The 2026 Macro Picture: Energy shock, dollar shock, and credit shock
In this episode, we sit down with Jeff Snider of Eurodollar University to unpack the hidden forces shaping today’s global economy.
From the breakdown of the eurodollar system and the rise of shadow banking to the reality of dollar shortages despite central bank “money printing,” Jeff challenges conventional narratives about how money actually works. We explore the implications of energy shocks, credit market stress, and structural stagnation—and why these forces are driving growing demand for gold.
If you’ve ever felt that something in the economy doesn’t quite add up, watch this conversation to get a deeper framework for understanding what’s really going on beneath the surface.
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Transcript
Jeff Snider
And the reason why socialism has become popular is because the economy that we have today looks a lot like what Marx warned us about 150 years ago. It doesn’t function the way it should. Therefore, it kind of makes a crazy man in Karl Marx look like he knew what he’s talking about. You’ve got everybody on the other side saying, look at the stock market, look at how great everything is, this system works really well.
And a lot of people—and there are way too many people—who are struggling, saying, what the hell are you talking about? This economy sucks and has sucked for a very long time. And here in the 2020s, it seemed to have somehow gotten even worse. We went from millennials living in their parents’ basement because there were no jobs to now those millennials living in their parents’ basement have zero hope, zero future, and they can’t even afford to live in the basement. We are losing the system that we have because nobody’s making the argument that we can get out of the situation that we’re in.
Why the economy feels broken (it actually is)
Monetary Metals
Welcome back to the Gold Exchange Podcast. I am joined by one of my favorite guests, Jeff Snider from Eurodollar University. Jeff, welcome back to the show.
Jeff Snider
Hi, Ben. How you doing?
Monetary Metals
I’m doing great. There’s so much happening in the eurodollar world. No one better to talk to than Jeff Snyder. So Jeff, what is happening in the euro-dollar system? Are things better than ever? Are they starting to crack? Is the system starting to shift to something different? What’s going on in the euro-dollar world?
Jeff Snider
Well, I think the biggest story in the euro-dollar system, apart from the Iran conflict—let’s be honest, I mean, that’s, that’s the one that gets everybody’s attention—and therefore the potential downside consequences from the energy shock, which, I mean, at this point it’s really difficult to tell what that’ll mean.
Historically, energy shocks don’t end up good for the economy, but we don’t know if we’re there yet. And of course, everything is being driven by geopolitical flows and/or news flow, geopolitical developments. And so it’s really hard to gage and separate how much of the marketplace and how much of the system is focused on what is the right price of oil right now? Is it the dated Brent cash prices that are $130 a barrel, or is it futures prices in the summer that are down around $75?
So there’s a ton of uncertainty as far as the energy shock goes. But I think as far as oil, petroleum, it’s almost like a binary outcome here. It’s either we get the historical case, which 1990 is a good example, oil prices prices soared for a couple months, you know, went from 15 to 40. And after 3 months, you got the S&L recession in 1991.
Or it could be, hey, Trump administration gets this thing figured out really quick. The tankers start flowing, we start to make up some of the deficits, inventories get drawn down, but they get refilled, and therefore the damage isn’t necessarily going to linger all that long. One camp or the other, there’s almost no middle ground.
And certainly the stock market has picked its side, looking for the most positive outcome. But other than that, I mean, we’ve been talking before we got to Iran about private credit in the credit market overall. Whether or not we’re seeing a credit market downswing, which I think has pretty much been established at this point. And then ultimately, what a private credit bust might actually mean as far as financial impacts, real economy impacts, and everything else.
And so you saw the marketplace up until Iran, up until the beginning of March, really focused on the downside of the credit cycle and how that was developing. And seemingly, you know, for a couple of weeks there was one thing after another, after another, after another. Getting bigger and bigger and bigger, which has been the pattern really since last fall. Ever since Tricolor and First Brands first hit the news, it seems to be a one-way street.
It’s just more escalation. While private credit proponents try to downplay everything and say, you know, these are just a bunch of one-offs, it just keeps going up and up and up and further and further down that direction. So in fact, a high-level Deutsche Bank person said if it wasn’t for the Iran conflict, this is all we would be talking about because that’s all the markets would be focused on, would be what is really going on in the credit cycle and what does that ultimately mean for just everything across the board, not just in the US either. This is a global thing, which is why, you know, we’re talking about it in the euro-dollar perspective.
Monetary Metals
And on the global stage, we’ve heard stories that, for example, Dubai has said, hey, we might need a dollar swap line at some point. How important do you think that is? And where is the, the Chinese yuan angle to this? They said, hey, if we can’t get dollars, we might have to go to the yuan. Is that a bargaining chip? Is that because they see the yuan as the second best option? Where is this whole global, if you want to say, dollar shortage showing up?
Jeff Snider
So that’s the other part of the energy shock. The energy shock brings with it a dollar shock for a couple of different reasons. The first one is the obvious one. You got countries like Indonesia, India, or even Australia to a certain extent that were not prepared to pay a huge premium to buy oil that they thought they had already bought ahead of time that now was stuck in the, in the Arabian Gulf or Gulf of Arabia.
So suddenly they have to buy oil, which means you gotta find dollars from somewhere. You gotta go into the marketplace and say, I need to borrow some dollars cuz I gotta get some oil in here pronto. So that’s already the dollar shock, which means demand for dollars goes way up. At the same time, a lot of dollar providers are like, do I really want to give dollars to Indonesia right now?
Because first of all, Indonesia not in great shape to begin with, but suddenly if I’m thinking ahead and we get to the worst case scenario globally from an energy shock, that’s not going to be good for, you know, some worst case. It’s like, you know, ’97, ’98 Asian financial crisis territory here.
I mean, you know, that’s a little extreme, but you can see why dollar providers would say, I’m not really sure I want to provide so many dollars to Indonesia. So Indonesia needs a lot more dollars. Dollar providers say, yeah, I’m not sure I really want to give them to you. So the price of money goes way up, which you see in the US dollar exchange value going higher and some other things that, uh, confirm the dollar shortage there. That’s one part of the dollar shortage.
The other part of it is what we’re seeing in Dubai is the lack of money flow, lack of money flow specifically with those—UAE is a big one, but other oil exporting nations as well. They just have fewer dollars coming in because they aren’t selling any oil. Uh, that’s a big thing for the UAE and Dubai specifically because Dubai has long since made its choice here. The UAE has gone heavily into becoming the next City of London. There’s something called the Dubai International Financial District or whatever it is, various terms for it. But essentially, just like the City of London, Dubai has become an international Eurodollar center.
They’ve set up a, you know, special administrative courts, special laws, special regulations. It’s a self-contained system just like the City of London in order to replicate those same functions within the Eurodollar framework. So it’s not like they’re going to say, we’re done with dollars.
We’re going to swap to China yuan because China yuan and China’s system are not going to give them the same level of access and benefits like they’re getting here. If that even came up, and I’ve seen reports saying it really didn’t, it was more of a negotiating tactic than anything else. But Dubai’s problem is without the oil dollars flowing in along with the tourism dollars too, let’s not forget Dubai has become a tourism center too.
