you've been
pointing to for for many years now so I think thank you for your time and
educating the audience here no I appreciate that it's it's it's it's been
(01:01:04):
it's been it's been a great time it's been fun it's been you know it's been
you know the the most fun work of my life and you know it's been happy to hear
from from clients and friends like hey like this is you know this is good there's
There's times in this business where you don't see the ball that well.
And, and, you know, those are when you're trying to work walks and, you know, grind out singles.
(01:01:26):
And, you know, some, when you're seeing the ball well, then, you know, those are the times when it's, when it's super fun.
And so, you know, hopefully we can knock on wood, you know, try to, try to, try to, try to keep it going.
Yeah.
Highly recommend checking out Forest for the Trees.
We'll link to the website, the YouTube channel.
I mean, your, your YouTube video has been great.
(01:01:47):
the Q and A's if you're looking for quick hits just to get a peek into what Luke is thinking from
a week to week basis. Definitely go check that out as well.
Appreciate it.
All right. That's all we got today, freaks. Peace and love.
Look, I have to start by saying I can already tell that the comment section is going to be elated for this catch up because this is the first one where you actually have a mic.
(00:15):
Yeah, I got a lot of feedback on that.
And so, yeah, the Mrs. FFTT was finally she's she took care of me here.
So I've got I've got a very.
It's apparently a good one.
I wouldn't know if it's a good one.
It's the same one you've got.
So it must be good.
So, yeah, it's here.
So that's good.
(00:36):
The sound quality is impeccable.
And I think it's important that it's impeccable for this update
because, as you were just saying, the world is getting crazier.
And I think we had a stark reminder of how crazy and volatile it can get
at least in markets over the last 96 hours with Trump's Friday
(00:57):
true social posts that sent markets into a tizzy and then predictable. I recorded on Friday with
somebody right after the post went out and I said, okay, we can expect a post on Sunday morning or
afternoon sort of backing off from his statements. And that's exactly what happened for those who are
(01:17):
unaware. Trump came out and said that we're going to put a hundred percent tariffs on
China's rare earth metals because they weren't cooperating in negotiations.
And then Sunday said, hey, President Xi was was just not in a good state of mind.
We're back into a good spot.
What is what is this geopolitical volatility signal to you?
(01:41):
I think it I think it signals that that China has a lot more leverage than a lot of the Western commentators
are admitting. And maybe this might have been the first time where they finally admitted like,
oh, like reading between the lines. I think China retaliated for
(02:03):
the latest semiconductor, high-end semiconductor-related sanctions. And basically my view
was like, all right, well, you're not going to be allowed to have this stuff. That was the initial
read. And it's interesting. Trump came out with what they said, with what he said Friday,
(02:25):
right, which is 100 percent tariffs and markets through a fit. And then the Chinese came out and
clarified either a Saturday or Sunday. I don't remember exactly when it was, but.
And it was kind of like the most Chinese statement ever. It was like, you know, this is not a ban,
which, you know, in my experience is, you know, is it a ban or is it not a ban? You know,
(02:47):
So one of my best sources on China, a friend of mine goes, is it a ban or is it not a ban?
Yes, that's the answer.
That's how the Chinese negotiate.
But when you really read what they said, apparently it's about the weapons.
(03:08):
It's a ban on weapons.
We're not going to supply rare earths to the U.S. Defense Department to make weapons to point missiles at us and our friends anymore.
and you know the rest of and it was interesting because the u.s
spun it as hey they're shutting everybody off and the chinese said no no no and so then there was
you know trump taco'd china taco'd or china china backed or de-escalated
(03:30):
it spun as mutual de-escalation um which it was
and i think there is still not the recognition there was a moment of recognition in the west of
oh my gosh, they can shut down everything, which, yeah, we've known that all along,
(03:51):
if you were honest, you know, if people are honest about things.
And not that it wouldn't hurt them too, it would.
But I think the most important thing is they're done selling weapons to the U.S. Defense Department.
They're done selling rare earths into weapons systems for the U.S. Defense Department,
which is enormous and I think still not fully digested.
(04:14):
You know, it might be being digested by the gold market this morning, which is up $110 as we speak, over $4,100 on the futures.
But that's got a lot more to go, in my opinion, to properly digest that message.
So I think it's really important in terms of what just transpired because it's – they're basically saying we're done selling rare earths into Western defense systems.
(04:41):
You know, get your own rare earths.
Yeah, it seems like China feels like it is in a good position. It seems like there's been some
coordinating in the background to get to this point where they feel confident to plant these
flags in the ground and draw these lines in the sand, if you will. And it pertains to the gold
(05:04):
market, particularly what they've been doing with the Shanghai exchange, putting the gold on warrant.
And it seems like I had a conversation with Vince Lancey on Friday, and he made a really good point, is like they're essentially setting up this parallel settlement network that settles in gold.
And it seems like the last six, eight months have really been greasing, greasing the wheels, getting the slopes ready for that.
(05:33):
It's on. And now they can posture geopolitically from a position of strength.
Yeah, I think that's exactly right. And, you know, historically, if you messed with the monetary side of the rules-based global order, the U.S. would send the military over and kick your head in.
That's it. It has a big part of why Saddam was invaded, a big part of of of what Gaddafi was doing, as we know from Hillary's emails once upon a time.
(06:02):
And the Chinese have been doing this. And so they've they've seen the message, which is when we try to change, which they have to, because, again, they're not doing it because they hate us.
They're doing it because they will literally have a late 1990s Southeast Asia crisis where China collapses like you saw Southeast Asia do if they don't do this.
(06:25):
And so they have understood the order of operations, which is if we're going to do this, we need to make it impossible for the U.S. to come over here and kick our heads in.
And that's what this is about.
And to me, the rare earth card being played in April or May, whenever that was, and we wrote about it at the time, is essentially we're done selling rare earths to the U.S. military.
(06:52):
That was my interpretation of it then.
This institutionalized it.
This is basically it's now in black and white.
And if that's the case, then the window is wide open for the system to be reset.
