so the dollar is exploding higher is the milkshake Theory playing out what is the milkshake theory for those listening that don't know based on the design of the monetary system for better or worse the US dollar is the global Reserve currency and that's what the entire Global monetary system is levered off of so when things go bad that becomes the currency or the the the safety Haven that everybody flows to whether they like it or not and so that's kind of what's happened I mean the dollar has gotten stronger for a couple reasons one because
there has been a global slowdown overseas and other places but also people want to invest in the United States because it's the one area that's really growing well we've got the technology they the we we've got the the rule of law for a number of reasons the United States is seen as the safe haven for everybody else around the world in addition to that a lot of times people think of you know the Cayman Islands or gery or Singapore as tax Havens well for the rest of the world the United States is the tax Haven
so every wealthy family every wealthy business own owner anywhere in the world tries to get assets into the United States because for them it's a tax Haven you know but if you're going to invest in United States you need dollars you can't send Yen to the United States and go buy an apartment building you know you need dollars to do it so that Capital flowing into the United States makes the dollar stronger as the dollar gets stronger it puts pressure on the rest of the world let me kind of so let me ask a question
about that so you know you say that the dollar like say China owes us a billion dollars just to keep it easy how does the Dollar strengthening make them owe us more so one correction they don't owe it to the United States they owe it to each other okay so in other words China maybe issued a bond denominated in dollars but the the purchaser of that Bond could be from Australia could be from Japan could be from Germany they don't necessarily owe it to the United States they just owe it in dollars got it so
as an example if if but now to your point they ow they owe a billion dollars if their economy slows or if they're not able to get as many dollars and their currency Falls versus the US dollar it's harder for them to get the dollars to service the debt I see because they're having to exchange their currency for US dollars to then pay it to service the debt if the yuan's at s and a half when they borrow and then it goes to eight and a half now they they've lost 10% you know and so
so it's almost like the the amount that they borrowed went up 10% so I had a couple questions so the dxy is almost at 110 yeah it's like a almost a it's a 13ear high right it went to like 113 114 for a couple days two years ago but in general it's kind of back at its 30-year High yeah essentially when the dollar gets strong other economies get weaker the ones with their currency is that right that's right that's right and this has always been my fear a lot of people think that I want the
dollar to go higher and my point has always been I don't necessarily want it to go higher I just think it's going to go higher it and it causes a lot of problems and then many ways the question becomes does the Dollar go higher is that what causes the problem or does it go higher in response to the problems and and I don't really know which one causes the other I just know that the correlation is almost 100% because there's a lot of chatter out there that says print print print print print and it's going
to make the dollar weaker right and that's what a lot of investment people kind of hang their head on right that is not playing out not exactly it it is to some extent and another sense and I'll tell you what I mean because there is some Nuance involved I've always said that the dollar may lose purchasing power against Real things gold real estate diamonds you know whatever it is you know uh wheat you know so Comm it could lose its purchasing power versus Commodities and I think over time history has shown that fiat currency does
lose value but the people that are always talking about the dollar is going to get inflated away and it's going to lose Global Reserve currency status and as a result the United States is going to lose its position in the world and the rest of the world's going to rise that's not accurate uh because all the other countries have Fiat currencies as well the difference is and they're all having them to print their currencies yeah I've heard you call it Fiat versus Fiat Fiat versus Fiat and so and this is really important and some people
will say okay if all Fiat loses value versus real things then Fiat versus Fiat doesn't really matter that's completely wrong and I'll tell you why because every financial crisis of the last 30 years 40 years 50 years has probably had some component of Fiat versus Fiat Rising versus the other whether it's a so I'll just give you an example in you know the 199 early 1990s Mexico borrowed a lot in dollars and then their economy slowed people stopped investing in in Mexico and they couldn't service the dollar debt and they called it the tequila crisis
I don't know if you remember that Fiat versus Fiat does matter um but the reason the US has been able to get away with Printing and printing and printing and the dollar hasn't or the dxy hasn't fallen versus other currencies is because there's so much demand for the dollar outside the United States in other words there's more demand for the dollar outside the United States than there is inside the United States but that doesn't exist for any other currency but the reason for that though is because their currency is unstable so they're trying to be
in the dollar because it's more stable typically that that that that's absolutely right and then also it kind of goes back to the 1970s when you know the United States and Saudi Arabia get this it wasn't an official treaty or anything but you know they the US said you know we'll keep you in power we'll protect you we'll help you develop Saudi Arabia um this will be good for you it'll be good for your people in exchange you agree only to sell oil in dollars right Petro dollars and so every economy needs energy to run
on and so every economy in the world needs oil and so therefore every economy in the world needs dollars kind of the standard then more transactions were done outside the United States but denominated in dollars because it was the easiest currency to transact in if you think of each country like a swimming pool and it's filled with water and then they print more money that's like putting more water into the swimming pool eventually it's going to flow over and run out on the grass and into the streets that's inflation right that's when the purchasing power