So you got a lot of foreigners, especially wealthy foreigners coming into, to UAE. Bringing lots of funds, a lot of business with them. You’ve got less dollars flowing into Dubai, but Dubai as a financial center has relent those dollars across the rest of the world, especially the Global South. That’s the, the point of this, uh, Dubai experiment is to become the City of London, the centerpiece of the Eurodollar framework for the developed world in, in the ’50s and ’60s, to be the center of the Eurodollar framework in the 2020s and beyond for the Global South.
But it depends upon dollars flowing in because like anywhere else in the financial landscape, you have maturity transformation. Everybody’s borrowing short-term dollars coming in, you borrow them short-term, but relend them long-term.
And if the dollar short run starts to dry up because you’re not selling oil, so those dollars don’t become available, other financial centers become a little bit skeptical about doing business with Dubai for a lot of obvious reasons due to, you know, the Iran conflict alone makes it a lot more dangerous. Suddenly the dollars, the short-term dollars become less available for Dubai. What are you going to do as Dubai? You’ve got all these financial firms that you promised the world, you promised them the sky.
And suddenly they’re having trouble sourcing local dollars. So of course the UAE government’s going to go to the Treasury Department and say, if this continues to get worse, you got to help us out here. We got to have some access to short-term dollars somewhere. That’s where it’s really coming from. And I think that’s, it’s part of a bigger, broader story, which is the other part of the dollar shock from the supply side, where the supply of dollars starts to dry up.
And that’s not just a, a problem for Dubai or the UAE or even the Middle East. That can have global financial and economic implications.
The Fed isn’t printing money, here’s what they really print
Monetary Metals
Jeff, when people are listening to us, especially some people in our audience, they might think, what do you mean a dollar shortage? The Fed is printing so much dollars. What do you mean there’s a dollar shortage? Aren’t people using dollars all the time because they’re just printing so many of them? What are people missing when they hear dollar shortage? But on the other hand, while the Fed is constantly printing all this currency.
Jeff Snider
Yeah, well, what is it the Fed actually prints? That’s really the question. It’s assumed—everybody assumes they print money because they have the ability to print physical currency. But physical currency hasn’t been any large part of the system for 100 years. Nobody uses Federal Reserve notes for anything other than illicit activity.
In fact, the US dollar is the biggest form of currency that criminals use anywhere on the planet. That’s not really what we’re talking about. But the idea is that the Fed creates bank reserves from its balance sheet activities, which when they buy an asset, whether you call it QE or currently when they’re buying Treasury bills, to raise the level of reserves, it sounds like the same thing, right? They print physical currency, they print bank reserves.
What’s the difference? Well, the difference is bank reserves are a specific case of quasi-money that are only available and useful within the context of the interbank system. Now, that’s not nothing, but it’s not, it’s not as important as what people make it out to be. In fact, these bankers that are often talking about like base money, as if banks need these reserves in order to then create fractional reserves and, and the money that we actually use, which is not true either.
Uh, the system that we have is a ledger money system that, uh, depends upon private bank ledgers and private bank money. So the Federal Reserve, when it creates the level of bank reserves, is trying to influence the behavior of the, uh, commercial banking sector so that if the commercial banking sector thinks, well, I’ve got access to these limited-use interbank tokens, maybe that will convince me to take more risk in the real economy.
Therefore, I’ll, you know, I’ll recirculate the dollars that the, the world actually uses, these eurodollars. I’ll recirculate more of those or create more of those through loans. And therefore, if the Fed creates bank reserves, it will lead to an increase in actual useful money outside the system. But the two don’t necessarily go together.
In fact, they don’t really go together, which is why when you look at the Fed’s bank reserves in history, before 2008, there were practically none of them. The system didn’t even want them. Nobody wanted to hold the Fed’s reserves because it was far more useful to hold a liquid balance on JP Morgan’s balance sheet or Deutsche Bank or Mitsubishi’s balance sheet. Or somewhere in the euro-dollar system.
That was the money that drove the world. It’s private bank balance sheets. After 2008, when the private bank balance sheet system broke down, the Fed created a bunch of reserves to try to get banks to think, well, I’ve got these access to reserves, therefore I can start taking risks again. But they never actually did.
So people see the one part, they see the Fed creating all these bank reserves in response to the monetary breakdown in the commercial banking system and think the Fed printed money. But no money gets out to the system because the commercial banking system completely broke down. So the reason we have a dollar shortage independent of the Federal Reserve’s action is simply because of what’s taking place in commercial banks.
And if the commercial banks are not willing to take risks and do things in their balance sheet, they’re constrained in some fashion. Usually it’s internal balance sheet constraints, usually, uh, modeled volatility, which kills balance sheets. When balance sheets aren’t expanding in the commercial system, money isn’t flowing. It’s really that simple. So the Fed has limited ability to try to manipulate commercial banks into doing things, which leads to the disconnect.
If you think the Fed prints money, then you see what you think is money printing, but you don’t see the results of the money printing. That’s basically what the entire 2010s was all about. You know, everybody thought that the Fed printed money, we’re going to get inflation, the dollar was going to go to zero, and then the opposite of both of those happened because commercial banks were constrained.
Monetary Metals
How important is this shadow banking or neo-banking system that’s emerging? You might hear, well, the Fed, they regulate banks, these banks tons of regulations on them, all these, you know, constraints from the federal government, the Federal Reserve. But what about these neobanks, these shadow banks? How important are they to the global economy?
Jeff Snider
They have become tremendously important. In fact, I was just talking about this earlier today. I know you wanted to ask about it. I mean, this is where the private credit bubble came from. Now, the shadow banks and private credit have been around for decades. This is nothing new.
But what happened is in the aftermath of 2008, as the regulated commercial banking system took a huge step, actually took 10 steps back, which led to the problems we just talked about here. The regular banking system stopped circulating credit to the parts of the economy where really needed it, right?
Where economic growth really comes from is from, you know, smaller and mid-sized firms that take risks and, you know, get loans and they expand their facilities and they grow and get bigger and bigger. That’s where economic growth comes from. But in the aftermath of 2008, the regular banks said, I don’t want to touch any of that stuff. Because I could end up being like Bear Stearns or Lehman Brothers. That’s a huge point. People, you know, Ben Bernanke, the Fed, everybody thinks Bear Stearns was a success story. It wasn’t. It was the moment when the system broke because the regular banks said, holy crap, I could have my equity wiped out.
I don’t care about the bank failing. Me, I’m an executive at a big bank. I could have my equity wiped out. I cannot have that happen ever again. Therefore, we’re going to completely change how we operate this regulated bank. This regulated bank is going to be like, you know, JPMorgan’s fortress balance sheet. If we’re going to lend, it’s only going to be to the most—to the least risky borrowers like the federal government.
Why do banks love US Treasuries? Because there’s no risk associated with them. So banks loaded up on Treasuries and left the real parts of the economy that needed credit completely starved of it. And so eventually, over time, some pioneering Wall Street people said, you know what, if the regulated banks are going to lend to this part of the economy, there’s opportunity there. There’s real, real opportunity there. Let’s start doing it.
So they didn’t create shadow banks. They didn’t create these private credit funds. They just took what was existing and adopted it to this, you know, direct lending, leveraged lending framework. So you saw the huge increase in leveraged loans, which is banks originating loans, then selling them off to these other investors.