And I think sort of, you know, number one A on the list of symptoms that you would see as the system is reset in a manner that China, Russia, the BRICS would like is I think you'll come in and you'll see the price of gold up on every day that ends in Y.
(07:20):
And that's what we've been seeing over the last month or so.
Today, no exception.
So, yeah, I think it's I think it's a huge deal.
You know, I do think that, you know, Trump with his tweets, when he's when he is when he tweets impulsively or posts impulsively, he usually gives you something that he probably shouldn't either or that, you know, that is incremental information.
(07:42):
So last week, there's a very serious people saying, hey, we're hearing she had a stroke.
We're hearing she's being deposed.
Well, Trump just told you that she had a bad day and made a mistake.
So she didn't have a stroke and did not get deposed per the president of the United States and his post.
And then the other thing is we have heard chapter and verse from Trump, Besant, Lutnik, over and over about how we have all the leverage.
(08:11):
That post just told us, no, we don't.
Now, again, that's not a surprise per se, but that takes us from denial of the denial
stage of grief about who actually has what level of relative leverage into somewhere
between anger and bargaining, right?
It's, you know, he threw his fit.
Then he's like, well, it'll be, you know, we're not, we don't want to put China into
(08:33):
depression and we don't want to put ourselves into depression.
That's exactly right.
We put them both into depression.
So, you know, let's deescalate.
But again, I think it masks the number one key thing, which is we've got to find our own rare earths for our own weapons systems.
Yeah.
It's either that or – because I had somebody who's very well-versed on China has lived over there for 30 years, an American.
(09:01):
And I asked him, like, what is the solution to this?
And the U.S. and China gets to the table.
The U.S. basically acknowledges that China is an equal, apparently from a social perspective, from a cultural perspective.
That's what China wants most, just to be viewed as an equal.
And I think with the leverage you just described that China has over us, that may be sort of the necessary pride swallowing that needs to happen to try to figure this out moving forward.
(09:30):
yeah i think it ends up being a really good thing for the world if if you know the two big powers
stop fighting um and you know there's a version of this that can go really well a version that
can go really badly um but i i you know and again it's all it's it's not to say china won't be hurt
(09:53):
by this china would be hurt by by that as well the challenge is that like we know the treasury
market will blow up in five to seven days, trading days, if there's a hard divorce, whereas China
probably would be able to hunker down and be all right for five to seven months.
(10:14):
And we know that empirically because we saw it happen in April. Treasury market after Liberation
Day went exactly seven trading days, and then that led to the first Trump taco. So it's all about
that sort of relative dynamic. We also know from May and June, after 11 days of medium-intensity
combat, the U.S. chewed through 15% of its high-end air defense missiles, defending Israel
(10:38):
from Iranian drones. And we've also heard that the Chinese can produce 4,000 cruise missile
motors a week, which compares to 6,000 roughly, reportedly, Tomahawk cruise missiles and inventory
total. So they can produce our entire inventory every week and a half in a very automated fashion.
(11:03):
So with rare earth, those supplies would be run, you know, would be run down even faster. So there
is a, all supply chain bottlenecks are not equal, right? You can look at, you know, what's our GDP,
what's their GDP, whatever. Those metrics are interesting, but in the end, in things like this,
it's all about the marginal metric, right? Think about this. There was a headline NFT
(11:27):
yesterday saying the U.S. Defense Department is out buying a billion dollars worth of critical
minerals. People are like, wow, that's like four times what we use every year. We're good,
but I think it misses a message. One billion of critical minerals, 250 million a year of critical
minerals of inputs, which the removal of that shuts down a trillion dollar a year military,
(11:51):
most powerful military in the world, right?
It's like the old poem, you know, for lack of a, for lack, for want of a nail, right?
For want of a nail.
And that's the nail in this case is the critical minerals.
Yeah.
Well, moving this back to gold with the price going up to, it was another interesting thing
that Vince Lancey brought up during our conversation on Friday
(12:15):
was that there's a lot of people in the Western pundit space,
particularly FinTwit, that believes in the dollar milkshake theory
that everything will fail up into the dollar in the U.S. Treasury market.
But this situation in the gold market,
particularly creating this parallel settlement network
via Shanghai Gold Exchange and other BRICS nations
(12:36):
spinning up their bolts, really throws a wrench
in that thesis, which is that can potentially not happen
if you have this alternative settlement network
that people can leverage.
And do you think the price going up, up $110 today,
many people are focusing on China specifically,
(12:59):
but I think everybody in the geopolitical landscape
is looking at what's happening right now and saying,
okay, I got to get some gold.
I got to get some silver.
There's apparently a silver shortage going on right now.
I don't know how legitimate that is, but at least the narrative's out there.
(13:19):
Yeah, I think Brent's milkshake theory is absolutely correct around initially gold going up with the dollar.
Something I posted a long time ago on X and people familiar with the FOFOA blog and the readings of monetary theorist another and friend of another will recall that in the late 1990s,
(13:42):
90s, another friend of another said that when the dollar system is coming to the end of its life,
you will see the dollar and gold rise together. That will be the sign that the dollars,
(14:02):
because people will be getting squeezed into the dollar at one hand, but they'll also be getting
out and going into gold. And so when those two things are rising together, that's the symptom
of the end of the dollar system.
That was said 30 years ago, almost 25 years ago.
And so, yes, the milkshake theory will see the dollar squeeze higher.
I get it.
(14:23):
And gold as well.
And gold, once it hits critical tipping point of price, and I don't know where that price
is, but you can see hints of it.
