Treasury Yields And The Dollar Should NEVER Do This (Live Whiteboard)

Summary

In an unprecedented live whiteboard session, Rebel Capitalist delves into the chaotic world of treasury markets and the enigmatic behavior of the US dollar. As treasury yields soar amid declining dollar values and market volatility, the economic landscape appears bafflingly unpredictable. The session promises to make sense of the madness by comparing current trends with historical financial crises like the GFC and the COVID-19 pandemic, providing insights into potential Fed actions and the crucial role of global liquidity in shaping market movements.

Highlights

• First ever live stream whiteboard session aims to demystify the confusing market dynamics. 🖥️🖊️
• Markets are experiencing an unprecedented simultaneous rise in yields and plummet in the dollar. 📊💰
• Historically, such trends have occurred during major financial crises, indicating an unsettling yet familiar pattern. 📆🔍
• Foreigner dollar reserve dilemmas highlight the complexities of global liquidity and its impact on treasury and currency markets. 🌍💱
• The Fed's role becomes critical as past patterns show intervention spikes market stability. 🛠️📈

Key Takeaways

• Treasury yields soaring while the dollar declines is an unusual scenario, hinting at underlying market disruptions. 📈💸
• Market volatility reminiscent of past crises makes the financial landscape nerve-wracking yet intriguingly predictable. 📉📊
• The Fed's potential intervention could serve as a catalyst for stability amidst the chaos. 🏦🔧

Overview

Join Rebel Capitalist on a rollercoaster ride through the treasury market chaos, where he unpacks why skyrocketing yields alongside a tumbling dollar should never coexist. The first-ever live stream whiteboard session offers an engaging dive deep into market dynamics during volatile times. With treasury yields making unprecedented moves, the live breakdown promises to provide clarity amid confusion.

Drawing parallels with historical crises like the Global Financial Crisis and the COVID pandemic, Rebel Capitalist reveals the recurring themes that often precede a market stabilization. He explains how the ongoing volatility mirrors past economic turmoil and highlights the pivotal moments when the Federal Reserve stepped in, often acting as a market stabilizer.

Global liquidity and the actions of foreign reserve managers take center stage in the analysis, shedding light on the complex global interplay affecting treasury and currency markets. Rebel Capitalist emphasizes the critical timing of Federal interventions and the continuation of underlying market issues that seem to persist through financial history's tumultuous periods.

Chapters

• 00:00 - 02:30: Introduction and Overview In this chapter titled 'Introduction and Overview,' the speaker introduces the concept of a live stream whiteboard video Q&A session, highlighting the novelty and potential of this format. The speaker hints at an exploration of the Treasury market, emphasizing that yields are rising rapidly, signaling potential issues. The session invites the audience to partake in real-time discussions as they delve into these financial developments.
• 02:31 - 07:59: Market Analysis: Treasuries and Dollar The chapter discusses unusual market behaviors, specifically focusing on treasuries and the dollar. Foreign entities are likely selling treasuries, and counterintuitively, the dollar is falling significantly, closing below a 100 on the DXY. This is happening even as the stock market experiences extreme volatility, which is typically a characteristic of a bear market.
• 08:00 - 14:59: Equities, Bonds, and Dollar Comparison The chapter opens with a discussion on the volatility index (VIX), noting that even small movements in the S&P 500, such as a 5% change in a week, can keep the VIX in the 30s or 40s. This suggests a potentially ongoing bear market or that the market bottom hasn't been reached yet, emphasizing the concept of probabilities over certainties.
• 15:00 - 22:30: Historical Context: Market Crises This chapter sets the stage by analyzing historical market crises. The focus is on three primary assets: equities, bonds (using TLT as a proxy for the long end of the curve), and the dollar (using DXY as a proxy). The chapter involves examining charts to compare current market conditions to past crises such as the Survey Sickness and the Global Financial Crisis (GFC). The aim is to determine whether current events are unprecedented or follow historical patterns.