And you saw the rise of direct lending itself, which is you set up an investment fund or what we really call a shadow bank, but it’s really an investment fund. And you borrow money or you get equity capital from all over Wall Street. You know, the regular banks who don’t want to lend themselves, they’ll lend to you because you’ve got the right pedigree, you’ve got the right name.
You’ve got the right attitude, you got the right, you know, whatever, you can get funds from the regular banks and then you relend into the real economy where the banks don’t want to go. And so like everything else in Wall Street, the shadow banks started out filling a need. They did exactly what we needed them to do. We needed them to go into this parts of the economy and supply credit. But like everything else in Wall Street, eventually they go way too far, right? Because that’s what they do.
They start out with a good thing, they bastardize the hell out of it and realize we can mass produce this stuff because nobody else is doing it. And so let’s do that. So even by the time we got to the end of the 2010s, the shadow banking private credit stuff got to be a little bit out of hand.
I think people started to hear about it in 2018 and 2019, especially where it came to leveraged loans and corporate credit like that. There was some noises going on and then COVID hit, the pandemic, the lockdowns, kind of that stuff got shoved aside and it was really ’21 and ’22 alongside commercial real estate. Private credit just went friggin crazy. They went nuts.
Everybody bought into the premise that the government had shut everything down. And when they opened everything back up, they not only had opened everything back up good, they opened everything back up even better than it was before. Everybody—a lot of—not everybody, but a lot of people bought into that myth that they had re-engineered the 2020s in a way that completely erased the legacy of the 2010s. And so you saw commercial real estate go crazy. You saw private credit go crazy.
So we took what was a good thing, filling a need, and turned it into just the latest Wall Street-fueled bubble. And that’s really where we are today is the shadow banks became a huge marginal provider of credit and then took it way too far. They went into, as Jeffrey Gundlach called it last fall, garbage lending and then some.
And that’s where these cockroaches have come from. And that’s where really the bust is. It’s, it’s a typical boom-bust cycle. You start with something good and just go way too far with it.
The Euro dollar system collapsed in 2008 and nobody fixed it
Monetary Metals
All right, let’s try this analogy of another boom-bust cycle. There was this Triffin’s dilemma. The US has their currency, but the rest of the globe maybe needs it in a different way than the domestic population. And so this euro-dollar system emerges. It’s great, it solves all these problems. Where are we in the boom-bust cycle of the euro-dollar system? Obviously there was the dollar system, then the euro-dollar system to fill these gaps that were needed globally. Where do we stand today on the boom-bust system of the euro-dollar?
Jeff Snider
The euro-dollar is long since busted. That’s what we’re really talking about. The 2008 crisis was basically the end, or at least what should have been the end. The Eurodollar did a lot of good along the way, but just like we said with the previous example of private credit shadow banking, it started out to fill a need and it did so reasonably well. I mean, it was the secret ingredient behind the prosperity of the 20th century.
It wasn’t the prosperity itself, but you can’t have prosperity, you know, we’ve got the innovation, you’ve got the productive technology, you’ve got all this, you know, labor markets opening up, capital opening up and all that stuff. It didn’t create the world, but it, it made it possible. So you had monetary flows and capital flows that unlocked all these beneficial factors that were available. And it led to widespread prosperity, the likes of which we’ve never seen before.
But like everything else, toward the end there, it got way out of hand. You know, we got into the housing bubble, we got into all sorts of credit bubbles around the rest of the world. In fact, you know, one bubble became another bubble, which became another bubble.
And eventually by 2007, it all fell apart. That’s the moment when we should have said, hey, this thing had its day, it had its time. We’re really done with that. Let’s move on to something else and move, you know, let’s move in a positive direction. That’s right around the time that we started talking about money for the first time.
I think most people just kind of set it aside because for 70 years, it looked like nobody cared. We didn’t need to care. We didn’t have any waves of bank failures. I mean, yes, there were bank failures that, I mean, even the S&L crisis in the 1980s seemed to prove that point. We had bank failures, but we didn’t have the massive deflation and depression that usually associated with bank failures.
And people didn’t connect those dots. It was really the Eurodollar framework that allowed us to withstand something like that. But when you got to 2008, instead of having that conversation, okay, hey, this Eurodollar thing, which nobody even was aware of at that point. There’s this euro-dollar thing. It’s gone as far as it can take us. It went too far. It really needs to be redone.
Let’s start redoing. But instead, what do we do? Well, Ben Bernanke said, well, well, let’s do QE. Just try to put the system back together using all of these inappropriate tools. So the euro-dollar is almost 2 decades past its useful life, which is why we’re stuck in the system, which has created, first of all, you know, regulated banks that don’t supply nearly enough credit to the world and nearly enough money flow to the world, which has choked off economic growth.
All over the planet. Not all at once. It’s not catastrophic. It doesn’t look like the 1930s, but it is every bit the sort of depressionary circumstances that you would associate with these factors or these periods. And we just talked about the main element of it, which is lack of credit flow. So the Eurodollar is 20 years or so past its useful life, and there’s really nothing else that is out there that can plausibly, to the same extent, to undertake the functions of a reserve currency that the Eurodollar system does. And I think that’s one of the biggest problems that people have, not really understanding what a reserve currency is and what it needs to do.
It’s a tenuous grasp. The only reason we’re still on a euro-dollar standard is because there’s nothing else. It doesn’t provide, you know, widespread benefits. That’s really the case. A reserve currency needs to allow for intermediation everywhere, which means the currency has to be available everywhere and it has to be acceptable everywhere.
So anything that’s going to replace the euro-dollar system needs to be equally acceptable across as much of the world as possible, or at least, you know, big chunks of it. Historically speaking, you know, there isn’t a single reserve currency. It’s usually regional blocs. But I mean, 21st century internationalized, globalized economy. There’s no reason we can’t have a single, single reserve currency, but it needs to be available everywhere and acceptable everywhere.
And so the part about being available everywhere is the part that people don’t really, uh, think about. And there’s a tremendous amount of infrastructure that has gone into it, not somebody putting together a blueprint design. It’s not like Bretton Woods where they came together with an imperfect solution to a, you know, big, the big problem, the Great Depression, World War II. It’s a bottom-up system that created all sorts flexibility and design and adaptability that can only come with a bottom-up system that was, you know, it was useful for all the, all these many years.
So to replace the currency system that we have now, to me, the analogy is it would be like starting from scratch with the internet. It would be recreating the entire network, the hardware, the software, the, the languages that are used, everything. Replace the Eurodollar reserve currency, it’d be similar to replacing the entire internet, which is why we’re stuck with the Eurodollar. Because there’s nothing that’s even close to doing something like that.
Can crypto or stablecoins replace the dollar?
Monetary Metals
Jeff, when I hear you talk about this, I think of the TINA argument—there is no alternative. Now, obviously, one answer is Tina is the answer. There is no alternative. We’ll just basically continue to do what we’re doing, even though it’s bad, it doesn’t work. Another answer could be, well, the crypto bros, we’re going to work on making a kind of alternative crypto system. We’ll use stablecoins to kind of bridge from one world to the other.
