The Dollar Reset Just Started…And It Could Break Everything w/Brent Johnson

**George Gammon** (0:00)
Hello, fellow Rebel Capitalists, I'm back with my good buddy Brent Johnson. Why? Well, a lot of reasons. But number one, the DXY is up over 100, up over 101 Looks like it might be going over 102
What's going on with the dollar, buddy?

**Brent Johnson** (0:16)
Well, that's not supposed to be happening, is it, George? Isn't it?
I thought it was going into the 80s and then the 70s. Somebody told me that.

**George Gammon** (0:23)
I know. The dollar is going to crash. It's going to crash, Brent.
It's just it's right around the corner. It's been right around the corner for 40 years, but it's going to happen tomorrow. What we're seeing is just, how could I steel man the argument? I would say that what you're seeing as far as strength in the dollar versus other currencies is simply the dollar being oversold for so long, and there's so many short sellers, and maybe what we're seeing is a short squeeze.

**Brent Johnson** (0:48)
Well, and I think a lot of people are saying that it's based on one press conference that Warsh gave, and everybody now thinks he's going to raise rates, and so it's getting to short-term bid because the higher rates make the dollar more attractive.

**George Gammon** (1:01)
But that doesn't make... Okay, so that's a nothing burger, and I'll tell you why.
Because first of all, the two-year treasury is down like five or six basis points today. And if you look at the CME, the odds in the last couple days when the dollar has just gone straight up, the odds of a Fed rate hike have decreased. They haven't increased.

**Brent Johnson** (1:18)
Yeah. Yeah.
Yeah, I'm just telling you what people tell me, why the dollar is only gonna be up for a couple of days.
I mean, I will say this. It is getting into overbought territory. It's probably due for a pause. A lot of the other currencies, they're very weak. Markets don't go in a straight line. But the reality is that the whole world is short dollars. By design, it's a dollar-based system. Dollars get loaned into existence. And so by definition, the world is short dollars. And whenever- Well, you mean short.

**George Gammon** (1:50)
That could mean two different things. So explain that a little further. You mean, they don't have enough dollars, or they're betting that the dollar is going to go down in value, or I guess are those things one and the same?

**Brent Johnson** (2:02)
Well, they could be one and the same, but there could be a tactical short, which just means from a trading perspective, people are long the dollar or short the dollar. But from a systematic perspective, from a mechanical perspective, dollars get loaned into existence, either in the domestic US dollar market or in the Euro dollar market. And so by definition, whoever borrowed those dollars is taking a short position against the dollar and a long position in whatever asset they are going and deploying it into.
But those, all of that money, this is the thing that people have to get their heads around. Dollar supply is also dollar debt. It's also dollar demand, with the exception of the monetary base because everything is loaned into existence. So in the short term, it provides liquidity, but in the medium to long term, it creates demand. And so that's what I mean by the whole world is short dollars. The design of the system makes it so.
You can't have investments if you're not short dollars. I mean, that's right. And just the hope is that the assets go up more than the dollar does. And as long as that happens, the system works. And when that stops happening, the system breaks down. And we're, you know, we're probably, that's kind of where we're at right now. We're probably seeing a little bit of a short squeeze of the dollar because everybody's short. Many people thought it was going to fall into the low 90s because Trump was going to crush it, or the new Fed chair was going to cut rates, or whatever the narrative was. And it just hasn't happened. And the reason is because demand is outstripping supply right now.

**George Gammon** (3:36)
There's a couple other components, though, that I'd like you to touch on, because you're talking about borrowing, lending them into existence, and then the asset. But you've also got a cash flow component there. So, if I'm Toyota, and I need my inputs, steel is an example, let's say that's denominated in dollars, then I need dollar cash flow in order, so it's not just the asset going up or down in price, but it's also the dollar cash flow that I have going up or down. So, if the global economy slows down, not only are there fewer dollars that are being lent into existence, so it exacerbates the problem that you're talking about, but then what happens is the dollar cash flow goes down because I'm selling fewer Toyotas to the United States. If I'm selling fewer Toyotas, I have less dollars to buy the dollar-denominated inputs that I have, and my only option there is to sell the yen.