• 22:31 - 27:30: Economic Theories and Predictions This chapter discusses economic theories, focusing on what happens during financial crises when key systems begin to collapse. It includes a practical demonstration on the whiteboard, exploring the implications of foreign entities selling U.S. Treasuries. This chapter also examines the potential impacts of a liquidity event associated with the failure of the basis trade. It aims to provide a comprehensive understanding of these complex economic interactions through real-time analysis and theoretical discussion.
• 27:31 - 31:30: Conclusion and Transition to Q&A In the concluding chapter titled 'Conclusion and Transition to Q&A,' the speaker wraps up the main content and prepares the audience for an interactive Q&A session. They emphasize the upcoming whiteboard Q&A on the platform Rumble, encouraging viewers to jot down any questions they might have during the session. The speaker then transitions to a screen-sharing segment to review an email chart as part of the concluding activities.

Treasury Yields And The Dollar Should NEVER Do This (Live Whiteboard) Transcription

• 00:00 - 00:30 hello fellow Rebel Capitalists Hope you're well Check it out The first ever live stream whiteboard video Q&A This either going to be the best idea or the worst idea in YouTube history but you guys will be along for the ride in real time So what we're going to do is we're going to go over the Treasury market You guys know what's going on Yields are exploding higher something is obviously broken in
• 00:30 - 01:00 addition to foreigners likely selling treasuries And what's completely bizarre is that the dollar is tanking as well The dollar closed today under a 100red on the DXY These things should not happen especially when the stock market is not only crashing but is so volatile up and down and up and down and up and down And by the way usually you see this type of volatility in a bare market So
• 01:00 - 01:30 even if the S&P 500 is only down or up you know 5% on the week just wait the VIX is still in the 30s and the 40s And that means most likely the bare market or the bottom is not yet in But again no certainties only probabilities So what I want to start off with are some charts of three main
• 01:30 - 02:00 uh let's just say three main assets So we've got equities we've got bonds which I'm just using the TLT as a proxy at long end of the curve and we've got the dollar And for that we're just using the DXY So we're going to bring up these charts We're going to compare what's happening today with what happened during the surveys sickness and what happened during the GFC We're going to see if this is completely unprecedented or if this is part for the
• 02:00 - 02:30 course when things start to break And then believe it or not after we get under the charts we're going to go to the whiteboard and live I'm going to go over what happens when foreigners sell these treasuries and I'm going to assume this is what's happening in addition to the liquidity event that we're probably having as a result of the of the basis trade blowing up But we're going to try to go over
• 02:30 - 03:00 everything and connect some dots And then when I get done with the whiteboard video we're going to do a Q&A a whiteboard Q&A on Rumble So this is going to be awesome guys Make sure you write your questions down as we go so I can answer them on the whiteboard when we get to that portion of the video So let's start off Josh Um let's do a screen share And I want to go over to my email The first chart we're
• 03:00 - 03:30 going to start with can you see this Josh Okay perfect So this is the S&P 500 today And I just I tried to draw this black line here with my mouse You can see it's not that great but it serves the purpose It's just to highlight this portion of the chart This is these all are daily charts too by the way guys Just FYI So where I highlighted it was just when we started April So call it
• 03:30 - 04:00 liberation day or some people might call it retardation day whichever you prefer And we see the market just absolutely fall out of bed But then we had the news on Monday that they might do a 90-day freeze The market rips higher Market cap gains $2 trillion And then with a span of 20 or 30 minutes plummets they get the rug ball all the way back down And then Trump comes out and says "Oh well that's fake news." But then a couple days later the day after
• 04:00 - 04:30 he says "Oh well actually we're going to go ahead and go through with the 90-day freeze and we're going to bring all the tariffs down to a 10% flat rate with the exception of China." You guys know what happens it's this it it's the largest green candlestick I have ever seen in my life It goes if you can see my arrow it goes from all the way down here almost at the bottom of my circle and goes almost all