There’s real-world financial assets that are now being tokenized. That’s another potential bridge. But in some ways, the cryptoverse is kind of working on this plumbing. Where do you think we’re going to go? Are we going to try to to, you know, jump from a moving car to another moving car?
Are we going to stay on the euro-dollar system until something breaks? Where do you think we’re going in the future?
Jeff Snider
Yeah, I think the first part is true. Uh, what you just said, Ben, is absolutely true. We’re kind of stuck here, and it is a solution for the short run, which, although the short run has turned into two decades, however, it’s not a workable solution because whenever you have—the old saying I use is that when economic growth, the rate of change in the economy goes down, rate of change rate of change in politics goes up.
And the longer the rate of change in economy stays down, the faster the rate of change in politics becomes. In case you haven’t noticed, that’s kind of where we are in the 2020s. So in many ways, we can’t really stick with the Eurodollar system even though we’re, you know, nobody’s working on its replacement specifically. I mean, yes, some cryptocurrencies fancy themselves as the reserve currency of the future. We won’t name any names here.
The truth of the matter is cryptocurrencies, which should be the natural bridge to the next ledger ledger where the ledger is kept by, you know, banking, uh, banking cartel. There’s all sorts of negatives associated with that alone. Besides the fact that it doesn’t work the way that it did before 2007.
I mean, because the banking sector was the only way to create this global reserve ledger system, it allowed the global cartel of banks that operate it enormous political, financial, way too much power. You don’t want to have that kind of power in the hands of banks to begin with. Yes, it was necessary because they were the only industry available.
With the resources and the specialized expertise to pull off something like this. So yeah, they were good in the 1950s when we needed the solution to Triffin’s dilemma, which wasn’t really a dilemma ’cause they solved it. So yeah, we needed banks back then, but you know, we can move beyond banks. We have the technology in blockchain to operate ledgers.
What we lack is the expertise to scale them up to, to the size and scale that we need for a global reserve currency system, as well as make them robust enough that they can be used in a reserve currency currency fashion. So while there is some potential from cryptocurrencies and more, more so blockchain, it’s still way, way down the road. We’re several iterations away from actually undertaking and equaling the euro dollar’s capacity, let alone surpassing it.
So that’s potentially a future. And stablecoins are an extension of the current euro dollar framework because like you said, Ben, it’s probably the best way to put it. They’re tokenizing some real world assets and financial assets together. To put them into a ledger framework. But in many ways, that’s just kind of a half step into the future and it doesn’t necessarily represent a full step into the next stage of evolution, which I think we should be moving toward to begin with.
So in many ways, the cryptocurrency phenomenon is a response, even though a lot of cryptocurrency enthusiasts don’t know this, it was a response to the euro-dollar breakdown. I mean, they all think that they were, the Fed’s printing money, we need to protect the value of the dollar, protect the value of savings. Instead, what they created was another form of store of value financial asset. Asset instead of a workable currency system, which is what they were supposed to do. That’s where the cryptocurrency revolution really went. Even if people didn’t realize that’s what they were doing, they were trying to solve the Eurodollar problem without understanding the Eurodollar was the problem they were trying to solve.
And in many ways, that has hindered their evolution because they’ve been looking in unproductive directions. Like I said, Bitcoin, perfect example. Bitcoin, the white paper from Satoshi says a peer-to-peer payment system. It wasn’t supposed to be a NASDAQ stock, but it went over to become a NASDAQ stock because they were thinking they needed to protect everybody from the Fed’s money printing rather than trying to work out how to create a euro-dollar alternative, a useful, widely available, widely acceptable euro-dollar alternative.
And there’s arguments about whether or not they could ever do that with Bitcoin, but that’s a separate thing. So I think in many ways cryptocurrencies took a couple of unproductive directions and then stablecoins kind of brought it back toward, uh, the direction we need to, which is, you know, payment system. But still, like I said, couple of generations away before even coming close to challenging and recreating what the eurodollar actually does, even if it—even when it does it poorly.
Stock market at all-time highs while people can’t afford rent
Monetary Metals
So, Jeff, someone might be listening to this conversation and say, wow, this guy Jeff’s really smart, but I just don’t get how this matters to me. If the eurodollar system breaks down in Dubai or the rest of the world, how does that affect me? How should I position my portfolio for some eurodollar shortage or some dollar issue that I don’t really understand? It doesn’t affect my day-to-day life. What should I be doing to potentially, you know, guard my portfolio or guard my wealth from the things that Jeff’s saying?
Jeff Snider
Yeah. The first argument, the counterargument along those lines is look at the stock market, right? You said the economy has been in the toilet for 20 years. How’s the stock market at all-time highs, right? Where there seems to be a disconnect here. And the answer to that is the downside isn’t necessarily the stock market having a bad day or a bad month or a bad year.
The downside is the stock market continues to soar to new highs as the socialists take over in city after city after city, state after state after state. Because eventually what we’re talking about here at the end of the day is an economy that doesn’t function. And the reason why socialism has become popular is because the economy that we have today looks a lot like what Marx warned us about 150 years ago. It doesn’t function the way it should.
Therefore, it kind of makes a crazy man in Karl Marx looked like he knew what he’s talking about. And therefore you’ve got everybody on the other side saying, look at the stock market, look at how great everything is. This, this system works really well. And a lot of people, and there are way too many people who are struggling saying, what the hell are you talking about?
This economy sucks and it has sucked for a very long time. And here in the 2020s, it seemed to have somehow gotten even worse. We went from millennials living in their parents’ basement because there were no jobs to now those millennials living in their parents’ basement have zero hope, zero future. And they can’t even afford to live in the basement. So the downside here isn’t necessarily a portfolio or the stock market or assets.
The downside is much bigger than that. It’s structural, systemic. We are losing the system that we have because nobody’s making the argument that we can get out of the situation that we’re in. It’s a two-pronged problem here. The first problem is we don’t have nearly enough jobs because the economy has been stuck in a depressionary condition because the banking system won’t create credit, won’t create money, won’t circulate money.
Then for everybody turns into Rather than risk takers, which an economy needs, everybody just plays it safe except for the private credit people who just go off into a bubble situation. So it’s, none of it is productive. So we’re stuck in this unproductive loop year after year after year, decade after decade, which leads to economic decay.
And it’s worse around the rest of the world. Why did we have the great migrations in the 2010s? Yes, there were political developments that came along with it, but the reason why everybody wanted to move outta the Global South was because suddenly the future that they thought they were acquiring in the 1990s and the first half of the 2000s just simply disappeared.
Where did that go? It just, it’s gone. I mean, Brazil was doing well and some of these emerging markets were on their way and then it just kind of turned off. So the issues here are much bigger than strictly the stock market or portfolios, though. I mean, there are absolutely some, some spillover there in financial context, but I, the argument here is much bigger than that. It’s, it’s the systemic argument. It’s politics. And it goes beyond strictly financial markets and financial prices.
Monetary Metals
So Jeff, if someone’s listening to this, wouldn’t they say, well, wait a minute, if the situation is so bad and the US economy is so broken and then they face this kind of untenable system, shouldn’t bond vigilantes show up and say, hey, it’s time to make the US pay their fair share on these bonds? I don’t want 5% rates or 4% rates. I want junk bond rates because I’m lending to these guys who are completely profligate. They have no idea what they’re doing. They have a broken system, says Jeff Snyder. So why are we not seeing bond vigilantes?
