WBD528 Audio Transcription

Everything You Know About the Economy is Wrong with Jeff Snider

Release date: Monday 18th July

Note: the following is a transcription of my interview with Jeff Snider. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

Jeff Snider is co-host of the Eurodollar University podcast and Head of Global Research at Atlas Financial Advisors. In this interview, we discuss the fundamentals of money, how the Eurodollar controls the global monetary system, and signals of a deflationary depression.

“The inflation target is, pardon my French, bullshit. And it’s supposed to be: it reinforces the idea that the Federal Reserve is a central bank, and therefore, it is targeting inflation and just responsible for inflation; but it simply reinforces what the Federal Reserve actually does, which is trying to manipulate opinions and emotions.”

— Jeff Snider

Interview Transcription

Peter McCormack: Morning, Jeff, how are you?

Jeff Snider: Good, how are you?

Peter McCormack: Good.  Thank you for coming on the show.  You've come highly recommended by a couple of people.  Danny is probably more excited about this show than any other one we're making in this set of shows we're making over the next two weeks.  I'm looking forward to it, because I think I'm going to learn a lot.  But also, potentially everything I've been talking to people about recently, and certainly bitcoiners, you may have a contrarian perspective on it.

Jeff Snider: Well, that's true pretty much everywhere I go, so that's the common theme.

Peter McCormack: So, either you're right and everyone's wrong, or you're just wrong?

Jeff Snider: Yeah, and that's the arrogant conceit.  But then again, I think extraordinary claims require extraordinary evidence, and I think that the evidence is extraordinary and shows that the world view of the framework that I'm working under seems to be what's happening and what continues to happen all the time.

Peter McCormack: And we are in very strange times.

Jeff Snider: Yes!

Peter McCormack: I can't help but be nervous, if not slightly scared, about what's going to happen over the next year, few years, decade.  I'm a parent as well, so I worry about the future for my children.  Every day, I look at the news and seem to see more crazy stuff, whether it's to do with war or the economy, supply chains, energy prices; there's a lot of crazy shit happening all at once, and I'm hoping we're going to dig into some of this today anyway with you.

What we should do though, my audience might not know you so well, I know some people do; we don't normally do this, but let's do a dig into your background.  Just explain to everyone who you are, what it is you do and your background that's going to make it relevant to this conversation.

Jeff Snider: My name is Jeff Snider, I work for a company, recently switched companies, called Atlas Financial.  So basically, I used to be a portfolio manager, I work in the financial services industry, managing money for retail clients and things like that.  I also do a lot of research into the background of macroeconomics, monetary mechanics is really my specialty, digging into the history, the plumbing, so to speak, of how the monetary system actually works, what it is the Federal Reserve or the central banks actually do, the fact that they may not actually be central banks, which is shocking for most people to hear.

So basically, for the last quarter of a century, trying to figure out, what is money and how does it work, and how does it all fit together with finance and the economy.

Peter McCormack: Well, the question of, "What is money?" is a very important question, because us as bitcoiners, we believe Bitcoin is money, which I don't think you do.

Jeff Snider: No, not yet.  I mean, it's possible, but I don't think we're quite there yet.

Peter McCormack: No, we're not quite there yet, but there is a lot of discussion about what is money.  A lot of people within our sector go back and talk about rai stones and glass pearls and salt, and moving eventually onto gold and then paper money, and then ultimately leading us to Bitcoin.  But you've studied it yourself; do you have a good answer for, "What is money?"

Jeff Snider: No, I actually don't.  I think that's the general problem.  Even the Federal Reserve, or central banks, economists, they can't define money either, because I think we took a step in another direction, that most people aren't really aware of, even in the progression that you've just sat down and went through, went through tokens and then gold, then paper money.  Well, that isn't quite what happened.

I think the general mistake about what happened in the Great Depression, starting there, Executive Order 6102, everybody knows, especially in the Bitcoin community, FDR confiscated gold and supposedly from there, we went from a quasi-private money standard to a government money standard, and that's where the paper money, fiat currency narrative comes in.  But that's not exactly what happened.

Before the Great Depression, we actually had a ledger money standard that was developed in the banking system.  So, you had commodity money of gold coins, that people could own and use as property, but you also had fractional-reserve lending, which created this depositary, ledger-type money.  And even in the earlier 20th century, the ledger money had become the primary source of monetary exchange.  Hand-to-hand currency had already started dying out in the earliest 20th century.

So, we had this quasi-hybrid, where we had commodity money and more and more bank money, this ledger money stuff.  And when FDR came along with 6102, he confiscated the private coins, the private money, but left mostly this other bank-centred ledger money system.  It wasn't exactly replaced by Federal Reserve notes, because as I said, hand-to-hand currency in most commercial and especially financial transactions, had pretty much dried up.

During the Great Depression and afterwards, it wasn't a government-standard money anymore, it was a bank-standard money.  And as we develop in the post-war era under Bretton Woods closer integration across economies, this bank-standard money went nuclear.  So, it became something that we call the eurodollar system, which is what everybody associates my name with, is studying this eurodollar system, as it developed from say the 1950s forward, which essentially took this bank money standard, this ledger money standard, to its nth degree; because in the eurodollar system, there isn't even physical currency or gold or anything, it's strictly virtual, it's strictly ledger.  Bitcoiners and digitally currency enthusiasts will understand distributed ledger technology.  That's not something new; that's been used for decades now in this eurodollar system.

As we moved out of the Great Depression from a hybrid system to a more exclusively this ledger bank money system, the government was kind of set aside there, because in many ways, governments were just happy to let the banks do this outside the United States, because it solved a very real problem for them, which is known as Triffin's paradox, or Triffin's dilemma.  So, the eurodollar system created this parallel, or even superseding monetary system of its own rules, its own design, its own experimentation; and by the time you get to something like the Great Inflation, we couldn't even define money anymore, because banks in the system had decades to basically experiment on different forms of transactions, and it became impossible for regulators and government authorities to even keep track of.  Most of them just said, "We give up, we can't even do this anymore".

So, in the 1970s and early 1980s, central banks stopped being central banks, and stopped being monetary agents entirely and just said, "We'll leave this to the banking system, because it seems to be working very well".  Once you get past the Great Inflation stuff, even into the 1980s and 1990s, it's like, "This seems to be working, we've got globalisation, we've got economic growth, we've got prosperity around the world, so we don't even need to define money, we don't even need to care about money".  Economics as a whole just dropped monetary scholarship entirely from the 1980s on forward, and just fingers crossed and hoped that it all worked out, which obviously we get to 2007, 2008; something went wrong there.

Peter McCormack: Right, well we're going to come back to 2007, 2008; we're also going to come back to the eurodollar because I, for the life of me, couldn't figure out what it is, and I'm going to need your explanation.  But I want to dig back into this.  So for you, what should money be?  If you had to define what money should be, what would be good money, how would you define that?

Jeff Snider: Well, money isn't wealth, number one, money is a tool and it should be a commercial tool.  It's basically to allow a modern, free market, capitalist economy to maximise its advantages, because it allows efficiency, allows sustainability, if we are at a maximum amount of being able to price things in a stable unit of account, all the kinds of things that you're familiar with.  So, money is a commercial tool to allow economic processes to do what they do best, allow the capitalist system, free markets, do what they do best, be most efficient, therefore sustainable.

So, if we start from the premise that money is a commercial tool, I think we're putting in the right box, rather than thinking about it as a financial thing, or as a token of wealth, or something like that.

Peter McCormack: Right, but what would make good money then?

Jeff Snider: A stable system, something that's predictable, transparent, where we all know the rules, we all know what's happening, there aren't information asymmetries, there isn't so much of it that's hidden; it's all right there and visible.  That's what made commodity money the best previous form of money, because everyone understood.  It was property, it was transparent.  I give you a coin, we have a transaction, we don't need to define what's going on.  So, it's something that's predictable, stable, and transparent, and easy to understand.

Peter McCormack: Which you've kind of -- I said I would try and avoid doing this, because it's not entirely your world, but you've kind of described I think two forms of money really: you've described gold and Bitcoin.

Jeff Snider: Yeah, I know, I've kind of walked right into that!

Peter McCormack: Yeah, you did.  Because there's this thing, it's like people talk about, "Why is Bitcoin so good?"  Well, it's transparent, because the ledger's public.  What were the things you just listed?

Jeff Snider: Predictability, stability.

Peter McCormack: Yeah, and similar properties that gold has.  And I guess when you move into the era of paper money, which can be controlled by other forces, which themselves aren't transparent, then this is where you get into issues.  So, it's quite interesting that you've done that.  I wonder, is there a way to advance beyond gold, but not get to Bitcoin and still have good money?

Jeff Snider: Sure.  And I think the downside of Bitcoin isn't so much that.  The transparency and the rules of the game being well-known, the lack of information asymmetry, are huge, huge steps forward, huge steps in the right direction.  Where I think it goes wrong is that it shares the same liabilities that some other systems have, including the gold system, which led us to Triffin's paradox, which gave us the eurodollar system to begin with, which is inelasticity.  I know that's an emotional topic and it's been debated to death for generations, "Do we need elastic currency?  Do we not need elastic currency?  Are there benefits to elasticity?  Are there drawbacks to inelasticity?"  The answer is it's difficult to say, but history has shown that inelastic currencies always produce some of the worst results.

Peter McCormack: Volatility?

Jeff Snider: Volatility that leads to hoarding, deflation, depression.  So, the idea of elasticity, not just in an academic sense, in a very real sense, is the idea of a currency system, or a monetary system, that will allow us to be transparent, predictable and stable; but also, not have that devastating downside where we lead to these periodic intermittent inflationary episodes that produces depressions, which is something we're living in right now.  We're living with the consequences of an inelastic eurodollar system that fell apart 15 years ago, almost exactly 15 years ago, and it has never been fixed.

So, we have an inelastic system and we're living with the consequences.  You mention, it's not a coincidence that we started talking about social disorder, political chaos, war, all these other things.  This is a natural result of prolonged stagnation as a product of deflationary money.