• 04:30 - 05:00 the way to the top in one day In fact the that's if you look at the total length of the chart you know like the stem or whatever it's called I mean it went from if I'm reading this right below 485 and I'm just using the uh uh the spy for a proxy for the uh S&P 500 And it goes almost almost up to 550 And that happens in the span of what 10 minutes
• 05:00 - 05:30 something like that And then yesterday of course it crashes all the way back down And then today just more volatility It was down at one point I think 600 and then it closes the day up 600 Just complete insanity So now let's we we know what's going on in the stock market And this is nothing out of the ordinary when you get this type of uncertainty whether it's the surveys sickness whether it's the GFC.com bus etc
• 05:30 - 06:00 So now let's go over this a similar time frame or hopefully the same time frame and we're going to go over the TLT using that as a proxy for the long end of the curve maybe 10-year and then we're going to go over the DXY because this is where it gets completely like bizarro land So hopefully I can find this easily We want that is TLT GFC DXY today Okay we'll start there and then we'll go over to the TLT See if I can blow this chart up There we go So again this is starting
• 06:00 - 06:30 on uh liberation day right around August 1st and then we're going to today's date And as soon as the stock market starts to crash you see the dollar actually doing the exact same thing which might not be unprecedented yet but it's weird because you would assume this is risk off and therefore the global economy going into the dollar
• 06:30 - 07:00 And then when we have these reversals and back and forth back and forth the dollar actually goes back up to 103.5 and then it just completely pulls a while e Coyote all the way down to at a point today it was almost at a 98 handle I mean it's almost below 99 and then it closes the day where I took the snapshot is a little above 100 but it actually closed the day I think 99.9 or something like that But it closed today under 100
• 07:00 - 07:30 which I think is really interesting because we're right on this support level right here that you guys can see by this uh by my arrow If you can see that black arrow shaking back and forth So if I'm just a technical guy I'm thinking okay this could be a bounce right here We're going to have to wait and see what happens on Monday But the bottom line here is during this massive volatility in the stock market up down up down up down the DXY the dollar is actually crashing in total going from 10
• 07:30 - 08:00 I call it 104 to where it ends today under 100 99.9 roughly So this is the first thing that is weird to say the least But what's completely off the charts no pun intended is when you look at this in relationship to not only what the stock market is doing but what the bond market is doing treasuries So let's move over to the TLT
• 08:00 - 08:30 We want TLT today And I'm of course not organized enough to have these in order Aha TLT today There it is So same thing same time frame and we have the TLT go up So this means interest rates are going down right and it starts off exactly what you'd expect
• 08:30 - 09:00 when the market just falls out of bed and we had that down day on Friday of let's just say 2200 points on the Dow roughly So you would expect risk off risk off risk off Growth inflation expectations plummeting and we have the Treasury yield longer the curve going down Exactly what you'd expect I think 10 year got below 3.9 But then what you would not at least what I didn't expect is this massive
• 09:00 - 09:30 reversal and uh to a point on Monday where yields went up on the 10-year by like 35 basis points within the span of a few hours and now I mean we just go from 94 on the TLT all the way down today we're trading 86 roughly 8649 when I took this snapshot but it got all the way down 85 again Interesting there kind of on a support level it bounced So this is the total opposite of
• 09:30 - 10:00 what you would expect And um I think this surprises me more than the dollar But to be clear the price action in the dollar surprises me as well based on all the other factors uncertainties You guys have been following the news the tariffs and what we talked about the volatility of the S&P the VIX being at 40 spiking up to 60 You know they call the VIX the fear index for a reason And if the VIX is at 60 you know you only see that at
• 10:00 - 10:30 times like during the surveys of sickness in the GFC that means fear is at an all-time high If fear is at an all-time high what have we seen in the past you're buying treasuries You're buying treasuries safest and most liquid asset Even if you think oh treasuries are stupid because they're paying a 4% yield and inflation's going to be six or that doesn't in the short run that doesn't matter People are going to be a flight to uh safety and
