How stablecoins saved the dollar, with Brent Johnson, Santiago Capital

0:00 The dollar doesn't ultimately win. Gold ultimately wins. I started talking about it in 2018, and I kinda really started hammering it home in 2019. For the first time in 40 years, interest rates were going to rise.

0:12 I thought that that would make the dollar stronger. I said the dollar doesn't ultimately win. Gold ultimately wins. So gold is the ultimate winner of the milkshake.

0:21 Stablecoin currency is better than their local currency. It just means it's the best option that they have, and people act in their own self-interest.

0:29 Stablecoins and blockchain basically democratize the access to currencies, whereas before blockchain and stablecoins, these currency systems are much more closed off, right?

0:40 Most stablecoins in the world are dollar stablecoins, and so people say, "Well, why don't they use gold or silver?" Well, those stablecoins exist, but- Welcome to another episode of 51 Insights.

0:55 Today with Brent Johnson, CEO of Santiago Capital. Brent, welcome to the show. Thanks for having me. Yeah, it's great to have you here, uh, Brent.

1:03 First things off, the sentence, "Stablecoins are a stealth weapon of empire," that's not a sentence that came from me.

1:10 The man who created the dollar milkshake theory, the framework that predicted the dollar would strengthen while everyone else was calling it it would collapse. Brent runs Santiago Capital.

1:21 As explained, he spent 25 years in the trenches of global macro, and he argues that USDT and USDC are doing something no military base or trade agreement ever could.

1:32 They are quietly re-dollarizing the world from the bottom up.

1:35 We get into why Tether holds more treasuries than the most countries, what the Genius Act really is, why other nations are terrified, and what happens when the milkshake meets the blockchain.

1:46 Uh, let's start with the milkshake theory, Brent. For listeners who are not familiar with the concept, what's the milkshake theory, uh, when did you start that, and what is this all about?

1:56 Yeah, so I started talking about it in 2018 first time, and then I kinda really started hammering it home in 2019.

2:03 And then essentially it was my belief that for the first time in 40 years, interest rates were going to rise. I thought that that would make the dollar stronger because as interest rates went up in the US, it would...

2:13 You would get paid more to deposit your money in the United States.

2:16 And I felt that for a number of reasons, some of them deserved, some of them not deserved, the United States has the straw, and when the rest of the world would print money, the United States would suck up all that capital into their own markets.

2:29 And that is largely what has happened over the last, uh, call it six or seven years. The United States has attracted more capital than any other country in the world.

2:38 Now, I thought that it would also lead to a global sovereign debt and currency crisis. We got close.

2:44 Well, we had COVID in 2020, and then we got close to a, uh, a sovereign crisis in 2022, but ultimately the, you know, the monetary authorities were able to get things every, uh, under control and kick the can down the road.

2:55 I still think that's possible. I th- still think it's possible we'll have that, and I think these stablecoins are part of it. But that was essentially what the milkshake was.

3:04 The name came from a movie called There Will Be Blood about a, this oil executive who would, you know, someone would try to sell him his land, and he would say, "I don't really need to buy your land.

3:14 I can just stick a straw down on my side of the fence, and I can drink your oil." And he said, "I can drink your milkshake."

3:20 And so that's where the name comes from, and I, I, I think for many reasons, as I said before, both deserved and under-deserved, the United States tends to drink the rest of the world's milkshake.

3:30 Yeah, the United States also had high inflation during the past years, particularly during COVID. Why do you think they still sucked up so much of that dollar demand despite the high inflation?

3:41 Well, I think it was the response to the high inflation.

3:43 Again, I thought interest rates would go higher, but I did not think that the Federal Reserve would necessarily take them from 0% to 5% in one year, uh, when they started reacting to that inflation.

3:54 And there was a lot of people who said the Fed will never be able to get the inflation under control. And inflation is still high, but it's not the way it was two or three years ago.

4:04 Uh, but the Fed was committed to kind of getting it under control, and they took rates up really fast.

