The Weaponization of US Treasuries is a two-way relationship: costing countries like Japan money to purchase treasury bonds, but also giving Japan influence over US policy, should they threaten to sell.
If a country is small, their ability to exercise influence by threatening to sell is minimal.
TRANSCRIPT
7:00 min. (Quotes appear further down the transcript)
Um, but it probably goes even further back than them. I I'd imagine that when Malay starts first making alliances among the nationalists and stuff, he's making the Argentinian nationalist case for the Fauklands. So, this is probably like a baked in policy that's been there very long running between the Argentinians and the Americans. And now, like Jack in the Box is on the scene at the worst possible time. But you know now you know now the British could respond if there's any serious um uh changes around the status of the Falkland Islands or if respond for the audience respond by so because the Americans are supporting Argentina's malay pressure to to regain or to get to get control or to enex the the Falcon Islands, whatever term you want to use. So what the British could do is then dump US treasuries or at least threaten or weaponize their US Treasury holdings to pressure the Americans not to support MLE in these efforts. Yeah. I mean imagine like imagine you have a lot of debt and you decide like you know you're in a lot of you're under a lot of pressure with your credit cards or whatever and then your neighbor is your second largest debtor and you decide to pick a fight over the height of the wall. It's like, dude, like, don't pick a fight over the height of the wall at the moment. You own loads of money and your other creditors are calling in all the money, but you're like, "No, I'm going to go and pick a fight with him because that wall's not high enough." Like, I don't know why they're doing all this stuff. I guess that it's probably legacy. Mhm. Do you think how been a lot of rumors that the Gulf might have threatened Trump behind the scenes to dump US treasurers if he does XY Z or doesn't do ABC for example retaliate for the strike on Dubai and Fujra a few months ago or stop the war with Iran or not escalate whatever they requested from him but these are just rumors. Have we seen many examples of the weaponization of the US treasuries? I haven't seen anything anything recently only rumors where countries treasuries use that. They haven't weaponized it. They've just decided to sell US treasuries, but they haven't gone to the president or best. That's never that's never that that's never a neutral decision to sell US treasuries to public. Even if they came out and said about saying maybe it's not maybe it's not political though, maybe it's just an economic decision because it makes sense economically instead of being used for political purposes. Even if those sorts of decisions make sense economically, they're always political. like part of US uh foreign policy statecraftraft is managing their reserves holdings. Like what we're learning in the current crisis is that the public was told that the American uh uh treasury holdings abroad were reserve holdings. And what are reserve holdings? I mean simplified, they're like rainy day funds for for countries, right? You have reserve holdings because you have like savings in the bank. And if you have any serious economic problems like the Japanese currently have, you have the reserves in the bank to bring out and you know bail out your currency or whatever. That's what the Japanese are under pressure to do and the British are probably under pressure to do it too. What we've learned from this crisis is those aren't reserve holdings because the the boss in Washington DC says when you're under crisis you're not allowed get rid of them. So that's what actually there's a term for that. It's called tribute. It's called tribute to an empire. So, if you're in an empire back in the old days, you'd send tribute. You'd send like gold and slave girls and elephants and all and tigers and you'd send them to the big guy, right? And the big guy would be like, "Okay, proconsul, like everything's cool in your neck of the woods cuz I have my slave girls and my elephants." And that's basically what those reserve holdings have proved to be. They're tribute to the emperor. And then what happens if you start to say I'm not really sure I want to send tribute anymore. The emperor gets mad and they put pressure on you not to sell those reserve holdings. So they were never reserve holdings. They were tribute to the empire. And actually the economy the US treasuries that those countries hold the treasur the example you're referring to is that the treasuries these countries are hold is that in many cases it's not an economic decision. It's a political decision to be able to be on the good side of the Americas and ask them for favors. The British ones are particularly interesting. I've got lots of um responses to some of the conversations we've had that the British ones actually aren't majority held by state actors. They're held by some strange hedge fund vehicles in London. I haven't been able to confirm this, but it sounds kind of credible to me. And the Cayman Island ones might be the same. They might just be kind of like recycling mechanisms set up uh partly by the Americans. But even if that's