• 10:30 - 11:00 liquidity But but now what we could see or what could be happening not only a liquidity event but all of these foreigners selling their treasuries And this is what I got wrong yesterday because when we were talking about the dollar crash yesterday remember I thought ah it's kind of a knee-jerk reaction because of what the Euro zone was doing They put a 90-day freeze on their tariffs as well So but I I I think we can safely say I was completely wrong
• 11:00 - 11:30 on that one And I was reading some people that I've I I've got a lot of respect for this morning and they were making the connection of FX reserve managers selling their treasuries and not taking the dollars but then taking the dollars and actually buying as an example German boons and this would explain why treasuries the yields are going up price going down and why the dollar is going down at the exact same time So I think there's a component there for sure Um but that's what we're
• 11:30 - 12:00 going to get into and I'm going to explain it more thoroughly on the whiteboard so we can determine what will likely happen next Not just in yields but in the dollar Okay So now before we get to the whiteboard let's go over the survea sickness to see if this is what we usually get in um you know when we uh have these crisis
• 12:00 - 12:30 events or is this something that's unique so let's go to the a dang it Let's go to S&P 500 surveys sickness DXY surveys Here we go Great So same group of charts guys but just much different uh time frame So this is right at the beginning of March and then we go to April basically That's
• 12:30 - 13:00 the the point in time that I really wanted to focus on So as you guys remember well the market just completely tanks falls out of bed and the Fed comes out emergency meeting They drop rates down to zero They announce up to a trillion dollars a day in repo and QE infinity Now let's go over to the dollar and what it's doing during the exact same time So I would expect dollar to be
• 13:00 - 13:30 going up right here Did I miss it there we want DXY There we go So what's interesting is you can see we start off right at the beginning of March and what did the dollar do it tanked It tanked
• 13:30 - 14:00 It goes from roughly 98.5 all the way down to call it 94.5 So in percentage terms probably a bigger move than what we've just seen And then what happens the dollar just rips higher
• 14:00 - 14:30 rips higher to where we get up to 103 and kind of chop around a bit and then after that what does the dollar do goes up to 110 112 You guys remember that So now let's see what Treasury yields did Here we go
• 14:30 - 15:00 So same time frame here guys March April 2020 and we've got the TLT So remember when this goes straight up that means the yields at the low end of the curve are going down So right here at the beginning of March yields plummet because everyone thinks the world is coming to an end They're going into safety liquidity But then what happens yields skyrocket in
• 15:00 - 15:30 the middle of March They skyrocket where the TLT because remember the TLT is going down Yields are going up So TLT up here come on TLT I can't see it because this is shaded in but it's roughly let's call it 180 And it goes all the way down to under 140 within the span of a couple weeks
• 15:30 - 16:00 So think about I mean I don't know what the 10ear was doing around I mean that that means the 10-year had to go up by I mean at least 70 or 80 basis points at least at least again probably an even bigger move now I I don't think that the total was probably a bigger move I don't think we saw as big of a move as rapidly intraday
• 16:00 - 16:30 I I don't think we saw that during the surveys So remember on Monday how yields on the 10-year went up by like 35 basis points in the span of an hour or two hours I don't think we saw that during the surveys sickness Although we did see yields over the span of let's say two or 3 weeks go up maybe as much as they have gone up over you know
• 16:30 - 17:00 from liberation day retardation day whatever to where we are today April 11th but so far what you can see here is it isn't necessarily unprecedented and oh by the way what happened when yields skyrocketed during the surveys sickness That was the basis trade blowing up That was the basis trade blowing
• 17:00 - 17:30 up So now let's go over to I guess we saw the dollar and now let's go to GFC So the main takeaway there guys is what we are if we just compare it to the surveys sickness what we're seeing right now in terms of the S&P 500 dollar and treasuries believe it or not it's not
• 17:30 - 18:00 unprecedented not unprecedented and unfortunately it's it's it's what you see when the stuff is is really hitting the And so GFC this is S&P 500 Now this goes from September of '08 to November as far as our time frame here And as you guys a lot of you remember stock market goes straight down And this is S&P 500 So now let's go
