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Zoltan Pozsar

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2022-09-11

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2022-09-11

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1. “No, no, no, but I guess the question is if the US is a net commodity exporter, oiling gas instead of a net commodity importer, right? So the whole petrol dollar idea was we don't have the oil, but we have the dollars, so we pay for the oil with dollars. And then others recycle those dollars in treasury. No, I don't think if it's a Kern account surplus question now.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

2. “And then you're no longer running it from a kern account surplus perspective, not a Kern account deficit perspective. Does that mean for the amount of dollars out there? You're not broadcasting those dollars to the rest of the world. You're basically absorbing those dollars because someone is paying from the rest of the world to you for your commodity.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

3. “I mean, I would say sure, why not? I mean, we are heading in that direction, right? Gas from here, gas from there. I guess I don't know what the answer there is. Maybe I ask Perry. I passed the hot potato on to you. But, I mean, in my mind, the US became, the dollar became the reserve currency in large part because of the petrol dollar trade, but that was basically a situation where the U.S. had to import and pay others with US dollars. Yeah, yeah. But I guess if you start to export commodities yourself.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

4. “Market is going to be a market where it's not just exclusively dollars that we invoice things in, but also other currencies. And if that happens to half a trillion or a trillion dollar scale, I think that's going to be meaningful enough that they are going to have implications in rates markets at the level of the price level of commodities, inflation, and all these things. So to me, that's what Bretton Bush 3 is. Maybe it's a bad term and it kind of sends you off. I mean, Adam Tooth said that it's a bad term. So maybe it's a bad term because it pushes you down to think about things a certain way. But I think these are the practical implications.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

5. “And to kind of again, like nursing a baby, that baby is changing all the time, but it's going to become something else over time. And I think that the best approach to look at Bretton Woods Tree is to just kind of look at these things and whether they are happening. Again, I can list you a number of headlines. India instructing its states to cover three years worth of residential and industrial call needs to basically hedge itself for the winter, whatever. I mean, news like this are all over the place, but I think that this theme is happening and it's going to grow in size and over the next five years when we look at FX reserves and central bank balance sheets. Balance sheets look like, commodities and gold are going to play a bigger role. I think treasuries are going to play a smaller role and the commodity.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Allocation to gold? Should I, as a sovereign, sell some of my treasuries, get dollar liquidity, and cut the $200 billion check and establish a commodity resource company at the sovereign level, go out and buy commodities when it's cheap before we end up into an even deeper economic war where resource nationalism is a bigger issue? Can it happen that reserve management practices and countries thinking about what is reserves changes in that direction? Yes, for me, that is what Bretton Woods Tree is about. It's not establishing a link to gold. It's not establishing a link to a basket of commodities. It's not to unseat the dollar and kind of elevate something else on a pedestal. These things, I think, over the next five years are going to happen on the margin. Again, as I said, to understand.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

7. “What is a reserve? The notion of it is changing. Maybe some countries have way too many dollar liquidity and not enough commodity reserves. So I think over the next five years as these countries are sitting there looking at their pile of treasuries in a context of rising commodity prices, maybe you are going to reevaluate what it means to have a comfortable and prudent amount of reserves. What should that consist of? Should it only be Treasury securities, which you can repo and liquid it and sell to raise dollars to buy what? Should it be Treasury securities when inflation is running structurally at 8% and Treasury coupons pay, I don't know, 4%, 5%. If in real terms those treasuries five-year, ten-year treasuries are buying less, should I be only in treasuries? Should I have a structurally bigger”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Was a particular kind of solution, medicine, which is that we need to have a lot of FX reserves and as a prudent country, we need to cover two years worth of current account deficits with reserves. This is all pre-dollar spotline stuff. So the emphasis was on we need to build a big pile of reserves because that's like as individuals, you have a pile of savings and that's how it's prudent to live. We are now basically, as I said in my pieces, if you go back, you read it carefully. What I said, not what was interpreted, was that at a nation's level, okay, I'm sitting on all these reserves. It's dollar liquidity, great, but I need gas. I need electricity. I need wheat. I need whatever stuff for my, you know, I need to build chip foundries and all these things, right? So basically.”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Okay, which is a very important question. I don't think I ever said in any of my pieces that we are going to go to a world where things are pegged to commodities or they are pegged to gold. What I said What you think of as reserves at the level of a nation state is evolving, right? As we talked about this before, you can't print oil to heat or wheat to eat, right? There are problems that central banks cannot solve. We have grown up, I have grown up in a world, right, where Southeast Asia got into trouble because they didn't have dollar liquidity. The binding constraint was that as a country, you didn't have the dollars to import the stuff you needed. What came out of that was...”

