Will the U.S. Dollar Weather the Storm? (w/ Raoul Pal & Hugh Hendry)
HUGH HENDRY: The linkages and the causality haven't happened and we know it's been replaced, God forbid, but we live in a world just now where the dominant ideology is, what is it called? Modern monetary theory, is it MMT, or is it sometimes called? Because it's so-- I'm a little bit out of it, does the MMT or what have you. I keep calling it PMT, but I'm thinking of something else. I want to say, because you're saying the solvency event. It's not right. It's not proper that you can just spend your way out of the crisis like we did out of Lehman from 2000. It's just not right. RAOUL PAL: No, I don't argue that at all. Because I actually do think MMT is much like the new deal was, I think it's doable but what happens to the currency markets and the price of gold in that, okay, that's great. That's a great macro equation for us to all play. Can a massive fiscal stimulus that actually rebuilds and does create some productive use of assets, new assets, let's say? Yeah, I think that could work. What I'm saying is paying somebody 20% less than their income to give them a subsidence living destroys cash flow for companies that are already in debt. My fear is that playing out with a very little time, basically, everyone blew through all of our savings in one month, including every small business. HUGH HENDRY: Take me to the edge, push me over the edge because you said solvency, describe the solvency issue that says I'm coming in and I'm cleaning the shithouse. How does it end? Because I don't see-- I'm not smart enough yet. I'm listening. RAOUL PAL: The solvency event for me is-- I used the restaurant because it's the easiest one for us all to understand, because we go into them all the time. If you go to China right now, or Singapore, there's social distancing in restaurants. They've reopened, hurrah, equity market rallies. There's been some subsidies for people to keep them afloat. Most of that is in the form of new debt. There is some cash and out. You open your restaurants and here, the magic happens is you can only have half or less the number of customers. The moment you open your doors, you have to pay staff. The moment you open your doors, you stop puking money. If you furlough your staff, and negotiate with your landlord to not pay rent, you can hold in the deep freeze for a period of time. You reopen, you're fucked in a couple of months. That has a knock on effect. Everybody gets tipped out of jobs because you're going to downsize the number of restaurants. That's okay. That's how the cycle works. The problem is that happens at scale because of the unemployment and you've got unemployment benefit of which people are starting to save, I think you'll likely see the saving rate rise because of the issues that the behavioral and emotional issues people have faced from this, they're not going to go back and open the bullions. HUGH HENDRY: I don't think they will not have the means to save. They won't be earning enough to save. RAOUL PAL: Okay, fine, fair enough, but the chances of consumption going back to the same level is unlikely for an extended period. HUGH HENDRY: Okay, but then can I say to you, okay, I truly get that. I can see that happening. Yeah, I'm like the new Chancellor of the Exchequer, disguising crud in the UK. He's like, what's the problem? No problem. I was just fed. Like, how much do you need? No problem. This guy's the most popular politician ever. He looks really nice. He always smiles. What's the problem? No problem. Okay, so I'm going to roleplay that, and you just leave me, my smile. Oh, my God. Oh, my God. I'm back being-- what's he called, the UK Chancellor? You name it. I don't know. Sunny, he had sunny disposition, he says, okay, the problem here is you open, and you hemorrhage. Don't open, just furlough. Then you say, yeah, but like okay, so these are [?] say we're talking about the restaurant and the more skilled elements of that, and they sit there on unemployment or Universal Credit. That's all problem solving. I see the problem with that scenario, Universal Credit is too low. I'm going to double it. Okay, what's your problem now? Okay, so you said, well, how are you going to fund that? No problem. Are you serious? I'm sovereign. UK, my government debt to GDP is 100. I look at Japan. Those crazy guys are like, what are they? They're like 220.