Jeff Snider
Because everything you just cited is a reason to own safety. And unfortunately, the sad thing is, and this is one of the most perverse aspects of the system, we value safety in government bonds. We see safety in government bonds. And it’s not really because of the government’s fiscal situation. It’s really about liquidity.
It’s the fact that government bonds have historically the deepest market associated with them because bonds are treated as, you know, reserves for a whole bunch of reasons, whether they be statutory or just in practice. Government bonds have attained the status of being the safest part of it. And there’s, I mean, some, there’s legitimate arguments, right?
The Treasury market’s most liquid market out there. And, and the way the system works, heavily collateralized, it’s really about safety. So just like we saw in the 1930s, I think people missed this point too. All the arguments that were made to, that are being made today were absolutely made in the 1930s. In fact, Warren Buffett’s father made, you know, the same thing. You know, FDR is bankrupting the country with his New Deal spending, which, I mean, he did. Treasury market’s going to blow up because deficits—before we got to World War II, massive deficits that we’d never seen before.
The ’30s deficits were larger than the Civil War, World War I. We’d never seen any—anything like peacetime deficits like those. The federal government’s going broke. The country’s in the worst depression in its economic history. And what did everybody do with their money? They bought Treasury.
The yields on Treasuries kept going lower and lower and lower. Banks, financial counterparties, financial participants, nobody wanted to lend in the real economy. Just like in the 2010s, everybody wanted to own what is perceived of as safety. So that’s the, that’s the reason why we don’t see bond vigilantes today is because stuck in this depressionary circumstance, it’s depression economics.
Everybody wants to own safety. And the only people who don’t want to own safety just did a bunch of stupid garbage that blew up a huge bubble that’s about to blow up in our face. So it’s, it’s either one or the other, and neither of those are really productive uses, like I said. So bond vigilantism has been buried underneath depression economics ever since 2008.
In fact, those two things go together. It was one of the most toughest aspects of the 2008 crisis because you had, you know, under George Bush, his stupid TARP thing, who basically broke with all previous convention after the 1930s and said, gimme as much money as I could borrow, or it’s going to be the worst case scenario in human history.
He basically blackmailed the country. Give me TARP, gimme all the funds for TARP. And back at the time, you know, it was about $1 trillion. $1 trillion was like, holy crap, this is enormous. Today it’s a drop in the bucket. But that’s the reason why Bush said, gimme the money for unlimited money from TARP. A lot of people said, uh-oh, the treasury market’s gonna explode.
Dollar’s dead. And it was the opposite where we should have had bond vigilantism. You only had more and more demand for US treasuries, and then The saddest part of that, the politicians eventually figured this out. They had figured out not necessarily where this was coming from, but they figured out we have a blank check. We can borrow an unlimited amount and it doesn’t seem to matter.
There is no bond vigilantism. The reason we have deficits that are outta control is again, because of Depression economics. The politicians realize we can create deficits as, as far as the sky can see, and somewhere there’s demand for all of the debt that we raised in order to pay for that stuff. And that demand comes from the depression economics. So all the stuff you just said, Ben, are actually symptoms of the economy and the system that don’t work.
And it all goes back to the sad history of, of prioritizing and looking at government bonds as, as, as if they’re safe. And it’s really about liquidity more than safety. That’s really the, the original sin here. And because of that, we’re kind of stuck in this rut where the bigger government gets, the worse the problem it’s gonna be in the economy.
That’s a Japanese example. To a tee. The Japanese did more and more government finance spending. It didn’t get them anywhere. It just left them with huge amounts of debt. It didn’t blow up the yen. It didn’t blow up the currency, didn’t blow up the bond market. It just left the economy to suffer from—because for all the stuff that Keynes got wrong, he was right about that.
At the end of the day, when you get into these depressionary circumstances, deflationary circumstances, who really ends up paying for it? Well, the big guys that created the mess, they get bailed out. Who ends up paying for the crappy depression economy that comes afterward? It’s always the little guy. It’s always the worker. So the worse it gets for the workers, the more you know this is the reason why it’s there.
And that’s why we don’t have bond vigilantism. There’s a reason the politicians and governments go crazy. No politician anywhere is going to be able to sit back and say the economy sucks, which means I need to pull back. ‘Cause they’ll be immediately criticized for their austerity. Voting public will go nuts. Uh, there’s no political will to actually restrain governments, which would actually help the situation.
The Jeff Snider thesis explained
Monetary Metals
Let’s see if I can summarize the Jeff Snyder thesis, which is that, hey, this Eurodollar system it started to break down. And when it did break down in 2008, rather than saying, hey, there was all this malinvestment in this euro-dollar ecosystem, let’s flush out the system, let’s try again. It will be painful, but we’ll figure it out. We did the classic moral hazard, which is, hey, let’s bail everyone out, let’s make things super safe. Of course, the bond vigilantes died because, hey, we have this super safe asset, right?
We’ll continue to kick the economy along, but not really fix the problem. And now we’re in a world where, because the problem doesn’t feel like it’s fixed, there’s this K-shaped economy, this broken economy. People feel like, hey, we’ve got to do something to fix this. But that something continues to destroy or reiterate the problem that we’ve created before. Is that why, Jeff, you think we’ve seen gold prices continue to rise? People feel like, hey, I know something’s wrong.
I don’t understand a euro-dollar system. The guy Jeff’s way too smart for me, but I know there’s something about this economy that isn’t right and seeing the stock market at all-time highs doesn’t actually fill me with confidence.
It fills me with confusion. And so I want to buy an asset that I know is outside of this whole financial engineering system. So why you see gold prices rising in your view?
Jeff Snider
Yeah, Ben, I think that’s probably the best explanation I’ve ever heard for what’s going on with gold here. And you can see it started right at the end of the 2010s. You know, gold prices started to rise in 2018, 2019 when people started—you’re right.
They don’t know anything about the eurodollar system. They, they don’t—they couldn’t care less about it. And really, you can understand where that’s coming from. What they know is this isn’t working. This isn’t working. And it continues to go on longer and longer and longer. I don’t know what the real problem is, but I know this is whatever I keep hearing. It’s not it. T
he more they say the economy’s booming, the more they say the stock market is representing the booming economy, the more I know it’s, it’s just complete crap. And so what do I want to do? Where do I go to protect myself? Wealth. This is the reason why gold is, you know, the age-old, the rock that you want to depend upon in any big storm is because I think people are extrapolating ahead and reasonably so, and thinking, okay, the system doesn’t work. All the other financial assets are obscenely valued, or at least, you know, not anchored to anything.
If we keep going in this direction, and there is nothing to suggest that we won’t go in this direction, what’s that going to do? It’s going to eventually lead to what we should have done in 2008, but even more violent. Violent.
Like you said, Ben, 2008, we should have taken our medicine. It would have been bad. It would have been really bad. It would have been harmful and ugly and disastrous and all the—any bad words you can throw out there. It would have been a catastrophe, but it would have been much better to get it done in 2009 than to be talking about it in 2029.