   2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Okay, very good. And number two. If the fundamental building block of fiat money is an ability to deliver price stability. And if for that reason there is some risk to that notion, what happens to fiat money?”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

11. “So I don't know the answer to this, but I wonder what your take is on this. I get this question a lot. I don't know what to answer to it. So first, Fiat money as a project is fairly young. Select post Nixon 71 from what I understand. You think about that number one? I”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Private sector to step in instead of the public sector in a period where inflation is as uncertain as it has ever been. We have no idea if it's going to go from 10 to 5 to 5, 10 to 15, or if it's going to cost at 10. What I'm quite certain of is that it's not going to crash back down to 2%. But basically we are asking the private sector. Take down all these treasuries that we are going to push back into the system without a glitch and without a massive premium.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Big central bank liquidity impulse is always there to be a marginal buyer. So now, okay, we talked about this. China is not buying anymore. Hedging costs are way too high. The curve is flat, so it doesn't pay anymore to buy anything on an FX hedge basis anymore. The yen is close to 150. I mean, we are now at levels at which you can expect either FX interventions out of Japan, which is going to involve selling treasury securities on the margin, or you are going to adjust the yield curve back to basically adjust. If that happens, that doesn't mean anything good for duration. And then basically when we think about the Fed doing QT, we are basically saying that against this 20-year history of who buys treasuries on the margin, the FX hedge buyer can step away. China can step away, and the Fed can step away, and it's all going to be okay. We are basically expecting the...”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Let me add something to QT. I think it's very important. Let me just remind everyone, since the year 2000, there has always been a big central bank on the margin buying a lot of treasuries. From 2000 to 2008, it was the PBOC. And then they flatlined. From 08 onwards, it was the Fed. When the Fed stopped, the ECB and the BOJ started to do QE, but then all the yen and euros they produced on an FX, pension funds in those jurisdictions swapped those euros and yen for dollars to buy treasury securities. So what is the moral of this? Is that it's either the PBOC doing a lot of liquidity injection by treasuries or the Fed is doing liquidity injection by buying treasuries or other central banks are buying their own bonds that create A lot of liquidity in euro and yen, which gets swapped for dollars, and then you buy treasuries with it.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

15. “We do Qt because the weird thing to me about QT is that everybody thinks about this, the Fed is going to do. Well, okay, fine. But that's the bare bone minimum because others are also in a position where you can also start selling treasures and not show up at auction so that $100 billion a month that the private sector will have to absorb instead of the Fed is just a minimum, right? Because other central banks can step away from the market. So basically this means that That the Fed is going to have to tolerate that. But if that becomes an issue, I think the days of QT are numbered.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

16. “As what you say, but it doesn't seem to care too much about the growth impact of hikes. He does not mention as a price as one bit. It's inflation, 2%, singular mission. That's what we are going to do. So if we are going to go in a market period where we're going to hike to 5% or 6%, demand for treasuries is not going to be as good over the next three to six months as it was during the first three months of QT. Mind you, QT at the moment is accelerating. So that's another issue. And again, I think just as we were talking about this financial blockades of FX reserves, financial energy blockade of Europe, a blockade of Taiwan, a blockade of chips. China can make things more dynamic as”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

17. “A long duration view. If we are going to go into a world where inflation hasn't peaked, if you have further, you know, I mean, Europe is in a very different position. Again, I think this energy crisis that Europe is having now is not only going to have a liquidity event around it, but also it's going to impact industry, supply chains, what does it mean for inflation elsewhere. So again, if you don't think that the Fed is at peak hawkishness and that there is a risk of the peak of the hiking cycle not being three and a half, but rather say 5%. Again, Powell didn't say anything that should make us think that that's not possible. Inflation is the target. He did not mention stocks and asset prices once in that speech. And that omission is very important. I mean, when you write these speeches at that venue, I mean, you think about what you're going to say. So what you don't say has just as much meaning.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Okay I don't think that there is a lot of room that there is a lot of room to do QT. First, I think this is going to be ultimately a question about demand for treasuries, not the system's ability to fund those treasuries, right? Because there's a lot of money in the RRP facility. But it feels like everybody just wants to be in the front end, right? Because the front end, you get the benefit of rates are going up, you get higher rates every two, every three months. I think we are also going from a period where the market was a big believer in this idea that we are at peak inflation, peak hawkishness. And so whatever three months of QT we had so far, first of all, the amounts were not that big on $60 billion per month. You know, the market just absorbed, assuming that we are at peacockishness. So all you're going to do is rally from here. I mean, that's the whole let's go long bonds and let's go.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