Peter McCormack: Right, okay.  So, if the properties of good money are predictability, transparency, etc, but one of the drawbacks of, say, gold and Bitcoin is inelasticity, which leads to volatility and hoarding, etc, which there is evidence that that does happen of course, we literally say it in Bitcoin, we say, "We hodl"; what would then be a perfect money or what's the in between?

Jeff Snider: There is a happy medium here.  The eurodollar system took it to the extreme in the other direction, where it was overdone, which is exactly the outcomes that bitcoiners and hard money proponents have warned against.  You don't want to go too far in the other extreme where you're just creating money out of thing air for nothing and leading to all sorts of malinvestment, as the Austrian Economists say, because that's exactly what happened in the 1990s and middle 2000s, is that the currency system, the monetary system, went way too far in the other direction.  So, that's an argument not for strict currency or fixed-base currency, but somewhere in the middle.

Can we have a predictable, stable, transparent currency, that is in some ways like Bitcoin, but is still elastic enough that it doesn't lead to one extreme or the other.  So, we're trying to find a happy medium here.  It's easy to talk about ideal circumstances, but it's very difficult in terms of practice.  But I think, at least from a theoretical perspective, that's where we need to be moving towards, is a happy medium between one extreme and the other, because both extremes are bad.

Peter McCormack: I'm following you and, Danny, I'm going to say something that will be not particular popular with bitcoiners, because 21 million fixed cap, that is an immovable force, that is one of the fundamental pillars of Bitcoin; because Bitcoin, whilst it's considered money by some, it's also considered a store of wealth.  If there was a form of Bitcoin which was elastic, therefore there was no incentive to hoard, the incentive would be to use it as that tool and hopefully have stable pricing, which I'm going to come back to, because I've got a question on that.

So, if you had a currency like Bitcoin, which was elastic, which allowed people to use it as a tool and not hoard it, then where would you store wealth?  You clearly need the tool of money which allows for the division of labour and the economy to function; but people also want to store the wealth, the earnings, the capital they've made and save for a future.  Do you need two separate tools?

Jeff Snider: I think so, and I think that's the most elegant solution, to split money from its three functions.  I think you can combine the medium of exchange with unit of account, those two go together really well; and then store of value's really something of a different animal, and I think for a long time gold filled that role, because there really wasn't anything else.  But over the last two centuries, we've had financial markets develop, liquid financial markets, that have taken on the role of store of value.  Whether they're ideal or not is a completely separate argument, but that's exactly what's happened.

In fact, the eurodollar system, the eurodollar itself is strictly medium of exchange and unit of account and almost no store of value.  The store of value has been offshored literally to financial markets, like bonds and stocks and all sorts of financial products, derivatives and things like that.  So, there is the case to be made that store of value does not necessarily need to be tied up in good medium of exchange, and maybe that's the point here, is that we should shoot for -- let's perfect, or at least get as close as we can to an ideal medium of exchange before worrying about store of value, because in the last 15 years it's the medium of exchange function that is primary, that is the primary problem here, and let's deal with that before we think about store of value.  And I think some of that's been mixed up over the last 15 years, misunderstanding the monetary system as it actually is.

Peter McCormack: Yeah, that's quite interesting, because people talk about the evolution of a form of money, that it is a collectible, then it is a store of wealth, then it's a medium of exchange, then it's a unit of account.  I can't remember, is that the exact order, have I got the order right?  It's something like that, but you're actually saying, "Let's separate medium of exchange from --"

Jeff Snider: Reorder them!

Peter McCormack: Yeah, but that idea that you separate medium of exchange from store of wealth, which by the way, I kind of do at the moment, in that Bitcoin is my store of wealth; and the pound, or the dollar when I'm here, is my medium of exchange.  I sometimes use my Bitcoin as a medium of exchange, but very rarely.  I do have these two separate forms of money that do two separate things for me.  There are some people that believe that Bitcoin can do both, and you would be fundamentally disagreeing with that?

Jeff Snider: Not fundamentally; I think in practice, because it's fixed, because there's uncertainty about the number.  And when you have a fixed monetary exchange, you make price unpredictable.  I think that's one of the biggest problems, apart from lack of widespread use of Bitcoin as a medium.  But if Bitcoin became acceptable in a much wider economic and commercial footprint, then it could be a medium of exchange.  I'm not against it at all.  I think there are drawbacks to the way Bitcoin is designed. 

I think it represented a very good step forward in finally thinking about the monetary system and doing something alternative, but I'm not sure it's an ideal, or even close to ideal medium of exchange.  Given that is our primary problem, maybe that's where we should focus first, and then worry about store of value and everything else later.  So, it may be that you have a hybrid system where we have medium of exchange as something else and then store of value, because its fixed scarcity always creates value, and value's really the point here, that Bitcoin becomes the store of value.  Then, maybe there's some form of convertibility between the two forms.

Peter McCormack: Interesting.  Okay, well let's get into the eurodollar.  Explain to me like I'm five, because I have done my research and I have tried to understand it, but I can't; I just cannot get my head around what the eurodollar is.

Jeff Snider: Well, that's the thing, there is no eurodollar.  Even the term itself lends itself to that sort of misunderstanding.  It's not like there's physical stacks of paper with just a different picture of, I don't know, an offshore president or something on them.  There's no currency; it's a ledger-based system.

Peter McCormack: Well, where did it come from?

Jeff Snider: Nobody really knows, to be honest with you.  There are all sorts of origin stories.  Ironically enough, the Soviet Union not wanting their dollars to be confiscated by President Kennedy, or Eisenhower back then, started storing these dollars in European banks.  There's also vagaries of the breakdown of the British mercantile system, especially after the Suez crisis in the 1950s, where more and more of the world stopped using pounds and started using dollars.  But to transmit currency across the world, it was easier to do it on a ledger-based system, especially with communications technology.  You could send a telex around the world at the speed of light, and then have that settle a transaction, and we don't need to wait for currency to be exchanged physically from one place to the next.

So, as long as we have these institutions that we all agree on are good people, or at least are going to follow accounting rules and internal conventions, we allow them to keep this ledger system.  So, instead of me giving you a physical Federal Reserve note, say a $5 bill, to pay for something, transacting from one country to the next, we just have a couple of banks keep track of who owes what.  So, it's a ledger virtual currency system, maintained by the banking system.

Peter McCormack: Okay, so it's a database?

Jeff Snider: Essentially, yes.  It's a blockchain; that's really what it was! 

Peter McCormack: Okay, but who maintains it?

Jeff Snider: The banks.

Peter McCormack: What, every one of them has the same one?  I mean, how does it work?  You say, "The banks"; are these High Street banks, commercial banks?

Jeff Snider: They're banks that operate in the system.  Yes, many of them started out being city banks, or Swiss banks.  Long before the eurodollar showed up, there was this ad hoc correspondent network that existed for many decades, even centuries, going back to the early days of the British Empire system.  So, banks that had transacted across the entire world had relationships where they knew each other very well.  So, when the eurodollar started showing up, or when this need to overcome Triffin's paradox, in the late 1950s, became paramount --

Peter McCormack: Explains Triffin's paradox.

Jeff Snider: It goes back to the flaws in the design of Bretton Woods.

Peter McCormack: Okay.

Jeff Snider: Bretton Woods was the post-war monetary era, 1944.  John Maynard Keynes and Dexter Harry Dexter White said, "How is the world going to work after World War II's over and the Allies win and the Axis is vanquished?"  They said, "We don't want it to be a purely international currency, an entirely fiat system", so they made sure that the pound and the US dollar would be backed by national stores of gold.  So it was, in some ways, at least -- it looked like the old system did.

However, as Robert Triffin eventually said, there's this natural tendency and inherent paradox in that system, because in order to have a global reserve currency, I think this is part of the thing that most people misunderstand, what is a global reserve currency system; what is it supposed to do and how is it done, how is it actually accomplished?  To have a global reserve currency means having a global currency that's useful in enough places and enough of that currency available in enough places, that very different economies, very different systems, can intermediate through that currency very easily.

To do that, you need to have currency, if it's an international reserve currency, in excess of the national reserve backing it.  So, what Robert Triffin said is by, for example, the US dollar, by using that as a reserve currency, that meant there needed to be US dollars in enough places around the world that there would be more US dollars than there is gold backing it inside the United States.  And eventually, because it's convertible, people would convert their US dollars outside the US for gold inside the US, draining the US of its gold, therefore eventually leading to complete chaos and unbacked currency, which is exactly what happened in the late 1950s.  The US lost a ton of gold, because there were a lot of these dollar balances outside of the US in order to mediate this wave of economic globalisation, financial linking trade and everything else.

So, the global US dollar system, this eurodollar system, was essentially a way to work around tying the currency outside the US to national stores of gold and reserves.  So, it was a way to circumvent all that, and do so in a very clandestine, quiet manner, that nobody in the public really actually caught on to it.

Peter McCormack: So say, Jeff, I've got my bank here in London and I've got eurodollars in my bank, and you've got your bank and say you're in France and you've got your eurodollars; how do we keep each other honest if I send eurodollars to you; how do you know I have those in my system?  Are we all sharing one database?

Jeff Snider: Essentially, yeah.  It's not really a database, especially in the early days; it's more about reputation.  It's about traders back then knew everybody else's businesses.  So, if you were doing something wrong, if you were just conjuring outside the rules or outside your own conventions, we would know about it, and we would no longer transact with you and you would be out of business.

Peter McCormack: But how would you know the balance I claimed to have was my actual balance; I could just a little bit more in there, how would you know?

Jeff Snider: I mean, in terms of…?

Peter McCormack: The eurodollars.  Because essentially, if it's a distributed ledger, we all know how many eurodollars are in the system, and at the end of each day I transact with other banks and I settle my eurodollars with them and vice versa; how do we all know who actually has what?

Jeff Snider: Double accounting.

Peter McCormack: Oh, it's still done through double accounting?

Jeff Snider: Yes.  So, your numbers have to match my numbers, which match the guy over here.  I mean, we're all basically -- there may be a bunch of participants in the system, but everybody's numbers have to match at the end of the day and if they don't, they get settled in other ways.  There are internal conventions, ad hoc associations where you have to follow the rules; and if the bankers don't like you, they'll kick you out of the association, you're out of business.  So, it's essentially an honour system.

Peter McCormack: Okay.  And how does liquidity go into it?