4:09 And I think this was a good example that you don't have to have the dollar fall versus foreign currencies for to still have inflation.

4:17 In other words, you can have a rising dollar on a relative basis but still have it lose purchasing power versus real things. And this was kind of the point I had tried to make with the milkshake to begin with.

4:29 I never said that the dollar was gonna go higher, and everything else was going to collapse.

4:33 I said the dollar would go higher but that gold would go higher, that US equities would go higher, that US dollar assets would go higher.

4:39 I thought bonds would fall because of the inflationary effects and because of the higher rates.

4:44 And I think this is something that people need to understand is that when I talk about a strong dollar, I don't necessarily mean your purchasing power.

4:51 What I mean, versus foreign currencies, and that's actually very important.

4:56 I think one of the most overlooked things when you're looking at investments or markets on a global basis is the relative level of fiat currencies, and those relative levels are extremely important and especially if you don't live in the United States.

5:08 It's easy to kind of think it doesn't matter when you live in the United States, but if you live anybody, anywhere else in the world, you understand how important it is.

5:16 So Brent, uh, the dollar milkshake theory also draws a direct relationship between inflation and dollar strength.

5:22 What is a thing that you often see now when you have those discussions, when you see people reacting to that theory, that people get wrong about this debate?

5:32 They will say that I didn't think gold would rise, or they will say that I thought gold w- or dollar was gonna go to the moon, and gold was gonna collapse, but I, I ne- I never said that.

5:42 I always said that they would rise together. Um, and I always kind of had a 150 price target on the DXY, which it hasn't gotten anywhere close to that yet, and I had a $5,000 price target on gold.

5:54 And it, you know, the gold did make it there. But if you think about that, when I made it- The, that first call, I think gold was around $1,200. So for it to go to $5,000, that's a 400% return.

6:05 But the max I ever said the dollar would go to was $150, so that's like a 50 or 60% return. So I never said the dollar would go up more than gold. And it, it's not really about the dollar versus gold.

6:16 I think many people think that they're mortal enemies, and they can provide a headwind to each other, but I don't think they're the mortal enemines- enemies that many people think.

6:25 There's a lot of people out there who thought that gold would eventually go to $5,000, and it did.

6:29 But all of those same people also thought the DXY would be in the 70s or 60s when that happened, and instead it's hanging around 100. And not too many people thought that you would see the DXY at 100 and gold at $5,000.

6:42 But that just speaks to the fact all fiat currencies lose value over time. That's kind of what they're designed to do. If they didn't lose value, the government wouldn't like them as much as they do.

6:52 If the government wanted a currency that didn't lose value, they would just use gold. But they don't want that, [laughs] and that's why they don- that's one of the reasons they don't use gold.

6:59 So I think there's a misperception between the role the dollar and gold play both together and against each other. Yeah, and then that's a good point.

7:07 Like, if governments worldwide are in a debasement race, and gold knows this, why do you think gold isn't the ultimate milkshake beneficiary rather than the dollar? What does the dollar offer that g- gold cannot?

7:22 Well, first of all, I do think, and again, I, in the very first interview I ever said, I ever gave on this topic, I said, "The dollar doesn't ultimately win. Gold ultimately wins."

7:31 So gold is the ultimate winner of the milkshake. So for anybody who needs to hear me say that again, I'll say it again. Gold is the ultimate winner.

7:38 But in the short term, you still need dollars to operate on the global stage. Now, there may be somebody that you can trade with using gold, but by and large, the world does not use gold to settle trade with each other.

7:50 That could change, and in the future, that might be the case. But right now, if you want to operate on the global stage, you need dollars.

7:56 And I think that's been, you know, proven again in the last month with all that's going on in Iran and in the Middle East and with flow of energy and with the flow of currencies.

8:06 The dollar has held up while, while gold and silver have pulled back, and same with Bitcoin.

8:11 And then the reason is because those who needed to transact on the global stage had to sell their gold to get dollars to, to buy the now oil that was now priced 50% higher than it was a month ago.