19. “Policy is going to be relegated to making sure that the level of exchange rate is within the bounds of normalcy and where you can basically afford to import your basic commodities.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

20. “A price for short term money at a price for long term money, and you basically had a yield curve and then go and win the war. If this is, you know, if you had World War III, that's what we would do. Hopefully this is just going to be an economic war where we have to retool and finance that whole process. But I definitely see the central bank kind of be engaged in the bond market and provide a yield curve cap, but with much higher interest rates. And then in the case of Japan, Europe, the UK, I mean, you have a currency crisis in those places. And again, this is back to Perry's earlier point about the dollar and there is one monetary policy, which is the Fed's monetary policy, and everybody has to kind of go in that direction. Otherwise, your currency is going to suffer. I think in Europe and all the commodity not self-sufficient parts of the world, monetary”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Then two things come from this. As I said in the most recent piece, where I think we will have to spend a lot of money, it's kind of like war finance again. It's just to kind of rebuild the world order or something. So we fought the virus, now we are going to fight supply chains falling apart or something like that. So the whole rearm, reshore, restock continuum with energy transition, that's going to require a lot of capital. That's going to require some reasonable rates at which we can fund them. And so I think yield curve control is in the picture in the context of that. But it's a very different yield curve control. It's not yield curve control to keep rates at 1% so that you juice asset prices up. It's basically to make sure that yields don't go through the roof, but there is a backstop to that. So what we did in the Second World War where you had a”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

22. “Inflation is coming in large part from that. So to deal with that inflationary impulse and to kind of take it off a bit, I think you need to generate a massive level shift down in demand such that things are more in line with supply. And I think Jay Powell kind of articulated something similar to that, that we've been, you know, we are going to need a period of below trend growth. So think about this as nominal GDP targeting in reverse, whereas we wanted to catch up with the pre-GFC trend, now we need to kind of catch down to where the realities of supply is. Second, again, like the underlying environment in which we will be, I think we'll be inflationary. So the job of a central bank is to make sure that at least real interest rates”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

23. “Yes I think a central bank's job at the moment, and I think that job is going to evolve over time, at the moment, the way I think about the Fed's role, for example, is you've gone from being a central bank that is generating wealth via QE, portfolio balance channel, to push the demand curve outward because there's all this cheap stuff that's coming and what we are afraid of is deflation. So we've had 15 years of that. And then all of a sudden, the supply curves have ricocheted back in, you know, commodities, labor, cheap goods.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

24. “I think enough said about that. But I think this is basically the world that you live in. And so these level shifts up in the price level, I think, can happen every six months. There's reasons to believe that there's risks like that. And so from that perspective, I don't think that inflation is transitory. Certainly the reopening bit might be like a one-time thing, but I think the geopolitical aspects are just getting more complicated and more scary, I would say.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

25. “We know that the drift down in oil prices came partly because we have released a lot of oil from the SPR, and we know that as every inventory, it's finite. And then we also know that the physical market where oil gets produced is super tight. You know, you can't ramp stuff up. There is still a view in the market, which I believe that commodity prices, especially for oil, gas, I mean, can go vertical. gas prices and electricity prices in Europe are going vertical. Can it happen in the oil market too? Yes. I mean, we basically had, you know,”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