Jeff Snider: It's created by that system.

Peter McCormack: But how, explain to me how?

Jeff Snider: Balance sheet expansion.

Peter McCormack: Keep going!

Jeff Snider: Yeah, this is where it gets really complicated!  So, if we're operating on a ledger money system that's internal, what expands the ledger?  In something like blockchain, it's hard-coded into the blockchain, right?

Peter McCormack: You can't expand it unless you mine more Bitcoin.

Jeff Snider: Exactly.  But in another distributed ledger system, you can expand the ledger based on everybody agreeing that the ledger has been expanded.  So if I say, for example, no different than a fractional-reserve lending system, that I have assets and liabilities that I want to add to my balance sheet, that I'm going to create some form of transaction that does both of those things.  So, if we transact back and forth between, say you're a bank in some other location that wants to borrow dollars, I can create them in the same way that any other fractional-reserve system creates dollars; by creating a deposit liability and a cash asset.  But it's not actually cash; it's cash and equivalents.   

So, if you've ever read balance sheet statements of banks, they always have that little word, "and equivalents" there, because there isn't cash here.  So, it's all about creating assets, double accounting, and offsetting liabilities.

Peter McCormack: Right, so if that bank wants to create loans, say you want to loan a business $1 million, that creates both an asset and a liability.  But they're essentially printing money to create that loan?

Jeff Snider: Out of thin air.

Peter McCormack: Right, and if that loan fails?

Jeff Snider: Then you have a balance sheet issue.

Peter McCormack: And is that something that happens?

Jeff Snider: Yes, absolutely.

Peter McCormack: But this just sounds like a system, like an old boys' club; we just create money as we need?

Jeff Snider: Yeah.  Now you can understand why we got to 2007 and -- where did subprime mortgages come from?  Eventually, when you get into recency bias and confirmation bias, you start thinking, "This is great, this is awesome, we're financial institutions that can basically print money and intermediate it at the same time, which means we can do anything".  So after a while, where it appears like nothing goes wrong, you start thinking nothing will ever go wrong.  So, everybody just starts creating money out of thin air and doing the stupidest things with it, because it seems like it works and will always work.

Peter McCormack: So, we'll take all these mortgage liabilities, we'll wrap them up --

Jeff Snider: And then we'll sell them to everybody.

Peter McCormack: We'll sell them to everyone.

Jeff Snider: Including each other; we'll buy them ourselves!  It's even more complicated than that, because then you use those securities as the basis for some of these funding relationships and repo and derivatives, and things like that.  But by and large, that's what it really is.  It's a cabal of insiders that control money.  That's how we went from the 1960s and 1970s with little quaint banks, and yes there were state regulations, national regulations, making sure that the banks didn't cross state lines, but even international banks were all tiny.

Then you get into the 1990s, 2000s, banks are everywhere, financial institutions are everywhere; they're huge.  It's like they've taken over, because as the Austrian's say, Cantillon effects, "Those who create money get the benefits first"; they absolutely did that.  And so where did, "Too big to fail" come from?  It wasn't the government, that was the banking system wanting to hold onto the status quo, which privileged them; not just privileged them in terms of being able to create this money and keep this ledger system going, but also the information asymmetry that left them on top of everything.

Peter McCormack: But was it also that they could create the economic boom by having control of the money, which would ultimately lead to the success of the banks, and the people who were making those decisions being paid well, receiving big bonuses; is that essentially what creates that contagion?

Jeff Snider: Yeah, and look, let's face it, there were positive benefits to this.  Again, there's a reason why governments let this system go for as long as it did; because by and large, apart from the Great Inflation, but especially the 1980s, 1990s and middle 2000s, which was called the so-called Great Moderation for a reason, because it did spread prosperity around much of the world.  You think about China, emerging markets, China in particular.  In the 1980s, China wasn't a grand subsistence economy.  Nowadays, it's an industrial powerhouse.  That was financed by this monetary expansion in the eurodollar system. 

So, it's not like bankers were just a bunch of evil, greedy bastards who said, "We're going to just create money for our own benefit".  They were doing it because they were filling a role that the global economy needed; again, Triffin's paradox.  As that happened, as it created GDP and output around the rest of the world, created prosperity through many of these places, they then started getting into extremes where they thought, "Well, let's do more, let's do only more, let's do riskier things, because it can't possibly go wrong.  Look at the prosperity we're creating here", and that's what happened;  Natural human cycles, natural human fallibilities, except there was no check on that system, because it was perfectly -- well, not perfectly.  Because it was incredibly elastic, the money creation function just got way out of hand.

Peter McCormack: And is there any oversight of this eurodollar?

Jeff Snider: Not really.

Danny Knowles: And, do we know how much money is in that system?

Jeff Snider: I have no idea!

Danny Knowles: Crazy.

Jeff Snider: And that's the thing.  You go back to, say, the 1960s, 1970s, a few institutions like BIS tried to keep track.  Because this is offshore, first of all, it's outside the regulatory authority of anybody.  So, you have a bank in the Cayman Islands or the City of London or Zurich, or whatever, they may be physically located in those places, but those places, the governments in those local jurisdictions have privileged the banking system and said, "Okay, you're a bank in the City of London.  As long as your clients aren't UK citizens, we don't care what you do".

So, if you're an international bank and you want no regulation, set up shop in the City of London, or the Cayman Islands.  You go to the Cayman Islands, where it's this massive US dollar-denominated redistribution point for the eurodollar system, you would think these huge banks are all located there.  There aren't any banks on the island, there's no big vaults, no cash there.  It's all accountants and attorneys and lobbyists.

Peter McCormack: So, is it just a big IOU system?

Jeff Snider: Yes, claims.  So, we started out with claims on actual cash, but this system is more efficient when we don't have to transact in cash.  So, instead of me giving you actual cash, I'll just pay you next week.  So, now we create a series of cash flows that are treated as cash, and we'll even discount the value and call it a present value and say -- this future cashflow that I've just created, it's worth X.  Now I put that on my balance sheet, and it's as if it's actual money.

Peter McCormack: And, where does this turn up in the economic system, where does it turn up in the economy?  Who is using these eurodollars?  I know these banks are, but where is the output going to?

Jeff Snider: Loans, debt, securities, financial markets.

Peter McCormack: And how's that turned into actual money that people can use?

Jeff Snider: When you go to the gas station or grocery store, do you use actual cash, or do you use a credit card, a debit card or your phone?

Peter McCormack: Well, yeah, I use any of those.

Jeff Snider: Or a cheque?

Peter McCormack: Yeah, but my assumption is that the banks in the UK, there are settlements between them.  Or are they the same, cash and equivalents?

Jeff Snider: It's all ledger money system.

Peter McCormack: Everything's a ledger money system?

Jeff Snider: Even ATMs nowadays aren't even used, and it's been this way for, like I said, over a century.  So, even before we got to electronic payment, cash, debit cards and all that, people wrote cheques.  What is a cheque?  A cheque is every bit like cash, but it's a paper claim on another bank's cash.  So, you go to the grocery store, I write a cheque, I give the grocery store a cheque, they give me goods, therefore I've got -- there's a legitimate, real economy transaction that took place, but what happens behind the scenes?  This is the part nobody ever thinks about.

Behind the scenes, that cheque is then presented for payment from one bank to the next.  So all the bank has to do is say, "I'll credit you this number of dollars on your account with me.  We don't need to exchange any cash at all".  It's just a ledger book-entry system.

Peter McCormack: So the eurodollar actually has nothing to do with the dollar, apart from the fact that it's pegged to it?

Jeff Snider: It's not pegged, it's just denominated in US dollars out of convenience, so it's not actually US dollars, or even claims on US dollars!

Peter McCormack: But what is it pegged -- if I had 1 eurodollar, is that worth the same as 1 US dollar?

Jeff Snider: Yes, because there is no eurodollar.  Eurodollar is itself a derivative term.  Euro simply means "offshore".  So, you see the term "euro" in front of a currency --

Peter McCormack: Offshore dollars?

Jeff Snider: Offshore dollars.  So, these are dollars that exist outside the United States, except they're virtual dollars.

Peter McCormack: So, if I wanted to, say me, you, Danny, Jeremy, say we created our own little economy between us, we could do double accounting, we could call it the Peterdollar and we could create 100 each, and we could transact between ourselves if we wanted to?

Jeff Snider: Right.

Peter McCormack: But then, maybe I want to go and buy a car and I could use that and I would have that relationship with that bank to create an asset and a liability outside of our little system?

Jeff Snider: Yeah, it's essentially what happened in 2017 with the ICO craze.  Everybody tried to create their own coins, which was basically, "Let's recreate the eurodollar".  The eurodollar wasn't itself a brand new innovation either.  Ghost money and ledger money goes back centuries.  You can go back to the Bullion Famine in Europe in the 14th and 15th century for ghost money and fictional monies that arose because of a shortage of silver coin across Europe.

This idea that we create our own currency amongst a small group of people, a distributed ledger, and just keep track on a ledger, that goes back centuries.  This is something that humans have done in any situation where actual official money becomes scarce.  When it becomes inelastic, we create other means of payment, because money is a tool for commerce.  It always come back to commerce and economy.  If there's a shortage of money, commerce demands you create new forms.

Peter McCormack: So, what is the consequence of having this system; and is it a net positive or a net negative for the US?

Jeff Snider: That's a tough question.  I think you would say that obviously for the US and for the world at large, it was a net positive up until 2007.  It obviously went too far, got into the extremes, but the 1980s and 1990s were legitimate, robust economic growth during those periods, not just in the US, but all across the world.  So, the monetary system obviously performed what it was supposed to have performed, the function of medium of exchange and unit of account, and it did those things very well.  It got out into the extreme situation around 1995 or so, and then obviously led to the collapse afterwards.

Peter McCormack: But is it one of these things whereby it's a great system that drives economic growth and prosperity, but in the end debts have to be repaid, everything has to come back to equilibrium, and therefore we now have to go through this very painful period to get us back to equilibrium?

Jeff Snider: That's really the argument, right; is it worth it?  Is it worth 20 years of prosperity for maybe 20 years or more of misery and deflation?

