Transcription
That would end up being reflected in stocks, the slow decline of the dollar, and effectively the main, the second risk.
So, the first one is a deficit. The second one is effectively that the dollar is losing its status as a reserve currency. You can see the accumulation of gold in the reserves and the behavior of gold over the past, uh, uh, 12 months. And and and it didn't start with Trump's policies. Of course, it started with Biden when he, uh, froze the accounts of, u, uh, people connected to Putin. And of course, thinking that it'd be limited there, but people not connected to Putin, okay, decided to stay away from a euro and a dollar. And and gold is effectively now the reserve currency. Transactions take place in dollars, euros, usually dollars, and at the same rate. However, um, they get converted back into gold. And and we can see it from the accumulation of reserves. So the, the, the, the dollar is a good transactional currency because people can label things in it, but not necessarily a storage currency. And and this is what we're facing now.
Let's talk big picture. Okay, 2008, we had a debt problem. Now the Fed put the interest rates at zero for 15 years. Now, lowering rates to zero made no sense. You know, they didn't try, they panicked. You know, they didn't try to lower it to 3%. They went all the way to zero. And once it's at zero, it's very hard to raise it. So now we're going to have to learn to live in an environment with higher interest rates. And 15 years, you know, that's a generation of traders, a generation of finance practitioners who don't know what interest rates mean. So welcome to a new era. So, new era is we have more debt than we did before. The Federal Reserve's primary job is price stability, and monetary policy is something that is, you know, short-term. They used that tool right in place of a structural reform. You see, you can't use, I mean, it's not made for that. So, so that's a big mistake, and we're going to pay the price.
Now we have a lot of risks building up. Okay. Whether the first one, I think, is of course, we're starting to pay for debt and and year after year taking a larger portion of the budget. So it's not out of control yet. Europe is worse than us. Uh, you know, when you have debt, you need to grow very fast. We're growing, but we should grow faster to be able to control that debt. That's a big thing. The second one is, and I'm really worried, if someone asked me what, what are the top two biggest financial mistakes made in the 21st century, one of them would be confiscation of assets by, you know, after the Ukraine war of people. Because this kind of thing, you can do once. So, United States bullied Europe to participate in confiscation of assets of all, you know, some relevant people, you know, with vague links to the Russian regime. And it may make sense, maybe from a justice standpoint, but you got to remember that it's not going to encourage people to invest in in the system. Okay. So, transactions are still conducted in US dollars. But we're seeing more and more a, uh, a, a, the storage in gold. And you see in oil prices, whether central banks and and individuals, okay, people want out of that system. So I'm really afraid of a progressive loss of the role of the dollar. I'm afraid of what the, the current administration has done in 2022 when they confiscated assets. It doesn't encourage people to invest in your currency because the first geopolitical problem. And and and you maybe, you, if you're, let's say that you're a citizen of of countries that are in the Middle East or in Asia, or even in Eastern Europe, you, you don't want to be, uh, you know, uh, you don't want your money taken away from you. You see, once you do it once, you can do it once. It's not the kind of thing that you can do twice. So that is harming the dollar and harming the United States enormously. And I think, uh, um, President Trump, President President Trump mentioned that he said we shouldn't be freezing assets. We have a fragile system. Okay. And we have more interdependence, and it was shown during COVID between world economies. We have more globalization, almost, you know, at its peak. So more dependence between economies. So, in other words, uh, if, if something collapses, it causes feedback loops. Uh, we have more debt in the western world relative to, particularly debt relative to growth, than we can handle. Uh, so, and what's bad here is that, and and sad is that, you know, as you get richer, typically, uh, you, you start having more debt, but your incentive to grow isn't there anymore. So, so we are now probably the richest we've ever been, and and and we've never been had more debt.
Let's look at markets. Okay. Markets are not driven by, u, you know, uh, long-term economic, uh, stuff. It's driven by allocations. Okay. We like, for example, people think that the market reflects today the impact of, uh, the, the tariffs and and these policies that may or may not be rational. No, markets are driven by a certain allocation parameters, and people, of course, panic sometimes, but they got to satisfy these in the long run. Of course, the, the economy will decide, and we have severe problems. The first one being the accumulated deficit, and it's snowballing, as you know, and with interest rates here, it is adding every year to the, the, the budget. So, so just to stay in the same place. Plus, what has happened with, with a lot of modern economies is that as you get richer, you see, it's normal that your growth rate will slow down because you have fewer people in poverty in your economy. You have to import actually poverty from elsewhere. Okay. It's like an S-curve, like a natural S-curve that we see in nature. At the top of the S-curve is when people borrow when their growth potential is much lower, and for natural reasons, it's not nothing to do with policies. So we should be borrowing less now that we have reached, sort of like, almost reached destination because the, the, the, it's a, what we call a, uh, you know, decreasing, uh, uh, growth rate, and and which is normal. Whereas countries in, uh, Africa, in Asia, are far away from that point. You see, they have still have people in poverty that they got to pull up, and that will increase their GDP, and they can borrow, but they're not the ones borrowing.