• 18:00 - 18:30 over to the dollar during this time And here we go Isn't this interesting so at the beginning dollar we have a period where the dollar does tank The dollar goes and again this is when the world was coming to an end Dollar goes from 80 down to 76 So definitely a bigger move in percentage terms Definitely a bigger move in percentage terms back then versus what
• 18:30 - 19:00 we saw today And again these are all daily candlesticks And then what do we see happen here the dollar just rips higher Rips higher Very similar to what we saw during co uh the surveys sickness So now let's go to TLT
• 19:00 - 19:30 GFC Here we go So same time frame and we see yields plummet We see yields skyrocket We see yields plummet We see yields skyrocket We see yields plummet It's making me dizzy just looking at this chart Holy cow And and this isn't a span
• 19:30 - 20:00 of six months guys This is a span of just uh a couple months here Or this isn't a span of a couple years I meant to say this is just a span of a couple months But look at this Here's what I want you to notice What actually happens at the end of my little circle So the TLT rips rips
• 20:00 - 20:30 from 94 call it straight up to 122 What happened right there qe It was QE Now let's go back to the uh surveysa sickness chart TLT What happened right here
• 20:30 - 21:00 when yields plummet TLT rips higher It's QE more specifically it was when the Fed came in and bailed out the basis trade So I think one of the qu So first question is what we're seeing today unprecedented answer no
• 21:00 - 21:30 unfortunately it is part for the course but only in times of complete chaos and only in times when stuff is properly hitting the fan So good news bad news right good news is it's not unprecedented Bad news is it is unprecedented outside of times when you have extreme bare markets financial crisis stuff hitting the fan But what reverses the or what has
• 21:30 - 22:00 reversed the bizarre moves in the past was when the Fed steps in Now we can argue whether that's mechanical I don't think it is But even it's psychological the impact is essentially the exact same thing So I think the next question we have to ask about today and here's TLT
• 22:00 - 22:30 today or same thing with the dollar is when does the Fed step in do they just based on history I I would guess that you're going to see this massive volatility with the interest rates and the dollar until the Fed steps in I'm not talking about the Fed stepping in and dropping rates Maybe that'll do it But in the past it's required the something breaking that is
• 22:30 - 23:00 obvious to the central planners at the Fed and them actually stepping in and doing a bailout or you whatever you want to call it So I my take away from looking at these charts is to sit back wait and try to figure out when the Fed is going to react And remember yesterday CPI came out low really low In fact month over month it was negative And today we had
• 23:00 - 23:30 the PPI come in at.4 Yesterday CPI negative.1 month over month So today PPI negative.4 month over month So the my point there is the Fed has plenty of cover plenty of cover to come out and not only drop rates but to start QE again And I don't think they're going to
• 23:30 - 24:00 be pinned against the wall saying why are you doing this because you're going to you know you're stoking inflation or you're increasing the probability that we go to the 1970s or stagflation or whatever it is I don't think anyone I mean there might be a few people but very few people are going to accuse them of uh stoking the inflationary fire when you've got the CPI negative month over month and at 2.4 and you have the PPI coming in
• 24:00 - 24:30 negative.4 4 month overmonth especially if we get to next month CPI coming out and it shows that we're a lot closer to 2% their target and possibly even under 2% Okay so Josh yeah thank you very much I was going to have you do that So now what I'm going to do guys I'm going to set down my computer and I'm going to do my best to go over this whiteboard video
• 24:30 - 25:00 live And like I said what I'd love for you guys to do is just jot down any questions you have as I'm going through this whiteboard And then we're going to go over to Rumble and I'm going to do my very best to answer those questions for you actually using the whiteboard So if I need to I can erase some of this stuff and I can draw different pictures different stick figures different balance sheets and we can just go through this one question at a time and see how this works So I'm going to put
• 25:00 - 25:30 this here on my chair I'm going to plug in my laptop Okay And here we go Now we're not going to do this in three simple fast steps I'm not that fancy yet because this is kind of the the beta test of the live stream whiteboard video Now Josh is everything good with the audio you can hear me everything's going good Okay So we start with two characters