Peter McCormack: Or, during that 20 years of prosperity and 20 years of misery, is it fair; or are the some people who benefit -- if you go through the period of prosperity, you're going to create a lot of rich people, and those rich people maybe can survive the economic downturn better because they have the right assets, the right source of wealth; whereas, those who maybe have seen a rise in their prosperity relative to what it would have been, but are going through the most difficult economic hardship over the next 20 years?

Jeff Snider: Yeah, it just disappears, which is the historical argument against deflationary depressions from the very beginning, since they first showed up in the early 1800s and people were like, "What the hell is this?  Why do we have widespread unemployment?"  It's the idea that when you have a currency become too inelastic, the people who do well, and we want them to do well during boom times, because people doing well during boom times are what creates the boom.  So, we want rich people, we want some level of inequality, because that's what free markets and capitalism means.

However, when the currency switch gets flipped to inelasticity and deflation, then you have the downside, then you have the argument of whether or not -- how do we deal with that?  How do we deal with the maybe inevitable consequences of these boom-bust cycles, and that's a tricky thing?  The people on top who benefit the most are going to resist doing anything.  They're going to say, "Well, we had it really good and we don't want to change anything", and you're right; there are all sorts of questions about fairness and equality and distribution, as well as economic questions about sustainability and efficiency.

Peter McCormack: You see, some bitcoiners say that we shouldn't worry about deflation; some will.  Some say, "Look, if you didn't measure inflation and deflation, if the measure didn't exist, the economy would continue to function.  The fact that you measure it and you allow people to think it's happening, it can drive the fear in the markets".

Jeff Snider: So, deflation is a psychological thing?  I don't think that's…  No, I mean whether or not we measure prices, the fact of the matter is even today, before 2020, you turn on the TV and hear everybody talking about the booming economy, everybody knows it wasn't.  The unemployment rate was the lowest it had been in 50 years, but yet the labour market in the United States or around the rest of the world had never recovered, and people knew that.

Peter McCormack: So, let's talk about the general 2% inflation target that governments talk about.  I've known ever since I was a kid, you turn on the news, "We're trying to target 2% inflation.  We're at 3%, we're at 1%, but we need to get it back to 2%".  Some people say inflation is a stealth tax, and that we should not be targeting inflation.  Where do you come in that?

Jeff Snider: The inflation target is, pardon my French, bullshit and it's supposed to be.  It reinforces the idea that the Federal Reserve is the central bank, and therefore it is targeting inflation, it is responsible for inflation.  But it simply reinforces what the Federal Reserve actually does, which is try to manipulate opinions and emotions.  Ben Bernanke just said recently, as he wrote his first blog post at Brookings in 2015, he admitted, "Monetary policy is 98% talk". 

It's actually not, it's 98% bullshit and the 2% truth is what I'm telling you, which is these private discussions where they worry, "We don't know how to measure money, we don't even know what's going on in the monetary system.  Someday, that's going to bite us in the arse".  That's what Greenspan would say all the time in the 1990s, nobody listened to him.  His "irrational exuberance" speech, for example, 1996; people my age remember that during the dotcom era, because they heard "irrational exuberance" and thought stock market.  What he actually said was, "We can't measure, or even define money, so how would we know if assets are behaving rationally or irrationally".  That's what he actually said.

So, this inflation-targeting nonsense is simply to create the illusion that they're in control of all these things they're not in control of, and they just kind of fingers crossed, as long as the correlation between them moving the federal funds rate around a little bit, up or down, here or there, and economic outcomes seems to be relatively plausible, everything seems to be fine.  So, in the 1980s and 1990s, it sounded like Alan Greenspan would raise the federal funds rate a quarter of a point, and then growth would slow, or it seemed like it might be slowed, or the economic maintained stability throughout that decade; so, maybe moving the federal funds rate around actually had some benefit, when it was all just smoke and mirrors, it was all incredible bullshit.

Peter McCormack: So, what does drive it then?

Jeff Snider: The eurodollar system; that's the thing!

Peter McCormack: It's entirely --

Jeff Snider: Yes!  So, all the stuff of the last 70 years, the eurodollar system is behind it all.  Where did the Great Inflation come from?  People don't know.  People think the Fed printed too much money.  The Fed doesn't even know what money is, they wouldn't know how to print it.  The banking system went nuts in the 1960s and 1970s and there was nothing to stop it.  So you had the eurodollar system, the banking system, creating way too much money outside the United States as well as inside the United States.  That led to the Great Inflation.

So we have essentially, especially during the Great Moderation, you had the Federal Reserve essentially taking credit for what the eurodollar was doing.

Peter McCormack: Do you have any allies that agree with you on this?

Jeff Snider: Sure.

Peter McCormack: You do?  We're going to have to ask Lyn about this.  You know Lyn?

Jeff Snider: Who's Lyn?

Peter McCormack: Lyn Alden.

Jeff Snider: Oh, she would disagree.

Peter McCormack: She would disagree?

Jeff Snider: Absolutely.

Peter McCormack: Why would she disagree?

Jeff Snider: Because she's a traditionalist.  You don't have to take my word for it on any of this.

Peter McCormack: Oh no, of course.

Jeff Snider: I'm talking about, you can take the word of Alan Greenspan, Ben Bernanke, Paul Volcker, all Federal Reserve officials going back to the beginning of the eurodollar system.  What they don't say in public and what they actually say in private is exactly what I'm telling you.  We have no idea how to do money.  When I do presentations, most of my presentation is using quotes from these people.  So, if you don't believe me because I'm just some funny-looking guy who shows up out of the blue, then take their word for it.

The famous quote I use from June of 2000, which was a private, internal FOMC discussion, where they were talking about how they're required by law to produce monetary targets, going back to the Humphrey-Hawkins Act of 1977, when Congress realised, "All this inflation business is probably money.  We should probably have the central bank do something about it, so you're required to produce money targets".  And in 2000, we continued to produce these monetary targets we don't use, because they're complete crap.  M1 and M2 were obsolete in the 1960s.

So, we're producing these monetary targets, and the quote Greenspan said was, "The idea that we can base monetary policy on actual money has become a dubious proposition because", he said, "the proliferation of financial products has been so extreme, we can't define money".  And the proliferation of financial products is exactly what I'm saying, how these banks, in this internal eurodollar system, actually transact back and forth the actual forms of liquidity.  The forms of assets and liabilities that go on the banking sheet are things that would blow your mind, like a currency swap.  How is a currency swap a derivative transaction?  How is that actual, physical currency?  How is it like physical currency?  Well, it is.

Peter McCormack: I'm just going to say what I've heard, okay.  So, speaking to people regularly on the podcast, different economists, different allies will say that the US Government, or the Fed, has expanded the balance sheet by, say, 40%.

Jeff Snider: Yeah, makes no difference.

Peter McCormack: It makes no difference?

Jeff Snider: None.

Peter McCormack: Why not?

Jeff Snider: Bank reserves are not money.  Bank reserves are an internal token.  They have a very limited use, and they can't escape the system.

Peter McCormack: But isn't it a case of -- again, this is where I'm hugely out of my depth, but they go into the market, they go and buy assets, they print the money to buy the assets --

Jeff Snider: No.

Peter McCormack: No?  How do they buy the assets?

Jeff Snider: Remember double accounting, so in the quantitative easing, or LSAP transaction, from the prospective of the Fed, they increase their balance sheet, which means they buy a bond and add the bond to the assets side, and create a remainder, called "The bank reserve", which is used as an asset for the commercial banks.  However, you or I can't get our hands on bank reserves, a company can't get its hands on bank reserves.  Bank reserves are only an interbank token and has very limited use inside the interbank system.  It's not like you or I are going to go into the real economy and use a bank reserve, because we can't, nobody can.

Danny Knowles: Do those bank reserves make their way into the eurodollar system?

Jeff Snider: No.  They're a simple, single-use token.  Usually their use, at least traditionally, had been to satisfy reserve requirements.  But over the last 50 years, reserve requirements don't matter, because nobody uses cash liquidity.  So, there is no need for a reserve requirement, therefore reserves are essentially an interbank token to settle, say, gross real-time transactions.

Peter McCormack: But why would they go and buy these assets then?

Jeff Snider: For three reasons, none of which are actually legitimate, none of which are money printing.  So, let's start here: quantitative easing.  Everybody looks at quantitative easing from the perspective of the Fed's balance sheet, and that's understandable, because you think the Fed is an actual central bank, you think it's actually printing money, when in fact you have to look at things from the perspective of the commercial bank they're transacting with.  When you look at the perspective of the commercial bank, after a QE transaction, nothing has changed. 

So, I'm a commercial bank, you're the Fed.  I have a US Treasury that you want to buy, because you're doing quantitative easing.  We'll get to why they want to do quantitative easing in a second.  So what happens is, I give you the Treasury, you create the bank reserves on your balance sheet, which now I have as an asset.  So from my perspective, all that has changed is I've swapped the Treasury for a bank reserve asset; that's it.

Peter McCormack: What do I do with those bank reserve assets?

Jeff Snider: Nothing, it's just an inert asset on the balance sheet.  So, nothing has changed, it's simply an asset swap, and it's not a good one either.  So, why does the Fed, or any central bank do QE, if all it is is an asset swap for a commercial bank?  The answer is, there are three proposed theoretical channels for QE.  Again, you don't have to take my word for it, this is not me talking; this is from the academic scholarship, from the central bankers themselves.  They'll tell you there's three theoretical channels for quantitative easing, and none of them are money printing.

The first one is interest rates, because it seems like if I'm buying bonds from the market, now I'm the central bank; I'm buying bonds from the market, that should raise the price of those bonds, therefore lowering the interest rate.  So theoretically, a central bank coming in and buying an asset raises the price of that asset if it's a financial asset like a bond, therefore interest rates go down.  And as we've been taught from basically the beginning of Economics 101, we're told to associate lower interest rates with stimulus, which actually isn't true, by the way.  Lower interest rates actually signal the opposite of stimulus, but we're all told, remember this is all psychology; we're all told that lower interest rates are beneficial.  So, the first theoretical channel is, I buy bonds, raise their price, lower their interest rate, that helps the public think that we've stimulated stuff.