8:21 And I think that that's a demonstration that to operate on the global stage, you still need dollars.

8:26 And so I think gold will ultimately win from a price perspective, but I don't think that we will go back to a gold standard. That doesn't mean that gold won't go to $10,000. Maybe it will.

8:36 But I don't think governments want to go back to a gold standard. If they do go back to a gold standard, I think it will be because it's forced on them, not because they willingly did so.

8:45 Why do you think they don't want to do that? Well, it's kind of like having financial handcuffs put on you, right? And no governments...

8:53 If they did go back to a gold standard, they would have to massively devalue their currencies against gold when they did it.

8:59 If they didn't do that, there would be economic deflation because of all the bad debts out there. So they would have to reset the price of the currency when they went back, uh, to a gold standard.

9:08 So that would be very bad for the fiat currencies. A lot of people would lose all of their savings, and that would be devastating to many, uh, economies. That's one of the reasons they don't wanna do it.

9:18 The other reason is once they do have that on there, the gold, their gold holdings put a restriction on how much money they can spend. But politicians don't get elected by saying no.

9:28 They get elected by saying yes, and if you elect me, I will do this for you. Nobody wants to deliver short-term bad news, right? And so governments, by their very nature, like to be in control.

9:40 If they didn't wanna be in control, they wouldn't exist in the first place. And gold takes a form of control out of their hands.

9:47 If the Fed debases the dollar to manage US debt, yet the dollar strengthens relative to other currencies as you, as you described before, that are debased faster, at what point does absolute debasement of the dollar matter more than its relative strength?

10:03 Is there a threshold? Yeah, that's a good question.

10:06 My belief is that if we get to that point, all of the other currencies will have fallen to such a degree, overall system is just no longer stable and that there will be so many crises already happening that as the dollar starts to enter that crisis, because it is so systemic and because it is such a big problem, the world will be forced to do some kind of a reset.

10:28 And it's in that reset that I believe gold will ultimately be the winner. You can't reset gold. Gold is what it is, right? But I don't know if there's an absolute level.

10:38 But what I do know is that the system as it is currently designed is not designed for dollar strength. It's actually designed for the dollar to either stay in a band or fall over time.

10:50 And if it goes too strong, that creates massive deflation, uh, because of all the US dollar debts in the world. And governments don't like deflation either, right?

10:59 The, the whole system is predicated on a moderate level of inflation, and that's why central banks have an inflation target. You'll notice that all central banks' inflation, you know, target is, like, one, two, three%.

11:11 It's never negative two or three percent. And the reason they allow for even that little bit is because the system needs that. The system needs to grow. If the system doesn't grow, c- it collapses.

11:23 It's an exponential-based system, and so it has to grow, or else it collapses. And so that's why central banks have a, you know, inflation mandate, and it's why it's part of the reason why they don't like gold.

11:35 All those moving parts now, I think one interesting part is also stablecoins now connected to digital assets that basically allowed the privatization of stablecoin issuance packed to the US dollar as long as they're securitized with US Treasuries.

11:53 That was a very smart move from the US government. What's your take on that, and how does that relate to the dollar milkshake theory? Yeah.

12:01 Well, I'll say y- your quote that you gave at the very beginning about it being a stealth weapon of empire, you know, I wrote that maybe six months ago, and I, and I fully believe that.

12:10 And the other thing I will say, for those who are just now learning about stablecoins, you have to learn about them. You know, you do it to your own detriment if you don't.

12:19 The reason I said it's a stealth weapon of empire is because for a long time, digital asset space, whether you wanna call it the tokens or the Bitcoin or Ethereum or the stablecoins or all this, it-- When it first started off, it was a way to exit the system, get out of the dollar system or the fiat system or the government-mandated system, system, however you wanna define that.

12:42 And the technology that they came up with is very, very robust and very powerful and very innovative, and it has the ability to scale.