not true, even the Japanese ones, they are genuine reserve holdings. Oh, genuine reserve holdings. And then it's like, well, we it's our rainy day. The yen's falling. We need to sell our reserve holdings. And you know, the big guy's like, nope, keep sending the slave girls. And of course, what it's doing is it's just propping up American living standards. You know, the economist Januz Farfakus, who was Greek finance minister back during the crisis, he said this. He wrote a book called the global minotaur ages ago. I think it was just after the Greek debt crisis or maybe it was before. And he said that it was all tribute. And the response that he got was like that's a bit he's kind of a Marxist. I I know Janos actually is a Marxist but he's a very smart guy. And people were like you're just a far leftwing Marxist. That's not how the world works. Well, okay. Sorry. It is how the world works apparently. So that's like crazy. By the way, on the Treasury thing as well, there's massive ETF outflows now. So the retail have started dumping. I I'm not sure why the retail started dumping. like is it because words getting out through shows like this or onx or in newspaper headlines but the retail is usually like not to be mean but it's usually thought of as the dumb money and it's usually the money that moves last but ETF flows are moving out I I I don't know what to make of that but in any normal situation when the ETF flows reverse you're like whoa retail's leaving like that's like small investors but just talking about the one just about the point you made earlier that this is uh the the countries holding US treasuries is like holding tribute and asking the US for favors. We're seeing Trump [ __ ] on countries that hold a lot of US treasuries, especially Europe and European countries and Gulf countries dragging them into the war. Gulf countries, European countries, invest a lot in the US, hold a lot of US treasuries. So if the argument, if your argument applies, we shouldn't be seeing we should be Trump further supporting Ukraine and not doing the complete opposite. I don't know with the Ukraine one, but in general, not JD Vance, not JD Vance going to Europe and the first thing he talks about is the threat not of Russia, but remember that speech last year, the threat being Europe from within. Well, here's the thing. They misunderstood this whole system. You want to go back to before all this craziness started, right? And the Trump administration had the bones of an economic strategy. I think it was called the Mara Lago accord. And it was written by a guy called Steven Moran who was kind of Scott Besson's brain. Uh he brought him into treasury with him. Um Moran ended up saying some stuff about the US dollar that was way too spicy and he got thrown onto the Federal Reserve Board. But like Besson can think for himself. He's a smart guy, but you always want your kind of like high-end research guys, right? The good papers and stuff. And that was Moran. And he put together the uh the strategy for the administration. And a lot of it uh derived from uh Zultan poer's work who was kind of a dollerist guy. He's friends with Bessant. I know Khan a bit. Um and he gets it like he gets that the world was moving away from the dollar. And the strategy there was basically twofold, right? The first part we all know about. It was to raise tariffs, right? And that was the big tariff move back 2025 before all this craziness with energy markets and stuff like that. Now raising tariffs on its own isn't just going to create companies. Like that's not how the world works. Like if you could if that worked then like Ghana could just raise 100% tariffs and they'd start making Teslas, right? But the world doesn't work like that. Obviously you need inward investment too or you need investment domestic or inward. So the plan was if you remember that um Bessant was going to go around the world and he was going to go to various global capitals like Korea and Japan and he was going to say if you want to continue using our military protection give us money, invest in our economy. This was part of the plan. Leverage American military might to extract tribute from the subjects. That was an overt tribute relationship and it was invest FDI into our economy, build factories or whatever, foreign direct investment. I never I never thought that this was going to work and we can discuss it if you want, but it's kind of ancient history at this point. But what it shows is that they didn't understand that the current system is already a tribute system. So to Japan, please send, you know, Nissan factories if if it's even a relevant company anymore. Japanese stuff is not competing with Chinese now. Let's say it is send Nissan more Nissan factories to the United States and Japan's like dude we already hold most of your like most the the most foreign treasuries or whatever and we're propping up your consumption by that. So clearly they did not understand the the fragilities in this tribute system that have built up but they're now treating it like a tribute system and as you say they're making this huge mistake of bullying a bunch of their creditors. Britain with the Argentinian thing, Europe, yes, with the Ukraine thing. Although, you know, you could make a case that the war in Ukraine has to has to end and it's like existentially