The second theoretical channel is something called portfolio effects.  Portfolio effects are, again I'm the commercial bank, I just swapped a US Treasury, which actually had a relatively decent return on that asset for bank reserves, which have an incredibly crappy return.  So, I went from a decent return to a crappy return.  So what the Fed is expecting is that, in order to replace that earning power, I'm going to go into the market and do something and buy a risky bond, or actually lend, which is what they're really trying to do. 

If I take all your treasuries, as a commercial bank, I'm hoping you're going to replace them by lending; not using the reserves, but using your own balance sheet space to lend, because you need to earn a spread in order to remain in business.  But what ends up happening in practice is, central banks will take safe assets from banks, commercial banks, and then they'll go on the market and buy more and just replace them.  So, that's the second theoretical channel, which is portfolio effects, or what they call portfolio effects.

Then the third one is, believe it or not, sentiment.  The sentimental channel is nothing more than playing upon the public's ignorance about what actually goes on here.  If you believe that the expansion of the Fed's balance sheet is inflationary because they're printing money, then the Fed expects that you will act on that belief and you will actually become inflationary.  If enough people think that the Fed have printed money that they all start buying assets, you know, Bitcoin or other assets to shelter from, that sends a signal to the rest of the market, "The market expects inflation".

Therefore, people in the real economy act as if inflation is going to be coming, because you'll think, "Prices are going to go up, I'd better start buying stuff now".  You create this self-fulfilling prophecy where you're essentially pulling forward activity today, based upon the psychological manipulation, which is nothing more than bullshit; it's all sentiment.

So, the three theoretical channels of quantitative easing, and guess what: quantitative easing's been around for over 20 years.  The Bank of Japan started with it in March 2001, so 21-plus years.  And guess how much effect they've found in those theoretical channels, and I'm not talking about me, I'm talking about academic studies conducted by central banks and other economists?  They don't work, none of them.  There is no correlation whatsoever between bank reserves and real economic outcomes, and this predates the quantitative easing error; this goes back to Paul Volcker, again what I said about the 1970s and 1980s.

People have a very big misunderstanding of what Volcker did.  They think he stopped the Great Inflation by using bank reserves.  The idea was, if you curtail or constrain the amount of bank reserves, that would constrain the amount of depositary money creation, which then would limit bank credit, which then would limit economic activity and bring inflation back under control.  So, it was a very simple equation: limit bank reserves, eventually you restrain the economy through the banking channel. 

It didn't happen; that's not what happened at all, because there is no correlation between bank reserves, actual effective money, bank credit and the real economy, because the banking system broke that link between bank reserves and the money they used long before, decades before we got to the 1970s.  So, bank reserves are nothing more than a policy biproduct of accounting.

Peter McCormack: So, how does the eurodollar drive inflation, and what's particularly happened over the last, whatever, couple of years that's led to the current high rates of inflation?  Because, there was a correlation between the global pandemic, massive amounts of stimulus and high inflation.  That story, that narrative, it makes sense, it's logical.  But you're saying it's not that, you're saying it's the eurodollar.  So, how is it the eurodollar that's caused that?

Jeff Snider: So we've been hearing that ever since the first quantitative easing in the United States in 2009, "They're going to destroy the dollar, they're printing money, inflation's going to get loose", all this stuff.  That didn't just start in 2021, that goes back to 2009.

Peter McCormack: And we didn't see it?

Jeff Snider: And we did not see any of those things happen.  In fact, the dollar has only gone higher, we've seen disinflation, lack of economic growth, lack of recovery, up until 2021.  So, something changed in 2021 that was different from how everything had performed before.  The thing that changed was not quantitative easing, nor was it actually government intervention.  What actually changed was, as you said, the pandemic, which created all sorts of supply bottlenecks and restrictions.

What we've seen over the last year, even today, the CPI report that we've just released, which was another 40-year high, is not money-printing, it's not even inflation; it's simply a supply shock, the difference between small economics of an inelastic supply curve and a temporary rightward shift in demand.  The only way to balance those two curves is if prices go higher.  So, if more people demand a product and I'm not able to supply as many products as is demand, I can demand more for that same product; even though I'm selling less of that product, I'll make more money.

Peter McCormack: It takes me back to that YouTube video about how a pencil's made.  So, Nobody Knows How to Make a Pencil; have you ever seen it?

Jeff Snider: Is that from the poem?

Peter McCormack: It might be.  But it basically goes through every part of a pencil, because there's rubber, there's graphite, there's wood; but then it talks about every element of getting it together, so where the people cut the wood trees, then cut it into the smaller -- no one person can make a pencil, because there's hundreds of people in the supply chain that come together to create a simple pencil. 

Therefore, with the pandemic, when you close down an economy, you have a lot of issues.  So for example, right now, when I flew out here, our flight was delayed an hour and then we sat on the runway for an hour, because they didn't have enough baggage handlers to get the bags through and put them on the plane.  The airport has asked the airlines to cancel thousands of flights, because what happened was during the pandemic, they let the baggage handlers go, and there's that time-delay period, that lag, from now finding people who want the job, getting them security clearance to allow them to do the job.

Okay, so you spread that through the whole economy, you've got lots of little pressures on parts of the supply chains.

Jeff Snider: Inefficiencies.

Peter McCormack: Inefficiencies.  And I guess that if you close the global economy down for a year and a half, two years, you're going to create lots of breakages, and that's going to take time to fix.  And in the time that takes to fix, those pressures are going to push prices upwards.  That is what you're saying?

Jeff Snider: It's a supply shock.

Peter McCormack: Okay, it's a supply shock.

Jeff Snider: It's actually worse than that, because it wasn't just we shut everything down and let everything come back; it's, we shut everything down, started to come back, shut everything down again, started to come back.  Some places shut down, other places didn't, and then there were all sorts of other frictions and inefficiencies on top of feedback effects, which just made it that much worse.  So, the pandemic is what changed, not the Fed, or QE, or any of the other things.

If you look at the actual financial statistics, that come from the Federal Reserve by the way, you won't see any money being printed.  What you'll see is gross credit across the US economy, including a massive proportion that comes from outside the US economy, denominated in dollars because it's the eurodollar system.  There is a parabolic rise up until 2008, and then flat since.  There was no break in 2020, except for the Federal Government liability, which obviously exploded when the fiscal deficits from the CARES Act forward.

Peter McCormack: Danny, can you try and find a 20-year inflation chart?  I want to see from ten years prior to the 2008 Crisis, through the 2008 Crisis, right up until now, because that will be super-interesting, because lots changed in that period.  And if inflation was fairly stable, the version of events you're telling me also makes sense.  So, are you also one of those people that -- I had Stephanie Kelton on the phone, the MMT expert, a lot of people… yeah, so here we go.

Jeff Snider: See how it went lower after 2008; persistently lower despite the Fed supposedly printing money?

Peter McCormack: Yeah, so that's 2008, 2009.  But it's been fairly steady, and we can actually go further too.

Jeff Snider: You can just see the average shift before 2008 and you can actually see it better when you look at bond yields.

Peter McCormack: So, you're 20%, when's that?  About 1950.  Okay, that's post-war.

Jeff Snider: You can actually see the eurodollar system come online.  Look at how the behaviour of the CPI changes around 1955.

Peter McCormack: But I want to follow your logic, okay.  So, during that war period, we had high inflation.  The highest inflation looks to me --

Jeff Snider: About 20%.

Peter McCormack: -- looks like it's probably the five years after the end of the Second World War.

Jeff Snider: And that wasn't money printing either.  That was a supply shock after the post-war, the European economy came out, there wasn't enough supply, we were still rebuilding, still retooling after the war.

Peter McCormack: Yeah, that makes sense, that's the same --

Jeff Snider: The same thing we're experiencing now.

Peter McCormack: What happened in 1980?

Jeff Snider: 1980 was the Great Inflation, the end of the Great Inflation.

Peter McCormack: What is that?

Jeff Snider: You had the first phase of the eurodollar system between the middle 1950s and 1980, where it just got crazy, and eventually it fell apart, because you have losses built up in the system, you have the Latin Debt Crisis, for example, where banks just, by 1980, they had done too much and they sort of took a two-year break.

Peter McCormack: Okay, just for people listening on the podcast who can't see, who are not watching YouTube and don't see this, so this is the interesting thing.  From about, say, 1985 to about 2008, inflation would range between, it looks like between about 1% and 5%.  But generally between about 1% and 3%; fairly consistent with the odd spike out.  Then there's a spike up of inflation to about 5% that looks like that was right at the start of the Financial Crisis, and then it's gone down to about -2%.  So the year, 2010, the year that followed the Financial Crisis, we actually had deflation.

Jeff Snider: It was 2009, yeah.

Peter McCormack: But there was also massive stimulus at that point.

Jeff Snider: It didn't stimulate!

Peter McCormack: Well, it didn't cause inflation, but is that because the Global Financial Crisis, people just bought less shit?

Jeff Snider: Well, yeah, obviously the economy got hammered globally, but you also have a change in monetary behaviour.  You had the eurodollar no longer providing liquidity, and providing enough money throughout the eurodollar system, which created that deflation and defeated the purpose of the psychological bullshit from the Federal Reserve and the federal government.  The federal government stimulus isn't really stimulus, as much as it is a temporary redistribution of resources. 

So, it's not like the federal government is adding more to the economy; they're taking it from some parts and giving it to others, which is incredibly inefficient, as the Japanese can attest to over the last 30 years.  More government intervention leads to more deflation down the road, because it creates more inefficiencies across the economy.

Peter McCormack: Danny, what do you think, man, because this is a complete departure from every conversation we've had in the last year?  It also makes sense, and history also shows…

Jeff Snider: Well, let's talk about history.  There's an easy way to settle this.  Would you characterise the Great Depression as inflationary?

Peter McCormack: I mean, I don't really remember it! 

Jeff Snider: But what you've heard about it, what everybody says about it; it's the opposite, right, it's deflationary.

Peter McCormack: Yeah, of course.

Jeff Snider: What happened to interest rates during the Great Depression?

Peter McCormack: I don't know.  They went up?

Jeff Snider: They went down.

Peter McCormack: They went down?  Okay.