26. “And again, when you read the news, and I started to read the news where I just pick up the paper and I look at commodities, I look at the war, I look at tech stuff. You know, Chris Miller chip wart, that type of stuff. And I just try to understand The way Russia and Europe is evolving as a relationship and the way China and the US are evolving as a relationship. And things are not getting better. So do I think that bad stuff can happen in the future that are going to mess up supply chains even more? Yes, do I see risks in all the demand construction policies that Europe is doing in the face of rising gas and electricity prices? Yes, it's fanning shortages. Do I see risks in the fact that OPEC is effectively telling us that they want to see a $100 floor under oil? That's about where it's right.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Again, just emphasize I mean, there's two views in the market that this is a massive reopening and that we overdid fiscal and monetary stimulus. And that's a view. I'm sure that is part of the picture. What I guess I have been trying to articulate and highlight and put on the table is that I think the economic war aspect of all this is underappreciated. And if the economic war is indeed a theme that is going to be with us for the next five years, the way we should think about inflation is not that there's all this bad stuff that happened over the past 12 months. It pushed the price level higher and the base effects are going to take care of the rate of inflation over time. I think we also need to be mindful of all the potential bad things that can happen over the next 12 months to five years.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

28. “So, this is very interesting because I sense some talking past each other. So the dollar can be weak and strong at the same time. This is like qubits, you know, like zero and one. The dollar can be very, very strong versus other G7 currencies, which we see, right? But again, I think the next five years is a story of whether the dollar is going to stay strong versus commodities or commodity prices go through the roof, and then we are going to be dealing with recurring rounds of inflation. So let me...”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Trade it. So, yes, the US is commodity self sufficient. Other parts of the world are not. But again, as I said, I think the thing that we need to factor in is basically what this means for the price of commodities, which are priced in U.S. dollars. So you can have a devaluation of the global euro dollar in terms of commodities. And then what that means in terms of euro yen or dollar yen exchange rate weaker”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

30. “Assets Zero, right? I mean, you're invoicing things in different currencies. Take note because that was a $500 billion stash of liquidity that went into the FX swap market, that went at some point into US treasuries. And again, look at China. I mean, they accumulated treasuries and then it flatlined and now it's falling. So on the margin, these things matter. And I think this is how it starts. How it's going to, you know, don't think about this as, you know, next summer, it's going to be like this and it's going to be like that. It doesn't work like that. But I think on the margin, things have changed and this is going to change things. This is going to change flows on the margin and we are going to be trading and kind of living with those every day as you guys write about it, as I write about it, as others in the audience.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

31. “Think about this step by step, okay? So peak euro Yes or no? Inflection point yes or no. I mean, that's how it starts. My sense would be, yes, pured dollar, because if If On the margin, the commodity market is starting to invoice things in currencies other than the US dollar. I think that's something, and again, you know, the perspective from which I am trying to understand this is, okay, I work as a strategist. I have a job, which is to talk to investors and try to figure out the future. This is going to have an implication on commodity prices. This will have an implication on inflation. This will have an implication for the level of interest rates. And this is going to have an implication on swap spreads, you know, cash treasuries versus OIS. What's the demand? And as I said on the podcast before, and let's just take two countries, okay? Let's take Russia and let's take China. What is the incentive of Russia, for example, to recycle revenues from commodity sales in G7, into G7?”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

32. “This crisis of the price level, this inflation crisis, is a very different ballgame. It's not as simple as raising rates because the world doesn't work like that. It's not as simple as doing QT because the world doesn't work like that. So I think this is a real test. And so I think this is a very particular moment in time. This notion that the Fed can deliver 2% price stability is probably the reason why FX reserve managers over long periods of time started to diversify away from bills to two-year treasuries, five-year treasuries, ten-year treasuries because it's a good store of value. And it's an idea. And we will see if that's indeed the case or whether we are going to settle in a period where 2% is not attainable and maybe 4% at some point is the new target, or maybe we're just going to be bouncing around between 5% and 10. I don't know.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

33. “A version of that, a version of that is that we haven't seen an inflation episode. So we don't know how to think about inflation. We have seen something like what happened in the 70s, but we haven't seen anything that happened 100 years ago, 1914, 1948, all these things. So my impression talking to clients is everybody thinks about the spike in inflation charts as if it's another basis. We are used to be thinking about crisis because we had crises of bases, a pegged FX rate and a market rate, a cross-currency basis, a LIBOR OIS, a cash treasury futures basis CDOs versus AAA Treasuries. There is a basis that creeps in always. And it's always as simple as somebody throws balance sheet at it and the basis closes.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

34. “Habits, then we've been having smaller crises since then. We discussed the treasury cash futures crisis, the repo crisis, what do we do about that, the pandemic itself. And I think that we are learning that. Can the Fed deliver price stability just by hiking interest rates or are there kind of forces in the real world, whether it's a shortage of cheap goods, cheap energy, labor, all these things? Is it as easy as raising interest rates from zero to 5% to slow inflation down? Is it as easy as shrinking the balance sheet to slay inflation? Let me just offer one observation, which is that Everybody likes to talk about the fact that, well, maybe we are in the bond bear market and we haven't, you know, Wall Street is so young, nobody has seen rising interest rates, so we don't know how to trade it.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

