Transcription
If asked what is bigger than a superpower, the answer would not be a fried superpower. The answer is interest. And interest, it's not a person, really. It has no power, no body, cannot speak, cannot argue, but it can control the leaders of superpowers. In this clip, Tai will tell you examples. An old superpower like the United Kingdom, England, once ruled 1/3 of the world on this planet. But in the end, it was dragged down by interest. Now it hurts. And another example is the United States. We see that, oh, the negotiations where the United States really wants to sign a peace treaty with Iran, but it looks a bit clumsy, not very smooth, doesn't look like it will succeed. This is because Iran knows very well that the United States is being held at gunpoint by interest, making America at a disadvantage. If Iran can drag on the closure of Hormuz, America will be at an even greater disadvantage. So, in this clip, I will tell you the origin of interest and the mechanism by which interest can control superpowers. And another thing I will tell you in this clip is that no matter how insignificant interest may seem, there are always exceptions. Because honestly, as I said, interest is not a person, it has no form, it cannot even speak. It cannot do anything to anyone, to you, to any country, if you have support. You can support the channel Poney Monster's "Interest, a Superpower Greater Than Superpowers" by scanning this QR code. Or if you want to support the S Money Monster channel easily, just like, share, comment, chat, and subscribe. Or if you want to support the channel to continue telling financial stories and good information freely like this for a long time, you can support us by becoming a member. Thank you.
Let's start with the deal, the negotiations between the United States and Iran. We see that there was an online MOU signing, but in reality, it's not that easy to succeed. There are twists and turns in the agreement. Will Hormuz be open or closed? If you love it, close it. If you love it, open it. This is because Iran is currently at an advantage. They know that the United States is at a disadvantage because America has something called interest stuck in its throat. Because if Hormuz doesn't open, honestly, everyone will be in trouble. Iran won't be that happy either. It becomes harder for them to sell. The Middle Eastern countries in that region are not happy. The countries that have to buy oil through Hormuz, like us in Asia, are not happy. Their faces are all green. But in this game, who is the most unlucky? There are many factors. If we look at the factor called interest, the unluckiest country is America because it has the most debt. Because if Hormuz doesn't open, oil will be expensive. Oil will be expensive, it will become the cost of all goods, and it will make everything more expensive, and it will make inflation worse. The latest US inflation has risen from 3.8% to 4.2%. Is that a lot? Yes, it's a lot. Because America's target is only 2%. 4.2% means it has exceeded the target by more than 2 times. But honestly, is this the peak number? No, it can get more expensive if 1) Hormuz doesn't open, or 2) if America, since Hormuz closed, has not released oil from the US Strategic Petroleum Reserve. But I believe that the word "expensive oil" that is feared is not as scary as running out of oil. Because the US Strategic Petroleum Reserve is likely to run out within the next 80 days. This is the ticking time bomb that America desperately needs to open Hormuz. Because if it really runs out, inflation will probably skyrocket. And if that happens, from the Federal Reserve meeting on June 17th, 9 members voted to raise the policy interest rate in the United States before the end of 2026. It might increase more than once. There are already reports that it might increase up to 3 times, or it might increase faster than ever thought. And the word "interest rate hike" is spoken softly but pierces to the bone. Because an interest rate hike means an increase in the debt burden for both the government and the private sector. What is the interest debt burden for the US government alone? It's already 1 trillion US dollars, which is more than the defense budget of over 900 billion US dollars. And if the debt is high, the interest is expensive, what will happen next? Debtors might not be able to pay. That is what is likely to happen. And if the debt is excessive and debtors cannot pay, who will be unlucky next? The creditors. So, who are the creditors? Who is the gang that has lent the most money in recent years? Private credit. And its condition is not good at all. Stocks have fallen sharply. And another institution that has lent a lot, even more, is commercial banks. Next, who else is lending directly to the government? It's the gang that buys government bonds. Because if the debt situation is like this, the debt burden is increasing, interest is increasing, and the chance of not being able to pay is increasing. Those who are direct creditors of the government, or the group that buys government bonds, what they will do is sell off their bonds. And if those creditors sell off, what will happen? The price of bonds will decrease, but the interest the government will have to pay to find new creditors to