This Is Zoltan Pozsar's Vision For Bretton Woods III

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, you're in Vegas, right?

Joe Weisenthal (0:20)

I am. I decided to take a little break from life and be in the desert for a couple of days in the place of poker. So it's pretty nice out here.

Tracy Alloway (0:27)

Commuting in the desert.

Joe Weisenthal (0:29)

So if I sound a little weird, it's because I'm not in the studio with you.

Tracy Alloway (0:33)

Do you know, this is kind of weird, but whenever I think of poker nowadays and poker chips, I always think, this is probably just me, but I always think of Zoltan Pozsar's analogy of how reserves are kind of like poker chips. Do you remember that?

Joe Weisenthal (0:48)

We have lots of different kinds of monies in the existing system, and they might even have the same name, like dollars, dollars, dollars, but a lot of them are sort of like all pegged to each other one-to-one. Cash, money in your bank account, bank account money held at the Federal Reserve, not that dissimilar from dollar poker chips in a casino.

Tracy Alloway (1:07)

Right, but this is something that's been coming up in various ways on recent episodes of Odd Lots, this idea that you do have different types of money, and at any one point of time, there could be changes in how the world thinks of that money or how it uses it. And you know, for years and years, we've had the Eurodollar system, basically these synthetic dollars that are sort of sloshing around in the global financial system. We've had reserves courtesy of the central banks and quantitative easing and things like that.

And now I hesitate to use the term inflection point, but once again, it feels like as central banks begin to tighten, as we see this big question mark over the role of the dollar given the sanctions against Russia, it feels like this question of what is money, what could a new monetary system actually look like is coming again to the fore.

Joe Weisenthal (2:01)

Yeah, exactly right. And then the other element that's extremely big right now is, and the Russian sanctions were part of this, but it's clear that like FX reserves aren't enough security, especially in a world of commodity disruption, supply chain breakdowns, things like that. It's great to have money. It's great to have foreign currencies, particularly if you're a vulnerable emerging market and so forth. But hey, as Russia has discovered, you could lose access to your FX reserves.

But more importantly, and Afghanistan, that's right. But more importantly, even if you have ample reserves, you also need food, you also need wheat, you also need natural gas. If you're in Canada, maybe you need a maple syrup stockpile. In the US, of course, we just saw the announced release of some of the SPR oil.

These are also very important. So we're also in a regime in which physical things really matter again big time.

Tracy Alloway (2:55)

Right, and there's not necessarily a guarantee that the financialized commodities are going to be, I guess, redeemable one for one against the physical commodities. It feels like that's what we're learning right now.

Well, whenever we're talking about big money ideas, there is, of course, one person who we turn to, and I already mentioned his name, but we are going to be speaking once again to Zoltan Pozsar. He's a strategist at Credit Suisse, multi-time Odd Lots guest at this point, and he's been writing about these themes, including an earlier note a few weeks ago talking about the threat to the dollar's dominance, and he's back to go into further detail about how he sees a new monetary system actually evolving.

Joe Weisenthal (3:41)

I feel like after we did that last episode with him a few weeks ago, bam, everyone wanted to like, okay, the dollar system is in trouble.

Yeah, but what's next? And then he published what's next, and now he's gonna talk to us about what's next. But we're having a fast turnaround because there's so much demand for like, the next chapter of this story.

Tracy Alloway (3:58)

It's the natural cycle. Zoltan writes something, and then he comes on Odd Lots to talk about it. So Zoltan, thank you so much for coming back on the show.

Zoltan Pozsar (4:06)

Very nice to be back.

Tracy Alloway (4:07)

Instead of looking forwards, why don't we begin by looking backwards? And why don't you give us your overview of what the existing monetary system actually looks like? Cause I think that's gonna help us frame your vision of the future.