Because in 2029, if we’d have to do that again and a solution doesn’t arise from the bottom up and just take over like the euro-dollar did in 1960, If this continues to go in the same direction, we don’t have a solution for it. It’ll be 10 times as messy because then we’re not just talking about some banks failing and some people losing their money. Then we’re talking about entire systems that are going to be redrawn and maybe redrawn by some people we don’t want to redraw the system.
So that’s where gold is coming from. Gold is like, hey, we don’t like where this is going and nothing suggests it’s going to change. We got to have something available that at least at least if it does get to be that bad, we have some stability that gets us the bridges to divide from A to B.
And when we see gold prices continue to rise, what that says is more and more people agree with you. You might have started out pretty lonely in 2018. You know, not many people were talking about gold then. It was pretty low. But nowadays it’s like, hey, everybody in China, the Chinese are saying the same. Why are they buying gold?
Because it keeps getting worse and worse and nobody provides any answer. Emerging markets, like I said before, it seems like in 2008 they just flipped off the, uh, positive future that everybody thought was coming. It—nothing has changed there. Gold is at the end of every one of these questions. If you don’t really know what the question is or what the answer is, that’s where gold comes from. And that’s exactly what the demand for it is.
And like I said, the higher gold goes, the more people agree with that.
Three paths forward: gold, sovereign wealth funds, or government control
Monetary Metals
I want to offer 3 potential pathways out. One, of course, is earning a yield on gold by financing gold production, this kind of real economy starting with gold, with gold on financial rails, gold token payment systems. There’s this kind of gold world and maybe, you know, crypto or other real-world assets. That’s one kind of option.
Option number 2 is that governments say, hey, listen, people are going to wise up and go, this is not good, we’re going to lose power. So Jeff Snyder, we are going to do a sovereign wealth fund. We’ll make sure that people people have a portion of this rising stock market. So rather than saying, hey, I can’t afford groceries, why do I care? The S&P 500 is at all-time highs. They’ll say, hey, it’s a good thing the S&P 500 is at all-time highs because I’m getting some money from that.
Will look a lot more like Dubai or Norway than the United States. Or option number 3 is that governments say, hey, listen, we’re here to fix the problem. We know these crises keep popping up and we’re going to do more government control.
Of these options, not only, you know, where do you see us going, but what do you think needs to happen for all these different worlds to actually appear?
Jeff Snider
Well, hopefully the last two of those don’t happen because the third one obviously is what we really want to avoid. And I don’t see the second one as too much different from the third one. ‘Cause if you give the US a sovereign wealth fund, it’ll give the US government way too much control. And for as many people who might be in favor of that idea today, just think about what it would’ve been 4 years ago.
How would that have been used 4 years ago? or 5 years ago during the COVID lockdowns, how much economic and financial power that would’ve left in the hands of the—that’s a frightful, frightful thought. What I hope and what I do think has a fair chance of succeeding is what you said in the first option, not necessarily strictly with a gold-backed currency, a modernized gold system, but a modernized gold system that competes with other forms of currency.
I don’t see any reason why we have to stick with one form of currency. I think you could have a government form of currency. You can have a gold form of currency. You could have a cryptocurrency. You could have a reserve cryptocurrency.
You could have a, you know, an algorithmic stablecoin that is backed by nothing. Let them all go out there and compete because the marketplace competition will sharpen everybody’s ideas and produce the best results. And the best results could be plural. It doesn’t necessarily have to be one or the other. So that’s not what the government’s going to say.
The government’s going to say, no, no, no, no, we, we got our, we’ve got our currency and that’s the one you got to use. News. But ultimately, I think this is one of the biggest points of the Eurodollar system as well as ledger money overall. The solution comes from the bottom up. It’s not dictated by government. Uh, the Eurodollar, by the time the governments figured out the Eurodollar was even there, it was almost 10 years into the thing. It’s actually probably closer to 15.
So by the time, you know, the BIS did its study in 1964 and said, hey, you know what, there’s this Eurodollar thing out there, it was, I mean, a decade old by that point. As long as government doesn’t get in the way and, uh, actively try to stifle innovation like it was doing a couple years ago, you know, cryptocurrencies digital currencies and gold for that matter, as long as governments don’t stay in the way, there is experimentation, innovation, as well as opportunity.
The opportunity to replace the reserve currency system is enormous. Think about that, what that would mean pioneering a currency that replaces what we have today across the entire planet. It would be absolutely enormous. So there’s a tremendous incentive to do it. So I think given the way history works, which is bottom up.
Eventually, once we get enough capacity and technology and expertise, there’s gotta be a level of talent expertise that goes along with it. Once you get enough of those, and you guys, by the way, are leading, definitely leading the edge as far as the gold part of that goes. That’s why I love working with Monetary Metals. You actually get it. It’s like, okay, we get it. So you get enough of these people together and I think the future looks like we’ve got a gold currency, we’ve got a cryptocurrency, we’ve got a, you know, unbacked and people just just whatever currency works best for them, they can use it.
And there are exchanges that allow you to seamlessly move from one to the other, because somebody’s figured that out. It’s not going to be perfect because no monetary system is perfect. Let’s face it, human beings are flawed.
And so every human system is always going to go through a boom-bust cycle. Pretty sure that’s the case. We’re never going to be able to regulate the boom-bust cycle away, but we shouldn’t—we should be able to recreate the prosperity that we enjoy between the end of World War II and 2007. That, you know, approximately 75-year period was enormously beneficial to human society, and there’s no reason we can’t do it again.
And if we do it right, it might be 100 years, it might be 150 years before we get to the end of the useful life. And I think doing it right really is allowing the bottom-up, uh, experimentation to yield the best ideas, test them in real-world circumstances so that they are legitimately robust by the time they’re they get ready for primetime.
Monetary Metals
So Jeff, would I put you in the—there is no alternative, but there are alternatives, and let’s let a thousand flowers from currency systems to payment rails, let those bloom, let the market kind of create this robustness. Hey, we have algorithmic coins, oops, those crashed. Or hey, we have this system of an exchange, oops, that’s hackable, right?
And over time, this decentralized system where people say, listen, I don’t know how money or currency works, but I I get 5% on this crypto, or oops, I put my money into a crypto that yielded 2,000% and it blew up. Over time, we’ll get more and more robust decentralized monetary alternatives. What do you think are the biggest risks to that not happening, or the biggest barriers facing those entrepreneurs today?
Jeff Snider
Uh, what you just said, Ben, because let’s face it, any disruptive technology—it doesn’t even have to be in the monetary context, anywhere—uh, inevitably will invite fraud and mistakes, right? So the biggest mistake is somebody, oh, I’m going to give you 2,000% on this cryptocurrency. I want you to use it. And it’s, it’s a fraud, right?
I mean, that’s a real risk and it’s a real danger because let’s face it, anything like this is going to invite all sorts of scams and frauds. And let’s face it, that’s, that’s a lot where the cryptocurrency space has gone in recent years. I think it’s cleaned up a bit in the last shakeout, but still there’s a lot of downside to that. People get burned too many times, they start to learn.