Albert Marco on X has said, hey, above $3,000 on gold, it starts to create a problem for the
dollar. He was right. The dollar went down to 96. It says above $5,000 on gold, it creates a problem
(14:48):
for the dollar and for the treasury market. He's probably going to be right. And the point here,
or what he's saying when he says that is ultimately,
yes, there is this, you know, we've talked about this, you know, $13 trillion dollar
denominated liability out there, right? In terms of foreign borrowed dollar debt,
(15:11):
that when the dollar goes up it squeezes people into that It forces them to sell treasuries It forces them to sell U equities to raise the dollars to get that Well once the price of gold gets high enough it starts to fully collateralize their
dollar liability on the other side. And suddenly, it starts to provide the liquidity. It starts to be
(15:34):
the sink. And that is how you circumvent. Gold is how you get out of the dollar system. And that's
why another or a friend of another said all those years ago, when you see them go up together,
that means the dollar is coming to its end of life. This present form of this dollar system
(15:54):
is coming to the end of life. Now, does it mean the dollar is going to die? No. I'll be using
dollars and you're and my grandkids and great grandkids will still be using dollars. They're
just going to buy us a lot less. And certainly in gold terms. De facto, we can see gold with
today's price move has overtaken treasuries in global central bank reserves, right? So there are
(16:18):
now, there's now more gold in global central bank reserves than there are U.S. treasuries.
How do you sit there and argue and say, you know, it's not overtaken the dollar in the system?
To me, that's crazy. Now, will people still use dollars? Of course. That's just Gresham's law,
right? I hear people say, well, it's still dominant. 90% of currency usage, that's dollar
(16:40):
dominance. Great. So you're spending, you know, you're telling me it's the bad currency, right?
I will, I'll spend dollars all day long because there's a terrible store of value. But if the
whole change of structure we've been talking about for years, and I mean, if you watch all my posts,
all my pockets, everything I've ever said, I've never said end of dollar reserve status. It's
(17:00):
end of the post 71 structure of dollar reserve status, which is dollar as primary reserve currency
treasury bond as primary reserve asset. It happened. It's happened. The dollar is still
primary reserve currency, but gold is now primary reserve asset as of probably this morning with the
(17:23):
$100 move. And I don't think it's ever going back unless she suddenly decides to be Yeltsin
and sell off his country for pennies on the dollar to American corporate and Washington
interests and Putin decides to do the same thing because we can't go to war to stop him.
(17:47):
The rare earth thing ensures it.
Yeah, that doesn't seem very likely.
And I guess, I mean, that begs the question, like, what does the U.S. do in reaction to
this?
I mean, there was many that were surmising in the beginning of the year we're calling
gold in kind back where we were calling gold from vaults internationally into the U.S.,
(18:09):
seeing what China was doing and others in preparation.
Obviously, there was the Genius Act getting passed here in the United States and the Trump
administration and the advisors around the administration are saying this is how we're
going to save the treasury market.
We're going to take advantage of the fact that the U.S. dollar is the preferred currency
globally and try to flood markets with it with this new technology.
(18:34):
in stable coins and stable coin issuers will have to buy treasuries. But it seems like we've
got to also at the same time expedite this reshoring of manufacturing if we want to
sort of inoculate ourselves from these external factors.
Yeah. And, you know, I think the stable coin thing can work.
(18:57):
But let's call it what it is, right? This is this is like, you know,
Operation Iraqi Freedom, right? Well, you know, or, you know, the Affordable Care Act, right?
Or, you know, whenever the government names something, you should sort of, like, assume
it's the opposite of what it is. And you're usually closer to the truth. And so let's call
(19:22):
the stablecoin gambit for what it is. They should have called it, we can't issue bonds
at the long end of the curve in sufficient amounts at prices that don't blow up our debt anymore.
So we are issuing and refinancing all of our debt in near cash markets. And that's what the
(19:44):
stablecoin thing's about. But of course, that doesn't roll off the tongue quite as nicely as
the Genius Act does it. But that's what they're doing. They are issuing, they're going to finance,
And you can see hints of it when you see Besant get sworn in and immediately double the pace of Treasury buybacks that Yellen was doing, which only started in May of last year, April of last year.
(20:07):
He doubles the pace of Treasury buybacks immediately relative to what she was doing.
And it is heavily skewed.
I won't say almost always, but it's heavily skewed towards issuing short-term paper to replace longer-term paper.
So he's bringing in duration.
And then I hear credible rumblings that, you know, the plan will eventually be once if you can get enough.
(20:33):
If you can get stable coins big enough, right, if you can if this can work, then you will do some form of of of what the U.S. did in the 50s, which is make them not make the T-bills that go into stable coins non marketable.
And say, yeah, they're not four percent.
all stablecoin T-bills yield 50 basis points, 30 basis points, whatever.
(20:57):
Powell will have taken control of the short end of the curve from, or excuse me,
Besson will have taken control of the short end of the curve from Powell,
completely disintermediated him.
But we will be financing massive deficits and the cost of reshoring in near cash markets.
Now, what would I want to own if Besson came out and said,
(21:19):
we are going to reshore and I'm just going to straight print the money to pay it.
What would we see? We'd see gold up. We'd see Bitcoin up. We'd see stocks up.
And we might not see the long end of the curve go up because if he's not issuing any bonds at
the long end, there's a mindless bid for duration. I don't know if it's 400, 500,
(21:39):
600 billion dollars a year from pensions and liability matching like they have to buy no matter
what. And as long as he keeps issuance out there below that number, long end can be relatively well
behaved as we've seen. It doesn't make me want to own it. They're getting killed on a real basis.
But if we saw that, that's how we'd react. If he said that, that's what we'd react. Well,
(22:00):
stable coins to finance large amounts of the deficit, it's just like the kissing cousin of
printing cash to pay for the deficit. Why is it happening? Because it has to.
And that's where we are in this. Like, there's no mystery. You go through the history books
and these great powers that get into debt and have these big seconds.
You start at the long end and you, you know, foreigners, and then you stay at the long end
(22:21):
and you plug domestic.
And then when you run out of that, eventually you end up basically printing money to finance
your deficits.
And we're not quite there yet, but we're, you know, that's what the stable coin gambit
is.
Now, what else can they do?
Look, if he can get the price of gold up a lot, you know, at $20,000 an ounce, if,
(22:43):
If they can do things that make the market bid gold to 20,000, and people used to think
that was insane, but I got to tell you, at 100 bucks a day, it's looking less insane.
50 to 100 bucks a day moves on the upside is looking a lot less insane than it was, say,
six months ago.
