Transcription
So stable coins become big. The bigger they are, the greater the shock waves from a failure. Especially they are really not seriously regulated. I mean, Tether is a company domiciled in El Salvador, goodness. I mean, who is supervising Tether? I mean, they do whatever they want. How do we know that they take your dollars and convert them into treasuries? And not just any treasuries, but short-term treasuries, not long-term treasuries, 'cause long-term treasuries are useless in a moment of crisis when it comes to liquidating. They, they will go down as well, uh, in, in a manner that will, that will be terribly reminiscent of the 2008 sub, subprime, subprime, um, crisis.
And if that happens in a [clears throat] place like South Korea, or Malaysia, or Europe, and you have companies that are failing because their stable coins are disappearing, they're running through their fingers. Our central banks won't be able to replace them. They won't be able to bail them out because our central banks cannot print dollars. These will be US dollar, uh, they will not be euro-denominated, uh, stable coins. So this is, you know, this is what I'm saying that through this, America is very shortsighted, and this administration very shortsighted, because they think they're buying stability, exporting elements of instability. I'm not even sure they understand that, because I have not seen this in their writings. They're doing it. They're probably not aware that they're doing it. They don't even care, thing, even if they were, were made aware of it.
But in the end, just like in 2007-8, when the whole thing goes pear-shaped, there will be second and third, um, um, generation effects that will affect, that will have negative repercussions to the United States. So I think that this is going to be the next financial crisis coming out of the stable coin market, in a sense, a bit like the French Revolution. The French Revolution began with lofty ideals about liberty, equality, fraternity, democracy, and very soon after that, you had Napoleon taking over as an emperor. That's what's happening to crypto.
I like to take seriously my political opponent's writings. I'm not one of those politicians, because I'm a politician these days, unfortunately. Uh, but I'm not one of those politicians who, um, vilify their political opponents and without even reading what they actually write. So, you know, even before Donald Trump was, um, inaugurated, you know, went through that amazing process with all the big deck oligarchs, um, in his presence, um, celebrating his coronation effectively, even before that happened, Steven Mnuchin, uh, the, let's say, economics and financial guru of, uh, Donald Trump, wrote a paper. It's a very well-known paper. It's referred to as the Mar-a-Lago paper, uh, and I read it very, very carefully. And there is a very interesting analysis in it. Doesn't mean that I agree with it, but it is interesting. I don't have to agree with everything that I find interesting. And a very clear, clear strategy of what he wanted the Trump 2.0 administration to do. And I'll just outline very quickly what he's saying is that, um, the American deficit, trade deficit has to be, um, eliminated. If not eliminated, it needs to be shrunk substantially. And this will be accomplished by devaluing the dollar while keeping the dollar's exorbitant privilege of being the world reserve currency. This is an interesting part of it, isn't it? On one hand, he wants to reduce the exchange value of the dollar. On the other hand, he wants to keep the dollar as the main payment system in the world. And some people may say that can't be done. If you reduce, if you devalue the dollar, you debase the dollar in libertarian terms, then of course its power worldwide is going to shrink. Well, that's rubbish. Richard Nixon devalued the dollar and made it more central in the international circuits of financial, uh, capital and international trade. So it's been there before. They wanted to do again what Richard Nixon wanted to do.
So if you read a bit further, you, you come to the, to the tariffs. Now the liberal press journal and, you know, the New York Times, the Financial Times make the huge mistake of thinking that it's all about tariffs. Maybe Donald Trump loves tariffs, but people like Steven Mnuchin and Scott Bessent, they see tariffs as a means to an end. They don't see them as an end in themselves. And, and what is it that they, they want to accomplish with the tariffs? They want to bully countries like Japan, Germany, and so on. Um, they want to bend them to their will. But what is their will? What do they want them to do in the end? In the end, they might even do away with the tariffs once they get what they want. And what is it that they want? As I said before, they want to devalue the dollar without jeopardizing its relative position relative to other currencies like the euro, the yen, the won, the, um, so on.