buy them will increase. And every drop that bond yields increase is equivalent to interest, equivalent to increased financial costs that will seep into the economic system from the consumer level, to the private sector, to the government. And this mechanism that causes interest rates to rise and destroy the US economy is the real battlefield that Iran is playing with the United States. Iran doesn't need a large army, doesn't need to spend 900 billion on defense, doesn't need expensive high-tech weapons. Just holding Hormuz for as long as possible, interest will get stuck in America's throat and turn their faces green. This is one example of how interest is used in warfare between countries, the US and Iran. But the term "interest" that can control superpowers is not only used for fighting between countries, it can also be used to destroy one's own country. And this is an example from England. The United Kingdom, because interest is one of the main factors that caused the United Kingdom, from being the number one empire in the world, ruling 1/3 of the world, setting the currency, being the sole writer of global trade rules, being the pioneer of industrial revolution technology, such as steam engines, factory systems, banks, telegraphs, stock markets. Britain was the best in the world for 200 years. But in the end, it collapsed. It gradually collapsed due to interest. What is the economic condition of Britain today? I have made clips about Britain before, but to update you briefly, the political situation in Britain is that the prime minister changes very frequently. In the past 9 years, there have been 6 prime ministers. It sounds familiar. The UK government bond market is currently on the verge of collapse, with very high yields. I will explain how serious a 1% increase in yield is. The yield on 10-year UK government bonds is 4.8%. It's going to 5% soon. The richest people in Britain have been leaving the country in large numbers. The UK's public debt, okay, this is not the highest point, but it's as high as 94.3% of GDP, comparable to the unemployment rate. Since COVID, other countries have recovered from unemployment issues. In the Eurozone, Britain is not in the Eurozone, but in the areas near Britain. But Britain has not recovered. The UK unemployment rate has decreased, but it is still high, at 4.9%. And the UK's public utility system is severely deteriorated because welfare money is not enough. Why has Britain, a country that was once a world superpower, fallen so far? Interest, yes, but there are other factors too, factors that reinforce the increase in interest. When did Britain start to visibly and significantly decline? Since 2016. Because at that time, Germany, the United States, China, oh, they were developing their industries very strongly, so Britain's share of global production and market share dropped from 20% to just 2%. And in the same year, 2016, it wasn't just that. There was another issue. Britain joined the EU in 1973. Upon joining the EU, Britain gained access to 250 million EU consumers duty-free, no inspections, no paperwork, no VAT. Shipping from Britain to Germany was like shipping from Bangkok to Nakhon Sawan, very smooth. So, during that time, small brands and minor brands had no cost to sell their products, and there were so many consumers. It was good. But suddenly, from 2010 to around 2016, a group of British people felt that, actually, Britain contributes more to the EU than the EU contributes to Britain. So, in 2016, Britain voted to Brexit from the EU. And yes, the first group to be shocked were the small entrepreneurs, the small brands, who used to sell products as if shipping from Bangkok to Nakhon Sawan. That's no longer the case. After Brexit, small brands have to pay taxes, VAT, and paperwork to sell their products in the EU, which significantly increases costs. As a result, during that period, the UK's GDP decreased, not by a lot, but by 6% compared to when it was in the EU. But that number, which is not that large, still amounts to tens of billions of pounds per year. And in 2020, after another 4 years, Britain faced the COVID crisis again. And this COVID crisis was like a squeeze that forced the government to borrow a huge amount of money. And after another 2 years, Britain seemed like a country that made merit but didn't pour water on it, or something. Because after another 2 years, in 2022, the Russia-Ukraine war broke out. And Britain had to sanction oil from Russia, following the United States, as allies. When Britain sanctioned oil from Russia, the cheap oil from Russia was no longer available. This caused energy prices in Britain to skyrocket. Oil is expensive, costs are high, wages are stagnant, but inflation is running wild. Combined, this equals a massive debt pile. During that time, the Debt to GDP ratio, the UK's public debt compared to GDP, jumped from 50% to almost 100%. And when the debt reaches that level, it's time for interest to come out of its cage. Because, as I said, interest is not a person, interest cannot speak, interest has no power, nothing. It cannot do anything to you if you don't have enough debt. And on the day Britain had enough debt, it had the qualification for interest to crush your country. And another term I want you to know