But if you can get it to $20,000 an ounce, which, by the way, would only put it back
to 1989, excuse me, it would only put it slightly above the long-term average of gold's price
(23:11):
relative to the foreign portion of our debt.
the gold, the market value of U.S. official gold relative to foreign debt.
$20,000 an ounce would deposit roughly $5 trillion into the Treasury General account,
free and clear.
It's just straight money creation using gold.
It's an accounting entry.
Wouldn't have to sell any gold, whatever.
And then you could buy down a pretty big chunk of debt.
(23:32):
You go out into the market and say, I'm going to, you know,
either he can finance the U.S., you know, the long end needs,
with that $5 trillion for five years at least, probably more like eight years.
Or he could just go in and immediately say, hey, I'm going to buy back $5 trillion worth of the
$29 trillion out. That's going to take down 20% of the market. So debt to GDP is under 100 right
(23:56):
away. Assuming a money multiplier, nominal GDP is probably going to run frigging 15, 20% for a
couple of years. Debt to GDP will be back to 50, 60% in a very short period of time over the backs
of the purchasing power of stablecoin holders around the world.
So they could do that, but boy, they've got to hurry
because, you know, Treasury, interest doesn't sleep.
(24:20):
No, it doesn't. And I was telling you, I've been watching some of your
FFTT videos over the last few days, and
you were mentioning a book, I forget the name of the book,
author's first name is Tobias, talking about 1931, Germany,
and the parallels that exist between today and then.
(24:41):
No, that's exactly right.
Yeah.
Yeah.
Yeah.
And so I think you said it in the video,
like history doesn't repeat, but it certainly rhymes.
And it looks like we have maybe not a playbook,
but some history from 100 years ago that we could look at and say,
hey, this is what's happening.
Yeah, absolutely.
And, you know, it's fascinating.
(25:03):
Between that book and the book Raven of Zurich, the memoirs of Felix Somery, which I own, which is great.
You know, there's a great passage from like 1912.
Somery's writing, a lot of it is his, you know, it's his diary as the world was completely changing, right?
(25:24):
Like you came into 1914 with four empires.
And by 1908, and those four empires had run the world for like 300 years prior.
And within four years, three of the four were gone entirely.
The fourth was wounded and the British Empire had lost 6% of its working age men in the war, had lost its power.
(25:47):
Basically, at that point, it was a debt vassal of the United States.
And so we overtook them as global reserve currency, as global – it was the first step in sort of becoming the global empire.
But it's fascinating. There's this passage where Solmary says, Europe, which was in 1912 full of optimism and pride and power, looked at the Chinese in European capitals with curiosity because they always weighed their money, the silver and the gold.
(26:24):
they would weigh it. They didn't go by denomination, they went by weighing it.
And they thought the Chinese were five generations behind the Europeans. They thought they were,
but in reality, they were a generation ahead. They had the experience and the historical memory
of inflation under Mongol emperors who'd printed a bunch of paper billions and had to suffer through
(26:47):
the consequences. And so that's why the Chinese weighed their silver and gold money in 1912.
and the Europeans thought they were, you know, they were, they were hillbillies, thought they
were behind when they were actually ahead. Now, stop me when this all starts to sound familiar,
right? Like, how often for the last 15 years have we heard how backwards the Chinese are and how
they'll never catch up and this and that? Like, like, here we are, the Chinese have been buying
(27:09):
gold hand over fist for 15 plus years, 18 years. And what have the American, what is the American,
you know wall street financiers power washington laughed at them they're not laughing now are they
they're not laughing at all i think something similar is going to happen yeah and i mean the
(27:32):
i think the only thing you can call it is hubris too that's right that's exactly what it is yeah
but it's like not only from a monetary and economic perspective but from the military
perspective we've been beating our chests like we're the biggest strongest military that's ever
existed on the planet china will never be able to catch up but you threw that stout stat out earlier
they're able to to build uh what is the 4 000 tomahawks per week and that was well not tomahawks
(27:59):
but that's uh from david p goldman who's a very good source on this stuff at asia times he wrote
uh two or three years ago he said that you know that they can reportedly make a 4 000 cruise
missile motors a week cruise missile motors but that then you look at the advancements that they've
had technologically with automation. I think many people in the United States are looking at the
(28:22):
drone technology specifically and saying, oh, that's pretty scary. And you go back to they own
the rare earth, which is the raw input of everything we need. And it's very perplexing that we are
still beating our chest in this way and not showing a bit of humility, like, okay, we messed up. And
It does seem like the Trump administration has recognized, holy crap, we're behind in a lot of ways to China.
(28:48):
But I think they're focused on energy in AI specifically, which rightly so.
I think they should be.
But militarily, things aren't looking relatively good for the U.S. right now either as it pertains to China.
And it's just like, all right, when are we going to swallow our pride?
(29:10):
take the hard medicine and recognize like, Hey, we need to show these, these Chinese some respect
because, uh, you do not want to go to the kinetic warfare route with them. I don't think because
Andrew's CEO was on a podcast with, um, the 16 Z guys last week. And he was saying,
uh, and I think he referenced this into the, some of the missiles we supplied
(29:34):
Israel earlier this year.
Like we can, if five days worth of depleting missiles into war takes two years to build
back that supply, which is astonishing to me.
Yeah, there's a great quote from U.S. Marine Corps General Barrow, you know, amateurs study
tactics, professionals study logistics.
(29:55):
And we've been more focused on tactics and they've been arguably more focused on logistics,
which we can say because two and a half years ago, the CEO of Raytheon was quoted in the Financial
Times saying, we literally can't go to war without Chinese components. And it will be many,
many years to try to replace that. They know it. Who let that happen? Why did that decision happen?
(30:21):
You start pulling on that thread, I think you're going to get some really unpleasant conversations.
And that gets into politics that, quite frankly, I don't want to be involved in because
I yeah I just leave it at that But the hints have been there You really said the right word which is hubris There was an author a guy named Andrei Martianov who was a former Soviet engineer I believe
(30:52):
I believe he was in the Soviet military when the Soviet Union collapsed.