35. “Yes, I mean, I would say being the issuer, custodian of the reserve currency, I guess it comes with responsibilities and baggages too, if you will. But let me just have a comment about the dollar bouncing back ever stronger. Again, like my formative years were, I don't know, 1997 and onward, right? That's when I took my first macro class. And so, yes, the Asian financial crisis was a formative period for me, at least. I mean, that was the first financial crisis that I followed as a student, first year macro student. And so, yes, that was a crisis where it was an offshore dollar crisis and a certain part of the world got weaker and then the Washington consensus came in and kind of cleaned things up. And so that was one episode. 08 was a domestic crisis. That's when we get into the QE.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

36. “What is the next mind we are going to look like? I have no idea, but if the weighted average maturity of these treasuries in FX reserve portfolios is like five years, I mean, the world could look very different from now. So again, it's a glacial progress, but it's a progress. And I think it's time to start thinking about how the financial landscape is going to evolve when we read about the real world getting more and more fractured every day.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

37. “China, for example, is letting its treasury portfolio run down since the beginning of the war is another important little bit that you need to keep an eye on because I think just as the real world is getting disentangled, The financial world is getting disentangled And so these are all little bits of pieces that we will follow for the next six months, 12 months, five years. And I think the world is going to look very different. I think the historical analog here is, I remember. I mean, I was, you know, trying to get an internship in Washington, D.C. in the year 2000. I was like writing emails from Hungary to Congressman. China just got admitted to the WTO and like, what the hell does this mean for the world? Well, you know, give eight years and you have three trillion dollars of treasuries, right?”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

38. “But again, but the significance of this is that the ECNY and everything, you know, China is about AI and there's a lot of AI infrastructure being done. It's probably the one sovereign that you associate with AI. And so the NVIDIA news is significant from that perspective. So you have these multiple blockades. If the physical world... Is becoming fragmented. I don't think it's no longer appropriate to think about. World as a unified whole where you basically need to replicate the unified clearing system in the US to the rest of the world. I didn't mention this before, but you did ask what markers am I looking for in terms of. Look, as I said, the invoicing of flows in different currencies and commodities is one thing, but also when you look at the stocks of FX reserves, the fact that”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

39. “You have a blockade of a big pile of FX reserves from a financial perspective. You've had a week-long blockade of an island in the South China Sea. And we are designing a blockade of China from a chip sufficiency perspective. Even sufficiency, but you know, be able to make chips with ASML machines, be able to upgrade machines that make memory chips. That's the news about Memory chip manufacturers with facilities in China. The latest iteration is NVIDIA, which makes AI chips as the experts of the media on chip matters know. So you basically have a very complex kind of chess game. I thought you were going to insinuate that the AI chips were going to replace.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

40. “Before I answer that question, I mean, listening to Perry, you know, Charlie Kindleberger. Up in a certain period, which is post World War we have a unified clearing system in the US, let's kind of replicate that in the world. And you can replicate that in a world where you basically have one hegemon, right? That's a unipolar world order and it has a currency for it. But I think everywhere I look today, we basically have that unipolar world order being challenged. I mean, I wrote about this so we can talk about some aspects of this. I think if you take a step back and you want to kind of distill everything that has been happening since February, you basically have several blockades here, right? You have a blockade of Europe from an energy perspective.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

41. “Zultan, do you see the coordination costs essentially from, okay, it's great. We have like one unit of account and then we're going to have multiple ones. Like what are the costs, in your view, from, as you said, we're already seeing some commodities price outside of dollars or an increase in the commodities price outside of dollars? Like, what are going to be the costs to the world economy if your sort of vision or your sort of characterization proves out?”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

42. “Terms of commodities because when you devalue versus the gold, that's what happens today. I would say we will have a version of this in the sense that the geopolitical realities of commodities shift away from your control. And you basically are dealing with much higher commodity markets and a devaluation of the dollar in that sense. But everything is relative.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