Jeff Snider: So, you would think they would go up, because you're taught higher rates, you associate with tight money.  Stop a sec, because what we're talking about is what we can see.  What we can see in the monetary system, financial system, is interest rates falling are due to the most tradable, the most liquid assets, which happen to be government bonds, and government bonds are safe and liquid.  So, when the demand for safe and liquid goes up, interest rates fall.

What can we say about the environment if demand for safety and liquidity is high?  It's consistent with the Great Depression.  So, the Great Depression, deflation, lack of money, interest rates fall.  What has happened to interest rates over the last 15 years?

Peter McCormack: Gone to zero and sometimes negative.

Jeff Snider: Demand for safe and liquid is through the roof.  What does that tell you about safety and liquidity, regardless of the level of bank reserves created by the Federal Reserve?  The eurodollar system has broken down and the Federal Reserve does QE, because it wants to try to fix it through the psychological manipulation that doesn't work.

So the market is already telling you, and I know the counterargument is, "Well, interest rates are low because central banks buy bonds".  Well, even the central banks themselves would tell you that's not what works.  So, interest rates have fallen because demand for safety and liquidity remains as high as ever, which tells you the monetary system itself is telling you, "We want safety and liquidity.  We don't want to lend". 

You see, that's the part you don't see, because interest rates to local mom-and-pop businesses are infinity.  They can't get loans if they wanted to, because safety and liquidity is what is demanded by banks, which is when we go back to the quantitative easing transaction we talked about.  This is why banks will sell a safe liquid bond to the Fed, and they go on the market and replace it with a safe liquid bond.  They don't go and lend, because they don't want to lend.  The liquidity and safety environment says, "Safety and liquidity, otherwise you become Bear Stearns".

Danny Knowles: But we're told that QE is adding liquidity to the market.

Jeff Snider: By who?

Danny Knowles: But if that's not the case…

Jeff Snider: Well, that's the thing; who's telling you, then?  You can't actually get -- other than J Powell on 60 Minutes in May 2020, central bankers won't even say that, because they know it's not true.

Danny Knowles: Okay, so how does the eurodollar market put liquidity in the system?

Jeff Snider: By balance sheet expansion.  It's the same way that you would have liquidity under a fractional-reserve system.  How does a fractional-reserve system work?  You put cash in a vault, and then create loans based on different claims on the same cash.  Well, you can do the same thing; just eliminate the reserves.  You don't need cash, you just create different claims, based on whatever internal functions or goals you're seeking.

Peter McCormack: It's a lot to follow.  Are you getting it, Danny?

Danny Knowles: It is a lot to follow, but I think so.

Jeff Snider: That's the thing.  This is not something that's -- it's really hard --

Peter McCormack: Hold on, are we saying the eurodollar drives inflation, or are we saying supply shocks drive inflation?

Jeff Snider: Well, what we're actually experiencing now is not inflation.  Inflation is a monetary phenomenon.  What we're experiencing is consumer price acceleration due to the supply shock.

Peter McCormack: Right, okay.

Jeff Snider: So I know people are, "You're just splitting hairs".

Peter McCormack: But would you say then therefore, would you see the prices eventually come down?

Jeff Snider: Yes.

Peter McCormack: Oh, so you do think it's transitory?

Jeff Snider: Absolutely, so does the market, so does the monetary system.

Peter McCormack: So, I can see that on gas prices, I can fully understand that, petrol prices in the UK, because we had a change in the energy markets with the war, and we're seeing it.  The price of a barrel of oil is falling, so we would expect that to happen at the gas pumps, although they never seem to bring it down.

Jeff Snider: Well, there is no one-to-one.

Peter McCormack: Well, it's almost like they realise, "Well, people are still buying their fuel.  We'll just keep our prices up".

Jeff Snider: Well, as economists will say, "Prices are sticky".  So, if they go up a certain amount, when we say it's deflationary transitory, it doesn't mean that the prices are going to go back to where they were.  They may go back to where they were, but it will take a long time for that to happen.  But what usually happens is, prices go up and then they stay there, and then they stay there, and then growth meets where prices had been beforehand.

Peter McCormack: And there's this thing where people confuse inflation with price increases.

Jeff Snider: Yes.

Peter McCormack: Inflation --

Jeff Snider: Is not always.

Peter McCormack: Yeah.  You can have a price increase without inflation.

Jeff Snider: Yes.

Peter McCormack: And then, you can have price increases with inflation.

Jeff Snider: So, like we were showing, that 1946 massive spike in consumer prices was not inflation, that was a supply shock based on restricted supply and growing demand, exactly as we're seeing today.  So, we would expect, despite the fact that the CPI went higher today in the United States and is likely to do in Europe, that yes, consumer price acceleration is transitory, because it's not monetary inflation.

Peter McCormack: You're saying some controversial things today, man.

Jeff Snider: I'm only saying what the markets, what the money system, what the data, what the evidence tells me.

Peter McCormack: And it makes sense.  I'm going to forward it all to Lyn Alden and say, "Look, Lyn, can you listen to this?  What do we think?"  Okay, right.  So, I just want to go back to the eurodollar.  It's not the expansions of the Fed's balance sheet that causes inflation, because it's just a token swap.

Jeff Snider: Right.

Peter McCormack: But the expansion of the eurodollar does drive inflation, because that does put more money -- that is always expanding, because it's fractional-reserve --

Jeff Snider: Essentially.

Peter McCormack: It essentially actually is pushing more money out there.

Jeff Snider: Yes, because you're creating loans, you're creating money, usable money that's on the ledger system, so there's more ledger essentially available to be used across the global economy.

Peter McCormack: Okay, so if you go to Argentina with their, whatever, 50%, 60%, 70% inflation, or you go to Turkey with their, I think they hit 90%, why are they seeing massive high inflation?

Jeff Snider: Because they can't get dollars, as paradoxical as that sounds!

Peter McCormack: Is it really?

Jeff Snider: Yes, because in a restricted monetary environment, what happens?  The global banks that are restricted in the amount of ledger money they can create, the amount of monetary resources they have available, they're going to be very picky about where they distribute their chips, so to speak.

Peter McCormack: In this opaque eurodollar system, you mean?

Jeff Snider: Right.

Peter McCormack: So, Turkish banks aren't part of this?

Jeff Snider: They are, but everybody needs dollars, everybody's connected to the eurodollar system.  However, if you're a eurodollar provider, you're not going to lend to Turkey, because it's incredibly risky.  Remember what I said, safety and liquidity are the priority.  Argentina and Turkey do not qualify as safety and liquidity, and the more constricted the eurodollar system is, the more they don't qualify in terms of safety and liquidity, they draw a hard line.

So you see Argentina, Turkey, Sri Lanka, Beirut, suddenly these countries can't get any dollars, which means they can't really transact on the global marketplace, which leads to all sorts of economic, social and political consequences.

Peter McCormack: And again, is this the banks can't get dollars, or the government; who can't get the dollars?

Jeff Snider: The local banks.  So, the Turkish banks who need dollars to provide to the Turkish corporate sector so the Turkish corporate sector can transact in dollars in the global marketplace, because you need dollars to transact.  You can't use yuan, unless you're transacting bilaterally with China, which that's all sorts of dangerous too.  So, you need dollars, everybody needs dollars, because back to what we said.  A reserve currency is a currency that's available and usable everywhere.

Peter McCormack: But so, in Turkey, these banks can't get dollars, therefore they're having to buy with the Turkish lira, which is higher risk, therefore the price goes up --

Jeff Snider: And the lira --

Peter McCormack: Goes down, and therefore that has a compounding effect, because next time they want to buy, all your lira's dropping and you want even more --

Jeff Snider: And you're even riskier, so I'm going to charge you an even higher premium just to even talk to you.  So, the eurodollar is at the centre of all of this, and safety and liquidity, which are the exact opposite of what we need for economic growth.  We need risk-taking, animal spirits, as John Maynard Keynes said.  And with the liquidity environment and a broken eurodollar system --

Peter McCormack: Hold on, are you a Keynesian?

Jeff Snider: No.

Peter McCormack: Okay.

Jeff Snider: But, I mean John Maynard Keynes and everything that's done in his name, some of the worst stuff imaginable.  However, that doesn't mean everything the guy said we should just throw out.  He has a lot of good ideas, like liquidity preferences.  His liquidity preferences theory explains pretty much everything that's going on now.

Peter McCormack: Okay, so this takes me back to the general fear of Weimar-style hyperinflation becoming an issue in western liberal democracies, and you actually fear the opposite, which is deflation?

Jeff Snider: Which is exactly what's happened over the last 15 years.

Peter McCormack: We have had deflation?

Jeff Snider: Yes.

Peter McCormack: But that chart says --

Jeff Snider: That's the US.  You've got to remember, this is a global system.  We've had disinflation in the US and outright deflation in other parts of the world, like Europe, Japan, so other major economies.

Peter McCormack: So, Japan has stagflation.

Jeff Snider: No.  Japan has a lack of economic growth and deflation.

Peter McCormack: Okay.  The UK has had GDP growth.

Jeff Snider: But it's not at the same rate it used to be.  Again, you see 2007, 2008, it's like somebody flipped a switch.  It's not like growth stops entirely.

Peter McCormack: So, growth is slowing?

Jeff Snider: It's slowed dramatically. 

Peter McCormack: Okay.

Jeff Snider: So, in the US you'll see GDP growth go like this, then there's a 2008 crash, and then it never recovers, even though GDP before 2020 was at record highs, it was at nowhere near what it would have been had the economy continued to grow at the same pace if 2008 never happened.  In fact, it's so big, so different, that people don't even believe it when you draw the chart.  We're about $6 trillion short in GDP after a dozen years of lack of economic growth. 

So, everybody thinks the economy was booming, inflationary, heard all that crap in 2017, 2018, the last crypto bubble in 2017 in particular, inflation's coming, globally synchronised growth, recovery, all that stuff; it never happened, because it wasn't true, it was all just smoke and mirrors.

Peter McCormack: Okay, so if that is true, how much is this to do with the productivity in the world?  We've certainly seen a massive increase in financial products and services over tangible products and services.  Is that any part of it?

Jeff Snider: That's the Cantillon effect of the eurodollars.