He came here and he advised the U.S. military on all sorts of missile technology, etc.
And he began writing some books a few years back, The Real Revolution in Military Affairs.
And most recently, he wrote one a year and a half ago that was published called America's
(31:14):
Final War.
And the overall thrust of these books was, number one, there is very much a science to
military.
Military sciences, I believe, is a thing.
And, you know, you can run a calculation of, OK, how much growth, how much steel can you produce? How much iron ore can you produce? How much copper can you produce? What is your aggregate BTU output of your energy electrical grid? How many engineers are you graduating a year? What's your manpower?
(31:45):
All of these things can be put together into a calculation that gives you some level of understanding of the ability to prosecute war.
It's a measure of power, hard power.
And in the first book, he laid out like the Russians were so far ahead of the US in that already that it wasn't even close.
(32:10):
And I think people, number one, I don't even think he could get it published in the Western press.
So he went with an independent publisher. You can buy it on Amazon to America's credit, right? It's not censored.
But you read that, you go, huh, interesting.
And then we got a test of that in places like Ukraine, in places like Iran and Israel.
(32:34):
And what you find then is what he lays out in America's final war, which is America doesn't have enough of an industrial base to prosecute a major war.
And the industrial base and installed capacity it has is all in the wrong things because the nature of war has changed.
Think about what technology and AI do.
(32:56):
They allow smaller, less well-capitalized participants to do things just as good with just as broad a reach as big capital.
You and I are sitting here talking.
I was laughing, the whole Jimmy Kimmel thing.
I was looking at his numbers.
(33:17):
I have podcasts that have better numbers than he was getting every night.
I'm like, look at the commercial, the new Apple iPhone commercial.
right? What do they have? They have an iPhone and a case with real filmmakers using it to film.
This is what technology, and this is what Andrei Martianov was saying. It's like,
(33:39):
the Americans have all of this sunk cost into these weapons platforms that aren't the right
weapons platforms. They're not going to fare well in war. Eric Prince, a former CEO of Blackwater,
said it back in February in a speech. He said, if we sailed a carrier, a carrier group over to
Taiwan to try to blockade it, we would see it on the news, smoking or worse, because it has changed.
(34:06):
The nature of warfare has changed drones, hypersonic missiles, etc. And they've known this
for at least, first time I heard about it was in 2018 at a private conference, which means they've
known about this for at least 10 years, at least, and probably more. But the political reality,
right? Like the Philadelphia shipyards, right? Historically, a big naval shipyard.
(34:29):
There's a bunch of ships being built there, or that in theory could be built there that
aren't the right things to build anymore, right? But you're going to go to the senator from,
you know, from Pennsylvania and go, we're going to shut down the Philly shipyards and
turn it into some sort of missile works or drone works? Come on. That's not how this country works.
And that's the challenge is there's this inertia around the installed base where the incumbent has a disadvantage.
(34:55):
And that's what we've been watching.
Yeah, the Philadelphia Navy is the headquarters of anthropology now, which is one of the favorite stores of upper middle class white women in the United States.
But it's a far cry from where it was.
That might be the perfect metaphor for why we can't go to war.
(35:19):
We used to make destroyers there and now we outfit.
Cute dresses.
It's cute dresses now.
Well, with this in mind, I think there has been a recognition.
A lot of people have their thoughts about the sort of Silicon Valley tech elite.
(35:40):
But I think if you look at companies like Andrel and there there is a big focus on providing startup capital to industrial base focus companies there was a company named base that just spun up a factory in the center of Austin in the old Austin.
(36:00):
in, I forget, the Austin Times factory right on Congress Ave.
That shut down.
Obviously, Andrew is focused on drone technology and anti-drone technology.
There's a sort of metal fabricating startup that's based out of Michigan.
So it seems like at least some part of the investment class here in the United States
(36:26):
recognizes that we have this weakness in the private markets,
trying to solve these problems.
On that note, what, if anything, are we doing right right now?
And where do you think we should be focusing in sort of deploying capital
to fix these problems?
Well, it's just, I think those things are the right thing to do.
(36:51):
And I think we also need to be subsidizing in a major way metallurgy trades, metallurgy degrees, rare earth refining degrees, which doesn't even really exist in America.
I'm told 33 different Chinese universities have them.
America has zero.
(37:12):
Engineering degrees, skilled trades should all be being subsidized majorly.
In other words, like you don't pay to go to school and, you know, you come out and you're going to be making, I don't know, more than a first year, more than a third year Wall Street banker, something like that.
Right. Guaranteed by the U.S. government because you've got to get the labor there.
(37:33):
There's, you know. As an American, why would I go like study really hard, not get to drink a bunch of beer when I could go into finance and come out and trade crypto and make way more money than someone who's actually helped build stuff?
And I say this with being one of those guys that went to college and made the choice in 1993 to drink a bunch of beer and not have to study as hard as engineering guys and make more money.
(37:57):
Like that's that's that's what the dollar system as structure does.
That is 100 percent.
Everybody else makes stuff and then they send the money here and we move the money around.
And like that's that system is at the it's well beyond the end of its useful life.
And I say that because like we are doing some things right.
But now, again, go back to the first part we talked about.
(38:19):
If the Chinese aren't sending rare earth stuff here.
That's like that's the hardest part.
That's the hardest part.
And it takes a long time to sort of build the infrastructure for that.
So, you know, we need to we need to go to like Manhattan Project Speed on that in terms of because, you know,
(38:39):
it would be a good question for someone to ask Palmer Lucky to Anderil the next time he's doing
an interview is, hey, if the Chinese cut off all batteries and all magnets and all rare earth
inputs to what you're doing, how many things can you produce a year? And I think he's gonna,
I don't think people are gonna like the answer. And I say that because we've seen stories over the
last six to nine months of like, hey, we tried to build our own batteries for these drones,
(39:04):
not from Anderil specifically, but from other people in that supply chain in that world.
they said we couldn't do it we had to buy them from China they weren't as good and so it's not
there I think there needs to be some reality around you know this right that right now I'm
still seeing the bargain like well fine we'll just do it ourselves you know we're America we'll just
(39:24):
do it ourselves yes but no one everyone's like we'll just take a year or two I'm like so the
Chinese did this, you know, China launched, you know, we wrote on Friday, like China launched
China 2025 and 2015. And most of Wall Street laughed at them. They're not laughing now.