• 25:30 - 26:00 here We've got foreigner Frank right there And then we have foreigner Fred Now you can see foreigner Fred is upset He's freaked out Not real happy Where foreigner Frank he's like "Ah I'm good Why is this?" Well let's look at their balance sheets We've got assets on the left liabilities on the right On Frank's balance sheet you'll notice he has a treasury I've got it in green this time just to represent that's a treasury
• 26:00 - 26:30 denominated in US dollars Okay that's why we got it as green But you'll notice one of the reasons he's really happy is because he doesn't have any dollar liabilities This is key This is absolutely crucial Remember at the beginning of this video when I was talking about some of the really smart people that I really respect uh listening to what they're writing this morning they're talking about FX reserve managers emphasis on reserve managers were
• 26:30 - 27:00 selling their treasuries taking dollars and buying German boons So we're going to kind of use that example right here But the key there is these are entities out in the global economy the Euro dollar system that don't have dollar denominated debt They don't have dollar liabilities And as we go through this you'll see that's absolutely crucial Now one more thing I want you guys to kind of make note of before we move forward and that's every oh not every but almost every single dollar outside
• 27:00 - 27:30 of the United States was lent into existence So if we have $1 right here let's say coming out of the FX market that dollar was created by debt by a bank lending it into existence Therefore if this dollar still exists that means there's a dollar of debt on somebody's balance sheet on
• 27:30 - 28:00 the liability side That's crucial to understanding how this process works Okay So now that we're on the same page here let's go back to Foreigner Frank So Foreigner Frank looks at what Trump is doing and he says "Yeah I don't want any part of this Uh I don't know if my treasuries are going to be sanctioned I mean look at what the United States did to Russia Uh the the risk is just too high So and most of my
• 28:00 - 28:30 expenses are denominated in euros anyway So I would much prefer just for the time being to be in assets denominated in euros more certainty Okay So what he does is he takes that treasury and he sells it into the bond market Okay Excuse me He uh yes he takes that treasury sells it into the bond market and then he receives dollars I'm getting my arrows mixed up here in real time Here we are
• 28:30 - 29:00 Right It's this arrow right here So he's taking that he's taking that treasury He's selling it into the bond market and he is receiving dollars Okay but he doesn't want those dollars Remember he doesn't want any dollar assets right now So what he does is he takes those dollars and then he sells them into the FX market for euros And then once he's got those euros then he goes back into the bond market takes those euros to buy German boons That's
• 29:00 - 29:30 why we've got the B here And I've got the blue square representing bonds or government bonds that are denominated in euros German boons That's basically a German version of a treasury So he's taking those euros that he got from the FX market by selling the dollars and buying boons So now if we look at his balance sheet instead of having this treasury we've just got a German boond Okay Well what has happened in this process well the United States dollar
• 29:30 - 30:00 definitely has gone down All else being equal right because he's taking those dollars and he's selling them and buying euros So dollar euro or the dollar against the euro it's going to plummet right here What's happening to Treasury interest rates well they're going to be going down all as being equal They're going to be going up right prices down because he's taking those treasuries and he's selling them More selling than buying prices down yields up Okay but
• 30:00 - 30:30 now what I want you to notice is there is a time mismatch So we're going to get into this in just a minute but just kind of write that down or make a mental note of this along with the fact that every single dollar out here that we're talking about has been lent into existence Okay great So now let's go over to foreigner Fred who's in a much much different position Why
• 30:30 - 31:00 because foreigner Fred has dollar liabilities He borrowed the money to begin with and in this process of him borrowing from the bank that's how these dollars were created Okay so he owes those dollars The problem with for Fred is he has to earn dollars or he has to borrow dollars He has to roll the debt over