So here's something that again, I'm not making it up. I'm just reading it out of Steven Mnuchin's playbook, right? Because as I said, I believe in reading my political opponents and taking them seriously. So he says very clearly, look, um, the Japanese, for instance, they hold $1.2 trillion. Now, we want them to sell them a large chunk of them. Why? Because if they sell them, supply of dollars will go up and the dollar will be devalued, as is their plan. But we don't want them to buy euros. We don't want them to buy Chinese currency. We don't want them to buy whatever other currency. So here comes the role of stable coins, because if they convince, well, bully the Japanese into buying Tether, uh, US-denominated, um, stable coins, uh, then they, they kill two birds with one stone. Because on the one hand, the Japanese would no longer have accumulated dollars. The dollars would have been sold. So the, the money supply, the dollar supply will go up and the, uh, exchange value, exchange rate of the dollar will come down. But at the same time, it won't go to the euro, to the euro or to any other country. It will go into the coffers of Tether.
Now, what does Tether do when you buy, say, $1,000 worth of stable coins of Tether coins from Tether? What Tether does is, uh, that's what it says it does. That's what it's supposed to do. Of course, no one exactly knows because it's not properly regulated, but that's another question. Supposedly, it buys short-term treasuries, American debt, public debt, short-term, three months, six months, to have in its coffers so as to be able to liquidate them. If there is a run on Tether, if you want your, your dollars back and you want to give back your Tether and you want to, uh, to guarantee that, uh, Tether can be exchanged as promised on the tin, on a, on a one-to-one basis, they buy these US treasuries, short-term treasuries. And how does Tether make money? Well, it collects interest on those treasuries and it keeps it. And that's the business model of Tether. Uh, now, why is this good from the American perspective, from the American government perspective? Because the Japanese have sold their dollars, but effectively they bought American debt. So the, the value was transferred essentially to the American government. It reduced the borrowing cost of the American government. It reduced essentially the deficit of the United States while also pushing the buyer, the exchange rate of the, of the dollar down so as to make imports into America, uh, more expensive and exports from America cheaper, and therefore to make, to give a boost to American competitiveness. That's a plan, right? That's a plan.
Now, this is okay. So essentially, the, as, as you quoted me, the United States now is buying stability. It's importing stability into its own system by bullying, through the threat and the reality of tariffs, countries like Japan to get rid of the dollars. Okay. Now, why am I saying that this is introducing instability to the rest of the world? Because the more stable coins, US dollar-denominated stable coins that are in the ether, in our system, in the internet, right? Effectively, uh, the more it's being used and the more it is being used, the greater the demand for it. There are network effects like for Facebook, whatever. Um, so, you know, as we speak, there are Malaysian companies, Indonesian companies, companies here in Europe, uh, that increasingly use, uh, Tether that is denominated in dollars, uh, which is a huge problem. Countries that I mentioned, Malaysia, Indonesia, Europe, uh, end up with central banks that do not control their money supply. So their capacity to affect monetary policy diminishes. And so, and that introduces instability in our countries, in the rest of the world. That's one reason. Another reason is that, uh, if at some point there is a run on Tether, like there was when the, um, California bank, Silicon Valley Bank, went under, a large part of Circle, Circle, another US dollar-denominated stable coin, their reserves were in that bank. So there's, you see, there is this, uh, doom loop between the banking system and the stable coin system. When one goes, the other goes. Now, when that happened, there were the size of a stable coin market, let's call it, world was tiny. But now it's getting much, much larger. And with a genius act, it's going to get huge. The US Treasury predicts that this year alone, 6.6 trillion American dollars are going to migrate from American standard bank accounts to stable coins.