That would end up being reflected in stocks, the slow decline of the dollar, and effectively the main, the second risk. So, the first one is the deficit. The second one is effectively that the dollar is losing its status as a reserve currency. You can see the accumulation of gold in the reserves and the behavior of gold over the past, uh, uh, 12 months. And and and it didn't start with Trump's policies. Of course, it started with Biden when he, uh, froze the accounts of, u, uh, people connected to Putin. And of course, thinking that it'd be limited there, but people not connected to Putin, okay, decided to stay away from a euro and a dollar. And and gold is effectively now the reserve currency. Transactions take place in dollars, euros, usually dollars, and at the same rate. However, um, they get converted back into gold. And and when we can see it from the accumulation of reserves, especially central banks around the world. So the, the, the, the dollar is a good transactional currency because people can label things in it, but not necessarily a storage currency. And and this is what we're facing now.
I think that with what's going on now, particularly with, uh, the new administration, uh, the perception of America, the riskiness of America has increased. So, so on top of, you know, that that move into gold that started with Biden, we have now a move into gold by people who are afraid of these policies. And I kept, uh, advocating for the transfer of risk from banks to hedge funds because hedge funds don't have the, uh, skin in the game problem. Okay. Bankers, of course, they, uh, you know, they have very little to lose, and, uh, and they're prone to bailouts. On top of that, uh, hedge funders have their money in in it. So I think the risk management is much more rational, uh, with hedge funds than it is has been with banks. Banks, they use just models to cover, uh, you know, their reputation and nothing else. If there's no, uh, you know, bailout potential, uh, then opacity isn't harmful, you see, because those punished will be those who put money in it. That's the functioning of a normal functioning of a market. However, if there's a potential bailout, then we need to know what we may have to bail out. You see, so this is where where I would, uh, I would, I would, I would, you know, look more into the details of of what we are insuring as taxpayers. Banks became utilities progressively, uh, after 2009, 2008, uh, 2009, after that period, people understood that they're not, they should not be taking risks, and progressively money went where it should go. I think that, uh, we need to worry, maybe not about the stock market, it may express itself elsewhere. We need to worry because the approach is not very rational. First of all, they're amateurs, uh, doing numbers. To start is the other thing is when we have 4% unemployment, think about it. You have 4% unemployment. It means the economy, what are you going to do now with with these tariffs? Try to shift business from high added value into low added value. This is what we're invited to do. Well, that depresses G, that will depress GDP. So, in other words, it's like asking a surgeon, you know, just for balance, to, uh, clean the streets one day a week. Okay. That I mean, of course, it would depress GDP. That's exactly what the Trump administration is getting, getting us to do. I can, I understand tariffs. Tariffs may be necessary in many areas. Tariffs need to be, uh, uh, symmetric and and stuff like so this we understand, but the way they're going about it makes no sense. There's a difference between, I mean, they're not idiots, and they're not specialists in that area, and probably, uh, okay in what they've done in the past. Pet Navaru, I, I apologize, but I'll have to say that in his own domain, he hasn't fared well. Okay. The other ones had have had some kind of performance in an area that is orthogonal, in other words, uncorrelated to their current performance. It's like asking a dentist to do brain surgery. Okay. May, may, may, may do better than average. I'm not sure. Okay. So, so none of them really is a specialist of the area that they're discussing. This is where I find myself agreeing with economists, okay, that basically it makes no sense, and the approach is irrational. You see, the, the, the idea of of confronting China is is irrational. But now, now let's think about the, the, what, what are going to be the effects? Well, there are two things they're doing. The first one, tariffs on things that we don't produce. I mean, it's going to tax the, not the middle class, but it's going to tax the poor, the poor. Because aggressive, and then and then compensating that with a tax break doesn't work if you don't pay taxes. The idea of of these the tariffs may be sound, the way they're going about it is about it's like trying to wreck the boat voluntarily. That's the first one is tariffs. The second one is immigration. I don't know if you realize the structure of American, um, uh, businesses and and American labor. Last time we had a labor shortage, we saw what what prices did. Okay. People have large loans. Everything is based on cheap labor. Okay. Coming from Latin America. In Latin America or elsewhere, everything is based on it. So trying to constrain that source of labor may make sense in the long run. But like in Japan, for example, they have small houses. Here people have mansions. Okay. You won't be able to to find people to, uh, mow the lawn or or do things. And then if you have to wait for artificial intelligence, okay, let me know when it comes and revise my opinion. For the time being, for the time being, we don't have cheap robots. So we, there's a lot of dangers in in these policies because it's not like they didn't think of the, the second order effects.