12:50 Many people thought that that would then, in many ways, take on the government system or the fiat system, and it would win.

12:58 It's possible that it will, but my point all along was that the governments are more powerful than you think they are, and they have many tools they can use to stop this if they want it stopped.

13:09 And so I kind of felt like there was always this battle. But I think the governments also said, "Wow, that's a pretty clever system that they came up with.

13:16 It's really robust, and I c- we can see some benefits of using it." And so rather than fight against it, what I think the United States did was kind of co-opt it.

13:27 For lack of a better way, use this new technology that had already been proven in the private market that it could work and have now changed it from a tool used to fight the state to it now being one of the biggest tools that the state has.

13:41 What I mean by that, in the traditional dollar system, you have to have a bank account, you have to use the traditional plumbing that is, you know, this legacy system, and it involves Fedwire and SWIFT system, which it works, but it's not super efficient.

13:57 It's not cheap. It's not transparent, and the system that, you know, the private market built is lightning fast. It's very cheap. It's transparent, all of this stuff.

14:07 And so I think when they decided to kind of co-opt the technology, what they did was play on the demand for dollars on a global basis that other countries' citizens prefer to hold.

14:21 And the reason that's important, once these other citizens start to hold stable coins because they would rather hold a US dollar than their local currency, and because stable coins have to be backed by US dollar treasuries, that creates a new demand for US dollar treasuries.

14:36 And as we all know, the United States has a lot of treasuries they have to issue to continue to fund their budget.

14:42 But more than that, I think the important thing to understand is that when a country starts to lose control over their currency, and this goes back to the gold thing again, too.

14:52 Remember I said countries want to have control of their money. Part of the reason they wanna have control of their money is they use money to control their citizens.

15:00 If they lose control of the money, they start to lose control of their citizens.

15:04 And if a foreign country's citizens start to adopt US dollar stable coins and start to hold those rather than local currency, and they start to transact in it rather than in local currency, you are taking control away from the local government, and to a certain extent, you're handing it to the control of the US government.

15:24 And what's really clever about it is you don't need to force it upon anybody.

15:28 It's an adoption-based system, and the reason people adopt it is because this US dollar stable coin currency is better than their local currency. It doesn't mean it's great. It doesn't mean there's not downsides.

15:41 It doesn't mean there's things that can't go wrong. It just means it's the best option that they have. And people act in their own self-interest, right?

15:48 And so when they start holding US dollar stable coins because of fear of their local currency will lose more value, or they have, they live under a repressive regime, or there's capital controls, or there's high tax, whatever the, whatever the reason is, this now is a way for these citizens to subvert the sovereignty of the local government.

16:09 And in my opinion, it has the potential to be the biggest weapon the United States has.

16:13 They already know how to weaponize the legacy system, and I think they've now figured out a way to weaponize this new innovative system.

16:20 Yeah, and when you speak about weaponizing, we just had the author of Choke Points on the podcast as well.

16:27 Choke Points describing tools that the US government uses to exert power over other nations, uh, with economic means. A-and that's certainly a powerful weapon that they built with that stable coin distribution system.

16:41 For anybody who wants to learn more about this, there's a fantastic book.

16:44 It's called Treasury's War, and it's written by a guy named Juan Zarate, who worked for the Treasury, and he was involved in the Treasury Department for about twenty years, I think, after nine eleven.

16:54 After nine eleven, when they were going after terrorist financing in rogue states, they put all these new programs and new powers into place.

17:01 And when I tell you they know how to use this, trust me, they know how to use this, and that book helps lay it out. And we see this today.

17:08 Actually, just today, a couple hours ago, Treasury Secretary Scott Bessent said that they were now going to start to put sanctions, further sanctions on Iranian accounts around the world, not located in Iran.

17:21 And they were gonna start to put secondary sanctions on any company holding a dollar balance that they received as a result of trading with Iran.

17:29 If you think I'm off base on this, go read this book and pay attention to what the Treasury's saying, because money can be used as a great tool for progress, but can also be used as a weapon. The US knows how to do that.