Again, that’s free market sense, competition, capitalism. That’s what it’s really about. Capitalism isn’t about money. Capitalism is about competition. It’s somebody who has a good idea and is able to take that idea as far as they can. In the monetary context, that means, okay, people get burned by the 2,000% interest, uh, coins that are just completely scams. They learn not to go to those.
They quickly learn which ones are legitimate. They go to the gold-backed one because, hell, that one seems to be pretty freaking dependable, right? Maybe there’s some downside to use that, but there’s a positive side to use the other one. So I’m going to own both forms of currency. I’ll use one for one thing. I’ll see. I think that’s the answer here because we don’t really know.
Nobody today can sit here and tell you what the, uh, reserve currency of the future or reserve currencies of the future really look like. I think that’s far enough into the future and far enough of away from where we are today that there’s probably some kind of invention that hasn’t been invented yet. And that doesn’t have to be a, a physical object that will unlock all of this potential. I mean, you look about the internet and e-commerce, what is it that made e-commerce into what actually, you know, the promises of the dot-com bubble, if you remember that you’re too young.
But if you remember the 1990s, e-commerce was everywhere. E-commerce, e-commerce, e-commerce. You could actually visibly see the potential there, but it didn’t really happen for another, you know, 15 years.
And what was it that unlocked that potential? It was a frigging smartphone. Nobody knew what a smartphone was in 1998, but it, it took a smartphone to finally unlock the potential in e-commerce. So I think we can see something similar in, you know, digital currencies and modern currencies where we don’t really know what it is that just kind of puts everything together.
What I think the positive thing here is that we’ve got people who are working on the various pieces, even if we don’t have the way to arrange them just yet. People are finally working on the pieces in such a way that you can start to see if they get arranged in exactly the right fashion, it does lead to the future. The problem with that is, as we said earlier, the clock is ticking.
The other side of that is we’re stuck in the system we have that seems to be unraveling more and more as we go along. So we We need the people over here who are smart and doing things to get their asses going because over here you’ve got the torches and pitchforks that are being lit up and readied for redrawing the system in ways that maybe we don’t want.
You can be optimistic about it, which I tend to be. I think we’ll solve the problems before we get to that part, but you also need to keep an eye on the other side of things.
Lightning round: dollar shortage, BRICS, silver, Fed rates
Monetary Metals
Jeff, I want to ask you now in a lightning round—you can answer as short or as fast as you want—some questions from all over the map. So first, I want to ask, when we see a dollar shortage, which country do you think is going to be most affected?
Jeff Snider
Oh, right now, I think if the energy shock continues to be the primary source of it, it’s going to be in Asia. Somebody in Asia. It could be the Philippines, because Philippines are really desperate for fuel, and therefore, uh, the two sides of it, both supply as well as demand. But, you know, I think the real downside case there, as I said before, is ’97-’98 for various, very different reasons than ’97-’98. ’97-’98 was all about real estate bubble and credit expansion. Now we’re talking about something different, but it’s similar type of circumstances. I think Asia under the energy shock scenario.
Monetary Metals
Next one for you. How important is the election of Kevin Warsh to the Fed? Is it overhyped or underhyped?
Jeff Snider
No, it’s completely irrelevant. To me, it’s totally irrelevant. Of it.
Monetary Metals
Okay. Next one for you. What about the Japanese yen, its strength compared to the dollar? Is this something people should be focusing on or is it also irrelevant or maybe unimportant?
Jeff Snider
The way you look at the yen is when the yen is falling, the yen falling is usually a negative signal on global economic prospects because that’s the eurodollar system demanding a higher premium on the Japanese. When the yen gets stronger, uh, not necessarily in a little bit at a time, a gentle, a gentle rebound in, in, uh, yen’s exchange value, but when the yen spikes, that’s a bad signal because what that says is the Japanese carry traders are reversing, which would be because of, you know, some negative phenomenon that’s taking place.
So you saw it in August of 2024, Japanese reacted to what actually ended up happening, which is job losses in the United States and the recession prospects that go up with it. The Japanese carry traders in August 2024 were basically warning us about the private credit bust. That’s what they were saying because the Japanese were the, they were the primary investors, not the primary, they were one of the biggest sources of funds for the private credit bubble. So what they said was, hey, US economy is taking a step for the worse. We’re, we’re in some of the riskiest corporate credit that everybody’s now talking about in 2026.
They started to pull back, and when they pulled back, that’s when the yen spiked, and it led to all sorts of disruption around the world. So the yen is—if it goes down, that’s not a good sign for just broader economic reasons. If the yen spikes, that’s the carry trade reversing, which is more financially focused.
Monetary Metals
Now I want to talk about these BRICS countries. Obviously, in the past people have said, oh, there will be this BRICS alliance of countries. Do you think that this BRICS alliance, this whole idea, is now basically dead after this war or this conflict in Iran? Or do you think that no, no, no, there’s actually something here to this BRICS alliance going forward because of a deglobalized or fracturing global order?
Jeff Snider
Well, to me, the BRICS alliance is more political than it is anything else. There’s—there will never be a BRICS currency or a BRICS currency bloc or even a BRICS trading bloc, as much as is, for example, India and China, which are basically the center of both.
As much as they’ve made nice recently, to me, they’re still more likely to be at war than they are to create some kind of common framework that’s something so important and substantial as monetary or even just bilateral trade. So you’re never going to have a true BRICS block. Instead, what it is, is I think this is what’s going to last for a long time is the BRICS is a political framework for the quote unquote Global South. To have a venue to challenge the G7 or the G20.
In other words, it’s, “Hey, we’re down here and we got the vast majority of the population on the planet. We’re impoverished. We need some kind of framework to be able to get attention and say, to maybe wield some political power if we possibly can, if we ever get some.” It’s more of a political animal than it is financial or monetary.
Monetary Metals
What about silver? So we’ve talked about gold today being this kind of safe haven asset where people are running to when they say, hmm, I’m just not so sure about the modern economy. But obviously silver in the past has been used as a smaller denomination payment. But in a world with tokenized gold, how important do you think silver is going to be going forward as a monetary medium as opposed to an industrial or commodity metal?
Jeff Snider
Well, there’ll always be that natural tension, especially since, you know, unlike, you know, the 19th century when silver was basically the primary monetary metal, at least for hand-to-hand commercial transactions among regular people, you know, low-value transactions.
Elections, uh, there wasn’t the same industrial usage, which means that, you know, silver could be just an alternative precious metal. Where nowadays, I think that natural tension actually creates problems to using silver more broadly as a, uh, strictly monetary format, because there’s always going to be demand from the industrial side. And I don’t think that’s going to lessen, I think it’s only going to increase. So I think over time, silver kind of disappears more and more from the monetary landscape. Not entirely, But I think it becomes more purely an industrial metal rather than a precious metal.
Monetary Metals
And what about other metals? Obviously, there’s other commodities like platinum, palladium. How important do you think those are going to be going forward, especially with things like tokenization? Do you think that we’re going to basically stick to gold as the main money metal and that these other metals will just begin to be commodities but maybe tokenized? Or do you think, hey, now with these new technologies, there’s a chance that these metals get a second look?