important for the American Empire. There is a case to be made. Faullands, what? Like, who cares? Come on. M um yeah, but the one thing I'm I'm wondering as you speak is there's no I can't think of any instance or even any leak from a credible source where a Gulf country says they will dump US treasuries if Trump does not stop the war in Iran. Otherwise, we wouldn't see the war in Iran. Now, I know he offered a swap line for Dubai. No, no, there's a reason there's a very significant reason for that. Why? If the Gulf countries even intimate that they're going to drop treasuries, they'll immediately have the pegs that they have to the US dollar broken. All those countries pegged to the US dollar. Of course. Of course. Now, they can make a decision to unpeg, but that would have huge ramifications for the economy. You live in one of those countries, you know, it's a US dollar system there, right? That would have huge ramifications to undo that peg. The the oil would go north. The currency will go north. They're not pegged up. They're pegged down. And they're not trying to defend their currencies. They're trying to defend them from rising too much. Currency pegs are super politically sensitive. My old boss almost got thrown out of a country for criticizing a currency pack. Is that No, not is do you work with Arty right now? Art, do you work with him? Who? Who's who who's the person that owns uh PI Private Investor Capital? Uh that's Max. Yeah, he's Say his No, no. Say his name again. Who Who is it? Max Max. I think he's been on your show. Yeah, he Yeah, he's coming on show today again. He's speaking to a brother. Okay. I just remembered now as you're speaking um um Yeah. So So Okay. So that's to the Gulf countries. But then how do you explain um what he did with Greenland and Denmark for example, you know, that stuff is that stuff's needless. Okay. So you can make a case the Ukraine war was the beginning of this process of American imperial decline runs on the dollar and so on, right? You can make that case. So you can say DC needs to get the Ukraine war resolved and like they need to put a lot of political capital behind that. Maybe even risk risk uh annoying the Europeans. I think you can make that case. But then why annoy them on Greenland? Why annoy Britain on Falklands? These are strategically irrelevant. I mean, Greenland has some sort of a strategic thing for their polar strategy, but it's all because it's all bl with with the argument. But the argument the reason I like your argument, but I'm just trying to poke holes into it. The argument you're making is that if this is um what did you call it? A not a gift. Treasuries treasuries. Yeah. If treasuries are slave girls and elephants, then how do I get these analogies from? But if they slave girls and and elephants, but then we um you're essentially making the point that the US is hostage to all these different countries hostage world US cannot do. Yeah. But that mean the US don't have doesn't have agency to do what it wants around the world. Doesn't have agency to start wars to to launch a tariff war to use leverage in any way use this military might as leverage because it's economically hostage to all these other countries. And all these countries would just use the treasuries as their weapon to deter any US aggression. When I started in financial markets maybe 12 years ago or something, we all used to debate whether China and America will get into a conflict. Remember this is a different world. This is under Obama. This is before any of the Trump chaos, the nationalism days, any of that. The the good old days in a sense whether you liked Obama or not. the um when we used to have those debates with my colleagues in finance, it would always be like, "No, America can't go through World War II because it's a it's a debtor and if it went to World War II, people would start to dump the US treasuries. It would sink the economy, blah blah blah." That was common sense back then. Everyone said it. And what did they do? They've gone to World War II. I mean, not a full-on one, but effectively gone to World War II. And they're not even treating their allies right in the middle of the war. their allies being their creditors. It's completely irrational. And yeah, like the South Korea, North Korea thing, man, it just doesn't make sense. Go there, praise Kim Jong-un, probably the only leader that I'd understand if you don't praise him, you criticize him. Um, and you sanction this country, even though I don't like sanctions. Um, but then you [ __ ] on South Korea and complain that they did not help you with the Iran war. It's just so bizarre these these actually. The Chinese The Chinese might be asking for that North Korean thing. I've been thinking about it since we talked about it once. Um, before we go there, another story that came out, I wanted to mention it earlier. Didn't the Netherlands uh recall a lot of its gold that is being held in American banks? Have you seen that? Yeah, I saw that. That's for me that isn't that action generally doesn't it usually correlate with uncertainty and instability around the world? Why else would countries want to hold their own gold, physical gold? The only reason is because they think that the US dollar system is about to melt down. But that's why Norway is selling the debt. Like yeah, words