17:41 Yeah, and, and going back to stable coins for a second, the US has really a, a big leap here. About over ninety-nine percent of stable coins today are denominated in US dollars.

17:53 And what I find fascinating about your argument is also that you could almost compare this to the internet that democratized information, and now stable coins and blockchain basically democratize the access to currencies, and this just increases or globalizes currency competition, whereas before blockchain and stable coins, these currency systems are much more closed off, right?

18:18 I, I think that's absolutely right, and I think there's a pretty interesting battle going on right now. So first of all, to your point, most stable coins in the world are dollar stable coins.

18:28 And so people will say, "Well, why don't they use gold or silver or some of these other stable coins?"

18:31 Well, those stable coins exist, but the public has adopted already with huge, you know, momentum, the dollar-based stable coins. That wasn't forced on anybody. That's the market saying, "We want dollars."

18:45 And so what I think is going to happen as we move forward in time is that countries around the world were probably going to try to de-dollarize because they don't want to be under the control of the United States.

18:57 But the citizens of those countries are going to try to dollarize because it's better than their local currencies. And so we are going to see a battle not just between the United States and other countries.

19:07 We're gonna see a battle between other countries' governments and other countries' citizens. The tools used to fight back against stable coins would be tools that- Would inhibit in some ways their local economy.

19:23 So as an example, if you're gonna shut down the internet in order to make sure that nobody is transacting, now th-that's an extreme example, but I'm, I'm just using it to make a point.

19:32 If you shut down people's access to the internet or in some way to, to transact on the internet, you are decreasing their ability to do business in that country, and that, it's like capital controls.

19:44 And capital controls, no foreign company, no foreign government, or no foreign investor is going to invest in that country if there are capital controls, or they're gonna think twice about investing in that country if there are already capital controls.

19:57 So the tools used to fight back against these stable coins will hurt those countries in other ways. And so how they're gonna do this, I don't know, but I know f- I know for a fact they're, they're terrified.

20:07 You can see it in some of the press releases. The ECB has set out press releases. The Bank of Japan has put out press releases.

20:14 You know, other foreign governments have put out press releases, and it, it's a real problem for them. I, I honestly don't know what they're gonna do. Yeah, they're definitely terrified, and they're also reacting.

20:23 The ECB is, is building on a Euro stable coin. I think China is looking into open sourcing their stable coin. How do you think this is gonna play out? What's your best guess here?

20:36 I, I think the larger governments and the larger countries will have more success.

20:42 When I say more success, I don't think they'll have total success, but they'll have more success in defending against stable coins than some of the small or emerging companies.

20:50 But the small and emerging countries I think are really gonna struggle. And, you know, in a place like Europe where you've got the common currency area, people are gonna use euro stable coins and that will benefit them.

21:00 But I think the euro will fall a lot versus the dollar, so I think they will still want to hold US dollar stable coins as well.

21:07 And you might have some countries from Africa holding US dollar sta- or euro stable coins because they do business with Europe or something like that and they would rather hold a euro than their local currency.

21:17 But by and large, I think this is going to further my thesis that the dollar is going to get bigger and stronger or become more ubiquitous rather than become less ubiquitous on the world stage.

21:28 So m- more choice for consumers in both directions, but ultimately you think this is gonna strengthen or even ac- accelerate your milkshake theory? I think so.

21:37 When you say more choices, there will be more choices, but they may not be legal choices, and I, I think that's an important thing to, to point out, right? Let's also tie this.

21:46 We, we spoke about different fiat currencies, we spoke about stable coins, we spoke about gold, and one thing I definitely w- also wanna mention is Bitcoin. How does Bitcoin fit into that construct? Is it digital gold?

21:59 Is it different currency? Like, how do you see that? I don't think of Bitcoin as a currency. Now, I know it can be used as a currency, and I know someday it could be money, but I don't consider Bitcoin to be money.