(39:46):
But it took the Chinese with all of the sort of things that they do that we have a hard time
doing, right? Centrally planned, some level of, you know, forcing competition, massive subsidies,
closed capital account, all the things you have to do to do that. And it took them 10 years.
And we're trying to do something orders of magnitude bigger with less engineers, less workforce.
(40:14):
And oh, by the way, an engineering and skilled trades workforce that is like a declining option.
In other words, it's a decaying asset because, you know, we got another six to eight years.
And the last generation that was really an engineering and skilled trades, they're going to be aging out every year.
so like we're on the clock and we so what else can we do we we have recognized the problem
(40:36):
and we are taking some steps we aren't nearly aggressive enough we need you know i will say we
are on the right path when i'm seeing stories in the wall street journal about welders making 500
600 000 a year coming out of welding school and being able and you know what it's gonna be
inflationary to so inflationary, which means guess what?
(41:00):
The Fed's going to have to put the entire bond market on their books.
Great. You know, that's, that's, that's how this has to go.
That's what they have to do. And you know,
what's that going to do to the dollar going to get waylaid.
Guess what? We offshored this stuff to support the dollar.
Why do people think that bringing it back can be done without waylaying the
(41:20):
dollar? It's astonishing to me. It's the most like,
when you put it that way, it's very simple.
It's very simple. It's very simple.
And it's I mean, as you're describing that, I'm just thinking in my mind of how polarized political landscape in the United States is here domestically.
(41:42):
And anything Trump tries, even if Trump woke up, he's like, all right, Luke, I hear you.
We're going to go do it. The amount of backlash you would get.
And he calls for calling him like an authoritarian fascist.
That is.
That's the challenge, I think, too, right?
Because this is like an this is an orthogonal multidisciplinary problem.
(42:02):
And that's that's we, you know, the politics of it, right?
Like half of this, you know, without getting into it, like we can't agree on certain scientific facts.
Half the country thinks, you know, you know, Dr. What's-his-name is a national treasure and half think he's not.
(42:23):
Half, you know, half people, you know, the immigration situation is there's no, we are so polarized.
You know, and if you get, you know, if Trump and the Republicans lose the next election, it's still going to be polarized.
It's just going to be in the opposite direction.
And so that's the other thing, too, right? Like people say we just need to do what we did in 1940. 1940? You had like, number one, we didn't really have a bunch of foreign engagements. We didn't have a bunch of foreign influence running Washington.
(43:00):
We had been basically like we had just kind of come on the national stage, number one.
So we didn't have a bunch of like, hey, you can't take that money away from the war you're supporting over here to build a factory base.
Right. There was no such thing. It was all focused here.
Number two, you had a huge skilled trade base.
(43:21):
And oh, by the way, 20 percent of them were unemployed and had been for 10 years.
So like if like they just needed the rallying cause and we were sort of a very much more unified country, you go, oh, yeah, let's go.
We can build this now. It's like apples and zebras.
How different all of that is on every angle, politically, domestically.
(43:43):
So, you know, again, I think step one is, you know, OK, we admit the problem, but now you've got to be realistic.
Right. It's like, OK, well, I'm 500 pounds and I'm smoking and I have a heart condition.
and, you know, people like, well, we're America.
We're just going to go, you know, we're going to run an Ironman next week.
You're like, what are you talking about?
What are you talking about?
(44:05):
Like the first step is like get off the couch, stop smoking, like walk to the sink,
make yourself something healthy and walk back.
And then next week, if you don't die of a heart attack,
then you walk to the mailbox and you come back.
And I mean, there's just a time aspect to this that, you know, again,
If we don't have a time machine, the time aspect has to be paid.
(44:30):
It almost feels like there needs to be a propaganda campaign, a good propaganda campaign to really introduce the concept of low time preference.
I think that's very disconcerting about the current state of America is that we live in a high-velocity trash economy where everything is, what did you do for me yesterday?
(44:52):
What are you doing for me today?
What's your quarterly financial stay saying and basically reacting and then gets even more distilled to the 24 hour news cycle?
Yeah, I thought that what Besson announced about what was a six month reporting versus quarterly, like a lot of people on Wall Street.
Oh, here comes more fraud. And I actually thought that was a really good.
That's a really good idea. Like report every six months, report every like the amount of effort.
(45:18):
Having been on the sell side for 15 years investment research, the amount of effort alone that is wasted on quarterly reporting is like mind boggling.
You have like the most brilliant minds in America, like reading the release, getting on the call, asking the comment, hey, good quarter, guys.
And like rather than, hey, here's an idea for raising capital.
(45:38):
Here's an idea for building a factory.
Here's like it's insane.
So I thought like that's a good like that's a good little baby down payment.
But like, you know, it's like, let's keep that going.
Yeah.
No as somebody sits on the board of a publicly traded company like the amount of sunk cost or opportunity costs that spent focusing on quarterly financials is like you finish the financials for Q1 and then three weeks later
(46:05):
it's like all right let's start let's start getting the books ready for Q2 earnings.
It's not conducive there it's not conducive to like yeah because oh by the way as an exec you
know you go to jail if you sign something that is that is fraudulent or wrong and so like your first
like, I need to make sure I don't go to jail. Okay. Well, if you're thinking, I don't want,
(46:28):
I got to make sure I don't go to jail. You're not thinking about how do I compete to Chinese?