is falling the problem when people say they're going to print money and that's going to happen it's not that they're incorrect it's just that what they forget or what they don't know is that the United there's a drain on the bottom of the swimming pool of the United States that drains out into the rest of the world and goes to all the other swimming pools all those other swimming pools they don't have a drain that stays in their country yeah and so the US dollar goes out and and then they print their own currencies and
they overflow those other countries get higher rates of inflation than the United States does because they don't have a drain so are you saying that the inflation primarily in these other countries is caused from too many dollars it can be and in some cases it is yes a lot of times when people talk about the system the design of the system that it's an exorbitant privilege for the United States it's because we can export our inflation because we can send the excess dollars outside the United States and it causes inflation to flare up overseas in
these other countries rather than domestically and it causes that because like say you know in China people are getting dollars they have more purchasing power in China and that's why it causes that inflation well a lot of times when when Capital flows overseas a lot of times it'll go to the central bank okay and then the central bank will exchange the dollars that have arrived in the central bank for local currency I see so that local currency in that market increases that's what and then it loses value and they get inflation so this sounds like
it's really good for the dollar to the person listening but you make the argument that this is actually inevitably bad for the dollar so can you explain that well in the short term it's good right and and look at what's happened in the United States in the last couple years the the stock market has gone through the roof you know asset prices have gone higher and that that's coincided with the dollar being higher as well because the rest of the world wants to send their money into the United States on some levels that's a good
thing it's good for us right now and it's good for people who have assets it's not necessarily good for lower e economic uh Stratus right um because the wealth inequality is is expanding all things being equal you would rather have Capital flowing into your country than leaving it's like a company do do you want to only be sending money away you want money to come in as well right so you it it's good in on a relative basis but if if it gets too strong if the dollar gets too strong it will cause an international
crisis and then that some of that blowback will happen on the United States as well so I remember obviously I've been in the real estate game a long time and whenever our dollar gets really strong we get a lot of foreign investment yeah and over the years we've I've seen tremendous amount of foreign investment and it does appear because obviously they're in their own currencies and they're like I want to put my money where the Curren you where the asset prices and the currency is strong so um is that where you kind of see uh
you think real estate's going to get pushed up even higher potentially this is one of the question questions I have for you actually I actually do but but the the point you're making is is is something that I've tried to explain to people as well is if you're a wealthy investor outside the United States and you have some excess Capital to spend the United States in many ways is a no-brainer to do it um so as an example if they buy a building or a house or I know a stadium or whatever they invest in
the United States and over the next 5 or 10 years that asset prices rise but also over that five or 10 years the dollar Rises 10 or 15% versus their local currency yeah they're getting a turbo charge on their local dollars right and so also not even just real estate if you let's say you live in Brazil and you've got an extra million dollars and you send it to your brokerage account in the United States and you buy T bills with it and the T Bill pays you 5% but the real loses 5% that year
you just made 10% for sitting in Cash correct so so before we jump right over that point I I think that's a huge Point what you're saying is if you're sitting in Brazil with a million bucks and you just all you do is move it to the US to and it's in a it's a in a t- bill making 4% and at the same time your your your currency in Brazil loses four or five% you've actually made eight 8 to 10% yeah that's right and when I I was just in uh meding last week with
George friend George gamon and he he had some people from around the world there and there was a there was a guy from Australia and he was in the real estate business in Melbourne and he told me that's EX exactly what he's doing he buys tea bills sits there and and the Australian dollar lost five or 6% so he he he says I'm making 10% for sitting in cash so this is not just me just making this up like this is real world people doing this so this this is precisely what you mean by the
strength of the US dollar because what what will happen is foreign Capital will come into the us and it potentially could drive asset prices higher yes and I think ultimately that's the the milk what I always said when when I when I first laid it out was that the milkshake it has a a number of different components to it number one when I first started talking about this interest rates were near zero and in some parts of the world they were negative and I said in the years ahead interest rates will rise and as interest
rates rise especially in United States that will pull Capital into the United States because people are are ready want to invest in the United States anyway now if they can get paid 4% for sitting in a t- bill it'll turbocharge that but what I also said is a lot of times when interest rates go up that crushes the economy because the borrowing costs are higher it slows things down economically and you'll get a recession but the point I made was that I thought because all the capital would be coming in the United States it would
go into asset prices so I thought real estate would do okay I'm not a real estate expert but I thought real estate would do okay I thought US Stocks would go much higher bond prices would fall because as interest rates go up bond prices fall ultimately something will happen and I'm not smart of enough know whether they will reset it themsel or whether there'll be some kind of a crash that you know brings asset prices down and then they'll have to reset it because that's what they did in 1985 they had this Plaza cord where