22:09 I consider it to be speculative asset. It has been the most, the, the greatest performing speculative asset in history by a large scale.

22:18 And one thing I'll say is I always thought that Bitcoin could go to a million dollars or I thought it could go to zero.

22:23 I will say that the rise of stable coins and with the US, which is the dominant player in the global monetary system, with the US blessing basically sanctioning the, the use of, of stable coins in a positive way, I think that sort of takes Bitcoin going to zero off the table.

22:41 In other words, I think they are justifiably making digital assets a viable industry that is not going to be outlawed. And as a result, I think it takes the negative case off the table.

22:53 And I think probably if we get back into a situation where central banks are printing money and we're getting wild debasement of currency, it wouldn't surprise me at all if Bitcoin goes higher.

23:04 It would, again, it won't surprise me if Bitcoin goes to a million dollars. But I do not think Bitcoin is going to replace the dollar as the new global currency. I see it as a pure play speculation on global liquidity.

23:15 If there's a lot of global liquidity, Bitcoin goes higher, and if that bit- if that liquidity starts to disappear, then I think Bitcoin comes down.

23:22 Brent, your dollar milkshake theory has held up over the last eight years. If you look forward into the next five, eight years, how do you think this is gonna play out?

23:33 Will you look back, uh, in 2030 and, and this is still, like, the go-to theory, or what's your expectation there? It sort of depends, and this is what I'll say.

23:41 F- so from an event perspective, so I always thought dollar milkshake theory would lead to a sovereign debt crisis, and it did not, at least not yet. So from that perspective, it was wrong.

23:50 Like in an investment business, if you don't get the timing right, you're wrong. And so I, I hold up my hand and say, "We did not get the sovereign debt crisis."

23:57 But as a framework for understanding how the monetary system works and how capital flows are going to react in an environment like we're in, I think it does a very good job.

24:07 The way I would answer this question is, it's very possible we get some kind of a big event in the next five years that causes this reset that we were talking about earlier, in which case we'll be onto some new system or a new form of doing things.

24:21 But if we have not gotten, if we have not had that event in the next five years, then I, what I think is possible, I think it's possible that we have regionalized currencies.

24:31 And what I mean by that is I think perhaps Asia, you know, China being the dominant player in Asia, and perhaps they become more attached to the yuan, and I think perhaps Europe still uses the euro and perhaps the Western Hemisphere uses the dollar.

24:47 I think that's possible. So I think we could f- get fewer currencies, but each of those currencies could play a bigger role. But I still think the dollar will be the dominant currency.

24:57 And even though we could have regionalized blocks, if I think back to, like, post-World War II, you know, there was the Soviet block and they had the Soviet ruble, or even if now, you know, we've got Europe and they use the euro, but they're still, even though they have their own currencies, they do still use the dollar, they do still use other currencies.

25:14 I think what we could end up having is fewer currencies, but each of those fewer currencies being more dominant. But I don't think we will have three distinct blocks with no interconnectedness at all.

25:27 I think there will still be some, uh, connection there. And, and do you have a prediction date for the expected sovereign debt crisis?

25:34 You know, it's funny, when, when I first started talking about this in 2018 or '19, I think I said by 2024, and now it's 2026. And like I said, we got very close in 2022, uh, but it didn't ultimately happen.

25:45 I think this largely depends on... I, I will say I think it happens in the next five years or by 2030.

25:51 But- It largely depends on whether the world works together to solve a sovereign debt crisis or whether that causes them to come into conflict with each other.

26:01 In 2020 and 2022, the world worked together to solve this crisis. With the way the world is cooperating now, which means they're not cooperating right now, I don't think they will cooperate.

26:13 If we get into another, you know, global downturn, either due to an energy crisis related with Iran, debt-based currency issue, I'm not sure the world will cooperate the same way they historically have.

26:25 And related to that, historically what has happened is the United States has, for the most part, bailed out the world via swap lines, via US dollar swap lines.