out, man. Like exactly. You got Netherlands moving its gold from the US banks and British banks, I think, as well to its own banks. You've got Norway not far from the Netherlands selling US treasuries. These are European countries. These are American allies that rely on the American financial system and the dollar euro dollar system. This is what happens. I went in last year. I I gave a television interview on Belgrade in Serbia and I talked about dollar decline and everything and it was not mainstream at the time. Now it's apparently mainstream. And the next week the the Serbian central bank broke back the gold reserves, the physical ones. It's it's the it's the immediate response and China's been doing it for a long time. What about talking about gold Fort Knox? Isn't that this big uh storage facility that's meant to hold millions and hundreds of millions of ounces um of gold? What is it? Let me see if I have the information. How many tons or a lot? But thousands of tons. I don't know what the number is. Of gold that has never been audited or hasn't been audited in like decades. Oh, yeah. Yeah. Yeah. Yeah. Do you know anything about it? Why wouldn't you Why wouldn't you audit the depository of of uh gold bullions? I I don't get it. Because it's fake. remember what happened when go back in time here a little bit. How did the gold peg uh break? The big instance, the big event before America went off the gold peg in 1971 was the French under it wasn't under Charles Gaul. It was under the guy after him. I can't remember his name. The French said, "Okay, you're running a big trade deficit with us because of the Vietnam War and your Great Society program, and you're sending us dollars to fill that trade deficit." But in 1970, it was Pompadoo, was it? Can't remember. Anyway, in 1970, uh, you're, uh, sending us these dollars and those dollars are backed by gold under the old Breton Wood system. And that gold is held in Fort Knox in New York, I think. And so the French sent their main warship, a destroyer, right across the Atlantic, and said, "Please put the gold on our ship." And I think they gave them the gold. And then they won off the gold standard. So that was the big bluff call. And since then, no one really knows what's been in Fort Knox. It's the legend of like, you know, in one of the James Bond films, they rob Fort Knox, don't they? It's very bizarre when when Elon Trump and others are calling for it to be audited as one of the rallying cries before before the elections, and then everyone just goes silent after Trump becomes president. Well, there are these there are these deep dark secrets of government. Every kind of government has one. Britain's one is their Trident system. And uh you know when you get in you go, "Hey, we want to do this program. We want to do this audit program or whatever." And then some guy in a gray suit comes up and gives you like a a red briefcase and you open it up and it's like in that Indiana Jones film where like there's too much light, you know, and you go, "Ah." You're about to turn into a skull or something like that and then you close it and they're like, "Wow, I never want to see that again." They probably do it in a skiff and then they're like, "Oh, there's no gold." Or like there, you know, there's just like spiders and rats and stuff like that. We probably don't want to make that clear to the world cuz What is it? When you say British the British Trident system, what are you referring to? You're talking about the nuclear triad or something else? Yeah. Apparently, it's um uh got it's it's the biggest deepest budget hole in the in the British state budget and it just keeps growing. It's called the black hole. um what's his name came out and hinted at it without breaking security clearance. Um uh can't remember his name. The really smart guy who worked for Boris Johnson. I quite like him. Um he's quite controversial. He was the guy that got in to do Brexit and all that. And he was the kind of the brain of number 10 for a while, but unlike most uh civil servant adjacent people, he's got a big mouth. And he came out and gave an interview and said that there was this there was this black hole in the budget that was handed off to every prime minister when they get in. Yeah. There's a serious concern that Britain's nuclear deterrent is becoming a major drain on the defense budget. The broader defense nuclear enterprise cost 10 billion euro pounds between 24 25 18% of the entire defense budget is expected around 20 to be 20% this year and the ministry of defense says it could reach 25% coming years. Parliament has specifically warned that rising nuclear cost squeezes money available for conventional forces. The dreadnot dreadnot submarines alone have a 31 billion pound budget plus 10. It was it was Dominic Cummings. You remember Dominic Cummings? Dominic Cummings came out and said every single prime minister that gets in gets that red briefcase on the desk. They flip it open, you know, their skin starts melting off. They close the briefcase and they hand it back and they're like, so for the US for the US it's Fort Knox. It's that big of gold bullions. It's it's Fort Knox. It's those dollar printing computers of the Treasury and other departments that Elon Musk talked about. Yes, that clip Chris Martinson mentioned it. Uh the dollar print. That was