Peter McCormack: But is that part of --

Jeff Snider: By being able to create money, essentially banks have created their own place in the world at the centre of the world.  So, once you become the money printer and intermediation function, you need to create products essentially!  That's what Alan Greenspan was saying, "Proliferation of financial products is so extraordinary, we can't use money as a monetary policy, because we don't do money".

Peter McCormack: Right, so the risk is global recession, deflation, which is something we are seeing; we are seeing GDP growth slow.

Jeff Snider: It will be a lot more the last half of this year.

Peter McCormack: And is that an unstoppable force?

Jeff Snider: Yes.

Peter McCormack: Okay, so this isn't even a case of, okay, this is what might come, this is what we should do; no, this is coming.  And is this a reset?

Jeff Snider: It depends on what you mean by reset.  There's all sorts of connotations with that term.

Peter McCormack: Yeah, forget the --

Jeff Snider: The Great Reset, yeah.

Peter McCormack: -- Charles Schwab and his bullshit, I'm thinking more, we talked about we had a massive period of prosperity and 20 years of economic growth; is this essentially our rebalancing period now?  And, do these periods tend to match, or can it all happen in 5 or 10 years?

Jeff Snider: Well, we're still in the same 15-year funk before we ever got to COVID, and I don't understand why people thought we would shut down the global economy and come out of it better than we came into it.  So, we were already in a deflationary funk by 2019, one that had been extended for almost a dozen years by that point.  And then, we made it worse.

Peter McCormack: So, they're kicking the can down the road?

Jeff Snider: Not even kicking the can down the road.  Everybody confused CPIs for economic recovery.  And like I said, when you look at the supply/demand curve, we actually have less economic activity, but higher prices, which people think that the economy was red hot.  It wasn't.  We haven't recovered from 2020 and before 2020, we hadn't recovered from 2008.  We're actually ratcheting downward.

Peter McCormack: So, if you look at history, are we heading to a 1940s style depression?  What are your predictions?

Jeff Snider: Well, 1940s wasn't the depression, 1940 was the --

Peter McCormack: Oh, 1930s, wasn't it?

Jeff Snider: 1930s.  I think we've been in more like an 1880s style depression for the last 50 years.  My podcast co-host, Emil Kalinowski, calls it the "silent depression".  So, ever since 9 August 2007, we've been in this silent depression.

Peter McCormack: And when you say "silent depression", is it because we're getting poorer, but we think we're getting richer?

Jeff Snider: We're getting poorer, but nobody really knows it.  I think people understand something is not right, but they can't put their finger on it, which is why crypto enthusiasm has become what it is, because I think intuitively people understand there is something wrong here, not just in the economy, not just in the -- but in the monetary system itself; we just don't know what it is, because we keep getting bad information, we keep getting bad media signals, we keep getting the wrong ideas that were implanted in our heads from the very beginning of Economics 101.

Peter McCormack: We seem to have more money, but we don't seem to be saving.

Jeff Snider: We're not doing anything.

Peter McCormack: We seem to be richer, but our kids can't afford homes.  The middle class is having the fuck squeezed out of it.

Jeff Snider: Where did it go?

Peter McCormack: I don't know, you tell me; that's what you're here for!  I don't fucking know!

Jeff Snider: Well, I'm telling you!  What happened was, we had maybe the illusion of prosperity, especially in the 2000s, in the 21st century, then it all just fell apart and it's never been put back together.  And that's the thing about inequality.  As you said before, people who did really well up until 2007, they're still doing really well, they're fine.  However, when you get into these depressions, what happens every time is that, and this was another think John Maynard Keynes was correct about when he said, "Deflation is by far the worst evil", because deflation means, who pays for that deflation?  Not the rich person, not even the business owner; workers do.  Workers get the short end of the shaft of any deflationary environment.

Peter McCormack: Explain why though?

Jeff Snider: Because what happens is just simply, liquidity risks and things like that, business owners can't afford labour.  They can't afford to pay labour what labour demands, and therefore it becomes sort of a vicious cycle of self-reinforcement.  So, employment workers suffer in every deflationary depression.  What have we seen over the last 15 years?  In the United States, the labour force participation rate has plummeted.  So, silent depression again, the unemployment rate, which doesn't take into account the participation problem, looks terrific. 

So, if we ignore all those millions of workers who left the labour force because there are no jobs, everything looks great.  But those millions of people still exist, they don't have a job, they've gone 15 years without it.  And then the labour force participation fell again in 2020 and still hasn't come back.

Peter McCormack: But there's all these unfilled jobs.  You go to restaurants and they're saying, "We've got a reduced service, because we can't find staff".  You've got these baggage handlers, you've got all these --

Jeff Snider: There's no such thing as a labour shortage.  A labour shortage is cured in a second if you pay the market clearing wage.

Peter McCormack: So you mean get rid of minimum wage?

Jeff Snider: I'm not talking about minimum wage.  Obviously businesses are not paying the wage that the market demands to get people out of their homes and working again.  And people think it's because the government paid them to sit on the couch, but that's not really the case.

Peter McCormack: What is it then?

Jeff Snider: Again, John Maynard Keynes' deflationary environment, companies can't afford to pay workers.

Peter McCormack: Okay, but hold on, they're advertising jobs.

Jeff Snider: They're advertising jobs, but what are they paying?

Danny Knowles: Below the rate that they need to pay.

Jeff Snider: It has to be below the market clearing rate, otherwise workers would be in there in a second.

Peter McCormack: But there are people who could work, if they weren't receiving money from the government?

Jeff Snider: Those anecdotes are popular, they've been used to explain why the participation rate remains low, and they've been primarily forwarding the idea of this Great Resignation too.  That has been forwarded by the mainstream to essentially try to explain what otherwise would be a deflationary outcome, because we don't believe it, media doesn't believe in this deflationary stuff.  This is, "The Fed created by J Powell, sat on 60 Minutes and said, 'I flooded the world with dollars', so that must be what happened".  And everything that doesn't agree with that statement, which is basically everything, we have to find a way to explain it.

The labour shortage is one way to try to explain low participation rate, even though the participation problem is simply repeating the same thing that we saw in the aftermath of the 2008/09 Great Recession, because it wasn't a recession.

Peter McCormack: So, if you had to get your crystal ball out and say, "The next year, next five years, next decade…" how does this play out, what's going to happen?

Jeff Snider: You don't need a crystal ball, the markets tell us.

Peter McCormack: Okay.

Jeff Snider: So, if you look at first of all the yield curve, treasury market, not good.  Something like eurodollar futures; eurodollar futures is these banks in the monetary system hedging these massive portfolios.  So, they're telling you what they perceive as safety and liquidity risks in this marketplace.  And the eurodollar futures market is unbelievably pessimistic right now.  The curve is inverted, which means that the market is expecting the Fed to raise rates a little bit more, and then they're going to go down sharply.

This year, the probability is that the Fed will stop raising rates this year and start cutting them.  So, what does the economy and financial markets look like, where ultra-hawk, J Powell, with a new 40-year high CPI as of the June data, stops hiking rates and starts cutting them; what does the economy and markets look like under that scenario?  That's what's being priced today.

Danny Knowles: Is that because the Fed think like you and think there isn't monetary inflation and the numbers are due to other factors?

Jeff Snider: Yeah.  I mean, part of it is that I think the Fed still believes that this is transitory consumer prices, which they're correct, and that they've done these rate hikes and especially gotten aggressive with them for political reasons.  So, part of it is the political pressure changes, but why would political pressure change if consumer prices don't come down? 

So, if the Fed is going to stop hiking rates and start cutting them at some point in the next six months, eight months, nine months, whatever it is, what does the environment look like, either politically or economically or financially?  It still doesn't look good.  So, the markets are hedged against pretty bad scenarios, and there are any number of reasons why, including in the monetary system itself, some of these fundamental characteristics of this eurodollar system, like the supremacy of collateral and the fact that collateral has been a thorn in the side of the monetary system since 2007, and it continues to be today.

Peter McCormack: What, because there isn't any?

Jeff Snider: There's not enough.  And that's another one of these intuitive problems that people have, when you say, "What is the best form of collateral?"  "It's government debt".  "There's not enough collateral".  "Wait a minute, there's not enough government debt?  Are you really trying to say there's not enough government debt?"  "Yes, that's exactly what I'm saying".

So, governments issue financial securities, treasuries, and German Bunds and JGBs that are used as collateral, but they're not just used one time, they're repurposed, reused, rehypothecated.  So there's essentially, believe it or not, a fractional-reserve multiplier of collateral.  So, the collateral stream can expand and contract based on several factors, and what we're seeing over the last really six months is that the collateral multiplier is shrinking, which is not good, because that leads to all sorts of deflationary liquidity problems, which you may have noticed in some markets over the last few weeks.

Peter McCormack: So, do you think they're going to create more, a massive increase in government debt, no?

Jeff Snider: No, because the government doesn't pay attention to these things, especially Janet Yellen.  Janet Yellen as Fed Chair…!  Again, what I come back to when I say, "The Federal Reserve is not a federal bank".  They don't actually pay attention to the monetary system.  I know that's hard for people to believe, but that's exactly the case.  It's a dirty little secret there.

Peter McCormack: Has any of this got to do with why we hit dollar/euro parity recently, why the dollar is so strong?

Jeff Snider: The dollar goes up.  That means that there's a shortage of dollars, as we talked about with Turkey and all the others.  The dollar goes up; that's bad.  That means that dollar shortage is becoming a real problem.  And the dollar has gone up a lot over the last six months.

Peter McCormack: So, how do you get more dollars in the system?  Is that where they print and then issue --

Jeff Snider: The banks need to create balance sheets, but they're actually safe and liquid.  And in a safe, liquid environment, what do you do?  You actually get into the situation that's called "backwards elasticity".  What money dealers are supposed to do, and this is a basic money fundamental proposition too, something I talked about with Robert Breedlove to a certain extent, which was that elasticity means that you have to have people in the marketplace willing to provide money when nobody else will.

If the eurodollar system isn't providing money, that means nobody else is doing it too.  But there are all sorts of profit incentives that under normal circumstances, they would provide money, because you could make a lot of money doing it.  You could create a generous amount of -- September 2019 in the repo markets is a perfect example.  Repo rates skyrocketed, which if you were a repo dealer, you could have made your entire year's profit in a single day.  But the opposite happened, which was the more the repo rate went up, the more the dealers took themselves out of the system, because they realised there's too much risk, even at a high repo rate.