26:34 In an age of America first, where we don't necessarily cooperate and use the same institutions that we have historically, I'm not sure that the United States comes to the rescue of foreign banks and foreign corporations the way they have in the past.

26:48 Can you also paint for us the picture a little bit, what would specifically happen during a sovereign debt crisis, for those of us who aren't familiar with that economic concept?

26:58 Well, essentially what would happen is foreign currencies would start to fall, and you would see very high rates of inflation in foreign countries.

27:06 And one thing that those countries would then do to try to strengthen their local currencies is they would have to raise interest rates to try to strengthen their local currencies.

27:15 But oftentimes in a currency crisis, you raise rates and it still doesn't work. And when you raise rates and the currency still falls, that is where you're heading now towards a currency collapse.

27:27 And when you start to see a currency collapse or hyperinflation, you're going to see people in the streets revolting against the government.

27:34 Very rarely in history could you have hyperinflation of a currency where the, where the sitting government remains in power, because they've basically lost control at that point.

27:44 And if you start to see, you know, social unrest in individual countries, then it can start to spread to local, to neighboring countries, and you can start to get cascading effect. I'll give you an example.

27:56 I think it was about ten years ago in the Middle East and North Africa, we had this, what was called the Arab Spring, and that was kicked off as a result of high energy prices and high food prices and the local currencies being weak.

28:09 And in every one of those countries, you started to see social unrest and people protesting against the governments. And then you had to get, then you had the governments cracking down on the society.

28:19 So it's not a pretty scenario. A sovereign debt crisis is not a good thing. Just about every financial crisis we've had in the last forty or fifty years typically has some element of a currency component.

28:32 And so once you g- start to get into currency crisis, things go bad in a, in a hurry. Brent, something you mentioned before was also that money is power, uh, money is control.

28:43 Governments wanna have control, and what the US just did with stablecoins is basically give up control, privatize the issuance and creation of money.

28:54 How do you think that plays together with having control over the money supply as a central bank versus outsourcing this to private companies? I'll make a couple caveats.

29:05 Number one, that happened a long time ago when banks started creating money out of thin air by creating loans and loaning money into existence, and that was done through the traditional banking system, and in many ways, the United States didn't have any control over it.

29:19 So, and, but, and when they did that, those dollars that were created did not have to be backed by US Treasuries. With dollar stablecoins, they do have to be backed by US dollar bonds.

29:32 So I'm not saying that stablecoins can't eventually serve as collateral off of which new m- credit can be extended, but the issuance of stablecoins is not credit in the traditional sense of making a loan.

29:44 So there is more backing. The other thing is, with stablecoins, potentially the US has more control over a stablecoin rail or plumbing than they would over the traditional system.

29:56 So I don't think they would yet have full control, but I think it would be a way for them to have more control than they have now.

30:02 And I think that they would prefer it be trending in the direction of them having more control rather than having less control. But to your point is a good one.

30:10 What I think could potentially happen with stablecoins, I don't have this fully figured out yet, so I, I'm speculating here, but you mentioned US dollar Tether and US, uh, dollar, so you know, Circle, right?

30:21 What you could potentially end up having, having is an onshore dollar and an offshore dollar, in the same way you have an onshore yuan and an offshore yuan.

30:31 What could potentially end up happening then is that the United States would say, "Hey- We will take care of US dollar domestic problems when those arise, you know, or there, there needs to be stimulus or some kind of a guarantee or a bailout or whatever it is.

30:46 We'll take care of domestic dollar holders, but we are no longer responsible for foreign US dollar holders.

30:52 And as a result, then what you could end up having, you could end up having two different prices for these two different currencies.

31:00 And what has caused the, the Fed or the United States many problems in the last several years is that an onshore dollar and an offshore dollar trade one for one. They're perfectly fungible.

31:11 They can be extra- exchanged, you know, they're basically the same thing. And so even though all these dollars are created offshore in the euro dollar market, they eventually fall back on the United States.