Even when you know that the crisis is coming, it is impossible. That's not the same thing as difficult. Impossible means that it cannot be done. [laughter] However, it's like, you know, um, squaring a circle. It's not difficult. You just can't do it. However smart you are. So, it is impossible to predict when a new crisis is going to happen. It's clear that it will happen. For me, it's clear that it will be, uh, that it will involve stable coins. You never know whether it will start the next stable coin market. So, for instance, in 2007-8, when AIG went down because it could not pay its CDS's, then, you know, who, who would have known that that would have happened because of the subprime market in mortgages in the Midwest, for instance? Nobody had any. I, you could see that. I mean, I could see. I was, I was beginning to get really scared, uh, I remember. And this is one of the reasons why I became a public figure, because up until then, up until 2002, 2001, 2003, I was minding my own business in my own university office, writing mathematical papers that were great fun for me to write and totally irrelevant to the rest of the world. I, it was my fear that started immediately after the, the dot-com bubble burst, and I could see that how quickly irrational exuberance returned to the markets. And I could see that, you know, let me put it this way, in the year 2000, GDP, global GDP was about 50, 50 trillion, 50. And the total size of derivative market was 70. 50 global GDP, 70 the size of the derivatives. By 2006, global GDP had gone from 50 to 70, and the size of the derivatives market had gone from 70 to 750. So it was clear that it was going to burst. When would it burst? How would it burst? Exactly where would the burst start? The rapture occur? It was impossible to know. Similarly, now we have no idea.
Technically, of course, it's decentralized. That's the beauty of blockchain or distributed ledgers. The idea that you don't have, um, a central hub, uh, where the ledger is kept, uh, and therefore the ownership of the ledger bestows power on the owner of the ledger. So this is, um, a fact of life for crypto. It is decentralized. So every node, every user is, uh, participating in, uh, um, confirming trades and keeping the ledgers in a cooperative way. So in that sense, it is the epitome of decentralization and cooperation. But when this beautiful decentralized framework is being used in order to create exchange value, uh, essentially to create money of some form, uh, well, at that point, the question is, how is this, uh, how are these tokens that are being created through mining, through various other means, how are they distributed, uh, and more generally, these systems, in the end, who is appropriating them? So if you look at, for instance, the distribution of Bitcoin across individuals, it's probably more unequal than the distribution of dollars. And therefore, where you concentrate monetary power, you can't talk about, you know, community anymore. Uh, you talk about an oligarchy.
But besides that, I think that what's the, the greatest paradox about crypto is that, you know, at first, the first few years after the Nakamoto paper started, this remarkable revolution, uh, which inspired, um, uh, both leftists and libertarians, uh, uh, enemies of concentrated power, whether it was concentrated state power or concentrated financial power or capitalistic power. Well, during the, that heyday, during those first, uh, exciting years of crypto's life, crypto was being portrayed as, uh, the instrument by which the many would bring down the Wall Street, uh, bankers, the central banks, the cabal of concentrated financial power. And yet, in your introduction, you mentioned that, uh, crypto now is everywhere, but that is at the expense of that original dream of bringing down the powerful. The reason why crypto has matured is because effectively it's been taken over by Wall Street. It has been taken over by, um, the various, uh, um, sellers of, uh, stable coins, which in themselves, by their very definition, they are an abrogation of the original dream. Because when you use blockchain in order to sell tokens, uh, with the so-called, supposedly, cast-iron guarantee that it will be one token for one US dollar, uh, then what are you doing exactly? Instead of usurping the power of the Fed, instead of, um, doing away with fiat money and replacing it with a decentralized, uh, community-based money. Uh, what you're doing essentially is you are, you, you're taking the existing establishment and you are making it more toxic, less stable, and more oligarchic. Because this is what is that's what Circle is, US-denominated stable coins, which are now going to become absolutely far more powerful and, um, and, and, and significant they were as a result of the Donald Trump administration's genius act. Yeah, you, you have, in a sense, a bit like the French Revolution. The French Revolution began with lofty ideals about liberty, equality, fraternity, democracy, and very soon after that, you had Napoleon taking over as an emperor. That's what's happening to crypto.