• 31:00 - 31:30 because on the asset side of his balance sheet he just has yen That's his cash position Okay So let's kind of think through what his options are Well he has to make this monthly payment Let's just say or let's just say for a moment that this loan matures in 30 days because we have to acknowledge that most of the debt in the Euro dollar system that created this 75
• 31:30 - 32:00 trillion that's circulating and whatnot of United States dollars it's very short term It's not like a 30-year Treasury Most of it is under three months So it matures in three months So if you think it's bad the United States has to roll over $10 trillion this year think about the fact that the Euro dollar system has to roll over call it $50 trillion every 3 months Try that one on for
• 32:00 - 32:30 size So in order to make this payment in 30 days Fred only has a couple options Number one he has to earn the money Let's see He owns a business multinational corporation He not only has to earn the money he's got to earn dollars Because if he's just earning yen then what is he going to have to do he's he can't pay he can't make his payment for this loan because the loans do nominated in dollars and yen So he'd have to sell the yen to get the dollars More on that in just a moment Or what he
• 32:30 - 33:00 could do is he would just go ahead and roll over this debt But let's get back to the mismatch right because he needs the dollars in let's say 30 days but foreigner Frank is dumping the dollars right now So what can happen is the dollar right now because of this short mismatch can plummet but pretty soon someone's going to need to get those
• 33:00 - 33:30 dollars in order to pay this dollar denominated debt And I don't want to let out the punchline but this could be why we see this happen so often when we get into these crisis moments right and by the way it's not like foreigner Frank is selling these treasuries because he wants to maybe but he might be selling them because he has to That would take us back to the basis trade blowing up
• 33:30 - 34:00 Okay but getting back to foreigner Fred So his first option is to earn the money Well his customer let's say is foreigner Frank So Fred is going to send this stuff to foreigner Frank And usually foreigner Frank would give him dollars So then he could go ahead and make that loan payment But unfortunately Foreigner Frank doesn't have those dollars anymore whether he was forced to liquidate or maybe he just didn't want the the risk the uncertainty whatever it
• 34:00 - 34:30 is he doesn't have those dollars anymore So foreigner Fred is put into a difficult position where his dollar cash flow I like that catch is going down No one ever has accused me of a lack of ability to multitask That's for sure All right but he's got another option Unfortunately he can go ahead and roll over that debt So here's the bank right down here and he can go to the bank and say "Look I owe you this money
• 34:30 - 35:00 in 30 days It's time You know it's coming up It's maturing Why don't we just do this why don't you go ahead and just lend me the exact same amount and I'll use that to pay off the existing debt?" You guys know how that works We're just rolling the debt over Now this would be a very viable option So first and foremost I want to highlight the fact that going through this thought experiment getting the money from foreigner Frank for the stuff is no
• 35:00 - 35:30 longer an option We take that straight off the table All right So this is gone Bye-bye So now we're left with this option The problem here is what's happening to global liquidity right now It's drying up It's vanishing So I mean you got to put yourself in the position position of a bank If you're a bank right now are you super eager to go out there and lend into the global
• 35:30 - 36:00 economy absolutely not You're like "Hell no There's no way I'm lending out into the economy in this environment." And therefore you would be less likely to go ahead and be willing to roll over that debt You're like "No no I'm shoring up my balance sheet I'm shrinking it I'm not increasing it or keeping it the same size because I see the economic storm clouds I see all the uncertainty Right so the bank says "No Fred we're not rolling over the loan You got to pay up
• 36:00 - 36:30 buddy You got to pay up." So this no longer becomes an option Bye-bye So then what would Fred have to do he would have to take these yen and sell them into the FX market I should have had this written up there but that's fine And he's going to
• 36:30 - 37:00 have to sell these yen on his balance sheet for what for dollars So what is this going to do all being equal to the dollar versus the yen dollar up dollar down here dollar up here And the main reason is because you just had a mismatch in timing Now if this loan was like a 30-year fixed rate