is "Bond Vigilantes." What does that mean? I'll translate it myself. Bond vigilantes. Or to put it more simply, Bond Vigilantes are a group of powerful traders and investors who buy government bonds. To compare, Bond Vigilantes are like a shadow government, an unseen government. In every country, there is a government, right? The government we see normally, the government we elect, they implement policies, etc. And the shadow government, or the government that influences the leaders of the government we see to do things, that is the group of Bond Vigilantes. That is, powerful traders who buy government bonds. And Bond Vigilantes exist in every country that has enough debt. And Bond Vigilantes are the ones who truly determine and control the leaders of the government, telling them what to do and what not to do, especially when a crisis occurs in the country. This group doesn't need to make demands, doesn't need to speak out, doesn't even need to open their mouths. What they do that the government fears is simply to sell off government bonds. Because every time the Bond Vigilantes sell off government bonds, it causes interest rates to rise. Even a slight increase in interest rates in a debt-ridden country is a horror. So, how does the mechanism work? Let's review our knowledge about bonds. It starts with why governments have so much debt. Governments have a lot of debt because they spend more than they earn, and they spend much more than they earn. And the excess of what they cannot earn, they borrow. Governments all over the world, almost every country, do this. They spend more than they earn, repeatedly, and borrow again and again, forever. For example, suppose the British government needs to spend a fixed cost of 13 billion pounds per year, but its total tax revenue and other income is only 10 billion pounds. This means the British government must borrow an additional 3 billion pounds, right? How does the government borrow? By issuing government bonds for people to buy. The British government can guarantee that it will sell 3 billion pounds worth of government bonds at 3% interest for 10 years. And the 3 billion pounds will be divided into 3,000 units, each worth 1 million pounds. And the people who buy the bonds are those who lend to the government, which are the Bond Vigilantes. Because one unit costs 1 million pounds, right? If you're not really big, you can't buy it. And the Bond Vigilantes buy bonds, right? And they receive a promise to receive 3% interest annually until the last year, the 10th year, when they will get their principal back. Now, let's get to the mechanism of how interest or bonds can strangle governments. Bonds can be resold in the secondary market. So, when the government does something bad, causes heavy inflation, declares war on another country, or, hey, oil prices are high. What the Bond Vigilantes do is, hey, I'm shocked. You don't seem credible. You seem to have less ability to repay your debt. Bond Vigilantes will sell off government bonds. Where do they sell them? In the secondary market. And when Bond Vigilantes sell them off, the price of bonds will fall. When the price of bonds falls, what happens in the market is that if you want to sell them, the yield must increase. Therefore, the yield on government bonds increases. The yield on government bonds increases through the mechanism of the secondary bond market. The yield on government bonds doesn't increase because the government sets it. The central bank can only set short-term bonds, like 2-year ones, but not 10-year or 30-year ones. And when bond yields increase, bond prices fall, inversely proportional to yields. Because they lose old customers, as I said, they have to increase yields to find new customers to be creditors instead. And where is the problem? The problem is that, as I said, governments borrow, not just a lot, but repeatedly. And if they borrow repeatedly, it means the interest will also increase repeatedly, right? And if the Bond Vigilantes sell off bonds en masse and cause the yield to increase, this will become the cost of new borrowing for the government. For example, suppose the old yield was 2%. Borrowing 100 billion pounds would have an interest cost of 2 billion pounds per year. But if the yield suddenly jumps from 2% to 5%, an increase of 3%, it means the money borrowed, 100 billion pounds, which was originally 2 billion pounds per year, will become 5 billion pounds per year. The debt burden increases by 3 billion pounds per year just from the increase in interest. And this event, I just had the opportunity to witness it firsthand. It was during the time when Donald Trump declared war on Iran. And as the war continued, Donald Trump said, "Hey, we're going to escalate, hey, today we're going to bomb, hey, no, we're peaceful. Israel, or hey, we're going to sign a ceasefire. Hey, we're going to block the area, not block." Do you know why Donald Trump kept changing his mind? It's because if you look back, the 10-year US Treasury bonds, every time they hit 4.5% or 5%, that's the point that makes Donald Trump act. So, to summarize this clip: no matter how great a country is, if it allows too much debt, if it raises the debt ceiling too high, it can be knocked down by interest. No exceptions. [Music]