How do I go into this market? How do I do better in Brazil? How do I like, these are the real
things you got to focus on. And like, we just haven't been for a long time. And it's all,
like you said, it's all high time preference society, which is all around the end of the day,
(46:50):
it's the currency. Why build a factory? Why plan out building a factory? And how do I allocate that
capital when the dollar is moving around like this and the cost of that capital? You can't,
you can't plan a factory. Come on. You've got to have some sort of a real, you know,
a better currency system. No, I think you did an incredible service to the world a few weeks ago,
(47:11):
really pulling on the debasement trade meme
and sharing that chart of equities, real estate,
and I believe it was S&P, NASDAQ,
and real estate priced in dollars, gold, and Bitcoin.
And I think if we were able to really distill that message
like you did and make it popular
(47:33):
and have company execs realize
you should be storing your company's profits
in these better currencies and Bitcoin and gold,
Oh, yeah, I replied to. So Senator Sanders, Bernie Sanders had something up probably about a month ago.
You can find it on my X feed about how, you know, like, I don't know, corporate greed and something else is, you know, the reason why, you know, since 1971, all of the profits, you know, all of the gains from productivity have accrued to the to the one percent and not to the bottom 50 percent.
(48:06):
And like I tagged him out. I'm like, with all due respect, Senator Sanders, in 1963, minimum wage in this country was five silver quarters.
It was $1.25. Minimum wage is $1.25. It's five silver quarters.
The melt value at $51 of those five silver quarters today is like eight bucks each.
(48:27):
so if minimum wage in real money terms was today what it was in 1963
minimum wage would be five times eight bucks would be forty dollars what is national minimum
wage actually seven and a quarter you want to know who stole the money senator sanders
(48:49):
it's you and the politicians you guys changed the currency system you've been there for however many
years he's been there. Change of currency system back. Nixon said it was temporary.
That's where it all went. You go from having to pay people 40 bucks. Imagine if minimum wage was
40 bucks. What would wealth inequality be? Corporate profit margins would be a lot lower.
(49:13):
Sure. But corporate profit dollars would be way higher because we would be running an economy
that would be essentially the version of what Henry Ford did initially, right? Which was pay
his workers more than the market so that they could buy the model T's coming off the line.
So like, that's, that's the fix that like, that's the fix. If they ultimately, unless you
(49:38):
fix the currency, you're not going to really be able to do a whole lot.
No, and it's, it's mind boggling how many people don't recognize this at all. I'm looking for
a tweet but there's a guy nikita beer he uh he just joined twitter or x as some he's working on
(49:58):
their their product i don't know exactly what he's doing but he tweeted out he's like oh wow
all these all these golden uh bitcoin guys are are preparing for hyperinflation when ai is extremely
deflationary i saw that i saw that post i i saw that post and it um the answer is very simple
I actually think I replied to him.
(50:20):
And I think I just said, deflation is the midwife of hyperinflation in highly leveraged societies.
You read the book 1931.
In 1931, Germany didn't hyperinflate again because they'd experienced the hyperinflation of 1922.
And so they're like, we're not doing that again.
But that was one of their choices.
It was either default or hyperinflate.
(50:40):
And I don't think the U.S. is going to nominally hyperinflate.
well like look the dollar collapsed 90 against oil in 2001 between 2001 and 2008 right oil went
from 15 bucks a barrel to 150 bucks a barrel that's that is simply the dollar collapsing 90
(51:00):
the dollar was worth one tenth as much against oil in eight years you know the chinese we say
we want to compete china can make the same or better stuff for us 85 cheaper than us including
things like, you know, Josh, Josh Crum, not Josh Crum, Josh Wolf testified to Congress three years
ago about nuclear power plants. So the Chinese can build a one gig, you know, one gig nuke plan
(51:26):
for 85% cheaper than the Americans. A gig's a gig. A gig of electricity is a gig of electricity.
It's not like there's some special yuan, you know, gig of electricity that gets them more or less
power. They are
by the same physics.
So if their gig of electricity
costs
85%
(51:47):
cheaper than ours, you know what that
tells me? Dollar's
85% overvalued against the yuan. It's that
simple. It's the same
and that's
where this movie's going.
Like some version of that. If we want to compete,
if we want to break, people
say, well, we need to split China. Great. The dollar's
(52:07):
got to go down 85%. That's it against C1. That's fine. Whatever. Good. We'll be able to compete.
Working class is going to get paid. Fed's going to have to buy a lot of bonds. But that's where
this, like some version of that is where this is going. It's just, it's math. It's double entry
bookkeeping. It's not like, it's not, you know, the only mystery is if we decide to split with
(52:28):
China and as everyone's saying, we're going to do, we're going to divorce China and redo this.
I don't know if it's 85% down or if it's 40% down or it's 60% down,
but it ain't frigging 10% down.
Like we've seen this year,
not even close.
No,
no.
And it's insane.
So going back to the Nikita tweets,
(52:48):
like text been deflationary.
Like we've had extreme tech deflation over the course of the last five,
six decades,
six decades specifically.
And it's like,
yes,
TVs are cheaper.
What we're doing right now is way cheaper than it would have been.
20 years ago. It gets good information out to people. And despite that, the cost of living
(53:11):
is rising. And there should there is just this disconnect between that fact and the ability of
people to recognize like, oh, if we pair this with a hard currency, we would actually reap
the benefits as a global power and economy if we were able to store our wealth in a hard currency
and we can let prices fall, but the purchasing power of our hard money is going up over time
(53:36):
as we're being more productive throughout the economy.
It's that simple, right?
People are like, oh, well, gold wasn't so bad for America from 1860 to 1929.
America had a pretty good frigging run.
You had this huge productivity, huge technology, right?
Technology is not just electric stuff, right?
You had trains, you had planes, you had cars, you had all this technology,
(53:56):
you had washing machines, consumer goods, massive deflation,
And it was highly, highly productive and good for America, good for Americans.
We were on a gold standard and some of it a blended gold, silver standard.
But that's the challenge.
Like people say this tech is deflationary and it is.
(54:18):
But in the presence of a country with, you know, 7% fiscal deficits at the peak of the economic cycle and 120% at the GDP and hollowed out factory base, you know.