such a bizarre clip. Let me play it for the Such a bizarre clip. He said he's going to launch an investigation to find out what it is. Dollar. He better not be suicidal. Yeah. Let me see if I can get the clip to play it for the audience. Yeah. Magic. What is it? Let me put magic. Magic money printers or something. Magic Money Machines or something. Can you play this one with the audio, please, Paul? Um, have you I'm sure you've spoken to people about it knowing you I talked to Chris about it. Yeah. Yeah. Yeah. Oh, Chris Martinson. Yeah. Yeah. Yeah. He's highlighting it. He's always highlighting it. It's a good point. Like those things are like Musk got run out of town for a reason, you know. He came in as the sheriff, you know, and the bandits ran him out of town pretty quick. Yeah. It's it's uh I've just sent it now to the to the to the team to play it. So just quickly before we play that, the other big development this week is that the algos aren't working anymore on the oil market. There's like evidence of this. I I I don't know. I I don't know. I just don't I think they hedge fun hedge fund long positions are back to half where they were at the beginning of the crisis. They're back up to 200 bill or whatever it is. So, and at the same time like Bessum's out saying like, "Hey, I don't know why the oil price is going up and the oil price is like what 96 or something. It's way higher than they want it to be." So, I think the hedge funds have started going along which means that they've altered their algorithms. Oh, here's the magic money machines. So, uh I call a magic man computer any computer which can just make money out of thin air. Best magic money. So, how does that work? It just issues payments. You said there's something like 11 of these computers at Treasury that are that are sending out trillions in in payments. They're mostly at Treasury. Uh some are there's some at HHS, some at there's one or two at state. Uh there's some at DoD. I think we found now 14 magic money computers where they just send money out of nothing. So yeah, every you know every Um, every family, you know, every family has a deep dark secret, you know, like a skeleton in the closet like grandfather was a bank a bank robber like that. Again, first, one thing I love about Elon, he does he speaks his mind a bit too much and gets him in trouble a lot of the times. Remember, they told the Disney CEO to go [ __ ] himself, for example, told advertisers to stop advert. And this I remember speaking to one of the CEOs. I interviewed her, Linda Yakarino, and she said, "Mar, like one of the things with working with Eno is I wake up every day, I don't know what he's going to say." Um, but yeah, this is for him for someone is the version of that in Britain and and just to understand as well, this is the world's by far the world's wealthiest man and one of the smartest people on this planet that's taking us to another planet. And he's saying this machine when he was working at Doge having full access to the government to try to cut costs. He's literally saying it and repeating it that there's computers that just print money out of thin air. Yeah. And my guess is so I know a little bit how about how it works and my guess is that they're they have overdraft accounts at the Federal Reserve. So legally, just to go into a little bit of US economic law, the Treasury isn't allowed to issue money except one way. They can do a platinum coin, but that's slightly different because they can issue these souvenir platinum coins. So some people can say they can make infinite platinum platinum coins. It's an interesting legal arm, but basically Treasury can't usually issue money. It has to issue debt to spend. Only the Federal Reserve has power to issue money. So, if they have these magic money machines, it must mean that they have overdraft accounts at the Fed, just like your overdraft in your bank account if you have one. I I I have zero euro, but I have uh 500 euro overdraft, so I can spend into my overdraft and figure it out later. Overdraft. Sorry for asking a very basic question, but that's your bank allowing you to spend more than what you have in there. Yeah, you apply for an overdraft. People have probably done it. I mean, I wouldn't advise doing it. It's like taking on debt, but it's zero interest debt. So, it's kind of interesting and you can just, you know, Well, yeah. Well, no. If you leave the overdraft, there's always rules. If it goes too high, they'll start to charge exorbitant amounts of interest on it. But how does that I don't get it. These But how does the Department of Defense have an overdraft account? Because the only one that can just actually create money out of thin air is the Fed. So, if they're creating money on these magic money computers, it must have an overdraft account with the Fed. And so the Fed is automatically allowing. It's probably not actually legal, but um technically, but it means but they'll probably make up
QUESTIONS:
Do you believe that Treasuries can function as tribute for smaller countries that are coerced into it?
Do you believe the the US Military has been used to extract protection money?
Do you believe that Treasuries can provide a form of influence for countries owning larger amounts of treasuries?
What specifically is stopping the Japanese from selling their treasuries?