In other words, in general terms, not just September 2019, like today, we see the dollar skyrocketing, because the banking system is saying, "We could make a lot of money lending to Turkey, but that would be really bad, because the return I would get from Turkey still isn't high enough yet to make me want to lend to Turkey".  So, the higher the return, or the higher the rate being charged in Turkey, the less I want to deal with Turkey, because that just means Turkey's more of a risk. 

So, it becomes a backwards elastic situation, where the more inelastic, or the less money there is available, the less money there will become available, because everybody's pulling back at the same time.  You become risk averse based on all of these signals that are telling you risks are high.

Peter McCormack: So the thing to do is accept we're heading into a deflationary, recessionary period.  How does that itself play out?

Jeff Snider: That's the trillion quadrillion dollar question, right?

Peter McCormack: How are you preparing for this?

Jeff Snider: Well, I think again, look at the markets and what they're telling us.  So, the odds of a deflationary pulse -- again, that doesn't necessarily mean that prices are going to come down in the United States.  It means by and large, we'll have deflationary money and then deflationary monetary consequences, which can play out as a deep recession, for example, in the US, and maybe deflation, outright deflation of prices elsewhere around the world.  But what we're looking at is the markets are telling us that the risks of a severe recession and deflationary monetary episodes are exceedingly high right now.  So, what does that actually mean?  It's hard to say at this point, because it's just starting.

Peter McCormack: But how are you preparing?

Jeff Snider: How am I preparing?

Peter McCormack: Yeah, how are you preparing?

Jeff Snider: By being very risk averse!  If you're talking about in terms of investments, we're looking at being long US Treasuries, for example, is one way, because in a deflationary environment, as we're seeing with the yield curve inverted today, even though CPIs are high and very high expectations, the yield curve is upside down, and it's upside down since the most it's been since 2006 and 2007, which is telling you that at some point, it's going to pay to own safe and liquid instruments, because everybody's going to want to earn those same things.

Peter McCormack: Well look, my business is UK-based, but all my sponsorship deals are priced in dollars, because the majority of my sponsors are US-based.

Jeff Snider: Eurodollar!  Everything's US dollar!

Peter McCormack: And, that's been good for me over the last six months, because the pound's now down to $1.18 and I remember it when it was £2 to the dollar; I mean a while back, but even at the start of this year, it was £1.40.  So, for every dollar I bill, I'm getting --

Jeff Snider: An extra pound or two, partial.  What is it, pence?

Peter McCormack: Yeah, pence.  So, for every dollar, I'd get about, what is it, about 71p at the start of the year; now it's about 82p, I think.  Yeah, so I'm making probably an extra 10% to 12%, 13%, I don't know what the maths is.  But yeah, that has been good.  But then my costs when I come out here are getting more expensive, so I'm seeing both sides of that.  I mean, this is obviously a massive curve ball!

Jeff Snider: Well, I think that this entire discussion has been a massive curve ball, and that's fine.

Peter McCormack: Yeah, but there's a lot of logic to it, which is why, I mean I don't know about you, Danny, there's a couple of people I want to ask questions.

Danny Knowles: Definitely.  I mean, this is exactly how I thought this conversation was going, and I'm really glad it has gone this way, because it's completely different to what we hear from a lot of people in Bitcoin.

Peter McCormack: I think I would rather prepare for a deflationary recession than I would want to prepare for a Weimar Republic hyperinflation.  I mean, they're both shit.

Jeff Snider: Well, yeah, because you're talking about two different extremes.  The Weimar hyperinflation is an extreme of an extreme, whereas even a prolonged deflationary depression is an extreme.

Peter McCormack: But it does feel like that's a reset from the exuberance of a certain period.

Jeff Snider: It could be, yes.  I for one would kind of like to get out of these deflationary cycles.  I have kids too.  I'd like to see them have somewhat of an optimistic future.

Peter McCormack: What is the way to get out of this though?

Jeff Snider: Fix the monetary system.

Peter McCormack: How do you fix the monetary system?

Jeff Snider: Yeah, that's another tough question that I don't think we're going to solve in a couple of days of conversation.  Theoretically speaking, ideal circumstances, I believe it's what I said at the beginning, which is a currency system that is relatively elastic, smartly elastic, that avoids both extremes.  You don't want it to be too inelastic, and you don't want it to be too elastic, so you could get into a situation like the middle 2000s where it does too much.  So, a system that can balance between fixed, and basically infinite.

Peter McCormack: It feels like next time I come to Miami, maybe that's what we'll explore, try and get you back on.  Danny, anything we've not asked that you want to ask?

Danny Knowles: The one thing I've been thinking is, if we think we've been in this deflationary period since 2007, did you say, how long do you think we can stay in it?

Jeff Snider: Oh, look at the Japanese example, they're in their 4th decade.

Peter McCormack: 4th decade?

Jeff Snider: Yeah, that started in 1989, 1990.

Peter McCormack: What has the impact been on the general public?

Jeff Snider: It's a death spiral.

Peter McCormack: It's a death spiral?

Jeff Snider: Yeah, I mean the Japanese have essentially committed cultural and economic suicide.  There are literally fewer Japanese now.  Everybody simply believes that that's some kind of problem of the Japanese system or the Japanese culture.  But when your economy doesn't work and you get pessimistic and you fear for your children --

Peter McCormack: Is this the depopulation thing that's happening as well?

Jeff Snider: Yeah, the demographic.  The Japanese have taken it to an absolute extreme, because their economy has been for shit, literally for shit, for more than 30 years.  It's just too much.

Peter McCormack: And what could or should they have done?  Should they have accepted the pain to allow them to rebuild?

Jeff Snider: No, they should have demanded actual reforms, instead of one QE after another.  They're on QE 25 or 26.  At some point you would say, "This doesn't seem to be working here".

Peter McCormack: And do you think the QE is essentially a symptom of the way the political system is designed in a cycle?

Jeff Snider: As we said, those on top seek to remain on top, and QE is one way to placate the masses a little bit to at least say, "Hey, we're doing something.  You don't know what we're doing, we don't want you to know what we're doing, don't ask too many questions, just be happy we're printing money and go about your life, and just believe we will take care of it for you".  And in a rigid society like Japan, that has worked for 30 years.

Whereas in other societies, like our own or around the world, you end up with, "Hey, this is not working, the economy is not growing.  We're going to find other people to provide us with answers, whether they're populist right wing, populist left wing, communist, whatever, you have political and social polarisation, because when an economy does not grow, people's livelihoods are threatened, they look for extremes.

Peter McCormack: Civil unrest, uprising population.

Jeff Snider: Eventually war. 

Peter McCormack: Eventually war, and all of these things --

Jeff Snider: We're already there.

Peter McCormack: -- we're seeing all parts of this in different parts of the world.

Jeff Snider: It's like you said, this did not show up in 2020.  This has been building for 15 years, because as you look at all the GDP charts, not just in the US, you can see the same thing in Europe, it grows at one rate, we hit 2008, it grows at a very different rate.  In some places, you look at Italy for example, Italy's GDP in 2019 was about, I think, 5% less than it had been in 2007.  So, they're not even growing at all, they're shrinking.

You can't go a decade and a half without legitimate economic growth.  You can call it a boom all you want.  People realise it's not a boom when their livelihoods, their daily life is threatened, and they start looking for answers.  Some of them are productive answers, like cryptocurrencies.  I absolutely believe that exploration of digital currencies is a very good thing.

Peter McCormack: Bitcoin!

Jeff Snider: Yeah!  They engineered blockchain technology --

Peter McCormack: Bitcoin!

Jeff Snider: -- a disruptive technology, a revolutionary step in the right direction.  Just need to keep going.  I think it's one step, there's several more to take.

Peter McCormack: Let me put it out to you.  Bitcoin could be part of the solution.  The rest of crypto, blockchain, is probably more like the eurodollar system.

Jeff Snider: Yes, I agree with you, most digital currencies are crap.  A lot of them are scams, but that's how technological revolutions go.

Peter McCormack: Yeah.  Oh, man, this was fascinating.  I think we're going to come back to Miami, because we're going to need to do a follow-up, because I need to take this, I need to talk to other people.  There's a lot of implications of this if you're right.  I need to talk to the people who are going to say, "Shut the fuck up, he's wrong"; I'm going to need to talk to people who go, "Oh my God, that's amazing, that's right, that's correct".  I just need to bring it all together.

Jeff Snider: Well, like I said, you don't have to take my word for it.  All you've got to do is do a little bit of research; you can take their word for it.

Peter McCormack: Okay, well I will do both.  Jeff, tell people about your podcast and where to find you.

Jeff Snider: Yeah, I do a podcast called The Eurodollar University, where we dive into these deep topics.  I have a co-host, Emil Kalinowski, another eurodollar monetary enthusiast.  It's at YouTube.

Peter McCormack: Is he here?

Jeff Snider: He's actually in the Cayman Islands.

Peter McCormack: The irony!

Jeff Snider: Yeah.  Eurodollar, he's obviously offshore, has to be!

Peter McCormack: He's near the spigot!

Jeff Snider: Exactly.  He's in one of the banks, in their offices all the time.  So, yeah, Eurodollar University podcast, it's at his channel, Emil Kalinowski on YouTube, Apple Podcasts.  I'm at Atlas Financial, registered investment advisory business, you can check us out; portfolioshield.net.  We also have a research product that we're launching, go to marketsinsiderpro.com.  I do a column at RealClear Markets, a column at Epoch Times, so I'm usually printing stuff somewhere a couple of times a day.

Peter McCormack: As long as it's not money.

Jeff Snider: I walked right into that one!

Peter McCormack: All right, man.  This was fascinating.  Thank you so much for coming on.

Jeff Snider: My pleasure.

Peter McCormack: These are my favourite types of shows to make, and I absolutely loved it.  I know Danny was really enjoying it.  Jeremy?  Thumbs up from Jeremy.

Jeff Snider: All right, great.

Peter McCormack: But listen, take care, let's do this again soon.

Jeff Snider: All right, thanks, Peter.