I've said multiple times, there's nothing more inflationary than an insolvent sovereign
that is printing money to keep the nominal value of its sovereign debt high, to keep it nominally
(54:44):
money good. And that's why inflation is where it is, despite all this inflationary, deflationary
tech, excuse me. It's just, they have to keep growing money units because otherwise, the debt
implodes. And oh, by the way, the debt imploding is very hyperinflationary because the debt backs
the currency. So if the debt, if the backing of the currency goes to zero or is impaired,
(55:06):
guess what happens? That's when you really get a hyperinflation of some description as people
basically dump currency to just get me something that isn't backed by bonds. So yeah, Bitcoin
actually does fix this. A gold standard would actually fix this. And you can make the case
Bitcoin is able to be, you know, all the things in Bitcoin,
(55:26):
start portable and verifiable and et cetera, et cetera, et cetera.
Yeah.
You need a deflationary currency or else, you know,
we're going to kind of continue down this path we're on.
Agreed.
And to wrap up, I'll say, like, I think the free market,
Bitcoin is a creation of the free market is beginning to solve this.
But I think even any Americans listening to this,
(55:50):
you look at things like Square announced last week, where anybody who's running a Square point
of sale systems throughout the United States will be able to automatically convert a portion
of their revenues into Bitcoin right away. And when I think about actually solving this problem,
what is the walk to the mailbox for the 500 pound smoker with heart problems? It's like, okay,
(56:12):
just if you run a small business and you're using Square, maybe you start by funneling 5%
of your revenues in the Bitcoin and building a Bitcoin treasury position for your small business.
And you see what that does for you over the course of a year, two years, five years.
And then you go, huh, this is this is better money. And you turn the dial up. And
(56:34):
eventually, when I think about ways in which you solve this problem, it's like, all right,
let's not depend on the government officials and central bankers who sort of pushed us down this
road to think that they're going to solve it themselves or feel the pressure to solve it
without any external pressure is a bit wishful, a bit of wishful thinking in my books. We need
(56:55):
individual American citizens and businesses to adopt this better money and opt into it.
And I think that's how we get through this at the end of the day.
Yeah, I think that's exactly what's going to happen. I think it's really encouraging to hear
things like that square. I mean, it is, it is quickly becoming a matter of utmost importance.
(57:16):
I won't go all the way to life and death, but, you know, depending on events, it could become a
matter of life and death for businesses to do exactly what you just described, which is just
put a little, and individuals, put a little bit into, into Bitcoin, because you can see what,
you know, the corollary to the Genius Act and the stable coin gambit to support the treasury market
(57:37):
that we talked about earlier is you're not going to support the stablecoin market.
The stablecoin market's not going to be big enough to support the treasury market
with Bitcoin at $200,000 or $500,000.
He needs a million-dollar Bitcoin, $2 million Bitcoin
to pull along the number of stablecoins, to pull along the T-bill issuance.
(58:01):
Basically, we wrote it as the U.S., the treasury,
seems to be standing up Bitcoin de facto as a competing reserve asset to gold.
And then they can duke it out.
Gold and Bitcoin can duke it out.
We'll see.
But that's exactly what has.
And that will rebalance things.
(58:24):
That will take things away from the financialized guys.
That will take power away from the Fed.
That will do all the kind of things that you need.
To your point, it's a market.
it will be a market driven incentive system um that we really it will narrow wealth inequality
it will but again the only way it narrows wealth inequality is if people start buying some every
(58:49):
week and self-custody it because otherwise if you don't self-custody it you they're just going
to rug pull you like they rug pull like you know you custody with you know you just you just have
to custody it yourself. You just, you know, it's so easy to do. There's very good services that'll
help you do it. Like, just do it. Like, because otherwise you're just re-centralizing it elsewhere
(59:11):
and, you know, it opens up the risk for rug pull down the road. Yeah. I don't want to glaze them
too much, but that's why I'm extremely happy that Square exists and they have the sort of mentality
that they do. Obviously, Jack's been very vocal about this. Bitcoin is everyday money.
We need to use it. And they're supporting many different areas of the industry with
(59:38):
the BitKey, which is a hardware wallet. They have Proto, which is mining. Spiral,
which is open source development, obviously. Square and Cash App. And I believe Miles
Suter is the product lead over a block. A product lead over there said that you'll
automatically be able to sweep funds that you accumulate via your square point of sale terminal
(59:59):
to self custody using BitKey and other wallets. So we need more examples of that, of industry
people leading and doing things the right way, because like you said, it is not that hard.
And it is important that we do it the right way, because that's how we actually
structurally fix these problems. Yeah. Oh, yeah. Like I'm a tech moron. And so like,
(01:00:19):
if I can do it, anybody can do it. Like I'm like, you know, whatever the tech abduction
curve, I'm usually way past the big wave. Like I'm, I'm a, I'm literally a tech idiot. So like
if it's easy enough for me to do it, just about anybody can do it. Yeah. And Luke, I appreciate
your time. This is a great catch up. Uh, I think you've been completely valid. We've been talking
(01:00:42):
on this show, I think for probably five years now, uh, you've just been beating the drum
consistently and it feels like we're hitting an inflection point that you've been, uh, you've been
pointing to for for many years now so I think thank you for your time and
educating the audience here no I appreciate that it's it's it's it's been
(01:01:04):
it's been it's been a great time it's been fun it's been you know it's been
you know the the most fun work of my life and you know it's been happy to hear
from from clients and friends like hey like this is you know this is good there's
There's times in this business where you don't see the ball that well.
And, and, you know, those are when you're trying to work walks and, you know, grind out singles.
(01:01:26):
And, you know, some, when you're seeing the ball well, then, you know, those are the times when it's, when it's super fun.
And so, you know, hopefully we can knock on wood, you know, try to, try to, try to, try to keep it going.
Yeah.
Highly recommend checking out Forest for the Trees.
We'll link to the website, the YouTube channel.
I mean, your, your YouTube video has been great.
(01:01:47):
the Q and A's if you're looking for quick hits just to get a peek into what Luke is thinking from
a week to week basis. Definitely go check that out as well.
Appreciate it.
All right. That's all we got today, freaks. Peace and love.
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