• 37:00 - 37:30 mortgage then you'd have 30 years in there and then the dollar could really tank Really tank But because this debt is so shortterm at some point in the very near future someone is going to need those dollars that foreigner Frank is selling into the FX market to get the euros right here to buy the German boons Now Fred has another option Let's say he gets those dollars
• 37:30 - 38:00 and he's like "You know what forget this I'm not dealing with the United States I'm in the same boat as my good buddy foreigner Frank I don't want to deal with this anymore So I'm going to go ahead and take these dollars and I'm just going to pay off the loan and I'm not going to roll it over So he takes these dollars right sends them down to the bank We got this as our next option as pay So let's say he pays this loan off because he doesn't want anything to do with the uncertainty or and not only
• 38:00 - 38:30 that all of his customers are no longer willing to pay in dollars because everyone's dumping dollars right so what is he going to do he's going tohead and take that dollar He's got to pay off his loan So the loan is no longer there But remember the loan is what created the dollars to begin with So if the loan is no longer there
• 38:30 - 39:00 what happens to the dollars poof They're gone No more dollars This is why if foreigners are dumping dollars let's say demand for dollars goes down you especially if liquidity is super super tight which it is right now
• 39:00 - 39:30 and velocity slows down with cash flows even if Frank was willing to pay in dollars he might not be able to pay in dollars right so you have cash flows going down velocity going down you got liquidity seizing up And that's why if you have demand for dollars going down usually the supply of dollars goes down just as fast if not faster You see because in order for the
• 39:30 - 40:00 supply of dollars to not go down you would need more banks lending or creating loans than are being paid off And if the demand for dollars goes down do you think dollar lending is going to go up or down obviously down So then you have those loans being paid off So on net what's happening is the supply of dollars outside of the United States is shrinking And that makes it even worse for the other Freds
• 40:00 - 40:30 out there that still have the dollar liabilities on their balance sheet because it makes it even harder and harder and harder for them to pay And then it gets to the point where the only way they can pay is by taking the other cash the yen the euros the pesos what the Aussie dollars the Canadian dollars It gets to the point where that's their only option and they have to dump that which makes the dollar go up even higher which makes it even
• 40:30 - 41:00 more difficult for them to service that existing debt And let's remember guys that every single and Mike Maloney my my very very good friend Mike Maloney teaches us teaches us this in his series the hidden secrets of money I think that's what it's called isn't it hopefully you guys can I'm almost paused Sorry Mike I'm almost positive that's what it is Hidden Secrets Josh look that up for me because I want to give Mike a plug That's such an awesome series but I haven't watched
• 41:00 - 41:30 it in so long I forgot the exact title But what Mike teaches us there is that when this bank lends the money to Fred to begin with to create the dollars right you're not just creating a loan let's just say with uh uh well I'll just do it like this You're not just creating the principal you're also creating future payments for interest But see you're only getting paid there's only enough currency units based on the principal So
• 41:30 - 42:00 if this loan let's say is for uh $10 Okay there's $10 that's created but let's say the interest payments in total are $2 but there's only $10 that exists So what you have to have in order to service this debt is velocity The exact opposite of what we see today especially when there's a liquidity squeeze uncertainty and potential for a
• 42:00 - 42:30 financial crisis How'd I do all right guys Now let's shoot over to Rumble Hopefully you've got your questions written down and uh I'm going to go do my best to answer a few questions as many as I can right here using this whiteboard going through the exact same technique And you guys let me know in the chat You guys let me know in
• 42:30 - 43:00 the comments if doing a live stream whiteboard video like this helps you guys understand the concepts better than maybe just me sitting talking head in front of a desk or maybe even better than me doing a whiteboard with all the editing And I think that you know when I'm doing the editing obviously you can't ask me questions but now you can And I think hopefully that's going to make this even better So guys enjoy uh the rest of your afternoon As always make sure you're standing up for freedom
• 43:00 - 43:30 liberty free market capitalism and I will see you just in a moment over on Rumble