the dollar was at its high and they reset it they they over the next couple years it went from I think 150 to 100 or something so it devalued by like 30% over the next two or three years all these other countries they transact amongst themselves in dollars it is the world the official world currency right Y in their own countries they use their domestic currency but amongst them themselves they use dollars the way they get dollars there's two ways they get dollars they either trade the dollars they already have amongst them themselves or they
loan new dollars into existence turkey extends a dollar loan to someone in Egypt or Japan extends a dollar-based credit to A supplier in the Philippines in a way that's creating dollars out of thin air that's fine as long as the economy keeps spinning but when people stop spending and the economy comes to a standstill all that debt needs to be serviced there are no dollars to service the debt that's when you start getting defaults and when you start getting defaults you get a credit contraction which is the opposite of loaning new money into existence the
other way that they can get dollars is if you come bring the us back into it the US buys goods from all over the world so we ex you know we they import to the United States we export our dollars so we send dollars overseas that's where they get it from well guess who's president now tariffs will reduce the flow of dollars to the to the periphery okay explain what a tariff is real quick because basically we're making it because one of the things Trump wants is manufacturing right and higher a stronger dollar does not
help manufacturing because what it does is it incentivizes people to buy stuff from outside of the country that's right right so I think there's two parts of this I think he he doesn't mind having a strong dollar but I don't think he wants a super strong dollar at least not once we have the manufacturing rebuilt but but here's the interesting thing we don't have a lot of manufacturing right now we have some but he wants to have a lot more for our manufacturing to compete globally you kind of have to put some of the them
out of business y right with tariffs so one of the ways you can do it is with tariffs another way is you can do it with a strong dollar so my point is is once you start exporting you want a weaker dollar but in the meantime while you're rebuilding you don't necessarily want a a weak dollar that's an interesting point you know because you want to keep your opponents Under Pressure so they would need something like if they were going to move away from the dollar or to convert this essentially everyone would need something that
everyone agreed upon and you have options like cryptocurrency like bricks you know different things right that are kind of trying to those options well but I'm but they're trying to be they're trying to replace absolutely and and the thing is is that if everyone can agree on which one that is then possibly they they could go to that route so this is I'm actually glad you brought this up because that's a very astute observation and you're absolutely right the trick is getting everybody to agree so if everybody agreed this is what we're going to and
they did it on the exact same date at at the exact same time and they already agreed who's going to distribute it who's going to enforce it who's going to you know how it's going to operate then it could potentially work the problem is I don't know if you've ever been in a meeting with more than three or four people right right getting everybody to agree right plus you know what if everyone what if everyone decides hey we're going to use bricks but then bricks the value plummets or you know to your point like like
if you go first and then the value plummets and then somebody else is going 6 months later and at the end of day countries part of the reason country want to get away from the dollar is they want to be in control MH so now the idea that they're going to go to some other thing but they're still not going to be in control why go through all the pain and suffering if you're still not going to be in control right because you know say it's bricks well then all of a sudden they're printing or
or whatever and and crypto would be a problem too because there's as of now there's only a certain amount of them right like there's only a certain amount of Bitcoin and the whole the whole thing that makes Bitcoin work is there's only a certain amount so if they say okay well we're just going to extend it so everybody can get their loans in Bitcoin that would defeat the purpose of Bitcoin right it could it could but then the other thing is in many ways I'm kind of a hard money Advocate I wouldn't say I'm an
advocate but I I'm very sympathetic to the whole hard money and Bitcoin is hard money technically technically is hard money but the problem is is that doesn't have to but it can inhibit growth and the example I'll give is and it's not always just a lot of times fiat currency will say well fiat currency is for the wealthy who have assets the the the lay person doesn't benefit from Fiat out currency well there's actually a very good example that that disproves that and that is back in the I think it was early 1900s when a
lot of farms were going bankrupt because there was not Capital being extended and Farmers would have to turn in their Farm to the bank the bank was foreclosing and the reason they were foreclosing is they couldn't get any loans and the reason they weren't getting any loans is because we were on a gold standard and capital gold wasn't you know expanding and so they weren't expanding the the the money and there was a famous Cross of gold speech by a congressman William Jennings bran where he says you will not you know crucify mankind of on
a cross of gold and he was his argument was that you need to get us off this gold standard that this was a struggle between the idle holders of idle capital and the struggling masses who produced the wealth and pay the taxes of the country you shall not crucify mankind up on a cost of gold and you need to extend some credit these Farms are not bad Farms they're just in a liquidity crisis right now if you could extend them credit for a year two years three years they could get back on so the point
is is while there's a lot of problems with fiat currency and there's a lot of you know ills that kind of flow Downstream from that it's not 100% given that going that going to a restriction of credit is necessarily going to solve all these problems right because the countries need the money and they need to extend the credit and they need to print thanks for being here man thanks for being in Arizona cool if you want an in-depth understanding of multif family investing in just 40 minutes this next video is for you my partner and
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