Jeff Snider
I think they get token—I think everything gets tokenized eventually, but it’s not that we’re going to have copper tokens, you know, a copper-backed currency. It’s more like, hey, we’ve got some physical copper that’s represented on the blockchain by a token, therefore it can be used as collateral to, um, borrow some gold-backed money, right? It’s—I think that’s where, where it really comes into it.
Commodities are, because of their industrial usages and, and the fact that they’re really cumbersome to try to use in any other kind of format, It’s useful as a short-run collateral in case you’re arranging some financing for the metal, but it’s not necessarily useful as a backing for a medium of exchange that’s a robust medium of exchange that does more than just limited use cases.
The yield curve isn’t broken, your definition of recession is
Monetary Metals
What do you think about the Fed funds rate? Do you think we’re going to be in a world where it remains elevated? Are we going back to a zero interest rate policy or ZIRP? What is the status of the Fed’s funds rates going forward? Is it going to be volatile? Are we are we stuck in a certain pattern? What do you think, Jeff?
Jeff Snider
Well, all the markets have been saying really consistently since 2021 is that rates eventually go back down to zero, low rates, whatever. I mean, not necessarily zero, but go—they go back down. Um, whether it be the swap market, just the yield curve, for example. The yield curve, when it inverted in March of 2022, what was that saying?
However high rates going to get in the short run, they’re going to eventually go lower in the longer term, which we’ve kind of gotten that way. Are you looking at where the 2-year was? The 2-year Treasury went all the way up to 5%. And it’s down a point and 140 basis points in there. It’s still got a long ways to go. Again, simple yield curve mechanics where the 10-year Treasury is today and where it wants to stay around 4%.
A normal yield curve is about, it’s really 250, 300 basis points steep. It was just used in 200 as a sort of back of the envelope guideline. If the 10-year Treasury goes no further lower than where it is today at, you know, 4.40, 4.30, that implies a short-term rate somewhere around 2.20, 2.30. So even the yield curve itself is saying rates have a long way to go lower.
And then you go beyond that. You look at interest rate swaps is a big one. Interest rate swaps have been saying, as I said throughout, especially over the last couple of years, that short-term rates, because they’re tied to SOFR, short-term SOFR rates are going to go down.
They’re going to go down a lot and they’re going to stay there a very long time. And so the interest rate swap market—and by the way, it’s the most important market in the world, is even more important than Treasuries. When the swap market says rates are short-term, rates are going to go down in the future and stay there for a long time, you need to say, okay, how the hell can that possibly happen? And in the years since 2022, when that really started, you can see how that can happen.
Because as we go further along, what we’ve been talking about more and more, we talk about an economy that’s generating unemployment. We’ve got private credit bubbles, we’ve got all sorts of problems, you know, an energy shock. Now, everything that has thrown up and happened along the way, is further proof of, or further establishing the path toward rates that end up going a lot lower.
We don’t know how they go there, what ultimately causes rates to go down, but right now there is no shortage of possibilities that lead to that, uh, lead in that direction.
Monetary Metals
What about this idea of, hey, the yield curve always predicts a recession, it’s this great recession indicator, and yet now we’re seeing that actually recession indications are actually at their lowest that they’ve ever been in terms of prediction markets, for example, betting that there won’t be a recession. What is the correlation, the relationship between the yield curve as a recession indicator? Do you think it’s broken? Do you think it’s misunderstood? What is that correlation?
Jeff Snider
It’s misunderstood because we have to define what we mean by recession. Most people define a recession as when the NBER gets together, you know, usually a year after recession ends and says, hey, guess what, there was a recession a year ago. Uh, so people think that a recession looks like, uh, what the NBER says it looks What the yield curve said, and all the yield curve ever says when it inverts, is that rates are going to go lower in the future. That’s all it says.
When the yield curve inverts, that tends to correspond with what people call a recession, which is a contraction in the real economy. So the yield curve, when it inverted in 2022, said rates are going to go lower in the future. It doesn’t say why, it just says that they’re going to. Now, I think we’ve been in a recession since 2022 because when you look at, for example, the labor statistics, we’ve lost jobs. Just look at the trend in the establishment survey. Nothing more than that. The establishment survey was going like this and then it just stopped growing and now it’s sideways to lower. And that started in 2023.
So the yield curve inverted in 2022, which said something bad is going to happen. Doesn’t need to be catastrophic. It doesn’t need to be 2009. But the economy, the markets, they’re going to be more volatile. They’re not—the economy is not going to function. And that’s what we see.
The labor market stopped growing at the very least, and now it has started to contract ever since really late 2024. The Japanese nailed that one. Since 2024, we started to see job losses accumulate. Now, people can come up with all sorts of explanations why that is, but it’s consistent with the yield curve warning something is going to happen.
Accumulation of events are going to happen that are going to lead to interest rates going lower. So the yield curve didn’t get it wrong on recession. It’s people’s definitions of recession that don’t fit what the yield curve was describing in 2022. We don’t care. The market doesn’t care about the NBER. The market cares about the circumstances in the real economy. Economy.
The one question every guest should be asked
Monetary Metals
Jeff, as we wrap up here, I want to ask you a question I ask all future guests, which is, what’s a question I should be asking all future guests of the Gold Exchange Podcast going forward?
Jeff Snider
How do we replace the euro dollar? What is it we need to do here? What do—what are we missing here? Uh, because again, you know, like you said before, Ben, it’s, it’s not something that comes up in people’s consciousness. In fact, most people, the vast majority of the public, has never heard the term euro dollar. And by the way, that’s by design. The Fed doesn’t want to talk about it. The Treasury Department, the government doesn’t want to.
They want you to believe the dollar is the dollar and they control the dollar. So they’re not going to say, oh, by the way, for the last 75 years we’ve been operating a currency system that’s, that’s run by the banking cartel. That’s not even American banks, by the way. We call it dollars, but it actually isn’t. So the first thing is, hey, be aware of the Eurodollar, but also understand that there’s nothing in your life that isn’t affected by the Eurodollar function.
Whether it be the go—the good stuff, you know, if you’re young, like if you’re old enough like me, you remember the transition from the, you know, the analog age of the 1970s and ’80s to the modern digital age that was made possible by this legitimate economic expansion.
When we graduated children, uh, from college, they actually had a legitimate future instead of today where they’re like, hey, I graduate from college and I get, look, the first, the only thing I have to look forward to is paying off my student loans. That’s Eurodollar breakdown, depression economics. So the thing we need to be working on and worried about here is is fixing the reserve currency issue to go back to a situation where we can start to take advantage of—there are a lot of positives.
There’s a lot of innovation. There’s a lot of technology. There’s a lot of good ingredients that are just sitting there unused, idle, because we don’t have the right format for them to be taken advantage of. So the Eurodollar, that’s the question. How do we get the hell out of this mess and how do we fix that situation?
Monetary Metals
Well, for those looking to get out of the Eurodollar system, maybe join a gold ecosystem, they can check out monetary-metals.com. Jeff, I’m sure our audience, as always, is going to love this conversation, but where can they find more Jeff Snyder?
Jeff Snider
On YouTube, Eurodollar University, or just anywhere Eurodollar University.
Monetary Metals
Jeff, as always, it’s been fascinating getting to interview you. We’ll have to have you back on again soon.
Jeff Snider
Oh, my pleasure, Ben. Thanks for having me.