31:23 But if there was some way to split them so that the offshore dollar holders are taking more risk holding them than the US, than the onshore dollar holders, maybe that would be a way then you get two different prices.

31:37 You don't have as much risk sitting on the Fed's shoulders. People would still prefer to hold US dollar coins offshore, but they wouldn't be as safe as the US dollar tokens held onshore.

31:48 And like I said, I haven't completely figured this out, but that's, that's a thought that's kind of spinning around in my head. That's interesting. Maybe that's a possible scenario.

31:56 I don't know if you saw that, but US Tether, they launched a US-only stablecoin, which is called USAT. Yeah, they launched that earlier this year, and that's a stablecoin that's created for the US market.

32:08 It's going, only gonna be used within the US. And then you have USAT, which is gonna be used outside of the US. I think that's kind of where it's eventually headed.

32:16 I, I haven't quite figured out how it would work, but I think that is eventually the, the idea. Yeah, definitely important what you mentioned as well, the concept of money creation.

32:25 I think what you mentioned is the, the money multiplier effect. We, we'll link that in the show notes as well. Uh, that's connected to the reserve ratio of banks.

32:33 So very interesting what you mentioned between the distinctions. All right. Uh, Brent, we're almost at the end of the show.

32:39 I wanna ask you as well, what are you looking forward to now in the next couple of months with, uh, also the war and the global economic shakeup that's going on? What's on your radar personally?

32:50 Well, the thing that, that I think about the most is not the next six to nine weeks. I think about the next six to nine months.

32:56 And what I mean by that is even if the Strait of Hormuz fully opens tomorrow, peace breaks out and everything goes back to normal, the timing of which the strait was closed for the la- or for the most part closed for the last four weeks really could not have been worse because it's not just energy that flows through there, it's fertilizer and chemicals, and that, uh, has affected both the planting season in the Northern Hemisphere and it's affected the winter planting season in the Southern Hemisphere.

33:23 And so I think it's very possible that even though we may have some short-term relief, by the time we get into the fall when, when food harvests start coming in, if the yields are not as high as expected and if there even-- if there's a shortfall, we could get into a situation where we have a food shock.

33:41 And then you get food prices higher and same thing, you can start to get energy prices higher in the winter when, you know, when Europe needs natural gas, et cetera, et cetera.

33:50 I think it's very possible that we could have, you know, a lot of unrest in the latter half of this year due to what has happened in the last few weeks.

34:00 And so, and remember, if food prices go higher and energy prices go higher, on the global stage, those are traded in dollars.

34:07 So countries that would need to buy higher priced energy and higher priced food, importers may have to print more of their local currency to be able to afford the now more expensive food and energy that's priced in dollars.

34:22 And I think we could end up with the kind of this pyramid, and in fact, it could almost be like the Arab Spring again, the same type of a thing, where the emerging and kind of the emerging and, uh, emerging countries and developing countries and even European countries that, that import a lot of their energy and a lot of their food, uh, I think could feel the pinch.

34:39 Uh, we hope that won't be the case, but definitely a- again, the dollar milkshake theory, a very, very interesting concept to keep in the back of your head when you think about these situations and trying to figure out what's gonna happen.

34:53 Brent, th- thank you so much for coming on the show. This was very interesting. Uh, where can people learn more about you, about Santiago Capital, about the dollar milkshake theory?

35:03 Yeah, the best place to go, the first place to go is research.santiagocapital.com. That lays out, we've got a couple different levels of research th- that we provide.

35:12 We, uh, you can also just go to my website, which is santiagocapital.com, and then I'm very active on Twitter and social media. You go-- the handle on Twitter is SantiagoAUFund.

35:22 Finally, we do a show every week called Milkshakes, Markets, and Madness on YouTube. So any of those areas, we'd love to have you join us. Yeah, that's great.

35:29 Definitely check out the research and check out Brent on Twitter and YouTube. Uh, Brent, uh, thanks for coming again, and I wish you all the best and hope to talk soon. Okay. Thanks for having me.

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