43. “What I think about in terms of dollar weakness is basically the dollar getting devalued versus commodities. Because again, if you take a step back and look at everything that's happening in terms of east and west, you know, the G7 versus the Eurasian landmass, resource nationalism, all these things, I think what we are learning is that the West is exposed to the East in terms of commodities. We have a number of issues in the commodity markets, which we can talk about a decade of no investment. As I said, resource nationalism, tight markets everywhere. So I think commodity prices can go much higher from here. And a dollar can get devalued in terms of commodities in that sense. So the way I would say this isn't that in the 1930s, central banks, when we had a commodity-based money system, they raised the price of money.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

44. “Am I looking at I would say two things. The big picture conclusion I have arrived at, and I think I'm articulating this piece by piece in my pieces, is that when you think about the dollar, and again, let me just use Perry's workhorse, which is that money has four prices. There's par, interest, foreign exchange, and the price level. So, my working conclusion about all this is when you think about the dollar and you try to understand the future of the dollar from an exchange rate perspective, I mean, it's an exchange rate, it's a nominal thing, right? But versus the euro and the yen, I think the dollar is always going to be strong in the present context, right? Because at least the US's energy and commodity self-sufficient. Other regions of the world are not. And so that has an imprint on their exchange rates.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

45. “Three idea, you know, the war on interest rates, peace, war in industrial policy. All of these things, I think, are just trying to look at the concept from many different angles, stress testing it. So far, I think I'm internally consistent. So I'm building up the narrative around it. It's a way of kind of stress testing whether you make sense. But again, if it fits together, it fits together. And we'll see. But let me just say we are six months into this. I mean, Rome wasn't built in one day. God didn't create the world in one day either, probably not in that order. But I think it's a work in progress.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

46. “What is also obvious that in the Western world we have inflationary impulses that we are dealing with, which we haven't really had to deal with in several decades. Cycle of inflation will be successfully halted or not is, I think, going to have an impact on certain currencies status in reserve portfolios. I'm not talking just about the US dollar, but basically G7 currencies, the sterling euros, dollars. I think there's a lot of work that needs to be done still to basically maintain confidence in these currencies. I mean, Paul Volcker, again, he was the last central banker that had to deal with a similar episode and he did something very fast and in a very draconian fashion. I think we can also say that what we are doing today in the West is heading in that direction, but not the intensity with which we're doing it. So to me, again, it's a working hypothesis. I have been writing about aspects of this Bretton Woods.”

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47. “Yes, so the first time we talked about Bretton Woods 3, I think we said that this is going to be a long-term journey, but it has started. What are some of the markers since we have first talked about Bretton Woods 3 that would support the thesis? I think a number of things. We know that the commodity market is no longer exclusively priced in US dollars. We know that certain countries are getting heavily discounted Russian commodities for example, China, for example, India. We know that those countries are paying renminbi and rupees for those commodities. We know that Europe stopped paying certain countries, stopped paying euros for gas and they paid rules. Now there is gas flow issues obviously but again I think on the margin it's no longer the case that commodities equal dollars. That's number one.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

48. “Agree with that. What is the dollar? I think let me add some things to that. There is all this offshore dollar, which is not only on the balance sheet of non-American banks, but then those balances are held by countries that are either aligned or not aligned with a certain view of the world. And so that's an extra dimension that I think we have learned about when we think about the dollar. There's also the dollar in the context of price stability where you basically have a unipolar world where there is one hegemon and basically the commodity trade is in the control of that hegemon. But then there's also a dollar in a world where the commodity market is becoming more geopolitical, resource nationalism. And that has an impact on the price level, it has an impact on inflation. So I would say that dollar is a project”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source

49. “Is the dollar? What's the dollar? Well, so that's actually a very interesting first question. As a matter of fact, because there's a lot of different kinds of dollars. And we already know there's the dollars that are printed by the government. They're little green pieces of paper. There's the dollars of the liability of the Fed that are bank reserves. There's the dollars that are the liability of the banking system, which we use to make payments to each other. But I would particularly put on the table right now, there's the whole offshore dollar system, the euro dollar system, where there are liabilities of banks that are not American banks and the assets of people who are not American citizens. And that is now the global dollar system, which is, I think, very important to appreciate and that this has grown up basically as the infrastructure of the global trading system.”

    2022-09-11 · Odd Lots · Zoltan Pozsar and Perry Mehrling Debate Bretton Woods 3.0 · IDENTIFIED FROM THE TRANSCRIPT · source